Phoenix Partially Privatizes Its Water

June 2, 2003

For the first time in its 122-year history, the city of Phoenix is turning part of its water system over to a private company, reports Tom Zoellner of The Arizona Republic.

The city is finalizing a $286 million contract with the California engineering company Earth Tech to design, build and operate a water treatment facility on the shore of Lake Pleasant.

It will service the far northern end of the city, which is only empty desert right now, but will likely be home to many new subdivisions by the end of the decade.

Phoenix officials cite a unique opportunity to save tax money and obtain top-tier technology as the rationale for putting the city's sixth water treatment plant in corporate hands. However, private water has not always gone down smoothly in other U.S. cities.

Atlanta turned over its system to the company United Water in 1999, but terminated the contract this January amid complaints of breakdowns, cost overruns and revenue projections that turned out to be over-optimistic. Problems have also been reported in Charleston, W.Va. and Pekin, Ill., where private vendors charge some of the highest rates in the nation.

But Seattle and Tampa claim success stories. And industry surveys show that 94 percent of cities with private water would make the same choice again.

Earth Tech, based in Long Beach, Calif., is a subsidiary of Tyco International, whose former top officials face charges of tax evasion, securities fraud and other financial improprieties. This has caused Earth Tech some image problems to overcome.

"The city cannot be looking for a long-term relationship with a company whose parent has such an unacceptable track record," said Ray Oliver, the president of the American Federation of State County and Municipal Employees Local 2384.

Oliver said he is worried about the quality of private water. He cited incidences last year in Peoria in which two 5-year-old boys died of amoebic meningitis after drinking tap water from Rose Water Valley Co.

"Do you want cheap water or do you want the best water you can get?" he asked.

Oliver's union includes employees of the city Water Department. The union's membership from the department could be diluted with privatization.

But Phoenix Water Director Mike Gritzuk said the contract has "strict performance guidelines" written into it that will allow Phoenix city employees to assume control in case of any problems.

"We will always own this facility," he said. "We will oversee all construction and operations."

Officials from Earth Tech, which was purchased by Tyco seven years ago, declined Zoellner's requests to comment on their relationship with their Bermuda-based parent corporation — attempting to distance themselves from the accounting scandals.

"We've worked hard to convince clients that the corruption is confined" to Tyco, former Earth Tech CEO Diane Kreel told the trade journal Engineering News-Record last month.

Partial privatization of the treatment process will bring "a high-quality product at a low price," Gritzuk said. Product safety will remain a top concern, he said.

Earth Tech's bid for the design, construction and operation of the plant will save the city $77 million by the time the facility is operating in February 2007.

"But pricing is not the only issue," he said. "This facility will have state-of-the-art equipment and instrumentation. It is a highly automated facility."

Earth Tech will also be required to post a $20 million bond before beginning construction to ensure their solvency.

A staff of only 11 Earth Tech employees will be needed to run the plant, which is expected to process up to 80 million gallons of drinkable water every day.

While municipal water in the United States had been traditionally viewed as a public resource, private management and ownership are on the upswing. The market is now estimated at $2.5 billion per year.

Tony Clarke, the executive director of the Polaris Institute in Ottawa, Canada, said Phoenix's experiment with private water at Lake Pleasant could portend the eventual corporate management of the city's water infrastructure.

That may not be good news, said Clarke, who has written extensively about water issues and calls himself an opponent of private water. The business has become centralized to the point where 10 global companies, including Tyco, control most city contracts, according to the Polaris Institute's research.

Source: The Arizona Republic