Township of Edison

P ROP OSED
P U BL I C P R I VATE PA RT NERSHI P
OF I TS
WAT ER DI STR IBU TION A N D S E W ER COL L EC T I ON
SYSTEMS
What is a Public Private Partnership?

A Public Private Partnership (“PPP”) is an agreement

between the public sector and private investors/operators to
use private sector skill and capital to acquire the right for a
defined period of time to operate and improve a public asset
in exchange for the future income stream produced by the
asset.

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Guiding Principles for Edison’s PPP
1. Maintain public ownership of the Township’s asset.
2. Ensure a disciplined and consistent approach to rate management.
3. Make necessary infrastructure investments to insure and preserve system’s viability in the
future.
4. Professional management of system following industry and environmental best practices,
done by an experienced private operator with a depth of resources and accountability to the
Township.
5. Preserve senior rate freeze.

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 Financial Overview
Edison Environmental Partners will provide the below benefits to Edison:

1. Capital Investments of $481 million:

◦ Fund a $100 million capital improvement program for the first seven years of the agreement
◦ Fund a $9.3 million annual capital improvement program beginning in year 8 escalating at 2% per year

2. Limit rate increases to system users to:

◦ 4.9% per annum for the first 10 years (Hard cap at 4.9% for residential users for first 7 years)
◦ 4.5% per annum for the next 15 years
◦ 3.5% per annum for the final 15 years
◦ Preserve Senior rate freeze
***Above increases indexed based on CPI formula
3. Concession payments of $370 million over the course of the agreement
1. Fund a $105 million concession fee representing the value of the assets to the Township
2. Pay Township $4.25 million per year for 20 years and then escalate to higher amounts in years 21-40 ($265 million)

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How System Costs are Distributed

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How Rate Stabilization Fund Works
Cash Inflows Cash Outflows
Future Deposits
Initial Deposit from Capital Plan Rate Stabilization
>>>>>>>>> >>>>>>>>>
Sewer Connection
Fees
When annual capital
needs exceed
required annual To offset any
Revenue in excess of incremental Capital projected rate
Revenue Improvement budget increase above
Requirement from ($9.3 million in year 8 scheduled due to an
$2,000,000 growth,etc. escalated at 2%) unexpected event

Savings in costs of
water supply and
sewer treatment
(First $1.1mm,
escalated, shared 75/25
with Suez/Township)

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Impacts to Rate Stabilization Fund
REASONS FOR CASH INFLOWS TO RATE REASONS FOR CASH OUTFLOWS FROM
STABILIZATION FUND: STABILIZATION FUND:
◦ Higher Water Usage, including: ◦ After Year 7, if inflation exceeds
◦ Addition of a large water user 1.5%
(example: Bottling Plant) ◦ Change in law
◦ Population Growth ◦ Higher Costs of buying water
◦ Lower water purchase costs ◦ Higher Costs of sewer treatment
◦ Lower sewer treatment costs ◦ Lower water usage, including loss of
◦ Lower Utility Costs a large user.
◦ All Future Connection Fees
Improvements in system integrity through over $100 million of capital investments
within first 7 years will lead to a buildup in the Rate Stabilization Fund

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User Rate Increase Regime
Edison Water and Sewer Annual Rate Increases are planned as follows:

◦ Years 1-10 4.90% per year

◦ Years 11-25 4.50% per year
◦ Years 26-40 3.50% per year
**Hard cap on residential rates for the first 7 years of agreement
**Senior rate freeze preserved

◦ Equivalent Constant Rate Increase = 4.19% per year

(includes inflation adjustment on 40% of revenue)

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National Water/Sewer Rate Increase History
Projected Edison Annual Rate Increases Compound Average Rate of Change in
Surveyed Typical Bills
Suez/KKR Proposed Contract
(2001-2018)

Years 1-10 4.90%

Years 11-25 4.50%
Years 26-40 3.50%
Source:
50 Largest Utilities Water/Wastewater Rate Survey 2019
by Black & Veatch
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Comparable Constant Cost Increases Constant
Annual Applied 40 Years
Commodity Source Years Start Finish Increase Forward

US Department
Monthly Electric Bill of Energy 40 $19.94 $102.31 4.30% $528.44
1971-2011

