Arizona Water Resource Volume 12 Number 1

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12 Arizona Water Resource July - August 2003 PnvaMZ- #on... continued from_page 2 Phoenix calls the shots The city of Phoenix has recently embarked on a privatization project, contracting a firm to design, build and operate a water treatment facility near Lake Pleasant. Involving a contract of $221.2 million, an amount that includes 15 years of operating costs, this project is the most significant commitment to privatization made by any water utility in the state. Mike Gritzuk, director of Phoenix Water Services, says Phoe- nix is not privatizing its water services along the lines taken by some large U.S. municipalities, with private firms bidding to operate a public utility. Gritzuk says that in working out the details of the Lake Pleasant treatment plant, the city arranged matters to ensure that whatever private firm got the bid would operate in the best interest of the city. He says the city was in a favorable position be- cause of its use of the design - build- operate procurement process. With the DBO process, which was approved for use only recently by the Arizona Legislature, a privatizer's own self - interest is served by performing contracted activities to ensure high quality. Gritzuk says DBO was chosen for the Lake Pleasant plant be- cause "When you combine the synergy of the designer, contractor and operator all at the same time, with an understanding that the group is going to operate this facility for a long period — in our case for 15, maybe 20 years — it was obvious that DBO would result in the highest quality project compared to other procurement methods. "One of the benefits in the DBO procurement method is the transfer of liability and risk from the owner — i.e., the city of Phoenix — to the contractor. If the contractor did not design prop- erly, made errors or did not foresee design needs or if they did not estimate properly, that is their risk, and they have to eat it." Further, he says "Our performance specifications require the contractor to produce a certain quality of water. And if they miss that quality there are some severe penalties they would have to pay. Water Resources Research Center College of Agriculture and Life Sciences The University of Arizona, 350 N. Campbell Ave Tucson, AZ 85721 Arizona Water Resource Address Service Requested "We own the facility, and we will finance the facility. They will have regular compliance requirements that we monitor. We will also do cross - training, with their operators training at our facilities and our operators knowing their facilities. Our vision is that it is going to be a partnership, a private -public partnership." The partnership was criticized by officials of the American Federation of State County and Municipal Employees Local 2384 who feared privatization would adversely affect union membership. Whither goes privatization? Privatization inroads into U.S. municipal water operations, tra- ditionally viewed as a public resource, is significant, the market now estimated at $2.5 billion per year. Some consider Phoenix's decision to privatize part of its operations as representing the likely future course of water privatization in this country. Many such arrange- ments are already in effect throughout the United States, with public water utilities contracting with private firms to operate plants, man- age facilities or perform service and maintenance activities, without outright ownership involved. What some say will occur much less frequently in the future is the privatization of an entire utility, with a city getting out of the water business by contracting a private firm to operate its water services. These are the deals the rankle critics of privatization the most. Further, success in these endeavors has been limited. Some argue that the corporate culture is not well suited for public sector operations. They say a quest for profit is its driving force, to pay stockholders, bondholders and others, whereas the public sector operates at cost. When a public- private partnership is formed to provide a public service, the public sector partner must be able to ensure the arrangement operates to the advantage of the public receiving the service. The question is whether the DBO pro- curement process will ensure that the privatized Lake Pleasant treat- ment plant operates for both private profit and public good. This is the crux of the controversy over privatization of water services. dL NON - PROFIT ORG. US POSTAGE PAID - RECEI VED PERMIT NO. 190 SEP 16 2003 4 tado water Conservation Board 11// �l�'/ 1l lf�i�Ilf /!f /I�Ifl� /�i!! /1!lllil /f it'I�tlf�ff /!'11t� 3 -DIGIT 802 T 81B 2 THE UMVERSnY OF RANDY SEAHOLM COLORADO WATER CONSERVATION BD. AiuzoNA. 1313 SHERMAN ST STE 721 TUCSON ARIZONA -DENVER CO -80203 -2239