19th and 20th Century Municipalities Grapple with 21st Century problems
Cities are learning how to partner with private sector expertise to upgrade aging infrastructure.
Municipalities are on the front lines. Unusual weather events impact them directly, as do major economic shifts. The Big Recession of 2008 shook many to their foundations, and some have never fully recovered. Cities must juggle rising needs against falling budgets. They are accountable to residents and businesses, which are unlikely to be persuaded by the intricacies of tax laws and regulatory requirements, or the complexities and costs of keeping our children educated and citizens safe. While national politicians seem to engage in never ending debates on policy, Mayors must act.
Large growing cities, like San Francisco, New York and Chicago, have many resources to manage change as they plan a sustainable city. For smaller cities — especially those not growing — the challenges and the hard choices are daunting. As a solution, many are forming public-private partnerships with experienced enterprises that bring expertise, control costs and manage complexity.
Veolia North America is one vendor that has been engaging with such projects for many years. In working with municipalities, they structure contracts to meet the needs of each city.
The Jackson Model — Clean Water that Meets City Long Term Goals
The city of Jackson Mississippi has a population around 170,000, but has shrunk by about 2% in the last five years. Looking to the future, Jackson sought a partner willing to work with the city to manage their water system, while also engaging with the wider goal of building a modern framework that can stabilize the city’s economic base. The City started by seeking management of their three wastewater treatment facilities that have a combined capacity of up to 125 million gallons per day. While the city wanted to maintain ownership of their legacy system, they did not want the burden of day-to-day management.
In the Jackson Model, the City owns the facility and sets programs and pricing, while Veolia manages the planning objectives that the city sets for capital improvements, along with maintenance. Because the company has broad expertise in water technology, policy and finance, they are able to save Jackson a lot of money. However, the key factor that made Veolia competitive was their experience in training workers, especially minorities and women.
The Internship Program
When Veolia started discussions with the City, the conversation expanded from wastewater to jobs. Veolia had experience in workforce training, and that experience turned out to be very attractive to Jackson.
“This is very new for them. [Jackson City] They didn’t have such a program with previous vendors. One of the reasons it was added into this contract is that we have history with training,” said Lewis (J.R.) Parrish, VP of Operations in the Jackson area.
He went on to say that the conversation about expanded services can come up during a pre-bid meeting, when the city is meeting with contractors to outline the City’s goals, or during post-award contract negotiations. The latter was the case with Jackson, where Mr. Parrish said, “They knew how they wanted it structured. But as we put the process together, we found they really wanted a broader brush stroke.”
After discussing Veolia’s Atlanta-Fulton model, Jackson City decided that they wanted paid interns. In the Atlanta, Georgia area, Veolia has had an internship program for last 5 years which targets school kids. They work with a couple of students for 6 months, and now have a roster of 12 or so graduates of Veolia’s program. One of the graduates went on to major in environmental science and is now a Veolia employee.
The internship program that Veolia developed for Jackson is a 10 week session that follows an outline that counts as credit for colleges. They look for students with an environmental engineering background, often recruiting from nearby universities and colleges. The company manages advertising the opportunity as well as student selection.
“It’s important for us,” Mr. Parrish added. “We manage everything from operational efficiencies, along with job preservation and creation of interning co-op programs. We’re meeting the environmental compliance statutes that are mandated by the Water Quality Act along with transferring operational risk from the city onto Veolia.”
These programs bring jobs to the area as they increase the skills of low income workers. Enhanced health and safety programs ensure that people are healthy and fully understand what Occupational Safety and Health Administration (OSHA) compliance looks like and how to do it. They are also filling a gap due to an aging workforce in operations and maintenance.
“The industry as a whole is suffering and this helps drastically. It’s really an investment in the future of the industry,” Mr. Parrish continues, “We feel it is a true partnership with Jackson, and that is shown by our work in the community. Environmental education can foster the next generation of men and women who will be taking all our spots in the future.”
He added that the way that Veolia collaborates with cities is by responding to RFPs (Request for Proposals) and RFQs (Request for Qualifications), but also by aggressively talking with city managers — helping them understand some of the benefits of public private partnerships. “What they ask for sometimes isn’t what they need. When possible, we find that providing more information allows them to make more informed choices.” He adds that the challenges facing municipalities cover a very wide range. What is right for one, may not work in another. He mentioned that in many rural locations, where the economy is very depressed, the goal is just to keep expenses down. Training is a cost, so it is generally included in larger urban contracts.
“Our local team looks forward to achieving Mayor Yarber’s vision of a resilient and vibrant community, and appreciates the trust and confidence the Mayor, the City Council, and the Department of Public Works has placed in Veolia,” added John Gibson, president and COO of Veolia North America’s Municipal & Commercial business.
