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City hires water management company to steer deep spending cuts

Veolia Water manages infrastructure for governments around the world

Newtown Creek Wastewater Treatment Plant

Newtown Creek Wastewater Treatment Plant, among the facilities to be reviewed by the city's new water system cost-cutting consultant. Photo by Robyn Lee/Flickr

In recent years, New Yorkers have been soaked by the relentless rise of water rates. The cost of metered water has more than doubled since 2004, and customers have seen double-digit rate increases every year from 2008 to 2011. The surging cost of delivering water and sewer services prompted the city’s Department of Environmental Protection (DEP) to take action earlier this month – hiring a consultant to develop a sweeping cost-cutting program that will slash up to $200 million each year from the city’s $1.2 billion in annual spending for water and wastewater operations.

DEP and the consultant, leading global water management company Veolia Water, say the program will finally turn the tide on years of rate hikes. Yet the ambitious target for spending cuts has also raised skepticism among experts and anger among the agency’s workers.

“There’s a bit of a mystique in the water industry about the private sector’s expertise, but the record is much more mixed,” former DEP Commissioner Al Appleton told the New York World. “Overall, water management is as much about common sense as it is rocket science.”

Under the program, called Operational Excellence or OpX, a team composed of employees of Veolia, the DEP and the consulting firm McKinsey & Company will spend the next six months studying the DEP’s operations, interviewing its employees and preparing a report recommending cost-saving reforms. The proposed measures to slim the budget will focus on energy use, chemical use and labor productivity, said DEP spokesman Farrell Sklerov, and the agency will implement them selectively over the next four years.

Veolia will be paid a minimum fee of $4 million, Sklerov said, and beyond that as a percentage of the money DEP saves based on the consultant’s recommendations.

An official in the union DC37’s Local 375, which represents engineers, chemists and other technical trades employed by the city, said many agency workers have voiced strong objections to the initiative. The union official, who spoke on the condition of anonymity out of concern that he could be jeopardizing his employment, maintained that the OpX was sprung on workers without their consultation. “People were outraged,” he said.

Sklerov, the DEP spokesman, said the agency announced the concept of the OpX program via press release in May, and that Veolia’s bid was selected at an open public meeting in October. Agency officials held two meetings with workers this month to explain and answer questions about OpX.

Another union official with working knowledge of DEP, who also asked to remain anonymous, said a particular source of frustration among workers was the decision to spend millions on an outside consultant that will make recommendations in large part by interviewing DEP staff. “We have a management in New York that is so removed from its own employees that it has to hire a third-party private concern to speak to its own employees,” said the union official. “What the heck are you spending $4 million for?”

Scott Edwards, a spokesman for Veolia Water, said the consulting contract was tailored to meet DEP’s requested conditions, which include ensuring that city workers remain in charge of operating the water system. Veolia usually operates municipal water systems itself as a private contractor, but Edwards emphasized that there was no way the New York City consulting contract would lead to privatization of the water and wastewater operations now carried out by public employees.

“This contract is unique for North America, and its pretty unique in the industry,” Edwards said, in reference to both Veolia limiting itself to a consulting role, and to the partnership with DEP and McKinsey. “The idea is not so much Veolia coming in; it’s very much a team environment.”

While the contract may be novel for Veolia, the model of public-private partnerships managing municipal utilities is attracting growing interest as financially strapped cities seek to cut costs, said Rich D’Amato, the director of business development at C2HM Hill, a company that like Veolia provides consulting and operating services to municipal water systems. “In our business we are seeing a tremendous amount of inquires in terms of how we can help do things more efficiently,” D’Amato said. “It doesn’t mean you have to replace all your hard-working people with a private company.”

In New York City, DEP is not the only government agency now looking to outside consultants to rein in rising costs. Earlier this year, City Limits recently reported, the deficit-ridden New York City Housing Authority signed consulting contracts totaling more than $10 million with the Boston Consulting Group. Under the agreement, the company will provide “comprehensive business transformation consulting services” to the financially troubled agency. And in 2009, the city’s Health and Hospitals Corporation brought in Deloitte Consulting to assist with restructuring and cost containment.