South Orange Privatizes Its Water System, $19M Sale Finalized With NJ American Water

SOUTH ORANGE, NJ — It’s a done deal, South Orange.

On Tuesday, New Jersey American Water announced that it has completed its acquisition of the water system of South Orange Village for $19.7 million.

The system serves about 5,000 water customer connections. It has been operated and maintained by New Jersey American Water since 2016 through a contract between the company and South Orange Village.

Supporters say the deal will help South Orange dodge some costly upcoming repairs, including the state-mandated replacement of lead service pipes. They say the sale won’t negatively impact water rates, adding that NJAW is able to provide better service – with less of a headache for the town.

Critics argue that the deal will increase costs for homeowners and businesses over the long term – especially for low-income customers – while selling off a “precious public resource” to a for-profit company that is only interested in its own bottom line.

The controversial sale required approval from local voters, who cast ballots via a public referendum in the 2024 election. A total of 4,779 people voted “yes” (61.94 percent) and 2,937 voted “no” (38.06 percent).

The vote cleared the way for further negotiations with New Jersey American Water – which ended successfully, the company reported.

On Sept. 10, the New Jersey Board of Public Utilities approved the municipal consent, allowing New Jersey American Water to provide service to South Orange Village customers directly as of the transaction’s closing.

Residents will receive additional information in the mail from New Jersey American Water in the coming weeks. More information is also available on a new webpage.

South Orange Village residents will now be able to use the company’s online account management portal, MyWater, as well as its H2O Help to Others program, which helps eligible customers who need help paying their bills.

Here are some other local changes coming down the pike, the company said:

“As part of the agreement, New Jersey American Water will invest $50 million in infrastructure improvements within the first 10 years of ownership while keeping rates affordable for customers. Anticipated improvements to the system — which is over 100-years-old in some areas — include identifying and replacing all lead and galvanized steel service lines as well as upgrading aging water mains and fire hydrants. Additionally, New Jersey American Water will replace the Crest Drive Standpipe and rehabilitate the Newstead Watersphere. Further improvements will be identified through a comprehensive analysis of the system, which New Jersey American Water will conduct upon taking ownership.”

The sale agreement includes five years of “rate stabilization,” although it doesn’t make any assurances beyond that time frame. There would be no rate increase for the first two years after the sale. Water bills would go up 3 percent in the third, fourth and fifth years.

South Orange Village Mayor Sheena Collum – who supported the sale in the months leading up to last year’s referendum – said the deal is a win for the township.

“Our residents deserve a modern water system backed by the expertise and resources of a trusted utility, and together, we have determined this is the best path forward,” Collum said.

“With New Jersey American Water’s proven track record and commitment to infrastructure investment, we are confident this partnership will deliver long-term benefits and peace of mind for our community,” the mayor added.

The sale is New Jersey American Water’s eighth acquisition in the last five years. The company has added more than 26,000 new water and/or wastewater customers in that time span.

• See Related: New Jersey Towns Are Taking Water, Sewer Privatization To The Polls

PROS AND CONS OF PRIVATIZATION

A municipal task force in South Orange was given the job of taking a look at the proposal in September 2022. Read the full report here.

Here are some of the pros and cons, according to the task force:

Positives:

• “Village oversight dramatically simplified; no longer addressing water-related matters and issues.”
• “Village staff workload reduced.”
• “Some or all of water utility debt and potentially some village debt will be retired – reducing the tax burden.”
• “South Orange’s water service will be comparable to Maplewood, Irvington and West Orange which do not own their water utilities.”
• “Future village capital improvement project costs will be paid by all regional rate payers, not only village residents.”
• “Identified capital projects in the current plan may be accelerated.”

Negatives:

• “Village residents currently interface with NJAW as the village water utility’s O&M and billing contractor. The village water utility administrator is a resource to residents to assist in resolution of issues. After a sale, future interface on water issues would be like the current approach with PSE&G, Cablevision, etc. Village government no longer will have dedicated staff, but could advocate for customers.”
• “Depending upon a customer’s water use, annual water costs may increase … A residential customer annually using less than about 181 units would have higher annual water costs. This could be mitigated as part of the sale by an agreement.”
• “Village government would have to pay for its own water consumption.”
• “Coordination of street infrastructure work will require coordination with the new water system owner.”
• “Identified capital projects in the current plan may be delayed or cancelled.”
• “Water rates will include capital project recovery for projects beyond South Orange.”
• “There will be no village control of water rates, which will be governed by the NJBPU, in response to tariff applications of the system owner.”

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