The Jackson model is one approach that satisfies a diverse set of needs that the city anticipates needing for their future.
Knowing Priorities Ensures that Muni’s Get What They Want
Who owns our water and sets our rates?
Under public-private partnerships, the public partner can own the assets, control the management and establish user rates. Such contracts generally ensure rate stability, supported by private companies’ expertise in long term projections.
How can we ensure that our interests are put first?
Thousands of communities served by public-private partnerships have experienced cost reductions of 10% to 30%. The expertise of scientists, technologists, engineers and operations experts bring a level of innovation that would be difficult for municipalities faced with competing demands for education, public safety and other services.
How can we keep jobs?
Staffing levels can be governed by the municipal entity as expressed by the partnership agreement. However, partnerships are often more efficient in their management of water and wastewater assets.
How can our Municipal employees benefit?
Companies specializing in water are more likely to welcome municipal employees because they understand that essential local, public experience should be blended with private-sector expertise. Many private sector jobs are filled by former public-sector employees, local to their communities. Such jobs can lead to better pay, improved training, professional growth and development, and opportunities in other markets or industries.
How can we be sure all regulations are covered?
Private-sector companies are often hired specifically to address a municipality’s past compliance issues, as well as to help implement new technologies in response to increased demand, water shortages, new sources of pollution and other concerns. By managing communication, contractors can help keep customers informed during weather changes and other unexpected events.
How do we know we have what we need if we want to hire someone new?
Contracts can easily be written so that assets are maintained and preserved, along with the documentation needed to ensure transparent transfer to another vendor or back to the municipality. The best way to ensure that the vendor has the right interest at heart is to look at their contract renewal rate, or to talk with other municipal customers.
Adapted from “Myths of Public Private Partnerships”
The Baltimore Model — Managing Complexity
The second example is Baltimore, Maryland, a city of around 620,000 people, a figure which has not changed much in ten years. Under the busy streets of downtown Baltimore is a network of conduits that would be the envy of many cities. Maintained by fees, downtown developers have access to corridors that make upgrading of communication and energy infrastructure easier than in many communities.
Baltimore has a district heating system (DHS) in its downtown business area. The system distributes heat and cooling, generated in a centralized location for multi-family residential and commercial requirements for space heating and cooling, and water heating. An ancient idea, district heating traces its roots to the hot water-heated baths and greenhouses of the ancient Roman Empire.
The Baltimore system has been in operation since the early 1900s, but has changed ownership as well as direction throughout the century. The system was owned and operated by the Baltimore Gas and Electric Company (BG&E). By the 1970s, BG&E was keen on expanding its core utility business and wanted out of DHS. There were other hurdles too.
- Costs: Pricing is impacted by highly seasonal sales, reliance on expensive natural gas and fuel oil, a lack of investment in equipment upgrades, and a changing regulatory environment.
- Conflicts: With time, the DHS ecosystem became more complex with multiple players — often with conflicting interests — that created confusion and, in some cases, additional expense.
- The Baltimore DHS has relied on energy generated from waste disposal for as much as 50% of fuel for heating. However, the primary source of income for Waste-to-Energy companies is disposal fees, which are made competitive by sales on energy. Under existing regulations, companies with too many customers may become classified as an energy utility, coming under additional regulations that do not fit with their model.
- Energy utilities that supply fuel are not interested in being a heating and cooling company, primarily because it calls for different technology, expertise and management.
- Public consumers are not permitted to benefit from switching from high-cost fuel to lower-cost fuel; in this case, from oil to refuse. Local Housing Authorities are one among the largest potential institutional customers for DHS systems.
Uniting Systems to Streamline Efficiencies
After Baltimore Gas and Electric (BG&E) backed out, Baltimore’s system went through a group of companies which owned parts — such as the heating, or steam, or waste to energy. The City also developed a series of plans, some funded by HUD (US Housing and Urban Development). Over time, one company — Veolia — began to unite the network, purchasing various parts over the next thirty to forty years.
Currently, Veolia owns three DHS geographic networks in Baltimore, serving over 255 institutional customers in the central business district as well as Inner Harbor East, an upscale, mixed-use development incorporating several high-rise hotels, apartments, and retail and office buildings. As Veolia slowly bought the moving parts and formed partnerships with major suppliers, they have been able to integrate heating and cooling. Instead of purchasing capital, Veolia has focused on creating synergy among existing networks. As an example, two of the companies that they bought were competitors in the hot-water industry, leading to lawsuits and other practices that did not benefit customers. Now, they’re part of Veolia.
