According to our agreement this is my last offering in this dialogue. I have provided my comments together with the facts and figures upon which they are based. While I have welcomed your opinions and considered your views, I found little if any support for your arguments. Your opinions, while long on rhetoric, fall short on facts.

For example, in your last posting you say, “It has been widely acknowledged that bringing in large multinational corporations with a thirst for profits has not solved the problems of access, affordability, or accountability in these communities.”

“Widely acknowledged” by whom?

Statistics we provided contradict your accusation. Examples include: 97 percent contract renewal for public-private partnerships (which include more than just the chemical delivery and short-term contract work that you mentioned); water-service business growth of 19 percent per year; and support for public-private partnerships from the U.S. Conference of Mayors. All of these facts strongly affirm that private water companies are, indeed, playing an important role in the provision of water service.

Peter Cook, executive director of the National Association of Water Companies.

Another example of your rhetorical opinion unsupported by fact is the accusation that water companies working in more than one country “may leave our governments open to trade disputes in the future.” I would be very interested if you have any legal documentation and examples supporting this theory, because the facts I have state otherwise.

International agreements and laws do not take precedence over U.S. law in the provision of water. The World Trade Organization itself is on record stating that international trade agreements are irrelevant to water issues, regardless of ownership. In a WTO document entitled “GATS Fact and Fiction, Misunderstandings, and Scare Stories: The WTO Is Not After Your Water,” the WTO clearly states, “it is of course inconceivable that any Government would agree to surrender the right to regulate water supplies, and WTO Members have not done so.”

Another flaw in your arguments against the private sector is that virtually all the private projects you have criticized are foreign. Unfortunately, they don’t relate to what is happening in the United States. The business, regulatory, and political environment in the U.S. is substantially different, so these projects shouldn’t be used to draw conclusions about private water’s activities and successes in the U.S. market.

In addition, I cannot agree with your conclusion that where public-private partnerships were prematurely ended, the private partner was to blame and thus the entire concept of partnerships or private ownership cannot work. As I have explained in my previous emails, the reasons for ending those projects were very complicated and cannot simply be blamed on the private partners or flaws in the partnership model. The few projects you have cited in your criticism do not constitute a compelling case that private-sector solutions do not work, either domestically or internationally, especially in the face of substantial facts and statistics to the contrary.

Another fact is that water customers in the U.S. enjoy many government protections. Private water-service systems, whether domestic- or foreign-owned, must comply with the same health and economic regulations in the U.S. The U.S. Environmental Protection Agency and state agencies regulate drinking-water quality and standards, regardless of who owns or operates the system. Furthermore, and this is another important fact, it is not uncommon for public-private partnership contractual agreements to require environmental performance levels that exceed state and federal requirements.

Economically, a foreign owner’s rates, profits, and capital investments are regulated by the same mechanisms that regulate a domestic-owned system — the state Public Utility Commissions in the case of privately owned utilities, and the municipalities in the case of public-private partnerships.

Foreign companies, like domestic companies, have a business reputation to maintain, which is a strong incentive to provide excellent service. Though corporate headquarters may be abroad, the water-utility management and operations are always locally controlled because of the nature of the service provided. The consumer in Ohio is drinking Ohio water, managed and delivered by Ohioans.

I am also struck that some of your positions seem inconsistent. On the one hand, you admirably state concern for the poor and that access to water is essential. You also concede that the municipally run systems in Bolivia were in “disarray,” to use your word, prior to the private companies’ participation. However, in spite of acknowledging the failures of the municipally run systems, you still prefer the municipal model, which brought about the disarray, the high rates, and lack of access for the poor in the first place.

As you may or may not know, several NAWC members have internal programs to assist the disadvantaged in paying their water bills. The programs take different forms depending on the company and state, but they are all designed to assure that water is available to all. The NAWC and our members have also been at the forefront of advocating a federal low-income customer water bill assistance program based on the existing Low Income Home Energy Assistance Program.

Private water companies are working in the real world to address and solve the problems and challenges involving the efficient and reliable delivery of safe water. Those who truly care about these issues should not let themselves be clouded by misinformation. Those who review the facts, carefully and dispassionately, will conclude that private water companies, either through public-private partnerships or utility ownership, have a strong record of bringing efficiency, savings, and environmental responsibility to communities and municipalities. And, in virtually all of these arrangements, the control and ownership of water remains in the hands of local or regional government entities.

Since our agreement provides you, Maude and Sara, the final comment in this dialogue, I urge you to set aside mere opinion and focus on the facts, so we can work together to embrace solutions that will truly meet the needs of water customers both domestically and internationally. Water is too precious a resource and the needs of those we serve too important for us to seek confrontation instead of viable solutions.

Sincerely,
Peter Cook

Thank you for your reply. I welcome this educational debate and the opportunity to clarify some issues.

