Supporting Municipalities Amid COVID Budget Cuts

The public-private partnership between the City of Bayonne, NJ and Bayonne Water Joint Venture, an entity that includes SUEZ and private investors managed by Argo Infrastructure Partners LLC, has allowed SUEZ to take the initiative in discovering and resolving critical infrastructure issues that, left unaddressed, could harm the financial health of this city and the physical health of its residents.

The public-private partnership assures that capital will continually be made available to modernize and improve the system in Bayonne.  Such investment allows Bayonne to address the challenges of a 21st century city with ease. The commitment to guaranteeing reliable, safe and clean drinking water has become imperative to attract new business and build a smart city for future generations.  As SUEZ continues to improve infrastructure, the city continues to grow its customer base and expand its economic development program without developing additional sources of supply

What city service did the project improve or what municipal budget challenge did it overcome?
In 2020, Bayonne Water—operated by SUEZ under a public-private partnership—faced two critical challenges. The first, the removal of a 30-year-old, 4,000-gallon diesel fuel underground storage tank at the city’s largest pump station, demanded immediate action. The second, replacement of an enormous storm water bar screen system, required longer-term planning. Both would have severe environmental and financial repercussions if not remedied.
The projects came in the throes of the COVID-19 pandemic. But action could not be delayed. Those who were required to be on-site for the tank removal and above-ground replacement donned PPE and employed enhanced pandemic tactics (e.g., social distancing); those who could work remotely did so.
In the first instance, SUEZ discovered in early 2020 as part of its oversight of Bayonne Water’s wastewater system, that the insurance policy covering the underground storage tank was set to expire. If the tank was not removed by May 6, the insurance deductible would soar from $10,000 to $250,000.
In the second instance, a large metal bar screen system that removes solids and debris from combined sewer overflows, had not been operating efficiently for years. The mechanism, as well as the electronics control panel, was severely corroded. While Bayonne Water technically has remained in environmental compliance because of secondary screening devices, only replacement of the screening system and the attendant electronics offers a viable long-term solution. However, the project is forecast to cost at least $2.5 million, nearly the entirety of the $2.7 million 2020 municipal budget.
What was the impact of this successful water concession?
SUEZ and Bayonne Water were able to save the City of Bayonne nearly a $250,000 in insurance costs, while protecting the health and safety of its residents. Just as important, SUEZ’ responsiveness amid the pandemic illustrates the strength of water PPPs (with focuses in water and wastewater sectors): Bayonne Water was able to leverage SUEZ’ technical expertise and its supply-chain prowess to successfully complete the emergency project on time and within local water budget. A key advantage of the water concession, executed under SUEZ’ SOLUTIONSM business model, is that it provides mechanisms for one-off capital needs (termed “Agreed Modifications”) should circumstances demand additional amounts that exceed the annual municipal budget. In this case, failure to replace the decrepit bar screen system—already about 30 years old—could result in costly environmental fines and represent a health and safety hazard to residents and plant workers.
As of this writing, the 4,000-gallon diesel fuel underground storage tank had been replaced with an above-ground, double-hulled unit, and the bar-screen project had been put out to bid. It is expected to be completed in 2021.
What areas did the successful execution of the project impact?

Service delivery improvement: Installation of a new bar screen mechanism to remove solids and debris from entering the stormwater discharge outflow. Removal of a 30-year-old, 4,000-gallon diesel fuel underground fiberglass storage tank with an above-ground, double-hulled unit. Both projects ensure environmental protection for residents and physical protection for workers.

Innovation: The two projects typify the flexibility of the innovative SOLUTION model framework and agreement, which have encouraged investment in a system that had long been neglected.  Since closing the transaction (i.e., inception of the PPP) in late 2012, more than $25M has been invested in the city’s water and sewer system to ensure service reliability and environmental compliance. SUEZ has undertaken novel approaches to addressing many other challenges in operating the city’s water & sewer system. For example, during the second quarter of 2020—through the height of the pandemic—SUEZ was able to continue with the inspection of over 14,000 feet of sewer main using innovative acoustic inspection technology in order to meet its contractual obligations.

Municipal budget savings: The public-private partnership between the City of Bayonne and Bayonne Water Joint Venture, an entity that includes SUEZ and private investors managed by Argo Infrastructure Partners LLC, allowed the City of Bayonne to immediately avoid a $240,000 increase in its insurance deductible. Moreover, by proactively detecting—and remediating crumbling infrastructure—SUEZ and Bayonne Water Joint Venture saved large environmental fines that inevitably would have been levied.

Environmental impact: Removal of an underground storage tank saved contaminants from leaking into the soil and groundwater. The new bar screen mechanism will remove debris from CSOs before entering the city’s waterways.

Impact on city economy: Since 2013, the public-private-partnership between SUEZ and the city has led to positive changes in the city’s overall financial health.  An immediate result of the partnership was the defeasance of all the system-related debt ($150 million) and the subsequent decision by Moody’s Investor Service to change the rating on the city’s outstanding obligations from Baa1 with a negative outlook to a stable outlook for the first time in five years. Three years after the partnership began, Moody’s further upgraded Bayonne’s credit to A3, reflecting—among other factors—the financial stability the city demonstrated as a result of the upfront payment the partnership provided as well as the long-term stability provided by our SOLUTION.

Business benefits: The commitment to guaranteeing reliable, safe, and clean drinking water has become imperative to attract new business and build a smart city for future generations. As SUEZ continues to improve infrastructure, the city continues to grow its customer base and expand its economic development program without finding additional sources of supply.

Tourism benefits: Fishing, boating and other outdoor activities in and along Bayonne’s waterways has increased in recent years. Replacement of the mechanical bar screen will help ensure the trend increases.

How best practices were developed and implemented throughout this water concession?
  • In late February 2020, as part of its ongoing asset management and operations and management of Bayonne Water’s wastewater system, SUEZ discovered that the insurance policy covering the underground diesel fuel storage tank was set to expire. SUEZ knew that the city’s insurance premium would skyrocket and was persistent through telephone calls and emails in encouraging the city to take action.
  • At first, the city considered completing the project itself, but eventually understood that SUEZ had the expertise to take on the project and the supply-chain contacts to acquire the right equipment at a good price.
  • SUEZ was able to do this on short notice because of a contract-modification instrument built into SUEZ’ SOLUTION business model. That instrument allowed sufficient capital to be spent without raising consumer rates inordinately.
  • Using enhanced COVID-19 protocols, SUEZ completed the removal of the fiberglass tank and installation of its above-ground replacement.
  • Separately, in September 2019, SUEZ brought to the city’s attention the need to replace and upgrade a mechanical bar screen mechanism used to capture and divert solid debris from entering the stormwater outflow. The device and the electronic controls had corroded, causing an environmental and worker safety hazard.
  • SUEZ began working with a mechanical engineer to design an upgrade, while working to budget for the project. Unlike the tank removal project, this was a larger, more capital-intensive project that alone would meet or exceed the annual $2.5 million allotted CAPEX budget.
  • After an extended dialogue with the City of Bayonne, city officials acknowledge the urgency and importance of the project and included it in the municipal budget. The project has now been put out to bid to subcontractors.

Additional Concession Information
Despite the extensive capital improvements made by Bayonne Water Joint Venture since inception of the public-private partnership, customer tariffs have remained within norms and have increased at about the same pace as national averages (as surveyed by the AWWA).

How much did this project cost?

Diesel fuel tank removal and replacement with an above-the-ground tank: $100,000.
Replacement of the stormwater overflow bar screen and electronic controls: $2.7 million (estimated).