Monetizing the CCUA
By
Albert B. Kelly
Last week I opined about the possibilities available to Cumberland County and its communities as a result of American Rescue Plan Act (ARPA) monies and what we might accomplish working together on infrastructure projects to better position us for the future. What I did not know at the time was that some of the leadership at the Cumberland County Utilities Authority (CCUA) was in the process of exploring alternatives with private equity firms interested in doing a deal with the CCUA to “monetize” their physical assets.
This was the primary focus of the CCUA’s May 20th Board meeting. If I understood the presentation that was made by Bernhardt Capital, this private equity firm would not own the physical assets of the authority, but would provide an upfront payment for a piece of the future revenue stream generated by the authority. In providing the CCUA with a chunk of capital now- investors would basically be making a claim on future revenue.
As with any discussions involving the private sector and public utilities there is great skepticism. When it comes to outright privatization, whether of a water system or sewer system, there is the real fear that the end result will be a private company doing what is necessary to ensure a return on their investment whether that means raising rates to goodness-knows-what, cutting services, or some combination of these to ensure an adequate return on their investment. But outright privatization is not what we’re talking about here.
In this instance, the utility would continue to own the system and operate it as it has been doing all along, but the upfront chunk of capital would mean that the investors would have a piece of the future. From an investor’s standpoint, that’s how it should work. But then the skepticism kicks in and when it does, the first question is who stands to make money off the deal. Certainly the attorneys followed by a few others, but regardless you know someone’s pushing because they’re making money on the deal.
Beyond that, skepticism extends to any terms and conditions. What I mean to say is that the devil is in the details and if private investors are making a bet on our future, there are sure to be terms and conditions baked into the cake to ensure that their bet pays off. Again, from an investor’s standpoint this makes sense but when you, your children and possibly your grandchildren are the ones who have to deliver on that bet, it matters a great deal as to how those terms and conditions play out.
I don’t know how much money we’re talking about when it comes to monetizing the physical assets of the CCUA, but it will likely be tens of millions of dollars. The idea is that accessing this chunk of capital now will allow the CCUA to make investments on behalf of its customers. For what it’s worth, not all taxpayers are customers and not all customers are taxpayers, something to keep in mind when deciding how best to spend or invest these monies.
As it stands, some 70% of CCUA ratepayers are from the City of Bridgeton with the remaining 30% being in Upper Deerfield Township, Hopewell Township, and Fairfield Township. My point is that if the CCUA ultimately goes through with this or any other deal, these communities and the rate payers in these communities should be the primary beneficiaries.
In one sense, having the presentation was possibly putting the cart before the horse because it came before discussions with each community. What helps mitigate that now I suppose is the fact that decision makers are planning a series of meetings with the mayors from the respective communities to discuss the implications and possibilities and that is a good thing as it will allow us to explore needs, future plans, or anything else as it relates to sewer; whether for residential, commercial or industrial growth in each community.
It’s a start and there is certainly merit to the idea of accessing capital (in addition to ARPA monies) that can allow the communities involved to upgrade existing infrastructure for current customers and expand service in these communities to new customers. But if this is how we decide to go, know that it would be a long term private equity marriage for years to come so we better get it right because we only get one bite at this apple.