The Works

4 Things to Know Before Your Water Is Privatized

(Photo by Jean Fortunet)

In New Jersey, a controversial new bill illumines a quiet-but-steady trend: municipal water privatization.

Optimistically titled the “Water Infrastructure Protection Act,” the bill, which passed the state’s Assembly on December 15th, points to aging water systems that are supposedly so deteriorated they are “beyond governmental capacity to restore.”

“It is in the public interest that public entities have the option to transfer, lease, or sell water and wastewater assets if there exists emergent conditions that threaten drinking water or the environment,” it states.

But according to a slew of critics, including D.C.-based Food and Water Watch, the New Jersey State League of Municipalities and the state’s Division of Rate Counsel, the Protection Act doesn’t really fall under the category of public interest — because it excludes the public. Currently, any municipality that wishes to sell its system has to go to the voters first through a ballot measure. That requirement would be nixed under the current proposal, and would make the state similar to Illinois, Pennsylvania and California.

Whether help or harm for local ratepayers, this likely is not the last bill of its kind. Right now, private water companies serve about 15 percent of the U.S. population, but that number could soon skyrocket thanks to several new federal laws and an investment gap of as much as $500 billion over the next 20 years. However, even as private water IOUs eat up an increasing chunk of the U.S. market, water infrastructure’s decentralized nature — owned and operated by thousands of local municipalities, tied to each individual watershed — means that little national data exists. When bills like New Jersey’s stir controversy, local media is often forced into he-said, she-said coverage, without much information on how privatization will actually affect the local system.

Here, then, is a roundup of the facts, figures, studies and articles that do look in-depth at the topic, arranged around the common themes you’ll hear in a public meeting or read in the local paper when system privatization comes up.

The Numbers

Privately owned water systems serve close to 50 million customers, with investor-owned utilities making up more than two-thirds of that market according to advisory firm Bluefield Research. American Water has the largest customer base, followed by United Water, Aqua America, California Water Services and American States Water. California, New York, Texas, New Jersey, Pennsylvania and Florida tend to be especially attractive to private water suppliers because of their large populations and state-level policies.

The Cost Factor

One fear often repeated by privatization critics is that it will raise rates — and some evidence does bear that out.

According to a state-by-state cost comparison from Food and Water Watch, the average household water bill for a private water utility customer is 33 percent higher than its public counterpart.

A comprehensive meta-analysis from the Association of Public Policy Analysis and Management didn’t find that high disparity, but did counter the widely marketed notion that municipal water privatization increases system efficiency while lowering costs. Analyzing dozens of empirical studies (some from as far back as the ‘60s) it found that results have been mixed for utilities bought by private companies, with recent acquisitions showing less cost savings. Unlike the Food and Water Watch comparison, the paper looked at utilities both in and outside the U.S.

The Quality Factor

Advocates for water privatization tend to downplay rate increases. Often their logic, captured in this Wall Street Journal article, is that water infrastructure (some of it a century old) desperately needs investment — and someone needs to pay.

So does the quality of infrastructure increase when an IOU takes over a crippled system, as privatization advocates often claim it will?

Again, the answer is difficult to measure with ratepayers spread across 100,000 systems.

Food and Water Watch claims that 16 percent of privately held systems reverted back to public ownership between 2007 and 2011, with quality a top complaint. However, The Pacific Institute has analyzed private and public systems in Illinois, Indiana, Ohio and elsewhere to assess quality and effectiveness, and, echoing the Wall Street Journal, its report does acknowledge chronic, long-term under-investment as a top problem. However, the report concludes that privatization is not a “silver bullet” for these costly issues — public, private and public-private systems can work effectively if they’re properly staffed and funded. Often, some form of competition, even measuring staff performance and rewarding effort, is present in successful agencies, the report found.

The Equity Factor

Perhaps the most troubling aspect of water privatization is how it can disproportionately impact low-income ratepayers. This can come from steep cost increases as well as the manner in which certain states regulate their water systems.

In California, for example, each municipality can only pay for its own system under state law. The reason is that water infrastructure is inherently local — tied to each regional watershed. So unlike electricity, where increases are spread across a large, statewide base, rates to fund broken pumps and pipes are much higher in smaller towns and cities, many of which also have the high poverty rates you would expect to contribute to neglected municipal systems. In reporting in-depth on these rate hikes in California, I saw bimonthly residential bills as high as $600 — four times the rate of neighboring public municipalities — in areas where people lived only on fixed incomes.

Some organizations do offer low-income rate assistance with this problem in mind. However, it’s often a small, double digit sum. California newspapers cover stories of people selling their cars and skimping on medical care in areas with private systems.

The Works is made possible with the support of the Surdna Foundation.

Rachel Dovey is an award-winning freelance writer and former USC Annenberg fellow living at the northern tip of California’s Bay Area. She writes about infrastructure, water and climate change and has been published by Bust, Wired, Paste, SF Weekly, the East Bay Express and the North Bay Bohemian.

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Tags: city waterutilitiesprivatization