A Final Case for Voting NO to Retain the South Orange Water Utility

A Final Case for Voting NO to Retain the South Orange Water Utility

As South Orange voters head to the polls, Food & Water Watch urges a NO vote for the sale of the water utility.

Selling the township's drinking water system is a short sighted decision to the problem South Orange finds itself in and one that is permanent. South Orange has better options available to handle the operation of its water utility and make the necessary investments to ensure residents continue to receive clean and affordable drinking water.

South Orange residents have been told that if the township doesn't sell water rates will be raised 74% to pay for capital improvement including lead service line replacement, but Food & Water Watch and many South Orange residents have serious concerns about how this is being calculated.

The capital improvement needs may be overstated. The township and NJ American Water have said that there needs to be $50 million spent on capital improvement but that number is yet to be substantiated. Legally the township must file planned infrastructure improvements to the state under the Water Quality Accountability Act. And in its most recent filing in 2023 the township indicated that it planned $17.5 million in capital improvements over the next 7 years. The capital improvement plan in the task force report also does not match up with the $50 million figure. The township has not released its detailed capital improvement plan or their engineering studies, so voters remain in the dark.

This estimate may also be overstating financing costs. Does this rate projection include any of the many state and federal dollars available to NJ municipalities for lead line replacement and other system upgrades? Just this week more even more federal money was allocated to NJ for water system upgrades. South Orange has already benefited from these funds for some of the lead line identification and replacement that has already been done as well as the smart meter replacement. If South Orange retained ownership over the system these federal and state dollars would directly benefit South Orange. Under private ownership, the company could still get low-cost loans but the savings would be spread out across the full customer base and residents in South Orange would still need to pay the company’s "lead service line replacement" surcharge and distribution system improvement charge even after replacements have been made in the township.

South Orange has not done its due diligence in exploring public options for the water system that will cut costs. Food & Water Watch and South Orange residents have been looking into other options. For example, South Orange currently purchases its water supply from NJ American Water. This is a long term agreement (though South Orange can get out of it) to have water piped into the town. In the last week we’ve spoken with the North Jersey District Water Supply Commission who shared that they have enough water available that South Orange could instead contract with them for much less than the price that South Orange currently pays NJ American Water. In conversations with administrators in Newark, the Newark water utility could provide bulk water to South Orange via the Pequannock plant and existing pipeline connection to South Orange. The rate including wheeling and distribution fees would also be less than what the town currently pays. These are just a couple examples of how South Orange could save residents money by not selling off the system.

A big issue with privatization is the long-term cost. On average, privately owned systems charge water rates that are 59% higher than publicly owned systems because they are legally allowed to charge ratepayers a nearly 10% profit on top of the costs for every capital improvement project - including service line replacements. Additionally, NJ American has been aggressively acquiring water systems throughout the state, which must be upgraded due to new federal and state regulations that require the replacement of lead and galvanized (zinc coated) pipes and the treatment of PFAS chemicals. This means you, as a ratepayer in South Orange, will be paying not only for upgrading your local water system but also many other systems. The township’s own task force report on privatization notes that post-sale, “water rates will include capital project recovery for projects beyond South Orange.” If you want another example of NJ American Water’s big spending, consider that they’ve spent over $100,000 this election trying to convince you to sell the system, including sending mailers and canvassers to your house. In Gloucester Township, where they want to buy the municipal sewer system, the company has spent over a million dollars trying to reach voters in the form of TV ads during Monday night football games, and even paying airplanes to fly over the town with banners urging voters to sell.

And seller beware, just this week, on October 30, American Water announced a new five-year capital plan and shared that it intends to raise $2.5 billion of equity between 2025 and 2029 to part-fund a $17-18 billion capital investment plan. This means massive costs are coming to NJ American customers.

So, unfortunately, once NJ American Water purchases the system, we know they will charge higher rates in the long run, but in the short-run, costs may be much higher than promised. South Orange voters will see on their ballots a chart showing a promised rate stabilization plan over the next five years. But NJ American legally cannot guarantee rate freezes. Residents in Allendale in Bergen County were promised no rate increase this year after selling to another company in 2022 but they were hit with a 12.5% rate increase this year anyway. It says it right there on your ballot: Rate stabilization is “subject to the final review and approval of the NJ Board of Public Utilities.”

Rather than selling the utility, South Orange has several options that would allow the town to retain ownership over the system, such as running the utility in-house - much like South Orange already runs its own sewer utility - or joining forces with another town through a public-public partnership or contracting with another private company. All of these options allow South Orange to provide residents with good water delivery service while retaining ownership of the system which saves residents money in the long term while allowing the township to retain control and oversight of the system. Of course, this isn't to say that water rates won't ever go up in South Orange, but municipalities that are under private ownership nearly always pay more than residents in municipalities where the utility is private.

How do we know? We’ve been working to support communities to retain control of their water and sewer utilities in NJ since 2010. We’ve seen time and time again communities that privatize their water inevitably pay much more than communities that retain their systems. Privatization doesn’t need to feel inevitable. South Orange has much better options. As you head to the polls on Tuesday, consider this a final decision, because once it’s sold it’s out of public control for good.

Sam DiFalco with Food & Water Watch
Questions? Reach out sdifalco@fwwatch.org

Food & Water Watch is an advocacy organization working on issues related to Food, Water, and Climate. Food & Water Watch is not funded by corporate money.