Let me start my response by saying that it is disingenuous to pick out a few public-private partnerships here and there that you claim failed — including one from the 19th century — and expect people to believe that represents the water-service business. To repeat from my first email, there are literally thousands of public-private water partnerships currently in place in America; the vast majority of which — 97 percent — are renewed when it is time to do so. Would cities and towns renew them if this “privatization experiment,” as you call it, had been “nothing short of disastrous”? Of course not. These contracts are being renewed, and new contracts signed, because it has been shown again and again that public-private partnerships save customers money and improve environmental compliance.

Peter Cook, executive director of the National Association of Water Companies.

However, since you brought up Bolivia, let’s talk about Bolivia — but let’s talk about it completely, accurately, and dispassionately.

In the late 1990s, the Bolivian government turned to the private sector because the water and waste-water systems in Cochamba were in horrible disrepair after years of municipal ownership and operation. Service was spotty, unreliable, unsafe, and totally unavailable to 40 percent of the population. Poorer people, if they had service at all, often paid higher rates than wealthy people. Clearly the municipal operation had failed.

A consortium named Aguas del Tunari began operating the city water system in November 1999. They did not buy and did not own the water utility or the water itself. (By the way, Bechtel was only a 27 percent partner in the deal. Aguas del Tunari was not, as you say, a “Bechtel-owned private company.”)

In January 2000, the government raised the rates 35 percent, not Aguas del Tunari. The government did this partly to pay down the enormous debt the utility had accumulated under municipal ownership. This rate increase didn’t last long, however; it was rolled back the next month.

The government rescinded the contract in April of 2000. However, during the short time Aguas del Tunari managed the system, the availability of water increased 30 percent, hardly “disastrous.”

Also, let’s look at other parts of Bolivia you did not mention, La Paz and El Alto. Since 1997, Aguas del Illimani, a subsidiary of Suez, has managed the water and sanitation systems in these cities. Since the beginning of the private operation, both communities have gained universal availability of potable water (increased to 100 percent from 82 percent in El Alto and 92 percent in La Paz), plus the operational deficits that had built up under previous municipal operation were eliminated. These are clear success stories.

There is nothing immoral about making a profit. And if profit motivates a company to bring the kinds of success we see in La Paz and El Alto and thousands of municipalities all around the U.S., then it is a win-win situation.

In your message, you warn of water being “privatized and commodified,” implying a loss of ownership and control to the private companies. This is a concern we have heard before, and we understand it. Water is a vital and precious resource, which is why it is so very carefully regulated in the U.S. In any model of water service in the U.S., whether municipally owned and operated, privately owned and operated, or a public-private partnership, the ultimate control of the water itself generally stays in public hands. The utility, regardless of the ownership/management model, merely treats and delivers the water.

American private water companies are in the business of providing a service: delivering safe, reliable water at the tap. They are not in the business of buying and selling water as a commodity. The public continues to control the resource when a private company owns or operates the utility.

You told a story from 1837 at the beginning of your response. Now let me tell you a few stories about how the private sector is working with communities to improve water service today. In Indiana, the state Department of Environmental Management requested that a NAWC member take over the troubled Prairieton Utility, and made some loans available to do so. This creative solution was good for all involved. The customers are receiving safe, more reliable water at rates they can afford, the state of Indiana has addressed a potential health and environmental problem, and our member has increased its business. There is a similar story to tell in Gary, Ind., where about 1,000 people were receiving service from potentially contaminated wells. Working with the state, a private company extended service to those customers, solving problems all around.

A West Virginia private company worked with the Boone County Service District to extend vastly improved water service to approximately 30 communities. Similarly, in Fayette County, W. Va., the same company worked with the county to extend water service to approximately 1,200 families that had never before had public water supply, through the installation of over 63 miles of new distribution facilities.

These are private companies working today — not in 1837 — to solve today’s problems.

You are right when you say that municipally run utilities can, like private water utilities, also operate efficiently, use state-of-the-art technical and managerial expertise, and generally run good systems. No argument there; there are many municipally owned and operated systems that are well run. Furthermore, there are many sober, responsible local officials and municipal utility operators who understand the true magnitude of the environmental and financial challenge before them, and are looking for ways to meet the challenge. Private water companies have shown all over the U.S. — and all over the world — that they can be effective partners in meeting this challenge. It is beyond reason to deny municipalities this solution.

Peter Cook

First, let me introduce myself: I’m Peter Cook, executive director of the National Association of Water Companies. NAWC is the only national organization exclusively representing all aspects of the private water industry. The range of our members’ business includes ownership of regulated drinking water and wastewater utilities and the many forms of public-private partnerships, including management contract arrangements. NAWC has more than 200 members across the country that own or operate thousands of water utilities.

Peter Cook, executive director of the NAWC.

