Firm picked for sewer deal has critics, fans

Photo credit: Howard Schnapp | From left, Brent Fewell, Gary Albertson, and Patrick Cairo, of United Water, attend a meeting at the Marriott in Uniondale. (May 10, 2012)

May 19, 2012

The company chosen to manage Nassau County's sewer system has devoted fans and harsh critics in cities where it operates, with some contending it saved them millions of dollars in operating costs and others saying that user rates rose significantly. 

County Executive Edward Mangano has named New Jersey-based United Water, the world's second-largest private water systems operator, to run the Bay Park and Cedar Creek sewage treatment plants, the county's 53 sewage pumping stations and 3,000 miles of sewers. 

While United says 95 percent of clients renew their contracts, the company has faced allegations that it has maintained plants poorly and bears responsibility for a variety of water quality violations. In Gary, Ind., the company and two employees are facing charges of violating the federal Clean Water Act. 

The firm says it has learned from its mistakes and has implemented a robust environmental compliance program. "No other company has a higher commitment to meeting environmental requirements," said Brent Fewell, United's vice president of environmental compliance. 

Facing a projected deficit estimated as high as $100 million this year, Nassau is hoping the privatization will bring in at least $750 million from a yet unnamed third-party private investor. The funds would go to reduce the county's $3 billion debt. 

Critics cite need for profit

Opponents, including Democrats and civic leaders, contend residents will still face a steep rate increase under United because the financier needs to make a profit on the investment. 

The plan hit a roadblock Thursday when the Nassau Interim Finance Authority, a state watchdog with control of the county's finances, unanimously rejected a $5 million contract to Morgan Stanley, the administration's financial adviser on the deal. While NIFA members indicated they would not approve the rest of the deal as currently proposed, Mangano and United Water officials have pledged to move forward with their plan. 

NIFA and the GOP-controlled legislature must ultimately approve the final deal. 

The Nassau proposal comes as cities continue to turn to sewer privatization to offset growing budget shortfalls. 

"Municipalities are facing economic pressures and it is leading more and more counties to consider privatization as an option," said Michael Deane, executive director of the National Association of Water Companies, a Washington, D.C., trade group. 

Companies such as United, a member of the association, bring expertise that municipalities lack, including replacing inefficient pumps and improved energy management, he said. 

A subsidiary of Paris-based Suez Environnement, United has 100 sewer contracts nationwide and services nearly 2 million people in the New York metropolitan area, including in New Rochelle, West Nyack and Rye. The company has a net worth of more than $1.2 billion. 

Company officials point to deals in Indianapolis, San Antonio and Springfield, Mass., where they invested millions to upgrade outdated plants and kept rates generally in check. 

Unique arrangement

Typically, United signs contracts with municipalities that range from five to 20 years. Nassau's contract would be for 20 years with 10-year renewal options. The county's contract with the financier, officials said, could be for 50 years -- putting a private operator in charge of the system through 2063. 

United's arrangement in Nassau would be unique. While the company generally selects a private investor to partner with before bidding on a contract, Nassau wants financiers to compete for the contract. Under many United contracts, the municipality funds capital improvements, but Nassau's deal calls for the investor to pay for the fixes. 

It is unclear how much United will be paid on the contract or the amount expected to be invested by the financier. 

In Indianapolis, where United has operated since 1994, officials praise the company for its service and keeping rates in line with inflation. It is the largest public-private sewer venture in the nation, though the Nassau deal would gain that distinction if the contract is approved. 

"We couldn't be more pleased with the job United has done," said Chris Cotterill, chief of staff to Indianapolis Mayor Greg Ballard. 

"They have been running the system for so long, most people don't remember it any other way."United operates the Indianapolis system, but capital improvements are funded by a public charitable trust that bought the city's water and wastewater system last year. United has said it saved the city roughly $250 million since taking over through improved systems operations. 

In Springfield, Mass., the company has carried out $15 million in capital improvements since 2000, city officials say. 

"We are very happy," said Bruce Lieter, contract administrator for Springfield's Water and Sewer Commission, which manages the city's wastewater system. "They have held up their end of the bargain." 

In some cities, sewer privatization efforts never got off the ground, blocked by residents. Akron, Ohio, proposed leasing its sewer system to a private operator in 2008 -- United was one of the expected bidders -- with the revenue going for college scholarships at the University of Akron. Opponents blasted the measure as a risk to public safety and forced a ballot referendum, in which the measure was defeated, said Richard Merolla, Akron's service director.Officials in other cities have regretted signing with United. 

Atlanta ended its contract with United four years into a 20-year contract, citing millions of dollars in anticipated savings that never materialized and deferral of necessary maintenance. 

"All in all, the experience was not a happy one for the city," said Janet Ward, spokeswoman for Atlanta's Water Department. 

The Atlanta contract called for the city to fund all capital improvements to the system, which both sides agree was in disrepair. Patrick Cairo, United's senior vice president of corporate development, concedes the company "underestimated the trouble with the city's underground infrastructure" and shares the blame for the contract's failure. 

New Jersey issues

In Camden, N.J., United lost 45 percent of its water due to leaks, overflows and meter inaccuracies between 2004-08, according to an audit by the state comptroller. United, which inherited the Camden contract when it purchased another firm, US Water, in 2002, disagreed with the findings of the audit. 

United sued when Camden stopped making payments, and the city reached a $4 million settlement last year. "We have tried to resolve our differences and have reached a settlement that keeps the city working with United Water until 2014," said Patrick Keating, Camden's director of public works. The contract was to end in 2018. 

The most serious allegations against United stem from its work in Gary, Ind., where the company and two employees, a project manager and plant superintendent, were charged by the U.S. Justice Department in 2010 with 26 counts of violating the Clean Water Act for allegedly tampering with daily wastewater sampling methods. Their trial begins in August. 

United spokesman Rich Henning said the firm is "fighting the charges" and will "prove ourselves innocent in court." 

United disclosed the charges in its bid proposal documents to Nassau. But Mangano spokesman Brian Nevin contends the county executive was not aware. "The issue in Indiana came to the county executive's attention after the selection," and Mangano has asked the committee that reviewed proposals "to further review the issue," he said. 

Mary Grant, a researcher with Food and Water Watch, a Washington, D.C., group that opposes sewer privatization, has studied United contracts and argues the firm has a poor track record. 

"They reduce staff and maintenance, cut corners and increase rates," she said. 

Company officials dispute the characterization. "Over time, it's normal for there to be some accidents and some incidents," said chief executive Bertrand Camus. "It pushes us to be better and better every day and to improve our processes and transparency." 

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