WATER for PROFIT - Should private companies manage public supplies?

Daily Hampshire Gazette magazine
Hampshire Life May 5, 2006
BY STEVE PFARRER

It's easy to take it for granted. Turn on the tap, and out it flows. You don't usually think about where it's coming from or where it goes - or who oversees that flow.

But as some people see it, it's time to start thinking harder about water.

Across Massachusetts - and across the nation - communities with aging water mains and treatment centers are struggling to upgrade their systems and meet environmental mandates, even as the federal and state aid traditionally provided for such work is cut.

And globally, scientists say fresh water is disappearing - so much so that over half the world's population may be facing shortages in 20 years.

That's made water and, to a lesser extent, sewage treatment a coveted niche market for a growing number of private companies. The companies promise communities financial savings and greater efficiency. But their proposals are prompting a debate about whether private firms should be put in charge of something as essential as water.

In Holyoke, some residents and City Council members are still fuming about Mayor Michael J. Sullivan's decision last year to award a $174 million, 20-year contract to a private company to upgrade and run the city's wastewater treatment center. The deal, critics say, will not save the city money and was arranged in a back-handed way that did not allow for competitive bidding ' a view Sullivan rejects.

In Lee, meantime, the North American arm of a French transnational company made a bid in 2004 to run the town's water and wastewater systems, a proposal that was decisively rejected by town representatives even though Lee's selectboard and other town officials supported the deal.

Now Northampton is considering hiring a private company to run the city's water filtration plant once the $26 million structure is operational next year or in early 2008. Though no decision has been made, Mayor Clare Higgins and a municipal water official say the city needs to look at all possibilities for running the plant and determine if hiring a private firm will save Northampton money.

TO SOME, THE PROSPECT of private companies overseeing the flow of municipal water is deeply disturbing. Companies are beholden primarily to their shareholders, critics note, and their performance ' or lack of it ' is driven by the profit motive, not public welfare.

Around the world, from Atlanta to Great Britain to Bolivia, horror stories have been reported: private water companies that jack up user rates, cut off service to poor people, fire scores of former municipal or other government employees, and commit serious environmental violations.

'Water is a right, and it's essential for life,' says Jonathan Leavitt of the activist group Massachusetts Global Action, which has lobbied against private control of water in the state and elsewhere. 'There are some things that shouldn't be commodified, and water is one of them.'

Some legislators in Massachusetts have taken notice. A bill that's been introduced in the state House of Representatives would prohibit most private water and wastewater contracts in Massachusetts.

Yet Higgins, Sullivan and others, while noting the concerns about private firms owning water supplies, say there's a big difference between that and simply hiring a company to manage a city system or service ' and that city leaders have a responsibility to look for savings wherever they can be found.

The U.S. Environmental Protection Agency says the improvements communities need to make in the next 15 to 20 years to their water systems to meet environmental regulations, fix crumbling infrastructure and deal with population growth may cost as much as $300 billion. At a time when the U.S. deficit has reached an all-time high and federal funds for public water systems have been reduced, many wonder where the money will come from.

'I would never support turning city assets lock, stock and barrel over to a private company,' says Higgins. 'But I'm not opposed to looking, on a case-by-case basis, at how the city might benefit from a relationship with a company. I have to consider all the options.' The mayor notes, for example, that a private firm manages the Northampton landfill, though the city retains control of the facility.

David Reckhow, vice chairman of Northampton's Board of Public Works, adds that water contracts between municipalities and private firms, if drawn up carefully, will protect town employees and municipal jurisdiction, keep rate increases reasonable, and establish clear parameters for a company's performance. No one in Northampton's water department, he notes, has experience running a filtration plant. 'We either have to get the staff and expertise ourselves or hire someone else to run it.'

But Carolyn Toll Oppenheim, a former Holyoke resident and activist who helped start a citizen group opposed to privatizing that city's wastewater treatment plant, says many small communities now being targeted by big water companies lack the legal and technical wherewithal to negotiate with those firms on a level playing field. Too many contracts, she says, are full of loopholes and fine-print clauses that let companies profit at public expense, to the point that the savings promised to communities don't materialize.

'People need to be on their guard, because today water spells money for some people,' says Oppenheim, now living in Northampton. 'The privatizers are coming.'

IN HOLYOKE, THE dispute over the wastewater treatment plant deal, which dates back to 2004, has taken many twists and turns. But at its heart, it's about what opponents see as Sullivan's open courtship of privatization for an essential city service, while Sullivan feels opponents are driven by an inflexible bias against private firms that's rooted in ideology rather than reason.