Another benefit is that, by combining services, Veolia has been able to expand relationships with developers of new projects in downtown, such as the Four Seasons Hotel and Legg Mason Tower. The newly constructed high-rise skyscrapers are located along the east harbor between the Marriott Waterfront Hotel and the Spinnaker Bay residential building.
Their network includes:
- Waste for Energy: Wheelabrator Technologies Inc, a renewable waste-to-energy company with operations in Baltimore since 1985. Wheelabrator, has a 28-year partnership with Veolia.
The Wheelabrator Baltimore energy-from-waste facility uses up to 2,250 tons of post-recycled everyday waste from Baltimore area homes and businesses as a local, sustainable fuel to generate as much as 64 MW of clean, renewable electricity for sale to the local utility — the equivalent of supplying the electrical needs of an estimated 40,000 Maryland homes as well as our own operations. Wheelabrator Baltimore provides green steam to fuel Veolia’s downtown heating and cooling loop — which serves more than 255 businesses including M&T Bank Stadium, home of the Baltimore Ravens — in addition to providing power to thousands of Baltimore-area homes, using local waste as fuel to create a local-energy ecosystem that recycles metals, provides power, reduces the need for landfill, and lowers CO2 emissions.For more on Wheelabrator, see our article: Waste is Only Waste if you Don’t Use It
- Cooling: Veolia acquired Comfort Link, a major subsidiary of Constellation Energy (BE&G) and one of the largest suppliers of district cooling systems in the city in February 2010. Comfort Link offers an energy-saving alternative to air-conditioning by using off-peak energy to freeze and store water for daytime use.
The Comfort Link cooling facility was built in Baltimore in 1999. Making ice from around 10:00 at night to 6:00 in the morning, the system distributes water at 37 degrees Fahrenheit for cooling through 10 miles of district piping. Such services help utilities be more resilient by reducing use during peak hours, when warm weather and industrial use creates high demand. Another company, Ice Storage, is anticipating providing home systems early in 2017.
- Heating: Trigen, a national company which operates heating networks in numerous cities across the US. was acquired by Veolia in December 2007. In Baltimore, Trigen has been operating an 11 mile network serving 250 customers.
Trigen been in district heating and cooling for nearly thirty years, serving communities in Atlanta, Baltimore, Boston, Kansas City, Las Vegas, Los Angeles, Oklahoma City, Philadelphia, Trenton, and Tulsa.
This complex network of partnerships and owners coordinates operations with the city itself. As in Jackson, Mississippi, Veolia hires locally whenever they can, which helps the City of Baltimore begin to rebuild. The result has brought benefits to Baltimore, making it a more sustainable and cleaner city. Two examples are:
- Over 50% of the steam delivered to customers is produced by renewable fuel originating from Wheelabrator’s waste-to-energy plant, thereby reducing Baltimore’s total greenhouse gas emissions by approximately 47,000 tons per year — the equivalent of removing 8,400 cars from the road.
- With one of the largest ice thermal storage systems in the country, Veolia keeps downtown Baltimore cool. Veolia’s innovative system delivers more than 32,000 tons of cooling capacity and approximately 40 million ton-hours of low-temperature chilled water to more than 11.5 million square feet of customer space.
Large Problems, Small Resources For Cities and Industry
There are over 750 cities in the United States, 13% of which have populations that are in decline. Of those, 4% are under 100,000. These are cities with challenges and opportunities. Mr. Parrish noted that many counties are aggregating city and town districts in order to create larger entities that can take advantage of modern efficiencies that save money as they clean the environment. However, the problems facing cities are not atypical of those facing large industries and organizations. As Mathew Ware, Vice President of Operations (Energy) in the South Region, said, Universities want to attract millennials, who are concerned about the environment and like to see a campus with modern energy, water and transportation efficiencies. He added that Boards of Directors are becoming more interested and involved, because they see efficiency as a competitive advantage.
“The Market wants companies to be more sustainable,” Mr. Ware added.
As an example, Industrial Realty Group, a privately-held real estate development and investment firm specializing in the acquisition, development and management of commercial and industrial real estate, recently engaged Veolia to provide central utility operations at a pharmaceutical campus in NY. The company will operate a central utility co-generation (heat and energy) plant as well as water treatment.
“Our team will work to optimize operations from a reliability and cost perspective,” said Mr. Gibson. “Maximizing utility performance will allow IRG to focus on its core mission of developing a cost-competitive location to attract industrial manufacturers.”
Such partnerships will be increasingly important as cities and industry look for help with projects that could sap resources, divert employee attention from core functions, and demand expertise and experience in long term planning. Facing an increasingly competitive environment, finding the right partners to manage the costs of infrastructure is rising to the top of municipal, corporate and institutional objectives.
