$400,000 flushed on sewer pursuit

Over the last six years, the city of Oak Harbor has spent about $400,000 in a bid to take over sewer and water systems from Whidbey Island Naval Air Station.

In the end, the deal never worked out, despite a huge expenditure of time and money. The city and Navy negotiations simply never came to closure, according to City Administrator Paul Schmidt.

Oak Harbor Mayor Patty Cohen, Capt. Syd Abernethy, the commanding officer of the Navy base, Capt. Paul Fuligni and Schmidt recently met and came to a mutual decision to no longer pursue full privatization of the utility systems, according to Navy and city officials.

Even though the city made a giant investment in an effort that ultimately fizzled, city officials are confident they made the right decision in pursuing ownership of the water and sewer systems.

“What other choice do you have? The Navy came to us with a need and we tried to meet that need,” Schmidt said. “The city has always tried to be sensitive to the Navy. I don’t see it as a loss at all.”

Also, city officials say the potential gain was sizable and well worth the effort.

Councilman Eric Gerber, however, has been the lone voice of skepticism about the city’s decision to pursue the systems. He characterized it as “a risky venture” with a real potential for failure, which was ultimately realized.

“The funds could have been used on other projects that were guaranteed to get done,” he said.

It was really city water and sewer customers that lost out, though the effect on rates was miniscule. City Finance Director Doug Merriman said the city spent $400,000 over five to six years on engineering and legal consultants. That money came from sewer funds, which city ratepayers pay for sewer service.

The actual impact of the $400,000 expenditure on sewer rates each year over the six-year period, Merriman said, was just 0.3 percent.

The move to privatize military utility systems began a decade ago when the former Secretary of Defense William Cohen issued a directive to all military commands that electric, gas, water, sewer and steam utilities would be transferred to the private sector or other governmental entities. At the request of the Department of Defense, Congress had passed a law allowing this.

The only exceptions to the mandate would be systems on military bases with unique security situations or systems that would not present the military with an economic advantage if privatized.

The reason for the mandate, officials say, was to allow the military to concentrate on its core mission instead of operating utilities.

According to Schmidt, officials from the Navy base approached the city about possibly taking over the utilities.

City officials said it made a lot of sense.

As City Attorney Phil Bleyhl explained, the city and Navy have a complicated joint ownership of wastewater treatment lagoons on the Navy’s Seaplane Base. The city has a 50-year easement on the lagoons, with 30 years left.

City Superintendent Cathy Rosen said the city runs the lagoon treatment system, which treats sewage from Navy housing and facilities on the Seaplane base. In return, the Navy pays a fee to the city.

About five years ago, the city entered into sole-source negotiations with the Navy to take over the sewage collection system — basically the sewer pipes and pumps — on the Seaplane Base.

Later, the Navy issued requests for proposals on the sewage treatment system at the Ault Field base and for the water system for the entire base. The city submitted proposals for both.

At the time, city leaders spelled out many advantages for taking over the utility systems. Unlike private firms, the city was best situated to take over because the city and Navy water systems are already inter-connected. Also, the acquisition of the systems may have given the city an inexpensive method for needed capacity expansion. The sewage treatment system at Ault Field, for example, could be connected to the city’s system in order to expand Oak Harbor’s capacity.

Rosen said the city was counting on an efficiency of scale in running both sewer and water systems, which officials hoped would ultimately lead to lower rates for city residents.

In addition, Bleyhl said the city didn’t relish the idea of a third party firm taking over any of the Navy’s systems and further complicating the complex relationship between the city and Navy.

As Schmidt explained, the extremely complex and time-consuming negotiations just didn’t work out. In the end, he said, there was “a gap” between what the Navy and city wanted. City staff, and undoubtedly Navy officials, spent countless hours on the process. After lengthy talks and negotiations, he said both sides stopped pushing for the process to move forward.

The benefits to the city for taking over the Seaplane Base lagoon and collection system dimmed over the years, Bleyhl said, because of new requirements from the state Department of Ecology. Plans to expand lagoons to increase capacity were complicated because the state doesn’t want such lagoons to grow without additional sewage processing added.

Despite repeated inquiries from the News-Times, Naval Facilities Engineering Command Northwest did not directly answer a question as to why the Navy no longer wants to pursue privatization of the water and sewer systems at NAS Whidbey. But the Navy did provide a statement that explains the process by which the utility systems can be exempted from the privatization mandate.

“If a decision is made not to privatize one of the eligible systems an exemption package must be forwarded to the Assistant Secretary of the Navy, indicating privatization of the system is either uneconomical or there is lack of market interest in privatization,” the statement reads.

It also states that the exemption package must be thorough and comprehensive to assure the secretary of the Navy that all options were exhausted.

Two years ago, the U.S. Government Accountability Office completed a report on the military’s privatization effort. The report found that the Department of Defense’s progress in implementing the utilities privatization program has been much slower than expected. Also, the GAO questioned the savings from privatization.

As for Oak Harbor, city staff members say they are moving forward on working with the Navy on other utilities issues. The agreement between the city and Navy that sets the price that the Navy pays the city for sewage treatment will expire at the end of the month. Bleyhl said the staff hopes to negotiate a better price for the city which accurately represents inflation and increased costs.

Also, the city will have to work with the Navy in the future if it wants to build a sewage treatment facility at the lagoons, especially if the city wants to close the waterfront sewage treatment facility in the middle of Windjammer Park.

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