Counties Buy Systems from Private Operator

Six Florida counties have purchased their water and wastewater utilities from a private company in a deal that was the largest utility acquisition in Floridas history, and possibly the largest public acquisition of its type in the United States.

Six Florida counties have purchased their water and wastewater utilities from a private company in a deal that was the largest utility acquisition in Floridas history, and possibly the largest public acquisition of its type in the United States.

The deal was unique in that after the government acquired the hard assets of the utility systems, it then privatized the operations and maintenance. It was both a municipalization and a privatization at the same time. The April 15 acquisition from Avatar Holdings came with

The April 15 acquisition from Avatar Holdings came with a total cash sales price of approximately $216 million and affects more than 40,000 households. The sale included 13 water treatment and 10 wastewater treatment facilities in the counties of Brevard, Collier, Hillsborough, Lee, Osceola, Polk and Sarasota.

As part of the deal, $7 million will be routed toward capital improvements such as plant upgrades, replacement and renewal of lines.

The counties opted to buy the plants from Avatar for the same reason that governments have been buying plants and municipalizing utilities for the past 20 to 30 years, according to Phillip Gildan, head of the Public Infrastructure Group and an attorney in Greenberg Traurigs West Palm Beach office.

The counties wanted "to have control of the rather important infrastructure for growth and development, and service to the residents of the counties. They can control the quality and level of service that is provided, and secondly, they can control the cost of service by setting and having control over the rate-setting function," Gildan said.

In the previous arrangement, a Public Services Commission worked with Avatar to set the rates customers were paying. After a series of rate hikes, customer complaints prompted the governments to explore other options.

"The public service commissions in Florida and elsewhere are typically appointed political positions. The county and local government are elected by the people who are being served," Gildan said. "So there is a significant amount of increased accountability."

Gildan and several other attorneys from his firm worked for the utility companies, structuring the agreement, handling all the negotiations and privatization agreements.

The counties could not have achieved the deal individually. To make the negotiations easier and make the deal more cost-effective, the six utilities were combined into one entity, the Florida Governmental Utility Authority (FGUA).

The counties will pay for the acquisition without raising rates or taxes. While the counties are paying for the transaction by issuing six separate bonds, they will not use taxpayer dollars to pay down the debt or fund the utility operations. Unlike standard general obligation bonds that are paid through tax increases, FGUA and Lee County will use net utility revenue to service the debt.

Avatar, which had previously owned and operated the plants through its utilities operations subsidiary, will continue to provide operation and maintenance services as well as billing and customer services for the systems. Because of this, no employee jobs in the counties were lost.

Avatar benefited from the deal by being able to convert its assets into capital appreciation and the cash value of the operation. The company will maintain control of the cash flow, since it will still operate the plants.

This type of deal is happening with increasing frequency all over the U.S., Gilden said. Municipalities are recognizing that the private sector has a better expertise and ability to operate and maintain public systems at a better cost and a higher level of service than the governments do, he said.

The same type of acquisition had happened once before in Florida, in Jupiter Island in 1998.

The growth of privatization in the U.S. has taken off in the last five years, making deals like the six-county acquisition profitable. Gildan has been involved in acquiring and selling utilities for governments for 15 years. The traditional way of municipalizing a plant would be for the government to buy the utility and also operate it, a more expensive option.

"Theres a huge market available if you can convince local managers and operators of systems that what the privatizers are offering is better for the customers," Gildan said.

Privatization in the water and wastewater industry is different from privatization in the electric industry, where government assets and operations are being sold and privatized. With the water and sewer systems, the assets are tending to be owned by the government, while operations and maintenance are being privatized, Gilden said.

"The marketplace on the water and sewer side is a tremendously profitable marketplace for the operations and maintenance contracts. There is a huge marketplace and availability there, and that market is growing by leaps and bounds," Gildan said.

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