Wastewater Privatization

Sewer Stink

By Bruce Robinson

WHILE SANTA ROSA is routinely bashed for taking more than a decade to devise a workable solution to its need for more wastewater storage, neighboring Petaluma is being criticized for moving too fast in its bid to privatize that city’s aging sewage treatment system. “The facility we have now is old and is at capacity, so it needs to be upgraded,” says Assistant City Manager Warren Sammons of Petaluma’s sewage facilities. That assessment is one of the few undisputed points in a long-running debate over the future of the city’s wastewater.

Since 1979, Petaluma has been blazing a trail in the area of “privatizing” its sewer operations, having hired an outside company to run the aging plant for the past 16 years. Now the city is preparing to go several steps further, and is seeking bids from private companies to both build and operate a new sewer plant. If that process is consummated, Petaluma would become the first city in California to completely privatize its wastewater system. But not everyone is pleased by that prospect.

“We are the guinea pigs. There’s nothing else to judge it by,” worries David Keller, director of the Petaluma River Council, a local environmental organization. “There is only speculative information from the city and consultants, and even that is inconclusive.” Although Keller says he retains an open mind toward the touted consumer savings that are the primary rationale for privatization, he is deeply concerned that the process, so far, has not been accessible enough to the public.

An earlier attempt to secure a private wastewater contract was emphatically shot down in 1991 by the state’s Public Utilities Commission, which ruled that the contract then under consideration was “decidedly in favor of the privatizer at the expense of the public interest.” The PUC also chastised city staff for failing to involve the public in the process, noting that the planning sessions for the sewer contracts “were private, if not secret.”

At the same time, the Fair Political Practices Commission also blasted City Manager John Sharer and Mayor Patti Hilligoss for owning stock in multinational garbage conglomerate Waste Management Inc., the parent company of the firm to which the privatization contract was being steered. They have since divested themselves of the shares, but a Waste Management subsidiary remains a leading contender to win the contract.

Four and a half years later, the renewed process has been somewhat more accountable, but Keller says it is still tilted away from the best interests of Petaluma residents. The fundamental structure of the basic contract documents “holds tremendous risk for the vendor,” such as making the vendor solely responsible for delays, change orders, and even acts of God, he notes. “The only way vendors can bid on this and hope to stay solvent over 30 years is to bid high. At best, we’ll get the lowest of the high bids.”

That’s also a concern for Petaluma City Councilman Matt Maguire. “We may wind up with five bids that are just outrageous, because we’ve tried to put too much risk on the vendor,” he offers. Supporters of the plan say that criticism is unfounded.

“Nobody can do any more than speculate at this point,” counters Bill White, chairman of the City Council-appointed Citizens’ Wastewater Advisory Committee. He believes privatization “is going to mean lower rates to the users, the residents, and the businesses in the community,” and White says the committee endorsed the plan on that basis.

“What we’re saying is that we believe that to be the case,” the real estate developer continues. “Now is the time to go out with our [Request for Proposals] and get the prices back from the contractors and see if we’re right. If we’re not right, we’ll know it.”

DRAFT CONTRACTS for the future operation of the yet-to-be-built sewer plant are part of the complex Request for Proposals that has been submitted to a short list of five “pre-qualified” bidders that includes Envirotech Operating Systems (EOS), the Waste Management subsidiary that has held the contract to run the existing Petaluma sewage plant since 1979.

The costs of building a new sewer treatment plant for Petaluma and operating it for the next 30 years are estimated at more than $460 million, but for the five companies vying for the job, the stakes are even higher. Numerous other cities–many of them larger than Petaluma–are also considering privatization, which was authorized under a state law passed in 1985, so capturing the first such contract is seen as an important key toward securing additional municipal business.

And EOS and Waste Management may have the inside track. They were the city’s sole choice in the aborted 1991 agreement, and, according to Keller, rival bidders reportedly are concerned that “the selection process can be distorted or manipulated behind the scenes.” In the November 1992 issue of PWFinancing, a utility trade magazine, Dennis Dandeneau, director of project development for Wheelabrator Clean Water Systems of Hampton, N.H., which owns EOS, confidently predicted his firm would prevail in the pending bidding. “If the others want to take us on our own turf, come and get us,” Dandeneau said.

Keller fears that the city is overmatched as it tries to negotiate a half-billion-dollar contract with huge international corporations. “The vendors have the consultants and the lawyers and the high-powered staff, and the city has zippo. Guess who’s going to win,” he warns. That grim prospect is likely, “unless the regulatory aspects for ratepayers are strengthened greatly, and unless the contract is cleaned up and put into standard terms, which it is not now.”

Should Petaluma wind up with a disadvantageous contract, it will be the city’s ratepayers who will bear the burden, critics say. But judging the fiscal outcome may prove difficult. “There’s no way to judge whether the ratepayers are being overcharged, and that’s because of the way the [proposed] contract is structured,” Keller complains.

“The contract and rate setting is based on the vendor providing a unit of service, which is changed annually based on various inflation factors,” he continues. “The problem is, there is no way of knowing if those charges accurately reflect the costs to the utility.” Adding to his fears is the fact that the 1985 state law that allows such privatization of public services also exempts them from review by the state PUC once the new system is in place.

As a means of addressing these concerns, Councilman Maguire and others have proposed that Petaluma create its own municipal rate-setting board. “I think we need to have an independent body, accountable to the ratepayers,” he argues, “one that is elected rather than appointed.”

Other council members are determined that authority should remain in their hands. “I don’t think it’s right for the council to give that away,” sniffs Mayor Patti Hilligoss. “That will be taken care of in the contract, that we will have the right to raise or lower rates.”

Maguire’s concept officially got the cold shoulder from his colleagues April 22, when none of the other council members voiced even conditional support for the idea.

This and other developments to date do not bode well for Petaluma, Keller says. “As long and complex and as onerous as Santa Rosa’s process has been, they’re doing a better job from many points than Petaluma in being thorough and straight with the ratepayers and the landowners,” he says disconsolately.

“And that’s not even a privately owned plant.”

From the May 2-8, 1996 issue of the Sonoma Independent

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