A debate on water privatization, part one
Everyone knows that water is the stuff of life. But is it best viewed as a commodity or as part of the commons? Should providing safe, affordable water be the role of governments, corporations, or partnerships between the two? On Tuesday, July 13 (dates may vary for local stations), the PBS show P.O.V. is airing “Thirst,” a documentary by Alan Snitow and Deborah Kaufman that addresses these and other issues about water privatization. In partnership with P.O.V., Grist is hosting a week-long debate on the merits of water privatization between Peter Cook, executive director of the National Association of Water Companies, and Maude Barlow and Sara Ehrhardt, anti-privatization activists with the Council of Canadians.
Dear Maude and Sara,
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.
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!