TU Water RFP Expert 3.10.2012

The TU Water Expert answers some questions from readers who e-mailed us over the weekend. Also, we have put the Water RFP on our site so you can read it for yourselves.

Some of the terms used in 2.3 on pp. 40-41 could be confusing to a reader who does not deal with water treatment and wastewater treatment plants, but it looks like everything here has to do with the Town’s water system, with the 1.0 mgd capacity increase relating to water.

Looking at the bullets beneath the main paragraph, the “additional pretreatment system” could mean that an improvement to the Town’s WWTP is what is meant and a new culvert has to do with storm water drainage.

It would be good if the Town had a cost estimate of its own for the items listed in the bullets to 2.3 and/or referred to elsewhere i.e. our previous question: why doesn’t the Town have its own system survey and CIP in hand?

Norfolk Ram Group looks like it has already done some homework here. Cohasset water customers will end up paying the costs of these improvements, including the preparatory engineering, no matter whether the Town’s engineers or the contractor (Aquarion?) orders the necessary reports. By the way, who is doing this work for the presumed concessionaire (Aquarion?). Will someone be replicating work that the Town’s engineers have already done?

With a Comprehensive CIP that includes both timing recommendations and informed cost estimates in hand it should be possible for Town officials and the Town Meeting to make an intelligent evaluation of a contract in response to the RFP as well as to determine whether the RFP and the Concession will actually save money or cost money for the Town and its water customers.

Otherwise, what do Town officials and the Town Meeting do?  Do we just say “Gee Mr. Concessionaire, we don’t know what you just said, but it sounded good.” 2.3 seems to say that the contractor will have to bring its own CIP to the table. That’s nice, but the improvements listed here will hopefully last longer than 10 years and,  oh, by the way, they will be owned and financed by the Town. Would Cohasset buy a new truck this way? Here we a talking about prospective $millions of future commitments.

Another interesting little side door in 2.3 seems to be the use of the term “net cash flow neutral.” This is with respect to the Town’s debt service. If we are talking about $millions of future commitments, does this mean annual debt service or total debt service? Given the issue of annual debt service burden that came up at Town Meeting last year, I’m pretty sure the drafters meant annual debt service. There are a lot of ways to achieve this. First, revenues Can be increased. selling surplus water or attracting new water and sewer customers can help to get there, but if increased customer count and water/wastewater volumes do not materialize, there is always the old crutch of a rate increase.

In Cohasset, surprises from failure of parts of the water/wastewater system and surprises concerning missing or misappropriated funds tend to be punctuated by rate increases. Another way to skin the “net cash flow” neutrality cat, including refinancing and extending short-term and intermediate-term debt. This does not hold the total amount that is owed to current levels, but a refinancing strategy could be used to reduce annual debt service burden from current debt and make room to finance new outlays for capital improvements. A third way to achieve “cash flow neutral(ity)” would be to avoid having to categorize increased outlays needed to pay for future capital improvements as debt service. The simplest way to do this would be to switch to “pay-go” for capital improvements, but this option doesn’t work very well when you are broke.

An operating lease would suffice to meet the definition test, but it would be a much more expensive and ultimately front-loaded (in terms of useful life) than just issuing long-term Town of Cohasset bonds. From a legal perspective, it might be possible to argue that payments on a capital lease (i.e. certificates of participation) do not fall, strictly speaking, into the category of debt service, but that would be a rather aggressive stretch.

Then again, there is the Town’s superannuated and technically obsolete population of water meters and associated meter-reading equipment. If unaccounted water is still high, the Town or the contractor might be able to find enough recovered revenues to pay for some or all of the necessary future capital improvements. However, Cohasset doesn’t need to issue an RFP and grant a 10-year concession in order to make this happen. All the Town needs to do is look at unaccounted water, test some meters and execute a smart meter/AMR procurement for this purpose.

The final option for “cash flow neutral(ity)” where debt service is concerned would be to hit the lottery on grants. This is another area here the Town can move on its own. The contractor will probably not qualify for this source of funding for capital improvements (one reason why Hyannis recently opted to de-privatize its water system and go back to a traditional municipal model). In any event, the old saw that “there is no such thing as free lunch” remains as true as the laws of physics.

Water flows down hill and system costs flow down to the rate-payers.

There’s nothing wrong with the Town going out on a hunt for management services, construction services, engineering service or selling surplus water, but my experience tells me that these things can be done a la cart for less money. Town government and ratepayers will never know if they don’t have the tools (system survey and CIP, as well as avoided cost information for water) in hand to make an informed evaluation.

More to come.

© Copyright 2012 Tanna K, All rights Reserved. Written For: Tinytown Unleashed
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  4 comments for “TU Water RFP Expert 3.10.2012

  1. March 12, 2012 at 11:54 pm

    Cause I make the rules and I can unmake them, too.

  2. March 12, 2012 at 9:09 pm

    You recently announced that subscribers must reveal their names, which is only proper (and serves to winnow out some of the nuttier stuff)
    How come the water treatment “expert” is not identified?

  3. March 11, 2012 at 12:30 pm

    The RFP calls for the Concessionaire to be responsible for all billing of all user fees and collection of all Water Department Revenue. Our water expert advises against this. It is our understanding that Cohasset Acting Town Manager Mike Milanoski joins Town Manager Mike Coughlin, in wanting all billing and collections to go through the Town. Before the hearing, I plan to go through the voluminous amount of information our water expert has given us and print it out for those in attendance. Also, I’m putting the Water RFP up on the web right after I submit this comment. I promised to do the same yesterday and did not. Sorry for the delay.

  4. Mary A. Parsons
    March 11, 2012 at 12:23 pm

    Who will be collecting the towns water receipts the winning bidder or the town accountant?

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