No to water P3 for Pennsylvania municipality

Allentown bowed to pressure in opting to lease its water and sewage to a nonprofit authority.

A contentious proposal to privatise water and sewage treatment in a debt-riddled Pennsylvania city long-celebrated for its manufacturing has foundered amid a groundswell of opposition.

Instead, gritty Allentown, Pennsylvania, will lease its water and wastewater management to a non-profit agency: the Lehigh County Authority (LCA) paid $220 million upfront for a 50-year concession.

The Authority is the largest user of the Allentown system. In addition to its lump sum payment, the LCA will also shell out $500,000 a year to the city starting in 2016.

In turn, the LCA will collect service revenue from the system while installing a 50 percent rate hike.

The 6-to-1 city council vote to hand over the system to a public entity rather than enter into a public-private partnership (PPP; P3) ended a 13-month-long procurement fraught with disagreement that began when mayor Ed Pawlowski sought to monetise water and wastewater in order to pay down a mounting $158 million pension liability.

The decision also flew in the face of a burgeoning trend toward water and sewer treatment privatisation in the US evidenced in Bayonne, New Jersey, Nassau County, New York, and Rialto, California.

Allentown began sounding out the market regarding a potential water and sewage treatment P3 in early 2012.

A subsequent request for qualifications (RFQ) elicited interest from alternative investment manager Access Capital, the Allentown Forward consortium, American Water, Aqua Pennsylvania, Corrix, Macquarie Group, NDC Housing and United Water, in addition to the LCA.

The city eliminated Allentown Forward, led by Antarctica Capital, as well as Corrix. Access and Macquarie later dropped out of bidding. Allentown had estimated a lease of its water and wastewater system could fetch $200 million and a minimum $20 million annual payment.

But public outcry over letting a private operator control how much the system charged, as well as suspicion surrounding the transparency of the procurement process, filtered into city hall, prompting the council to select LCA in place of a P3.

In late 2012, Rialto, a California enclave, leased its water and sewage treatment to private equity firm Table Rock Capital in a 30-year P3.

The Rialto deal was followed by a December announcement that Bayonne, a New Jersey city, had leased its water and sewage treatment to Kohlberg Kravis Roberts & Company (KKR) and United Water in exchange for $150 million and an agreement to invest $150 million in the system.

In mid-2012, Aqua Pennsylvania took over water and sewage treatment for Luzerne County, Pennsylvania, while United Water became the private water and wastewater operator for Nassau County in Long Island, New York, as well as Poughkeepsie, New York.