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Food Tank: The Food Think Tank
November 4th, 2009

Analysis of Newark’s Water Optimization Plan

Newark‚ proposal to lease its water and sewage systems to a private entity poses a serious threat to consumer interests.

At a time when utility regulators are being subjected to great scrutiny for their inability to effectively represent citizen interests, Newark is proposing to radically limit public oversight of its most important city service.

The Water Optimization Plan will turn over the government‚ authority to set investment priorities and rates for services to a private entity, saddle that entity with $90 million in lease payments to the city and $70 in existing city debt while insulating the entity from traditional legal and constitutional guarantees that consumers will be treated fairly and have their interests represented. If the Plan is enacted, consumers can expect huge increases in their rates with no guarantees that their services will be improved or that they will be treated fairly by a private entity committed to a massive increase in revenue.

Under the plan, the new Newark Infrastructure Management Corporation (NIMaC) receives all the authority for service provision that a public provider normally possesses (see Procurement Report, sec. 4.9). The transfer of public authority to a private entity may render ineffective important constitutional rights that consumers of public services have.

  • Public service providers are bound by the 14th Amendment‚ equality clause to provide equal services at equal prices to poor and minority communities.
  • Consumers of public services have important due process rights to not have their service disconnected without adequate notice and opportunities for hearings to insure against erroneous deprivations of service.
  • Private service providers not bound by equality and due process guarantees have a dreadful record.
  • In the early history of the United States, water service was commonly provided by public entities that refused to equally serve poor areas because they were not as profitable. This was a primary reason that local governments around the country took over control of water distribution and have largely kept that authority to this day.
  • When England privatized its water distribution in the 1990s, the private service providers cut off service to people behind in their bills at alarming rates (over 50,000 a year) leading parliament to completely ban water cut-offs as a means of coercing bill payment.

One of the primary means for ensuing that monopoly service providers meet public interests is through regulation of rates and service priorities by public utility boards. Most public utilities in the United States must have any rate increase approved before a public utility board as just and reasonable before it is implemented. Often these boards have been ineffective in promoting public interests because consumers do not have access to resources and organizations needed to represent them.

Rather than strengthening consumer representation, for example through the establishment of Citizen Utility Boards to monitor service provision and represent consumer interests in regulatory bodies, Newark proposes to eliminate the jurisdiction of the New Jersey Public Utility Board in overseeing NIMaC‚ rates and services within its locality (Sec. 10, P.L. 2002, Ch. 47, Senate No. 533).

Newark‚ plan reverses the traditional burden of public utilities to have their rates approved by a public monitor before they go into effect. NIMaC is given the authority to set its own rates (Procurement Report, sec. 4.7), without being subject to any public regulatory authority (sec. 6.1(d)). The only mechanism for the public to oppose a rate increase that is not justified in the public interest is to convince the City Council to intervene within 20 days of the rate setting (sec. 4.7). It will likely take consumer groups much longer than 20 days to mobilize enough political support in the City Council to oppose a rate increase that is not in the public‚ interest.
The plan will grant regulatory power to the NIMaC to set service standards (Procurement Report, sec. 4.8). The City Council does not retain any public role in the oversight of NIMaC‚ service standards, nor is there another public representative with such authority.

There are no standards set for assuring that the public‚ interests, rather than revenue maximization, will guide service priorities. There is no requirement, for example, that underserved communities be prioritized in service upgrade decisions or that rates are structured in rising block tariffs to subsidize the basic needs of households at the expense of water-wasters.

According to press reports, the only public representatives in the NIMaC will be appointees to its governing board by the Mayor and City Council. But given that the City is owed millions of dollars by the NIMaC, their interests will not necessarily be aligned with Newark citizen-consumers.

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