Tag Archives: public-private

In June, President Obama made a speech about the increase in renewable power that the United States had created in the last 4 years, and announced goals to double this amount in the next four.  Virtually all of this power was solar and wind power.  Little mention was made of hydroelectric or onsite sources.  But the latter have been around much longer than the former sources and there may be options to increase their contributions under the right circumstances. 


Hydroelectric power has been in use in the US for over 100 years.  By the 1930s, 40 percent of the nation’s power came from hydroelectric dams, including some fantastic accomplishments of the time like the Hoover Dam.  Today we have over 100,000 dams in the US, most of which provide power.  Today hydroelectric is only 6 percent of our total.   The reluctance to continue with hydroelectric power involved fisheries, land acquisition costs and legal issues.  Some hydropower options are excellent.  Hurting fisheries (which disrupt local economies dependent on those fisheries) may not be, and therein lies part of the dilemma.


But water and wastewater utilities are actively looking for means to reduce power costs.  Depending on the utility, pumping water can account for 80-90 percent of total power consumption, especially with high service pumps on water systems that require high pressures.  More efficient pumps is one obvious answer, but of fairly limited use unless your pumps are really old.  Variable speed drives can increase efficiency, and the cost is dropping.  But note that with all that high pressure, how do utilities recapture the energy?  We often don’t and the question is whether there is a means to do so that can benefit up.  The first step is looking at plant hydraulics.  Is there a way to recapture energy in the form a pressure.  For example of reverse osmosis systems, we can install a turbine to recapture the pressure on the concentrate side.  They are not very efficient at present, but the potential is there.  On long gravity pipe runs for water supply, a means to recapture pressure might also be available. 


Of course on-site generation of power is a potential solution. Water and sewer utilities have land, and on the wastewater side, methane, so producing power is possible.  This solution, however, may not be embraced by power utilities due to the potential revenue reduction potential and loss of embedded reserve capacity at water and wastewater plants.  As the water facility takes on on-site generation, their load profile may shift significantly placing them in under a different rate structure. This may greatly reduce the benefit to the facility.  There are, however, approaches to permit win-win solutions. The goal is to put willing power and water utilities together to permit local generation that will benefit both power and water utility systems to encourage public – private partnerships.  A medium to large wastewater plant can generate at least a third of its power needs.  Some even more if they take in grease, oils and other substances that should not be put into the sewer system.  The potential there is significant.  EBMUD has a plant that is a net seller of power.  We should look for opportunities.  But don’t forget, water utilities can create hydropower without impacting fish populations. We just need to seek out the right opportunities.

A new GAO report suggests that the short and long-term future for state and local revenues may be more difficult that currently anticipated, despite the economy recovering in many places.  For most of the 1990s and the mid 2000s, many states and local governments operated with surpluses, or could have.  Many elected officials, like those in Florida (or Congress in 2001), chose to reduce tax rates to balance the budget as opposed to restocking reserve funds.  When property values plummented and tourism and consumer buying diminished, the taxes related to all three plummented as well.  None have yet returned to their pre-2008 levels.  In fact, the property values lag so badly, it may be 10-20 years in many jurisdictions before they return to their former selves.  In South Florida’s suddenly “hot” real estate market, local officials are raving about the 28% increase in property values in 2012/2013.  Sounds great until you realize that they need to increase 100% to return to pre-2008 levels.  Even in a hot market it may be over 5 years to recover.  So property values are not a short-term problem.  Some communities may never recover.  So much for saving for that rainy day.

It should be plain to all of us that the failure of those in power to stockpile reserves caused many governments to spend down what limited reserves they had in the past 5 years as a means to avoid the hard and unpopular decision – raising taxes to collect the same revenues as before the mid-2000s cuts.  Now the lack of reserves creates an issue going forward – as costs increase faster than revenues, there are no reserves to tap into.  It is a problem that just keeps on giving.  The failure to address the root cause – the failure to set revenues collections at an appropriate level and accumulate surpluses when you are lucky enough to get them.  Unfortunately the political discussion keeps going back to keeping costs down, but cuts in costs means cuts in services.  Sounds great to cut the Plantation trolley because of budget needs, but what about those citizens that rely on the trolley?  Or the businesses it serves.  Cutting Meals on Wheels which primarily serves shut-ins is a great idea in Broward County with a hue population of elderly that find it difficult to get out of the condo?  And does it really make much impact on the overall budget?  Not really.  There are cosmetic issues.  There a more symptomatic issue here?

