Privatization Spurs Debate

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Sylvie Dale
On Line Editor

Against the tide of privatization in the utility industry, a countercurrent is urging utility customers to help stop privatization of water and wastewater utilities in Canada. The Water Watch Campaign, organized by the Canadian Union of Public Employees (CUPE), contends that water is a right rather than a commodity and would best be protected by a public agency.

"The threat to our water supply increases daily as multinationals step up their efforts to control the delivery, treatment and export of this most basic resource," the group warns on its Internet site.

"We believe that the privatization of water and wastewater undermines the quality of service and accountability to the public," said Ron Crawley, a senior research officer for CUPE. "It also costs more in the long run as private sector water companies concentrate on their bottom line and profit maximization."

CUPE believes that resistance to public-private partnerships will intensify in both Canada and the U.S. as people come to realize what is at stake, Crawley said.

At the same time, various types of privatization from outright purchase of a utility's assets to contracting services are growing in popularity in the U.S. and Canada. According to a report by Group Triton, a financial advisory services firm, water utility operations are shifting from the municipality structure, which currently includes most U.S. water utilities, to an investor-owned utility and operations & maintenance contract structure.

"Historically, privatization has happened in the shadows of budget axes and shortfalls, when governments must make every penny count," wrote Adrian Moore, director of RPPI's (Reason Public Policy Institute) Privatization Center and co-author of the report, Privatization 1999: The 13th Annual Report on Privatization. "In many ways this is changing. Privatization is growing at a vigorous pace despite surplus-heavy budgets, because it is providing far more than simple savings."

Scott Edwards, director of marketing for USFilter Operating Services, said private companies can be accountable because community satisfaction affects the company's bottom line.

"It's in our interest to demonstrate that we've done our job and we should continue the relationship," Edwards said. "Our interest is in long-term relationships. We want to be in this business as long as there is water that needs to be treated."

To increase awareness about what CUPE calls a growing problem, it has created the Water Watch Campaign. The campaign, according to Crawley, is designed to educate CUPE's members and the public about the dangers of water privatization. It is also designed to pressure governments at all levels to take responsibility for the direct provision of water/wastewater services and the necessary infrastructure funding to support those services.

Their strategy is to build committees in communities that will monitor and respond to any attempts at privatization. The committees research the parties involved in the proposed contract and send up red flags if there seem to be any problems.

The campaign is spreading its message with its web site, http:// www.cupe. ca/waterwatch.html.

Types of Privatization

A report by Kathy Neal of the Reason Foundation compares water/wastewater privatization for England, France and the U.S. England's entire water and sewer system was privatized in 1989, while in France, 75 percent of the population is served by investor-owned companies. In the U.S., only 15 percent of the population is served by investor-owned water companies. A summary of this report is available through the National Center for Policy Analysis (www.ncpa.org)

Some types of privatization are more a subject of debate than others. Privatization occurs when a municipality has a private company take over the operations of a water/wastewater utility, either through contracting utility operations or through the outright sale of the assets. Design/build/operate (DBO) projects such as Tampa Bay, FL; Moncton, NB, Canada; Halifax, NS, Canada; and others are another form of public/private partnership that is growing in North America.


Moncton, BC, in Canada has a new water treatment plant built and operated by USF Canada-Hardman Group (Greater Moncton Water Ltd.)
Click here to enlarge image

Limited operations contracts are the least controversial form of privatization, while outright ownership of the assets is the most controversial. CUPE's position is that designing and building easily can be done by a private company, but that owning and operating the utility is something that should remain in public hands.

"It has to be owned by the public and for the public," said Catherine Louli, a communications specialist for CUPE. "Any money made has to go back into water."

A number of companies are involved in the water/wastewater operations business, including Schlumberger, Azurix, USFilter Operating Services, OMI, Inc., American Water Works, EMC (Environmental Management Corp.), PSG, ECO Resources, United Water, US Water and SW Water.

