In May 1996, Jersey City turned over the operation of its water system to United Water. All six bidders in the highly competitive bidding process offered to run the water system at a lower cost than the city’s current operation. The winner, United Water Company, is now responsible for everything "from soup to nuts," — everything from the aqueducts and pipes to bill collection.

The city expects to realize over $68 million in savings over the 5-year contract — a 35 percent reduction in costs. These savings will come from the concession fee ($2.5 million), operational savings ($17.5 million), and substantial increases in bill collection revenues ($48.6 million).

When the system was run by the city, only 66 percent of the water produced was actually being paid for by users. The new contract provides financial incentives for the contractor to increase this percentage. If the percentage rises to 70 to 75 percent, United Water gets to keep 5 percent of the increased collections. If it rises to 75 to 80 percent, United Water keeps 10 percent of the increase in collections and if the collection rate exceeds 80 percent, this percentage rises to 25 percent of the increase in collections. The city estimates increased water revenues of $17 million and increased sewage collection of $32 million from the profit sharing arrangement.

The city’s system before privatization was so antiquated that it was impossible to look up people’s water bills on the phone in real time. Reason: all records were kept on three-by-five cards. United Water computerized the system.

Water rates were unaffected by the privatization and all 138 employees were guaranteed their jobs for at least a year. After that, the number of employees can be reduced, but to no fewer than 80 (the number of employees United Water estimated it would need in its bid).

In March 1996, the first ever long-term lease of an existing municipal water system was completed by the Southern California city of Hawthorne to the California Water Service Company (Cal Water). Cal Water made an up-front payment of $6.5 million and must pay annual lease payments of $100,000 for 15 years. The lease made Cal Water responsible for all needed capital improvements, and the city residents will benefit from the economies of scale made possible by sharing some fixed costs with Cal Water’s adjacent Hermosa-Redondo Beach operations. The agreement included a provision that existing Hawthorne employees will be transferred to Cal Water at the same pay and benefit levels. Customer rates in Hawthorne will be set at the same level as those in the Hermosa-Redondo district.

In the first non-recourse financing of a water system in the United States, North Brunswick signed a 20-year franchise of its water and wastewater systems to U.S. Water LLC on February 27, 1996. The contract gave the township $30 million up front, of which $24 million went to retire the system’s debt. U.S. Water is paying a concession fee of $1 million for the first year, $600,000 a year for the following nine years, $1.5 million for the next five years and $2 million for the remaining five years. The township will save $45,000 annually and the privatization also will provide capital for much needed maintenance.

Water rates will increase by 5.75 percent immediately and annual rate hikes will diminish from that level by .25 percent until reaching 3 percent in the seventh year. Officials calculate that much larger rate hikes would have been necessary to maintain environmental compliance if the facility had remained publicly operated.