For years, Holyoke has been under orders by the U.S. Environmental Protection Agency to reduce the flows from its aging sewer system into the Connecticut River. These 'combined sewer overflows' (CSOs) occur when heavy rains mix with waste in sewer lines and overwhelm the treatment plant's ability to screen waste before it's sent into the river.

A few years ago, Holyoke paid consultants $1.3 million to research ways the city could upgrade its facilities to solve the problem. After a recommendation to hire a private firm to do the job and take over management of the plant, the city sent out requests for proposals. Sullivan says a number of firms expressed interest, but only one ' Aquarion Operating Services Co. of Bridgeport, Conn.' submitted a bid, which the city accepted.

The debate has been ongoing ever since. Sullivan's critics have a long list of complaints. They say city documents show the mayor was intent on privatizing the operation from the start and never considered having the city do the job; that he should have rebid the project when only Aquarion made an offer; that he attempted to minimize public comment on the issue in a rush to get the contract approved.

City Councilor Helen Norris calls the 700-page Aquarion contract 'seriously flawed,' with built-in profit margins for the company regardless of its performance. She doubts the city will see any savings in the long run. She and other opponents say Holyoke ' and the wastewater plant's employees ' are now beholden to a firm with relatively little background in wastewater management.

Aquarion is actually the largest privately owned utility in New England and has been in business, primarily in managing water supplies, since the 1850s. Its parent company until recently had been a British water services corporation, the Kelda Group, but in February most of Aquarion's divisions were acquired by Maquarie Bank Limited of Australia, international investors and managers of projects such as ports, tunnels and airports.

'The City Council voted 14-1 to have an independent study done to see what it would cost to have the city do this job,' says Oppenheim, the former Holyoke resident and a one-time journalist and professor. 'The mayor refused to do it ... He was determined from the start to privatize this project.'

The group Oppenheim and her husband, Ward Morehouse, and others helped start, Holyoke Citizens for Open Government, pushed for a longer public comment period on the Aquarion deal and succeeded in having the city post the contract online. The group says it drew some 500 people ' a figure disputed by city officials ' to a meeting to raise awareness about the issue. And last November, in a special non-binding referendum, Holyoke voters rejected the deal, 57 percent to 43 percent. More than 9,000 city residents turned out for the referendum.

'People told Mike Sullivan that they didn't want this contract, but he ignored them,' says Rick Purcell, a city activist who chaired the referendum issue.

SULLIVAN, THOUGH, rebuts his critics' charges on a point-by-point basis ' and he brushes off the referendum vote, saying Holyoke residents also re-elected him last fall by a 2 to 1 margin 'to make executive decisions.' His opponent, former City Councilor Mark Lubold, had opposed the Aquarion deal.

That deal will save money for Holyoke, Sullivan insists. He also says he was obligated, under the provisions of a state contracting law, to accept Aquarion's bid if it met certain standards ' which it did, he adds.

'The [inspector general's] office looked at it, the [attorney general's] office looked at it, and they found it straightforward and on the mark,' he says. The mayor also says he had local engineering firms like Tighe & Bond in Westfield vet the contract and that they verified 'that it was a good deal for Holyoke.'

Concerns about Aquarion laying off any of the treatment plant's workers are unfounded as well, Sullivan adds. He says the company is contractually obligated to keep them on and honor their city retirement plans, though some workers have transferred to other city departments (Aquarion has since hired a few new plant workers, Sullivan says).

In fact, Sullivan wonders if other companies did not bid on the Holyoke project because they didn't like the stipulation that treatment plant workers' jobs be protected.

Aquarion, on the job since last October, is already earning its pay, he says: replacing a broken pump in record time and discovering an illegal discharge pipe into the Connecticut that no one in Holyoke even knew about.

'Micromanaging is what's hard for cities to do,' says Sullivan. 'That's why you hire a private company to manage your facility, not own it or control it.'

Fighting over the issue continues. Sullivan and the head of Holyoke's Department of Public Works, William Fuqua, have petitioned the City Council to allow the city to borrow $6 million from a state revolving fund so that Aquarion can begin plant upgrades. But six of the 15 councilors ' enough to hold up the issue ' say they want the job competitively bid, not given outright to Aquarion.

Sullivan and other members of the City Council contend that Holyoke will be forced to borrow money at a higher rate of interest to fund the work because of the six councilors' opposition. But the mayor's opponents say it's up to him to use competitive bidding to save taxpayers' money.

FOR OPPONENTS of privatization, one of the most troubling aspects is what they see as a growing connection between water companies and some public officials who have emerged as enthusiastic proponents of 'public-private' partnerships for water systems.