Some of the benefits of privatization include additional sources of funding and economies of scale.

In Adrian Moore's report on privatization, Moore wrote that governments are turning to private sector companies for help meeting strategic goals such as Y2K compliance and for specialized expertise in a specific industry.

USFilter Operating Services counts Tampa Bay and Burlingame, Calif., among its success stories in privatization.

"We're going to save Tampa Bay $85 million over the term of that contract," Edwards said.

A team led by USFilter was awarded a 15-year contract to design, build and operate a 60 mgd regional surface water treatment plant for Tampa Bay Water. Tampa estimates the total project savings to be 21 percent (about $85 million) over the life of the project. This project takes advantage of recently permitted long-term relationships between public utility owners and private service vendors.

The company has recently renewed its contract with Burlingame to manage wastewater treatment operations. USFilter has been managing the city's wastewater operations for 28 years.

The Central Issues

The Water Watch Campaign's position is that privatization of public resources hurts workers, the public and local economies. The group contends that privatization threatens workers' job security, wages, benefits, and working conditions. For the public, the group sees lower quality, access and accountability, and for the local economy, it sees fewer good jobs, more user fees and fewer local benefits.

The group points to some victories in the struggle between public and private. In Nova Scotia, water works and municipal workers in Halifax have mobilized to support public ownership and operation of the new wastewater treatment facilities that are to be built along Halifax harbor. Three consortia, representing the largest water corporations in the world, are vying for the deal and WaterWatch is working to stall it.

Committee members researched the companies involved in the bidding. Some less-than-rosy facts have come to the group's attention, said Louli of CUPE. Three international companies are bidding for the DBO contract for four wastewater plants, which are to be constructed because of environmental problems with the nearby harbor. They include Halifax Regional Environmental Partnership (Suez Lyonnaise de Eaux), Halifax Water Works Group (Thames Water) and Maritime Wastewater Technologies (Le Groupe Bouygues-Saur-Aquatech). CUPE researchers found the companies have been linked to bribery, high utility rates and forging invoices, Louli said. The research was done on the Internet, by telephone with various police departments and through other sources, she said.

Privatization is a complicated issue because the money to build is often coming from the private company. This gives that company a certain amount of power in the situation, Louli said. Also, with a long-term contract, the company is being given something of a monopoly.

Labor

The first concern of WaterWatch or any of CUPE's endeavors arguably could be the welfare of the utility employees. A report by the campaign gives the example of Indianapolis.

In 1994, Indianapolis turned over its two wastewater plants to United Water Resources. In the first year of operation the company slashed a proposed budget of $30.1 million to $17.6 million. Staff was cut from 328 to 176.

Part of the complication about the issue of privatization is that there are several companies in the industry. Each has its own track record.

USFilter has agreements with approximately 20 labor unions in the US and Canada. As part of most contracts and agreements, the company forges an agreement with the local labor union if it will be affected by the contract.

The company has a standard practice of meeting or exceeding wages and benefits that were previously established by the municipality. If the utility's employee pool must shrink, Edwards said, it is typically through normal attrition in the workforce or other voluntary methods.

Control and Quality

"The environmental risks and increasingly higher environmental standards are another reason not to privatize," warned Crawley. For instance, Louli said, the Moncton water plant had a boil order about two years ago.

USF Canada-Hardman Group (Greater Moncton Water Ltd.) currently holds the build and operate contract for the plant. Officials from the company verified the boil order, but said that it happened before the company came into the picture.

"Ever since our plant has come on-line, there have been no boil water orders," said Wallace MacKinnon, who was involved with the building of the plant. MacKinnon is a Business Development Project Vice President for USFilter.

Moncton area water had high turbidity and numerous boil water orders before the 27-mgd treatment plant came on-line in October 1999. Until the new plant was built, the city simply added chlorine and fluoride to the water before it was distributed to the residents.

The current standard for turbidity in the Canadian Drinking Water Advisory is 1.0 NTU, and Moncton has achieved a standard of 0.1 NTU since October, MacKinnon said.

