Rialto Uses International Model to Manage Water, Wastewater Systems

The city of Rialto, Calif., has just finalized a 30-year agreement securing approximately $35 million in cash for economic development, $41 million in funding for future water and wastewater system improvements and associated jobs, and gaining the expertise of a professional water company to deliver system and service improvements.

The city's new public-private concession is demonstrating a way for other cities to strengthen their financial condition while improving infrastructure services and creating jobs. Led by partners Table Rock Capital, a Ullico affiliate and Veolia Water, this approach—sustainable water management practices that support a community's economic growth and social stability—could serve as an important model for cities across the country struggling with substandard infrastructure systems, a lackluster economy and dwindling revenues. It is especially relevant in California, where just last week, San Bernardino became the latest city to file a bankruptcy plan.

Through a public-private concession agreement commonly utilized in Europe and Asia but less commonly used in the U.S., Rialto and its concessionaire Rialto Water Services (RWS) have hired Veolia Water North America to manage the city's water and wastewater systems. Rialto retains full ownership of the water and wastewater systems, control and ownership of the water supply and water rights, and transparent public authority over all rate setting. RWS is jointly owned by Table Rock Capital and a Ullico affiliate, who have jointly made a 30-year commitment to the performance, safety, customer and community satisfaction, and lasting cost and energy efficiencies of Rialto's water and wastewater systems for the city's residents.

The contract follows a public-private concession agreement signed earlier this year by the city of Rialto and RWS that resulted in a $35 million upfront payment to Rialto at financial close; a $41 million capital improvement program to upgrade Rialto's water and wastewater facilities; and ongoing annual utility payments to the city as part of the agreement.

Rialto is utilizing the new funding source for various long-term economic development projects including the area's Airport Redevelopment Project. The city compared providing water services through its existing water and sewer agency, and through the selected alternative delivery model.

The new 30-year contract with Veolia Water essentially represents the life of the concession agreement and is valued at more than $300 million. RWS will manage the Veolia Water contract and oversee the five-year, $41-million capital improvement program increasing the cost efficiency, compliance, water quality, and reliability of the city's wastewater and water systems for the life of the concession. The capital improvement program is expected to generate 445 construction jobs. All affected city employees have accepted positions at Veolia Water.

The RWS concession refinances the city's aging water and wastewater systems without privatizing those assets, and provides the capital necessary to fix and replace water and sewer lines, develop necessary new infrastructure and seismic upgrades, improve cost efficiencies, and provide lease payments back to the city, supporting additional economic development and local jobs.

Under the contract, Veolia Water will operate and manage (O and M) a sewer collection system consisting of more than 260 miles of pipeline, six lift stations, and a wastewater treatment plant currently operating at approximately eight million gallons per day. Veolia Water will also provide O and M services for the city's water system, with a total user population estimated to be approximately 50,000. The water system includes five water reservoirs, distribution, eight groundwater wells, and related pumping infrastructure.

The financial backing and structuring of Rialto's groundbreaking public-private concession was provided by San Francisco-based Table Rock Capital, led by Peter Luchetti. Table Rock and an affiliate of Ullico Inc., the nation's only labor-owned insurance and investment company, provided equity financing with additional parties providing debt financing on the approximate $172 million in total financing. The financing consists of $25.8 million (15%) equity and $146.3 million (85%) debt in the form of a 30-year private placement with a 5.5% semi-annual coupon. Placement agents for the debt are Barclays and Goldman Sachs.

Source: Table Rock Capital