GAO points to health care as a cost increasing faster than the rate of increase in revenues, but the latest data seems to indicate that the rate of growth may be less than projected by those opposed to the new Health Care laws.  Underfunded pensions are also a potential area of concern, but cutting employees is not the solution for that as outlined in a prior blog.  Cutting employees cuts the funding for pensions which guarantees future problems.  So that idea actually works against the goal of shoring up the problem.  So, no that is not the answer.  We are clearly paying for the sins of 15 years ago when we were awash with funds, but decided to cut or public “income.”  Who does that anyway?!?!

I never like Chicken Little, because he never had a solution for the problem.  Part 2 will outline some thoughts…

In the last blog we discussed the three issues were associated with risk tolerance in the public sector which stifles innovation, application of business principles to public sector efforts, and the lack of vision and understanding of consequences.  In this blog we will explore the second issue – application of business issue into the public sector.  The public and private sectors are different.  We need to recognize this.  For the most part, the public sector does those things that the private sector deems to be averse toward profits.  Clearly everyone needs water, but if you can’t get people to pay for it, you can’t make a business out of it.  Enter government, which has the ability to lein and condemn houses for failure to be connected.  A bit more incentive.

Or take fire service.  Fire service in New York was once a private affair.  You paid and the fire company would respond.  If your house caught fire and you had not paid, then what.  No one shows.  This was illustrated nicely in the movie “Gangs of New York” and was the catalyst for creating the NYC fire department.  And many others.  It simply is not acceptable to have some people but not all, because of the risk to everyone.  Vaccinations are the same way.  Much easier to implement by government.  And historically this is what has happened.

But we often hear the commentary about how we should be “running government like a business.” However I suggest this is an oversimplified argument that ignores true differences in the objectives of the public and private sector.   The two sectors are different and let’s look at an example.  If you were in charge of Ford Motor Company and let’s say you had only two vehicles, the F150 pickup (largest selling vehicle in the US) which has a high profit margin, or a passenger vehicle which does not have a high profit margin and does not sell nearly as well.  If you determine that your revenues are likely to decrease as a result of the economy, where do you make cuts?  There is an easy metric – cutting costs and reducing production of the passenger vehicle might actually maintain or improve your profit margin.  So that manager looks like a brilliant leader.

He (generic) now gets hired to run a City because of his success at Ford.  The City of course has a revenue shortfall, so what does he do? Much more difficult.  He has police, fire, parks and recreation, planning, etc. so where do you cut.  None of them are profit centers; they are all services, the value of which cannot easily be measured.  He could evaluate the risk of higher losses if he cuts the fire department, but that likely has other issues.  Hence there is a distinct different in the metrics between the sectors.  So he cuts all services the same amount – sharing the pain because there is no means to measure the impact of success of cutting costs. Every government employee recognizes this method to reduce the budget.  So how would that have worked at Ford?  Well, cutting back on the F150 and the passenger vehicle the same percent would likely make the overall situation worse, not better.  A Ford executive making that type of decision would be roundly criticized and likely dismissed, but that same person is viewed as a successful manager in the public sector.  Nonesense.  He’s still an idiot and deserves to be fired.  Ditto the other officials that go along with such simplistic decision-making.

The public and private sectors are different, and while there are commonalities, the inability to directly measure impacts on the public sector make private sector applications suspect in many situations.  Curtaining services that have much larger, unanticipated consequences, a risk that dissuades innovation because of the inherent risks and the risk of impacting some powerful constituency. Simplistic solutions that are commonly offered up simply mean that these “leaders” simply do not understand what their “products” are nor which ones are a priority.  And hence they abdicate their decision-making for simplistic solutions that seem “fair.”  Successful leaders in business and government will tell you lesson #1 is life is not fair. We need leadership to help us make better decisions.

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