"We have met or exceeded all of the performance goals that the city of Moncton has asked us to meet," he said. According to an article written in the Moncton Times & Transcript, a quarterly testing of undesirable organic materials in water turned out much better than anticipated.

Leaving operations in the hands of a private company can make people nervous about whether the community's needs are being met, according to the statement of principles of the WaterWatch Campaign on CUPE's web site.

"Water is a public trust," reads the statement. "All Canadians have the right and the responsibility to be involved in the major decisions affecting water in Canada."

But a private company that successfully bids for a contract with a utility has to have the community's interests in mind, Edwards countered.

"The customer controls the relationship when we enter into an agreement with the customer. The public employee often becomes the private sector employee. The public entity agrees to a contract that makes sense to a public entity. You have to have the interest of the public entity at hand - you have to address those needs. If not, there is no public-private partnership."

Cost Management

CUPE maintains that a utility that goes into a long-term operations partnership with a private company will be worse off in the long run. In an effort to save money on operations, the private company may be tempted to let long-term projects slide.

Edwards denies that his company would do that, because of USFilter's interest is in getting the contract renewed. Municipalities looking at bids should check the track records of the companies involved. If prior contracts have been renewed repeatedly, that's a good sign, he said.

About the 20-year partnership in Moncton, Edwards said, "Over the term of this agreement, we're going to save Moncton over $12 million in reduced capital cost and lower operating costs. When you add a new facility, you're going to have to pay for that. But the point is, we're saving Moncton ratepayers significant money."

Others worry that the extra money generated during the operation of the contract won't be put back into the water system where it can benefit the community members.

"If the utility can be run to generate a surplus, then that surplus will no longer be available to the municipality in the future," states a report written by members of Public Services International (PSI), a global group concerned about the continuing deregulation and privatization of essential public services.

Multinationals

The mistrust of multinational companies appears to run deep among the anti-privatization groups.

The world of privatized water is overwhelmingly dominated by two French multinationals, Vivendi Water and Lyonnaise des Eaux, the PSI report said. These multinational companies were described in the report as "a very small group of closely knit, cartel-prone multinationals with recent records of corruption, incompetence and rejection by other municipalities who finance investment through higher prices for consumers and generate dividends from job cuts."

In response to expressed anxieties about multinationals, Edwards said "If you like a Toyota, you'll drive a Toyota, whether it's manufactured in the U.S. or Japan. If you want the best water treatment technologies and capabilities and experience, you're going to go to the best player. We think that globalization has advanced to the point that it really shouldn't be an issue, because the people that are operating your facility are your citizens."

Middle Ground

In the face of increasing standards and cost limitations, privatization is a method which is growing in popularity. Despite the concerns of anti-privatization groups like CUPE, the industry is moving toward a few compromise options that satisfy both sides.

"Some municipalities are more willing to look at corporations financing capital projects as part of P3s (public-private partnerships)," Crawley commented. Moncton and Halifax are both set up that way.

If costs and efficiency are issues, utilities can improve their own performance as an alternative to privatization. Utilities can enhance their performance and lower operating costs by comparing their performance and operations with those of other utilities and running a program of regular improvement.

A benchmarking study can be the start of such a program. The study should identify costs and practices at the utility over time and in comparison with others.

The study should help utilities determine what they need to improve. The improvements may involve equipment, process or even managerial changes. When process changes are reevaluated, the city stands to make large gains in efficiency because of the thoroughness of the approach.

By focusing on all aspects of the utility that can be improved, the utility can improve results just as a private company would.

The U.S. water and wastewater industry will continue to push toward privatization as funding pressures increase. With piping infrastructure needs on the rise and EPA regulations tightening, utilities will be motivated to offer good service for a low price or make arrangements with a company that can do so.

Although many celebrate the trend toward privatization as a profitable way to solve a problem, opponents will keep responsibility and customer service at the forefront of the decision-making process.

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