Legislation Could Speed Sale of Public Water Facilities to Private Companies

Tom Johnson | October 14, 2014 | Energy & Environment
Ratepayer Counsel, environmentalists argue legislation could drive up prices for consumers

State Sen. Paul Sarlo (D-Bergen)
The state may allow distressed water-supply facilities and wastewater treatment plants owned by municipalities to be more rapidly sold or leased to private entities, a proposal consumer advocates fear could spike bills for customers.

The bill (S-2412) sailed quickly through the Senate Budget and Appropriations Committee last week with little debate and appears to be on the fast track for approval by the Legislature.

Lawmakers aim to address a growing problem for towns that own these systems. They are unable to afford the capital investments to maintain the facilities and also face increased costs brought by the havoc created by Hurricane Sandy and other extreme weather.

“Too many small municipalities don’t have the resources to invest in their water infrastructure systems,’’ said Sen. Paul Sarlo (D-Bergen) the bill’s sponsor and the chairman of the committee. Too many of those systems have been neglected for the type of upgrades they require, he said.

The bill, as currently drafted, would only allow greater flexibility in the case of certain emergent conditions, such as the system suffering damages to its infrastructure from storms and the public owner lacking the capacity to repair the damages.

“It provides an option that is not available today to governing bodies to deal with emergent water and wastewater issues,’’ said Somerdale Mayor Gary Passante.

Bu not everyone liked the proposal.

In written testimony submitted by New Jersey Division of Rate Counsel, Director Stefanie Brand said the bill would add to ratepayer costs because the entities, including investor-owned utilities will know in advance the entire purchase price from ratepayers.

“This provision thus has the potential to allow investor-owned utilities to run wild with bid prices in an effort to submit the highest bid,’’ Brand wrote.

“If the utility knows in advance that the entire purchase price will be recoverable from ratepayers, it will have no incentive to submit a reasonable bid or negotiate a reasonable purchase price,’’ according to Brand.

Instead, Brand argued that the bill should be revised to allow a thorough and complete examination of what ratepayers should be on the hook for if a deal made possible by the bill goes through. “This bill is an egregious departure from traditional ratemaking practices,’’ she said.

Brand added that the bill removes important consumer protections by accelerating the sales of publicly owned systems, limiting voting involvement in the process, and forcing the Board of Public Utilities to go along with negotiated contracts that could potentially be harmful to ratepayers.

Atlanta pulled out of a 20-year privatization deal with New Jersey-based United Water after only four years, claiming the projected savings never materialized.

Other critics echoed that complaint that the deal would shut the public out of having a say in the decision unless 15 percent of voters sign a petition to put the matter up to a referendum in the community. A proposed sale of the Trenton water system was voted down in a referendum in the capitol city a few years ago.

Sarlo disagreed with “those who say we are cutting the public out.”

The bill also drew strong opposition from the Association of Environmental Authorities, a trade organization representing wastewater-treatment facilities and publicly owned water systems.

“This bill purports to protect the infrastructure,’’ Peggy Gallos executive director of the association said in a letter to Sarlo. “The bill does not protect anything but the ability of a small number of people to make decisions without the input of the large number of people their decisions may affect. This bill shortchanges the public.’’

Jeff Tittel, director of the New Jersey Sierra Club agreed. “What it’s all about is they want to sell off water systems to make a quick buck without thinking about the long-term consequences,’’ he said.