Consumer Advocate Exposes Consultant?s Bias Toward Privatizing Stockton?s Water Systems

Jan. 17, 2002

Consumer Advocate Exposes Consultant?s Bias Toward Privatizing Stockton?s Water Systems

Consultant Is Member of Pro-Privatization Organizations and Has History of Recommending Privatization

STOCKTON, Calif. The company hired to recommend whether Stockton should privatize its water systems has a well-established bias toward privatization and a potential conflict of interest, the national consumer advocacy group Public Citizen said today. The consultant, Massachusetts-based Alternative Resources Inc. (ARI), has close ties to the private water industry and has a history of recommending private alternatives over public.

ARI is a member of the National Council for Public-Private Partnerships (NCPPP), whose mission is to “to advocate and facilitate the formation of public-private partnerships at the federal, state and local levels,” according to its mission statement. (“Public-private partnership” is a euphemism for privatization.) ARI?s fellow members include OMI, Thames Water, United Water and U.S. Filter ? the companies competing for Stockton?s contract. This creates a potential conflict of interest, Public Citizen said. Representatives of these and other major water companies serve on the council?s board of directors.

The NCPPP is an active member of the H2O coalition, an industry group that also includes the National Association of Water Companies and the Water and Wastewater Equipment Manufacturers Association. The coalition opposes adequate federal assistance in rebuilding the nation?s crumbling water and wastewater infrastructure, hoping that a lack of funding will force communities to privatize their water systems, thus expanding the revenue base of the coalition members.

When the bids to privatize Stockton?s water systems are submitted, ARI will compare them to an estimated cost of public operation prepared by HDR Engineering and decide which alternative benefits Stockton the most ? public or private operations. However, an ARI representative told Public Citizen recently that ARI always recommends public-private partnerships. ARI?s list of clients is not readily available, but information on ARI?s Web site appears to corroborate the statement. Two cases in which ARI have recommended privatization of water systems include Taunton, Mass. and the borough of Chester in New Jersey.

“It?s absurd to expect a company that?s in bed with the private water industry to recommend the public alternative,” said Jane Kelly, director of the California office of Public Citizen. “By relying on ARI, the City Council is effectively signing away maintenance of the city?s water and sewer systems.”

Stockton?s Mayor Gary Podesto has said that the city is merely exploring its options and could decide to keep the operations public. Indeed, the city hired HDR Engineering to prepare an estimate of what it would cost for the city to continue running the water systems if it became more efficient and made certain capital improvements. But it will be ARI, and not HDR, that will make the final recommendation to the city. Moreover, the city?s contract with ARI covers contract negotiations. These negotiations would be necessary only if the city chose to privatize, so it appears the city expects to do so.

“Hiring HDR to prepare a benchmark report is little more than a smoke screen,” said Diego Valencia, an organizer for Public Citizen in California. “The city officials have decided to privatize from the get-go, or they would not have contracted ARI and listed contract negotiations in the city?s contract with the firm.”

ARI was hired two years ago to prepare procurement documents and evaluate proposals to privatize Stockton?s water systems, but its contract has expanded dramatically as capital improvements were added to the plan. Over the past two years, the city council has approved two additional payments to the company in the amounts of $28,356 and $69,788, so the original $326,274 contract is now worth $424,418.

The City Council is scheduled to vote Jan. 22 whether to make another payment of $71,911 to ARI to cover the additional work from the expanded proposals. If the payment is approved, the change orders will amount to more than half of the original contract, or $170,055. Assistant city manager Gary Ingraham, who is supervising the process, anticipates that the firm will submit another request for even more money for the contract negotiation stage.

Following an emerging trend among local governments, Stockton?s City Council decided in 1999 to explore hiring a private company to operate the city?s water systems, in hopes that the private sector could operate and repair the systems more efficiently and less expensively. OMI/Thames Water, California Water Service Company/United Water Resources and U.S. Filter have expressed their interest in running the systems, which include 405 miles of water mains, 1,151 miles of sewer pipes, 187 miles of connection lines, 20 pumping stations and a treatment plant.

The idea of privatizing Stockton?s water systems has been questioned by Public Citizen and the Concerned Citizens Coalition, a group of Stockton residents fighting to keep the systems public. City water is less expensive than water offered by California Water Service Co., a private firm that now serves about half the city?s population and will be among the bidders for the city contract. And Stockton?s Municipal Utilities District has been able to cut costs in the past two years, resulting in savings that the agency estimates would be sufficient to perform necessary repairs without raising rates over the next 10 years.

“Hiring a water industry insider to decide whether Stockton should keep its water public is like asking a Coke executive if Pepsi is better,” said Jane Kelly. “The mayor and the city council should be wiser than that.”

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