Average water rates would rise a projected 5 percent annually for the next decade under a new long-term lease agreement of the city’s water treatment plant.

A public hearing featuring a Water Contract Operator Procurement presentation drew a handful of residents to the library last week as officials explained details to a new 20-year lease agreement for the Rahway Water Treatment Plant on Westfield Avenue. The city initially had negotiated a new lease that included a $14-million concession fee by Suez Environmental Services but that scheme apparently ran into difficulties getting certain state approvals.

The new proposal would take effect in May, replacing the final two years of the current lease, which began in September 1999, for the operation, management, maintenance and repair of the facility.

As with the previous 20-year lease, the city will retain ownership of the plant and the right to set water rates. Any surplus by the water utility can be channeled back to the city budget.

Cheryl Oberdorf of Teaneck-based law firm DeCotiis, FitzPatrick & Cole reviewed the timeline to this point and what’s ahead. The city retained the team of professionals in April 2014 to develop Request For Proposals (RFP) and Qualifications (RFQ) documents, which were issued a year later.

The public has seven days (until Thursday) to file comments with City Hall and responses will be included in the public record to be developed after the hearing. The hearing report and applications will be submitted Feb. 13 to the Department of Environmental Protection (DEP), Local Finance Board (LFB), and Board of Public Utilities (BPU). Approvals could be expected by March.

City Council will introduce a new ordinance for a lease agreement which will come up for a public hearing and final vote at the April 10 meeting. The previous ordinance was tabled in October.

The presentation by three professionals lasted about 40 minutes before another 20 minutes of questions and comments by the public. The three or four residents in attendance on Thursday night objected to the 7-day timeline for public comments as too brief. City Administrator Cherron Rountree said that more opportunities for the public to comment will be available after the ordinance is introduced. During this period, the will respond to any questions, she said.

Dieter Lerch of Lerch, Vinci & Higgins, a Fair Lawn-based CPA firm, reviewed financial details of the new proposal. The city projects $48 million in capital expenditures over life of the contract, based on virtually all improvements being made, but engineers recommended about $33 million in expenditures will be necessary in the first 10 years.

The annual fixed fee paid monthly to Suez would be escalated each year by a formula tied to “established indices.” The fee includes a portion related to an annual maintenance cap, which is one difference from previous version of agreement. If it’s not spent, it can be rolled over so it provides the city some flexibility, he said.

The previous version of the new contract had a concession fee structure, which apparently was a stumbling block for state Local Finance Board (LFB) approval. Certain issues were raised about the technical aspects of the concession fee and going through the Union County Improvement Authority (UCIA), Lerch said. Rather than go through with that process, he said the project team – which also includes NW Financial Group and Bohler Engineering – revised the lease. Technically, the city never asked the LFB to approval the deal but the BPU did give its OK, he said.

Projected revenues and expenses through the end of the lease agreement in 2036 forecast an excess of $50.5 million, ranging from $0.61 million in the second year to as much as $5.66 million in the final year. Water revenues gradually rise from $6.62 million this year to $17 million by 2036.

The projected water utility surplus over 20 years would be about $50 million, he said. The original proposal last year projected management fees of $104 million over 20 years while the new lease estimates almost $95 million, or about $9.5 million less. The management fee increases about $800,000 annually in the first half of the deal, starting at $3.55 million, and later as much as $1 million, until reaching $5.71 million in the final year.

The average residential water bill (based on 5,000 gallons per month/60,000 gallons per year) projects an increase from $348 to $384 this year, $474 by 2021 and $605 by 2026, according to the presentation. Water rates are scheduled to rise 6.7 percent in April, followed by projections of 5 percent over 2018-2026.

Matt Smith of Food & Water Watch suggested that the original bid included a concession fee which probably limited contractors. He also took issue with counting the $108,000 in sewer billing charges as a savings since that likely will be rolled into increased water rates in the future.

Lerch argued that Suez will absorb the billing fee and clarified that the concession fee was only an option in the bid specifications and not a requirement. Financing  is expected through tax-exempt bonds at projected interest rates of 3.5 to 4 percent, he said.

Food & Water Watch is a national nonprofit that advocates for healthy food and clean water for all. It has a regional office in New Brunswick and counts 167 members in Rahway. Smith urged the city to use the remaining two years on the existing contract to fully consider all its options, including returning the water plant as an in-house operation, particularly with regard to billing collection.