Monthly Gasoline Cost Flashback.com 40 years $34.44 $123.55 3.34% $444.44

1978-2018

Monthly Cable Bill Cut the Cord 20 years $22.35 $69.03 6.12% $700.05
1996-2015

Edison Monthly Sewer Cost Contract 40 years $33.33 4.19% $165.21

2020-2060

Edison Monthly Water Cost Contract 40 years $58.33 4.19% $289.14

2020-2060

food and water

NJ American Monthly Water Cost watch 20 years $34.82 $60.23 5.65% $513.72
1990-2010 Adjusted for 2018

New Home Price US Census 40 years $61,500.00 $329,700.00 4.40% $1,767,821

1978-2018

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Comparable 40 year Forward Monthly Costs

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Can Edison Self Manage at Lower Cost?
The Township has engaged its auditor to undertake an economic analysis of the costs the
Township would incur if it chose to run both the water and sewer systems on its own rather than
have it run by the private sector as proposed. This analysis involved a detailed staffing and
equipping analysis of what would essentially be a start up venture given the large capital
program required. The assumptions utilized were based upon actual public entities operational
expenses.
The analysis found that ratepayers would pay substantially higher rates during the first 20
years of the 40 year project.
Township management of this large a system with all its capital needs will be a challenge
beyond any current Township operations.
The report analyzed the present value for both options over the 40 year period to compare the
cost/benefit in 2019 dollars and found that the public option would cost the ratepayers
$6,899,000 in 2019 dollars or be 16.32% more expensive than the private option.

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Operating Costs – Township Operated
Operating Costs Year 1

Water/Sewer Direct Salaries $ 5,287,680

Water/Sewer Operational Costs $ 10,251,304
Water/Sewer Fringe benefits $ 4,085,778
Water Purchase and Sewer Treatment $ 15,912,000
Unemployment Contribution $ 39,583
Funding of Initial Concession Fee $ 4,931,898
Annual Concession Fees $ 4,250,000
Capital Improvemnt Fund Appropriation $ 4,900,000
Capital/Debt Service $ 13,190,819

Total Budget $ 62,849,062

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 10 Year Annual Residential Ratepayer Costs

10 year savings for average

residential ratepayer with
both water and sewer service
by using private deal is
$8,872 or an average of over
$887/annum

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Capital Costs – Township Operated
Total Capital
Year Bond Issuance Annual Budget Outlays

2019 $ 105,000,000 $ 105,000,000

2020 $ 94,550,000 $ 4,600,000 $ 99,150,000

2027 $ 71,350,000 $ 3,750,000 $ 75,100,000

2032 $ 77,250,000 $ 4,000,000 $ 81,250,000

2038 $ 90,300,000 $ 4,500,000 $ 94,800,000

2044 to 2049 $ 14,000,000 $ 84,000,000

2050 to 2058 $ 15,000,000 $ 135,000,000

2059 $ 14,820,000 $ 14,820,000

Totals $ 438,450,000 $ 689,120,000

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Public vs. Private Summary Analysis
Rate Differential (in millions)
(Present Value Basis)

Public Option Rates $49.175

Private Option Rates $42.276

Private Option Savings $ 6.899

Source:
Consultant’s Report and Calculations
Public Option for Water and Sewer Systems
Operations By the Township of Edison
by
Hodulik & Morrison, P.A.

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Conclusions
1- The Township cannot operate the water and sewer utilities at a lower cost given the need for
extensive capital investment and meeting state and federal standards such as the Water Quality
Accountability Act. Additionally the Township would need to incur more than $400 million of debt to
replace the investment being offered by Suez/KKR.
2- Safety, regulatory compliance and reliability would likely be high risks if the Township were to
attempt self management evidenced by the current condition of the system and enforcement actions
cited by environmental agencies and MCUA. Despite a history of engineering recommendations since
1991, the Township has chosen to not invest in its sewer infrastructure.
3- Continued capital investment is needed to achieve resiliency, this would be at risk as funding
would rely on the will of the Township Council to both borrow funds and raise rates in the future to
pay bond debt service and fund operating needs.
4- Quality of service, including customer service, leak detection technology, etc., are assured in the
Suez/KKR deal through the imposition of Best Management Practices, the Township would not be
held to those high standards.

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