Leavitt, Oppenheim and others point to Lynn, where a private company, U.S. Filter (now Veolia Water North America, with headquarters in Houston), was given a nine-year, $47 million contract in late 2000 to run the city's wastewater treatment plant. Just a few months later, though, the state Inspector General's office issued a report criticizing the deal as a taxpayer rip-off.

In 2004, Lynn officials fired U.S. Filter/Veolia Water for breach of contract, including forcing out about 30 percent of the workforce after promising no layoffs. By this point, according to various newspaper accounts, Lynn's former mayor, Patrick McManus, who had pushed for the deal, had gone on to work for the company.

Jeremy Smith, another leader of the Holyoke citizens' group, says the former mayor of Taunton, Richard Johnson, whose city also signed a contract with U.S. Filter, went to work for the company as well. And according to a 2004 Boston Globe report, Rockland terminated a wastewater management contract with U.S. Filter at a time when a company employee and a city sewer official were charged with embezzling over $500,000 from the town.

Oppenheim notes that Veolia Water is a prominent sponsor of the U.S. Conference of Mayors, a group that represents about 1,200 U.S. towns and cities of 30,000 people and up. 'The U.S. Conference of Mayors has become a mall for privatization,' she says. 'Water companies are wining and dining [municipal officials].'

Sullivan's critics point out that he testified before Congress a few years ago on the benefits of privatizing water resources and that his testimony can be heard on the U.S. Conference of Mayors' Web site.

Sullivan resents any insinuation that's he personally benefited from striking a deal with Aquarion in Holyoke. 'That's the thing that really gets me about this whole debate ' people will say the most insidious things,' he says. 'I've never been wined and dined by Aquarion. I've presented this as a good deal for the city ' period.'

QUESTIONS OF CONFLICT of interest also arose in Lee when resident and former state Democratic Rep. Christopher Hodgkins, who had represented Lee and several other Berkshire County communities from the 1970s to the mid-1990s, approached town officials in 2002-2003 in his new capacity as a vice president of Veolia Water. The company was making a bid to run Lee's water and sewer systems and to improve its wastewater treatment plant, an upgrade mandated in 1999 by the state Department of Environmental Protection.

Hodgkins was also Lee's town moderator. Though he recused himself from any vote on the water issue, Deidre Consolati, a community activist who helped spearhead opposition to the proposal, says his involvement in the issue was inappropriate.

'It felt like a betrayal to a lot of people,' says Consolati. 'Why was he pushing this corporate giant on us?' (Veolia Water North America is a subsidiary of the French-based conglomerate Veolia Environnement.)

Hodgkins said at the time that he only wanted what he thought was best for Lee ' a cost-effective way to improve the water system ' especially since he had a house in town and would have been personally affected by any problems with Veolia. But as he told the Berkshire Eagle in 2004, convincing people that the company could do a good job in Lee 'got harder once my face was connected to it.'

Consolati, though, says residents were predominantly upset that town officials were initially prepared to give Veolia a contract even though, as in Holyoke, it was the only company to submit a bid for the job. She also says officials negotiated with Veolia privately for months before bringing the proposal to residents.

In a series of increasingly raucous town and selectboard meetings in the summer of 2004, opposition to Veolia grew, leading to a September vote in which town representatives rejected the company's proposal 41-10. The vote came, Consolati says, despite a full-court press from the company in the form of pro-Veolia ads in local papers and 'an army of black-suited company guys with cell phones and briefcases who'd taken up residence in town hall.'

Supporters of Veolia say Lee is now reaping what it sowed: The company had said it could rebuild the town's wastewater plant for $13 million, but the cost of the project is now pegged at $23 million. Consolati says Veolia's plan was inadequate and underbid and that Lee could have already built its plant for much less than $23 million if it had sought bids four years ago instead of pursuing privatization.

YET SOME SEE the argument against privatization as primarily emotional, waged against a cartoon image of sinister corporations out to bleed humanity dry.

Sullivan, for one, dismisses any suggestion that Aquarion's contract to run Holyoke's wastewater plant is simply the company's means for eventually getting control of the city's drinking water. 'No one has been coveting our waste,' he says.

In testimony last fall against the Massachusetts bill that would ban most privately run water and wastewater systems, Geoffrey Segal of Reason Foundation, a California-based Libertarian think tank, said 85 percent of U.S. communities with private water contracts renew the deals, proving that the view of water companies as black-hatted bad guys is unfounded.