We at NAWC believe that water is among our most precious resources. In addition to being a necessity of life, it is pervasive in our everyday existence. Providing safe water, efficiently and reliably, is one of the basic functions of civilization.

The U.S. Environmental Protection Agency estimates there are about 54,000 drinking water utilities in the country. Some large ones serve millions of people in big cities but most are considerably smaller, with the smallest serving only a few hundred people or fewer.

Different models of utility ownership and operation have arisen through the years. Today, utilities can be categorized as municipally owned and operated, privately (or investor) owned and operated, and a hybrid of the two, often referred to as a public-private partnership.

Privately owned drinking water utilities have been providing safe and reliable drinking water to Americans since before the founding of the country. Many private water companies currently in operation can trace their roots back to the Civil War era.

Today, according to the EPA, roughly half the drinking water utilities in the U.S. are privately owned; together, they serve about one in every six Americans. They range in size from very small, single utilities to large companies, operating hundreds, even thousands, of separate utilities in multiple states.

All drinking-water utilities, including those that are privately owned, must comply with drinking-water standards established by the U.S. Environmental Protection Agency and enforced by the states. However, unlike municipal utilities, privately owned utilities are also subject to economic regulation at the state level by independent state Public Utility Commissions (PUCs). The PUCs’ basic responsibilities are to ensure fair and affordable rates for consumers, good service, and sound capital investments by the utility to assure the long-term integrity of the system.

Private utilities bring sound business practices and broad experience to the water service business. They are often large enough to have significant economies of scale, they understand the benefits of cutting-edge technology, and they can bring to bear solutions learned around the globe to assure the utility will be efficient, secure, and reliable.

Privately owned utilities also make significant economic contributions to the communities they serve by paying local, state, and federal taxes. (Generally, municipal utilities do not pay taxes.) So in addition to providing top quality water service, a privately owned utility also helps fund schools, police and fire departments, etc.

Public-private partnerships, including management contract arrangements between municipalities and private companies, represent a newer model, dating from the 1970s. Such partnerships can take many different forms, but broadly speaking, under a public-private partnership, the municipality continues to own the utility, but a private firm operates and manages all or part of it.

Municipalities pursue such contracts primarily to address increasing costs and environmental or health compliance problems. According to a study we conducted, municipalities often realize savings of anywhere from 10-40 percent in such public-private partnerships. Furthermore, that same study found that of the utilities studied that were out of compliance with environmental regulations before the public-private partnership, every one was in full compliance within one year after the start of the partnership. In virtually every region of the country, one can find a public-private partnership that is working to save customers money and improve environmental compliance.

This success record has fueled the industry’s incredible growth. Today, private firms operate more than 2,400 publicly owned water and wastewater facilities for nearly 2,000 municipalities. The industry has been growing an average of about 19 percent per year over the last seven years — excellent growth, especially considering the recent nationwide recession. In addition, a whopping 97 percent of municipalities that had existing water-management contracts come up for renewal in 2002 and 2003 elected to remain in a public-private partnership. Since 1998, an average of 92.5 percent have been renewed. These statistics are clear signs that municipalities are very satisfied with the results of the partnerships they have set up.

Localities using public-private partnerships to provide water reap many benefits, including improved operating efficiencies, broader technical and managerial expertise, improved accounting and cost-control systems, and significant capital investment experience. However, the ownership of the utility is still in municipal hands, and the municipality sets the rates (typically) and makes the long-term capital investment decisions.

It is widely agreed that water utilities are facing an enormous challenge: replacing an unprecedented amount of their aging pipes and other infrastructure over the next 20 years. This replacement will cost hundreds of billions of dollars. Couple that with increasingly stringent environmental and health standards, as well as the need to improve system security because of the threat of terrorism, and one quickly sees the seriousness of the challenge.

This is a challenge that the water industry will have to meet on its own. It is clear that government does not have the money to do the job, nor should we expect government to, in effect, subsidize water service in this country. However, if we apply all of the resources available to us, including private resources, we can meet this challenge.

The private sector can: improve operating efficiencies, thereby freeing up cash for capital improvements; use its access to the commercial capital markets to supplement municipal financing; apply its considerable experience in rate design to assure the long-term viability of systems; and bring its worldwide technical and managerial experience to the provision of water service.

Notwithstanding the substantial contributions the private sector can make, there are those who argue that profit-making companies cannot be trusted to provide a service like water. They argue that only government should provide this service. Not only does this argument fly in the face of the excellent overall performance record of private companies in the water business, but it also erroneously assumes that governments will foot the bill for the enormous capital investments that must be made. Telling mayors, cities, and towns that they cannot consider successful private-sector options to meet the challenge defies reason, given the challenges the water industry faces. We need to be thinking outside the box, not boxing ourselves in!

Sincerely,
Peter Cook