P3s: A Strategic Solution for Water Infrastructure Challenges

By Michael Deane

Private water companies have been committed to providing safe, clean water and reliable service to homes and businesses for more than 100 years and have a long, well-documented history of doing things right when it comes to water quality and water service.

Each day private water companies deliver water services to more than 73 million people. The five largest private water companies in the United States invest $2 billion annually to improve community tap water systems across the country. Private water companies also have a stellar record of providing high-quality drinking water, underscoring their commitment to consistently make the necessary investments to improve water infrastructure.

Through public-private partnerships (P3s), private water companies also have a solid resume of delivering strategic solutions to the water challenges facing municipalities. More than 2,000 water and wastewater facilities across the country depend on P3s. P3s can provide ready access to capital, expertise, technology and operational acumen. Perhaps the best evidence of P3s solving municipal water challenges comes from the cities and towns that rely on them.

According to Public Works Financing’s 20th Annual Water Outsourcing Report (March 2016), nine out of 10 municipalities renew their contracts with private partners. Additionally, P3s have been shown to lower operating costs by 24 percent on average. According to an Oct. 13, 2014, Standard & Poor’s Capital IQ report, “… the number of infrastructure P3s in the U.S. increased in 2013” and “in the U.S., interest in the P3 approach is growing, and several states are developing programs.”

But challenges still remain for many publicly-owned water utilities. The enormity of these challenges can be daunting for many water utilities with budgets already stretched to just repair systems when they fail, much less updating the water systems. The EPA projects it will take $384 billion of investment in drinking water infrastructure over the next two decades to keep the nation’s most precious natural resource flowing safely and reliably out of the tap. While there’s no dispute about the need to address the country’s failing water infrastructure, the question remains as to how quickly improvements can be made.

Some municipalities’ water department budget attracts only a fraction of the investment needed for proper maintenance and replacement of aging water infrastructure. P3s can help reduce costs, shift debt burdens and manage risks. With P3s, private water companies and local governments can share the financial requirements for a time, while ownership of the system remains with the public sector and decreases costs for the community.

For example, Veolia North America partnered with the Milwaukee Metropolitan Sewerage District (MMSD) to provide new asset management practices, serve as a technical and operational provider and manage its environmental compliance all while generating potential cost savings. On June 29, 2016, the MMSD announced an extension of their agreement with Veolia North America to continue managing and operating its collection and wastewater treatment system under a 10-year, $500 million contract.

Since March 2008, Veolia has managed the MMSD facilities, cleaning billions of gallons of wastewater every year at two water reclamation facilities that serve 1.1 million people in 28 communities. Milwaukee is home to Veolia’s largest project in North America, employing approximately 250 people.

The Bayonne Municipal Utilities Authority (BMUA) in New Jersey signed a 40-year concession agreement with SUEZ North America and investment firm KKR for its water and wastewater systems. In this concession agreement, the BMUA retains ownership of assets and responsibility for setting rates, while the private entity operates the system, invests $107 million and retires $130 million of debt for the community.

When the Los Angeles Regional Water Quality Control Board implemented stricter regulations to improve the quality of treated wastewater discharges to the Santa Clara River, the city of Fillmore, Calif., had a decision to make. Its wastewater treatment plant, built in 1955, needed significant upgrades to comply with increased standards and meet the demands of a growing population. The city took the initiative to develop a new, state-of-the-art water recycling facility that eliminates river discharges and enables a full-scale water reuse system to benefit the community. The city chose to contract with American Water in a P3 to design, build and operate a facility to produce high-quality disinfected water to meet the stringent standards required for surface and sub-surface irrigation of public and private facilities.

Today, the Fillmore plant produces up to 1 MGD of water that meets the standards for unrestricted reuse irrigation purposes, operates an irrigation system providing 200,000 gallons per day to two public schools, the new Two Rivers Park and other green areas in Fillmore. Additionally, the current 200,000 gallons per day used for irrigation has reduced the use of potable water sufficiently to allow the city to postpone drilling a new well thereby preserving its limited supply of high-quality potable water.

It’s clear. P3s provide communities with a broad base of expertise and new technologies. Private water companies offer a vast national network of experienced utility management professionals with extensive knowledge in solving water infrastructure challenges. Many also invest heavily every year in research and development to advance water service innovation. New innovations in water reuse, desalination and leak detection, to name a few, are helping solve water supply challenges across the country.

The water challenges facing the country’s water systems require a strategic solution and P3s are that strategic solution.

Michael DeaneMichael Deane is the executive director of the National Association of Water Companies (NAWC) in Washington, D.C. Before joining NAWC in 2009, he was associate assistant administrator for water for the U.S. Environmental Protection Agency (EPA), where he played a key role in developing and implementing national water policy. Prior to EPA he served as an executive at several water management companies, including United Water – and its parent company, Suez – and the U.S. operations of Veolia, where he focused on innovative financing and infrastructure policy.

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