West Milford utility's sale nears: What does it mean?

• Sale of authority's assets still require voter approval in November
• Rates due to decrease for users over first three years under Suez
• Township to pay off municipal debt with any profits on proposed $12.5-million sale

WEST MILFORD — A $12.5 million agreement to sell the Municipal Utilities Authority’s assets to Suez Water New Jersey could depend on the whim of the voters.

Local government and Suez representatives have signed off on the deal, which would dissolve the independent authority and give control of the 1,760-user system to the Paramus-based company. The as-is agreement still requires some state-level approvals, but officials say perhaps the largest obstacle to a sale and meaningful system upgrades remains the approval of local voters in a November referendum.

“Without that, nothing changes,” said Bettina Bieri, West Milford's mayor. “There are no resources to get [the system] any further.”

So what might change?

Rates

One thing that would not change much under Suez is rates, according to Gary Prettyman, senior director of regulatory business at Suez. Prettyman said the company plans to preserve the current rates during its first year and implement a 1 percent combined water and sewer rate decrease for year two. No changes are expected in year three, he said. After that, a 6 percent rate increase every other year is projected, Prettyman said.

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Unlike a private company regulated by the state Board of Public Utilities, which vets and approved rate increases, the authority sets whatever rates it deems fit. Still, Ralph Harris, an authority board member and ratepayer, said financing $30 million in needed improvements through the 1,760 users was effectively impossible. It would cost each user about $17,000, or about 10 times an annual residential water and sewer bill.

Upgrades

Mary Campbell, a vice president of business development for Suez, said there are clear issues with the aging infrastructure that authority and township officials call operable and salable but unsustainable. Still, with 800,000 customers in the region, 1,000 employees, and a history of taking over systems facing insolvency, Campbell said, the company can manage the turnaround.

“We have the wherewithal; we have the expertise in place,” she said.

Emad Sidhom, the director of engineering at Suez Water New Jersey, said the company is planning $31 million in system upgrades, including the direct replacement or consolidation of four of the system’s six sewage treatment plants, during the first five years to get into compliance with state environmental standards.

“We will not get out of the violations on Day One. We cannot do magic,” he said

Another $40 million in upgrades is proposed for the following 15 years, records show. That investment includes a fifth plant replacement.

Finances

Financial records show the authority’s property, plants and equipment are valued at about $11.8 million. The sale price has been tentatively set at $12.5 million, though the price could fall if issues are discovered during a pending due diligence period, said Fred Semrau, township attorney. If the offered price drops below $10.5 million, the township can back out of the deal, records show.

The payment is due to cover the authority’s $5.6 million debt and other obligations, such as outstanding New Jersey Department of Environmental Protection fines, Semrau said. Those outstanding fines for noncompliance could be negotiated down to about $800,000, he said.

Profit from the sale would go to pay off municipal debt, per state regulations. Moreover, the township is due to receive $250,000 to cover legal, engineering, inspection and other associated fees, records show.

Township

The township became involved in the sale earlier this year after the authority hit a legal roadblock, officials said. It was determined with the guidance of state officials that the best way to comply with law regulating the sale of the assets of the autonomous agency would require the township to execute the sale, Semrau said.

“It wasn’t determined it was illegal,” he said. “We just thought that’s our best chance from a legal perspective.”

As a result, a successful outcome from municipal voters in the November referendum is required to approve the sale. The vote will be held during the New Jersey gubernatorial election on Nov. 7, records show.

Authority

If it is sold, the volunteer body that governed operations would dissolve. Its three employees would be offered either further employment or six months of salary as a payout, according to the agreement. Closing is expected to take place 45 days after the last condition of sale is met, records show.

Future operations of the systems would be fully controlled by Suez. The regional company has more than 205,000 service lines in northern New Jersey. It currently serves about 535 customers in the township’s Bald Eagle Commons development.