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Wastewater deal yields profit and innovation for Franklin, Ohio.

"A penny saved is a penny earned" is a saying attributed to Ben Franklin when he was publishing "Poor Richard's Almanac" in colonial Philadelphia. The City of Franklin, Ohio, took that familiar proverb to heart in 1994 when it sold its wastewater treatment plant to a private corporation, Wheelabrator EOS, in the nation's first outright privatization of a publicly owned facility.

The $6.8 million deal was completed last August. It paid off the outstanding debt on the 4.5 mgd (million gallon per day) treatment plant, while also yielding an immediate cash payment of $800,000 to the municipalities served by the facility. Another sum of about $500,000 that was being held aside to deal with unanticipated costs is expected to be distributed shortly.

The terms of sale also included a reduction in user fees, from $1.69 per thousand gallons to $1.45. The fee is to be held at that level on a constant-dollar basis over the life of a 20-year service contract. The individual jurisdictions are responsible for bills, collection and making monthly payments to Wheelabrator.

The company will finance and carry out expansions and upgrades approved by the local jurisdictions and factor those costs into the rate base only upon their completion. The communities would contribute towards new capacity required for large new development projects.

The completion of the sale helped trigger another unexpected, and even bigger, windfall for Franklin and its neighboring communities -- economic development.

Mayor James Mears said two things happened soon after the sale was negotiated. Three large paper industries operating in Franklin saw the stabilized wastewater fees as an incentive to expand their operations "by about $2 million apiece," adding new facilities and jobs to the local economy.

"By selling the treatment plant, we also enabled ourselves to enlarge our water distribution system," Mears said. "We have three nearby areas who wanted to buy water from us, and to get the water to them, we will be building lines in areas of Franklin that we had already identified for economic development.

"We basically sidestepped into a whole new dimension of economic development that will create jobs for the entire area," said Mears. "We amre now seeking proposals for a new waterworks to expand our capacity from about 4 million gallons to 10 million gallons a day."

Paul Hillard, a Franklin councilmember, is president of a five-member interlocal board created to serve as the contact point for Wheelabrator in its dealings with the communities served by the newly privatized system.

"Everything is going along smoothly," Hillard said. "We have had one minor correction that had to be changed in the service agreement, and that has given us an opportunity to see what how to deal with the process."

Prior to the sale, the company had been operating the sewage plant, using Wheelabrator employees, under a service contract. The plant was one of two facilities built by the M&M Water Conservancy District (MCD), a regional flood control agency.

MCD wanted to divest itself of the Franklin plant, and the privatization plan emerged from a feasibility study conducted by George Raftelis, a consultant then working with Ernst Young. Although Franklin users account for more than 60 percent of the plant's capacity, the plan was developed through a collaborative process with other users in Carlisle, Germantown and some unincorporated areas of Montgomery and Warren counties.

A key hurdle in the privatization process involved the status of federal grant assistane that supported construction of a facility. In the case of Franklin, the federal grant of $1.75 million was made more than 20 years earlier and had already been fully depreciated, but legal questions remained an issue.

An executive order to promote infrastructure privatization signed by President George Bush in 1992 (Executive Order 12803) provided new relief from federal recoupment, and served as the catalyst for Wheelabrator's proposal to purchase ownership of the system. The Environmental Protection Agency (EPA) then weighed in with its support for the sale as a pilot project for the new initiative.

In addition to the purchasing and financing arrangements, technical compliance agreements also had to gain approval from both the federal EPA and Ohio EVA.

While the privatization process itself has been proceeding smoothly, Mayor Mears said there may be unforeseen side-issues that can arise unexpectedly.

Along with the costs of operation a treatment plant, sludge disposal is another factor that can present problems. In the case of Franklin's facility, Mayor Mears said the sludge produced is environmentally suitable for unlimited applications in agricultrual uses. He voiced concern, however, that Wheelabrator also has a service contract at a nearby plant, which it does not own and from which the sludge is less environmentally acceptable.

Mears said that because of liability concerns, the city would be concerned about co-mingling these materials, but there is nothing explicit about it in their service agreement.

With the groundwork completed and the new venture launched, Frankfin's city manager, Samuel Coxson, who was deeply involved in the privatization process, has taken that experience to an unusual destination. He left for Orenburg, Russia, in October to help that city of 500,000 on the Russian steppes to convert its old state water system into a murucipally operated public utility.

The privatization initiative developed by Franklin, its neighbors, consulting partners and Wheelabrator EOS has attention and inquiries from many other communities. The city has copies of its 130-page service contract available for $25, or a complete set of documentation for $100. Contact City of Franklin, 35 East Fourth Street, OH 45005, or call (513) 746-9921.
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Title Annotation:includes related information on the report; Special Report: Privatization Grows Up: Municipalities Enjoy Savings and Service
Author:Arndt, Randy
Publication:Nation's Cities Weekly
Date:Jan 22, 1996
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