'The sheer track record of water and wastewater privatization, with thousands of satisfied communities, reveals this concern to be mainly rhetorical, rather than factual,' Segal said. He noted that some private water companies have been in business in the United States since the 19th century and said 40 percent of drinking-water facilities in the country are private, regulated utilities.

According to the Sierra Club, 85 percent of Americans actually get their water from public supplies; almost all big-city systems in particular are publicly owned and managed. Yet the number of privately run municipal water and wastewater systems increased by 94 percent in the 1990s and by 13 percent in 2001 alone, Segal said.

Some customers of private water companies in Massachusetts say they're satisfied.

In Fall River, for example, where Veolia has run the city's wastewater plant and sewer system for over 10 years, Department of Public Works head Terry Sullivan says the company's performance has been 'excellent ... We've got a good working relationship with them. They've kept up the maintenance of the system, and they honor the terms of their contract.'

Sullivan notes that Fall River's contract has been carefully written to protect the jobs of former city workers now employed by Veolia, meet DEP mandates and feed extra money back to the city, not just to the company. In some past deals the city made with other private water firms, Sullivan says, 'The contractors wrote the contracts for their benefit ... we had to change that.'

And in Millbury, where Aquarion has managed the water supply since the mid-1990s, Town Manager Paul Guida says, 'In my experience, they've done a good job. There's a good flow of information between the town and the company.'

In Connecticut, meantime, Beryl Lyons, a spokeswoman for the Connecticut Department of Public Utility Control (DPUC), says Bridgeport-based Aquarion generally has a good reputation in the state, where about 80 percent of its customers are located.

'They're professional, they have a lot of expertise, and they take care of complaints in a timely fashion,' says Lyons. Her board has approved Aquarion's acquisition of a number of smaller water companies in Connecticut over the years, she says, because the company has the resources to deliver good services.

However, Connecticut's attorney general, Richard Blumenthal, had harsh words for Aquarion in late 2004 when the company requested a 14 to 25 percent rate hike that would have cost customers $16 million. The company said it needed recompense for investing $151 million in infrastructure improvements in the state.

The Connecticut DPUC not only turned down Aquarion's request but told the company to reduce water rates an average of 3.6 percent. 'Aquarion has been rightly awarded for its arrogance,' Blumenthal said at the time, 'receiving a rate reduction rather than the outlandishly excessive increase it requested.'

THAT'S ANOTHER point of debate in the issue: Who actually dictates user fees when private companies run town water or wastewater systems? Companies and their supporters insist rate hikes still require public approval. Michael Sullivan, for example, says Holyoke's Board of Public Works and City Council must OK any increase in sewer rates sought by Aquarion.

Just this week, Holyoke's BPW proposed more than doubling sewer rates to help pay for wastewater plant upgrades, which would increase average annual bills by over $200. Officials say the city's sewer fees haven't been increased in years and are among the lowest in the region.

Jonathan Leavitt, of Mass Global Action, says some companies do control water rates outright and that nationally, people who get their water from private companies on average pay twice what public water customers pay.

Leavitt, who worked with other activists in Lawrence a few years ago to defeat an effort to privatize that city's water system, says he understands the headaches municipal officials face as they struggle to pay for water system improvements, all the while trying to meet myriad other expenses.

But too often, he believes, civic leaders who turn to private companies for solutions 'are taking the easy way out. I think they're missing the boat on this issue.' They should be 'banging on doors in Washington,' Leavitt says, to get the federal government to increase aid to towns.

For his part, David Reckhow, the Northampton Board of Public Works vice chair, says he'd prefer the city run its water filtration plant, rather than turn the job over to a private company.

'Private companies can bring an enormous amount of expertise and resources to a job,' says Reckhow, a professor of environmental engineering at the University of Massachusetts at Amherst who years ago worked in Paris for a predecessor of Veolia Water, researching water treatment studies. But he worries about a loss of responsiveness to city residents, and less coordination with other town offices, if the Water Department is partially privatized.

'It really comes down to how much control you're willing to cede to someone else. We've gotten good employees here over the years.' Reckhow believes the city can run the filtration plant itself.

Oppenheim, the former Holyoke resident, sees water privatization as just one part of an overall move by corporations to gain more control of world resources ' an effort, she says, that's been actively abetted in the U.S. by the Bush administration, which has pushed for private management of national parks, Social Security and other areas long under government jurisdiction.

'The federal government has a privatization agenda, and the states are more ambivalent,' says Oppenheim, who has started a new activist group, Shays 2, to combat corporate power in western Massachusetts. 'It's going to be up to us, the citizens, to take back control of our lives, and water is a good place to start.'

Steve Pfarrer can be reached at SPfarrer@gazettenet.com.