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Other voices: Private firm’s offer to manage utilities needs a strong dose of sunlight

Utility blackouts usually mean the lights go off, but in the curious case of a private equity firm seeking to operate North Carolina municipal utilities the blackout applies to information.

Bernhard Capital Partners, a company based in Baton Rouge, La., has approached more than a dozen North Carolina cities over the past two years with an appealing offer: We’ll pay you millions of dollars up front if you let us manage your utility — and collect its revenues — for 30 years.

For cities struggling to keep up their infrastructure, the prospect of receiving a windfall and handing over the management of their utilities to a private operator can be attractive. New Bern has been offered $70 million and Kinston $92 million. Fayetteville, the state’s sixth-largest city, is likely being offered substantially more.

But when The News & Observer’s Dan Kane looked into Bernhard’s pitches, he found the company’s executives unwilling to disclose key details, public officials muzzled by nondisclosure agreements and deal-related documents obtained through a Freedom of Information request heavily redacted.

Charlotte, Raleigh and other large and fast-growing cities have not received offers. Instead, Bernhard is focusing on smaller municipalities that could use the infusion of cash to make themselves more appealing to new residents and new businesses.

Jeff Jenkins, a co-founder of Bernhard Capital, told The News & Observer that the proposed arrangement would benefit both sides. “We offer upfront capital to partner with a community that has a municipal utility so they can take some of those proceeds and invest in infrastructure in their communities where they don’t want to raise taxes or increase their indebtedness,” he said.

The pitch may have merit. Some large universities have turned over management of their utility systems to private operators, as have two small cities in New Jersey and California.

But why is this supposed great deal cloaked in secrecy?

A company representative said Bernhard will “make everything public” once there is a final proposal. But the lack of disclosure in the early stages could leave city residents and businesses subject to an arrangement they’ve had little opportunity to review and no power to reverse.

No North Carolina city has yet entered an agreement with Bernhard and its local subsidiary, North Carolina Municipal Utility Services. If one does, the deal is likely to be reviewed by the state’s Local Government Commission, headed by State Treasurer Dale Folwell. The commission oversees the financial soundness of municipalities.

“It’s about sunshine,” Folwell said. “When somebody decides to come out from under a nondisclosure agreement, that’s when we’ll get more involved.”

Bernhard says that under its proposed arrangement with a city, all utility employees would keep their jobs and the city would retain the power to set utility rates. But it’s hard to see how the company could profitably operate utilities for three decades with no ability to affect utility rates.

Ursula Schryver, a vice president with the American Public Power Association, told The News & Observer that cities would have to be beware of hidden costs in entering an agreement with a private company.

“Obviously they are in business to make money,” she said. “That is what their goal is and so they are going to have to find ways to do that. Whether it’s raising rates or cutting expenses, there’s going to have to be a way they can make money.”

Bernhard’s proposals might be more persuasive if they were not so veiled. A business, of course, requires privacy when it comes to its own operations, but once a partnership with a public entity is proposed transparency is required.

— Charlotte Observer and Raleigh News &
Observer

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