Murphy DEP Issues Management Report That Promotes Privatization
Legislators Urged To Say NO To Privatization And Create A Public System
(Source: NJ DEP Report Note: “IOU”, righthand column, is privatization)
The Murphy DEP recently released a management Report that evaluates various management models to reform the City of Trenton’s drinking water system, known as the Trenton Water Works (TWW), see:
There is a strong possibility that the Murphy Administration will try to ram through a privatization scheme, most likely under the deceptive slogan of a “public private partnership”.
In fact, Murphy DEP Commissioner LaTourette, a former corporate lawyer, hinted at exactly that in his interview with NJ Spotlight.
Spotlight reported that both DEP and the Mayor of Trenton “support” a “public – private partnership”.
But if you actually read the report, it provides explicit statements that expose the high costs and consumer ripoffs of privatization, concluding:
the IOU [privatization] Model’s serious drawback are its framework that includes taxes and profits as well as stakeholder and community resistance fomented by privatization. (@ page 35)
The privatization model also has the highest costs (see chart above).
So, people need to circle the wagons and kill the privatization scheme in its crib, and not be duped by the stealth form of privatization known as a “public private partnership”.
I sent the letter below to Senate Environment Committee Chairman Bob Smith, urging a public model, see:
———- Original Message ———-
From: Bill WOLFE <b>
To: senbsmith <SenBSmith@njleg.org>, sengreenstein <sengreenstein@njleg.org>, “senmckeon@njleg.org” <senmckeon@njleg.org>, “Hansen, Eric” <EHansen@njleg.org>, “senzwicker@njleg.org” <senzwicker@njleg.org>
Cc: “shawn.latourette@dep.nj.gov” <shawn.latourette@dep.nj.gov>
Date: 01/28/2025 8:50 AM EST
Subject: Legislation Needed For Trenton Water Works
Dear Chairman Smith and Members of the Senate Environment Committee:
As I’m sure you know, the DEP recently released an important management report regarding the Trenton Water Works, see:
360 DEGREE REVIEW OF TRENTON WATER WORKS
A Comparative Analysis of Governance and Asset/Liability Optimization
https://dep.nj.gov/wp-content/uploads/trentonwater/docs/360-degree-review.pdf
The Report qualitatively analyzes various management models to reform TWW.
Based on the evaluation criteria in that Report, it appears that a “Special Purpose Entity” (SPE) model offers the best overall approach. However, that model requires new Legislation: (Report, @ page 35, emphasis mine)
“SPE Model outpaces the other models being a hybrid that combines the advantages of the public and private models, i.e., its improved governance, great independence, and strong management, coupled with super-tax-exemption, strict KPIs, and ability to provide local Tax & Budget Relief. However, a state sponsored SPE will most likely require legislation whereas a nonprofit entity can generally benefit from existing laws and regulations.”
The Report also finds significant drawbacks to a privatization model, primarily due to the consumer cost impacts of profits and taxes, which can be up to 45% of the consumer’s water bill. (p.34). Additionally, financial incentives (pass through for profits on return on investment drive increases in consumer rates: (page 33)
- Pass-Through operating expenses (OpEx) (operating, maintenance, debt interest, and tax expenses) are borne by ratepayers and thus there is limited incentive by IOUs to fully contain such expenditures, and
- Capital expenditures (CapEx) eligible for Rate Base require regulatory approval, but an IOU has an incentive to not fully contain such costs as its profits are directly tied to the return on the capital invested.
In fact, the Report found that the IOU (privatization) model has by far the highest costs (see attached chart).
These same drawbacks result from the “public private partnership” model.
Given the benefits of a SPE and the strong drawbacks of the various privatization models, I urge you to move legislation establishing a SPE to replace the TWW. Such legislation could also protect the City of Trenton and promote the City’s policy objectives for local employment and consumer protections.
Respectfully,
Bill Wolfe