City in negotiations on new water deal

With three years still remaining on an existing 20-year deal, the city is negotiating a new 20-year lease of the water system that this time is expected to include a $13-million concession fee from the operator.

City Council is scheduled to introduce an ordinance (O-20-16) for the new water contract at its meeting tonight, with a second reading and final approval scheduled in October. If approved, the contract would take effect January 2017, replacing the final three years of the previous contract, which was set to expire in 2019.

Rahway Water Treatment PlanThe city issued a Request For Proposals in May 2015, receiving proposals from Suez (formerly United Water) and Middlesex Water Company. Negotiations began in October and were completed in May, according a presentation made to City Council during a public hearing apparently held before its June 13 meeting. The full PowerPoint presentation can be found here.

It’s the same process that was used in 1999 when the city agreed to the 20-year lease with United Water. The city and Suez undertook six months of direct face-to-face negotiations before drafting a services agreement and schedule and scope of service.

United Water/Suez operates the water system and makes annual payments to the city while the city would continue to collect water rates and pay the company a management fee. The current lease expires in 2019 but the new deal would take effect Jan. 1, 2017. The management fee has been declining in recent years, per the contract, after reaching its highest points during the middle of the current 20-year contract.

The fee in 2014 was $4.2 million and $3.1 million in 2015 against water fee revenues of $5.9 million in each of last two years. The 2016 budget calls fora management fee of $3.23 million against projected revenue of $5.35 million.

As in the previous contract, the city would maintain full control over and ownership of water supply system as well as water rates.

A copy of the services agreement with Suez Water was obtained through an Open Public Records Act (OPRA) request after City Council approved a resolution (AR-117-16) last month to forward a letter of intent to the Union County Improvement Authority (UCIA). The administration expects to borrow against the annual concession fees from Suez to generate more money for the city, with financing coming through the UCIA, according to City Administrator Cherron Rountree. She said she would recuse herself from any dealings with the UCIA since she also serves as vice chairman of its board.

Part of the reason for the concession fee is that upgrades to the water treatment plant to be completed this year essentially will be a new plant with an entirely new filtration system, Rountree said. The plant will have a new filtration system as a result of a $20-million improvement project authorized last year. Upgrades are expected to be completed this year.