nicipal Utilities Authority (BMUA) in exchange for $307 mil-
lion. It paid BMUA $150 million up-front to eliminate existing
debt and improve the utility’s fnances and has agreed to invest an additional $157 million into the system over the life
of the contract.
The initial capital infusion was a major beneft for Bayonne,
as the utility represented half of the city’s overall debt, said Pat-
rick Cairo, SVP of commercial development for United Water.
“We took that off the balance sheet, and the additional capital
ensures long-term investment in the city’s infrastructure.”
He noted, though,
that it took the city a
long time to get com-
fortable with the idea
of a PPP. BMUA origi-
nally requested RFPs
for both a concession
model and an opera-
tion and maintenance
contract. United Water
responded to both and
worked with the mu-
nicipality to look at the
pros and cons of each.
It took six months, but they ultimately chose the concession
model. The infusion of capital and reduction of debt made
the concession model attractive from a fnancial standpoint,
and at the same time, the city did not have to give up oversight or control of the water and wastewater infrastructure.
“The city still owns the asset, and we are obligated to the
municipal authority to operate it effciently,” Cairo said. He
also noted that all tariffs and rates are set by the state utility
commission — not by the joint venture. “Those are usually
the two biggest concerns that cities have with PPPs.”
TEAMING UP IN TEXAS
San Antonio Water System (SAWS) is participating in a
similar PPP to cover the cost of new water and wastewater
treatment infrastructure that was needed in order to launch a
new urban development on the outskirts of the city.
“It is a $100-million project that we had no way to fnance,”
said Greg Flores III, vice president of public affairs for SAWS.
So a number of private companies interested in developing
that section of the city agreed to invest $10 million up-front,
which was enough for the town to take out a bond for the
rest. The utility and the developers will recover their costs over
time as the business and residential community is developed.
“Without private investment, the project would have been
too cost-prohibitive and we couldn’t have done it,” he said.
San Antonio is also looking at taking on a 30-year PPP con-
cession with other developers to secure new water resources for
the city. Texas currently faces strict regulations around permitted
use of water resources, and there is often strife between coun-
ties over which communities gets rights to which water sources.
“There is a lot of political risk to developing new water
resource projects,” Flores said. “Rather than SAWS spending
the time and resources to fnd those water supplies, we will
rely on developers to do it.”
Going with a PPP will take the capital burden off the utility
and allow it to secure water at today’s rates, versus paying for
a project that could take ten years to complete and leave the
utility vulnerable to rising water prices, he said. “In the short
term, it will probably cost us more, but in the long term, our
costs will likely go down.”
Developers aren’t the only ones willing to put a stake in
the game, said de Yonge. Provider fnancing can also be an
interesting option for utilities. In these scenarios, equipment
vendors cover the cost and installation of new equipment to
improve effciencies in the system in exchange for a piece of
the savings. “Equipment providers, like GE and Veolia, are
open to these ideas,” he said.
NEW REVENUE FOR DC WATER
Design-build scenarios are also gaining popularity because
they shift much of the fnancial risk to the service provider and
rely on an ‘op ex’ payment model, said de Yonge. “It’s easier
Under a design-build agreement with Pepco, DC Water will see the construction of a combined heat and power plant at its Blue Plains facility.
Photo courtesy of Ted Coyle, DC Water.
When fully operational in 2014, DC Water’s
new power plant will produce at least 14
MW of electric power, which will supply the
Blue Plains facility with 30 percent of its
average power demand.
Photo by Dennis Samson, DC Water.