Drinking Water Clearinghouse
West Virginia University
PO Box 6893
we ask members of the On Tap Editorial Advisory Board to answer a drinking
water-related question. We then print as many responses as space permits.
The opinions expressed are not necessarily those of the NDWC.
Are there ways that privatizing drinking water systems
could be beneficial? Why or why not?
Let the Seller Beware
This is a question that each individual utility can only answer for itself.
However, managers can keep a few key issues in mind when considering a move
As with most things in life, there are positive and negative opinions and
stories. I have not had any personal experience with privatization, but I
do have some co-workers and know several people who have had experiences with
private firms. To be honest, most of their opinions favor the negative side
of this argument.
A recent article in the Wall Street Journal documented the nightmare that
Atlanta has been through after attempting privatization. They realized only
50 percent of the savings that United Water promised. And the system failed
to collect $33 million in unpaid bills. Atlanta then decided to take back
the operations of their water utility. I think we are all well aware of what
occurred in California when power utilities tried privatizingskyrocketing
This certainly does not mean that all privatization is wrong or that people
considering privatizing should abandon their current direction. But it does
mean that they should not enter into any contract without first seeking expert
legal advice and also searching out feedback from other systems that have
moved that way.
For some smaller community water systems that have limited financial resources,
privatization may be their only option in meeting federally mandated water
quality parameters. Many systems simply cannot afford to put in the necessary
equipment, or may lack the expertise, to treat their water to the quality
required under new regulations and will have no choice but to seek outside
I would also point out that there is one other option possible for some utilities:
negotiate a tie-in to a neighboring water system. This dual-system
method of operation is becoming more common today than ever before, and I
would bet that this might be a necessary step many systems will have to take
in the future. In closing, I would caution anyone considering giving up control
of their water utilityin any way, shape, or formby pointing out
an old adage that I would put a new twist on, Let the seller beware!
By Nelson Yarlott Resident Operator
Its Not Always A Bad Thing
The privatization of public systems is not always a bad thing. Its reputation
comes from some of the business practices that have taken place over the last
few years in a number of systems that large for-profit companies have bought
Privatization offers a way out for small public systems that just cannot afford
costs associated with Safe Drinking Water Act compliance, while struggling
to repair and replace aging infrastructure. And, while privatization may not
be the perfect solution to everyones problems, it is one of many tools
that should be considered if a system is having financial, managerial, and
Privatizations advantages are usually a much larger customer base over
which small rate increases can provide revenue to bring the system up to standards.
A large private system usually has larger buying power and can get services
and goods at lower cost than a small system. Staffing by a private company
that serves many small systems can be shared at significant cost savings.
Privatizations disadvantages are loss of public control over the utility.
The customers no longer have a powerful voice in the operations of the water
system. Rates often rise more quickly under privatization, but this is usually
due to a concerted effort to correct existing problems in a short period of
time. Loss of direct services can occur when staffing decreases or moves to
some distant location.
Privatization is just another tool that can be used to correct a water system
that is having significant problems continuing to operate. Like any tool,
there is a proper time and place for its use.
By Jerry Biberstine Principal Engineer
National Rural Water Association
Take A Closer Look
Few things can elicit more emotion than talk of privatizing drinking water
systems. However, some communities need to take a closer look at some of the
advantages it could offer.
Aging infrastructure combined with under-funded legislative mandates are forcing
governments to look for alternatives to the status quo. Compliance and reporting
requirements coupled with the war on terror have placed all of our water systems
in the public view more than any other time in history. For small communities
where the water plant operator also serves the community as its sewage plant
operator, trash collector, and snow plow operator, the demands of todays
water systems may possibly be best served via privatization.
The process can be quite demanding, but a well-designed analysis can point
to the best direction a community can take. Always use the competitive process
and establish baseline data that will be used to evaluate proposals and move
the decision. Quite simply, better service for less money is a winner in anyones
equation. Privatization can be beneficial.
By Frank J. DeOrio Director of Municipal
Utilities City of Auburn, New York
Regionalization and Consolidation May Be an Answer
Nationally and internationally, the privatization of drinking water systems
is occurring with differing opinions on the benefits and problems. Washingtons
public water regulations require that a state-approved satellite management
agency (SMA) either own or operate any new systems. These SMAs can be either
a private or public entity.
In addition, existing water systems, especially smaller systems, elect to
use SMA services or turn their systems over to SMAs to have 24/7 coverage
and to meet federal- or state-certified operator requirements. Peninsula Light
Company is an SMA, although the company is member-owed. Another SMA in our
immediate area, Washington Water, is actually part of a larger private company
based in southern California. So smaller systems in our area have some choices.
Although privatization or similar arrangements like SMA services can bring
economies-of-scale, particularly in cost sharing of more expensive services
such as auditing, legalities, and engineering, they can remove local control.
Larger companies also may be able to provide more funding opportunities. Initial
cost savings associated with privatization may occur with downsizing. But
downsizing creates hardships for those who lose their jobs, and management
may need to address potential problems, such as bitterness, associated with
Systems may be able to use regionalization or consolidation ideas without
privatizing. Workloads can be redistributed, restructured, or picked-up by
others for efficiency and cost
savings. Peninsula Light Company restructured its workload within the company,
used attrition and mutual arrangements, and reduced employee load by 1.5 full-time
equivalent positions within the water department. We did this for financial
reasons. Water systems also can form partnerships with other water systems
to share in large equipment or project cost expenditures. For instance, the
Pierce County Regional Water Association understood and hired a consultant
to work on a couple of projects affecting utilities because of state or local
mandate. Having the association hire a consultant saved significant resources
(time and money) for the smaller utilities. Other local water utility associations
in the state have also teamed up to share expensive equipment.
With privatization or any type of ownership, water systems need to be careful
that they are not exchanging short-term cost savings for routine maintenance
and capital improvements that either reduces system reliability or defers
present cost to future generations.
By Lisa Raysby Water Department Manager
Peninsula [Washington] Light Company
Protect and Preserve Local Resources
I received an interesting letter in the mail the other day. My wife and I
were asked to surrender the stock we own in American Water Works Company,
which owns Lexingtons local water utility, Kentucky American Water,
because RWE Aktiengesellschaft, a large German conglomerate, is purchasing
the utility. The letter arrived in the midst of an intense debate about whether
private or municipal ownership of Lexingtons water supply system is
in the best public interest. In that respect, it puts Lexington squarely in
the international debate over the privatization of water systems.
Water is a finite resourcepotable water even more soand the United
Nations has declared that access to safe and affordable water is a basic human
right. The reality is that many developing nations, and many municipalities,
do not have the resources to provide an adequate supply of safe water. Private
companies, which have resources and technical expertise, can meet that need.
But private companies have a profit motive, and the water they supply may
not be affordable to those who most need it.
The debate in Lexington is polarized around several issues. The Coalition
Against a Government Takeover suggests that municipal ownership of the water
utility is a bad idea: purchasing the water system would burden Lexington
with debt in financially troubled times; water rates would rise to pay for
the purchase and fund unrelated municipal spending (the utility would be a
cash cow); and infrastructure would deteriorate and lead to poorer quality
water. On the other hand, Bluegrass FLOW points to the example of Louisville,
Kentucky, which successfully owns and operates its own water system, and advocates
municipal ownership. This kind of ownership eliminates the profit motive,
and decisions about water use occur locally. In addition, financial resources
stay local rather than be siphoned off to international corporations.
Lexingtons government recently spent $100,000 to determine an appropriate
purchase price for the water system, which ranges anywhere from $150 to $350
million depending on which evaluation method you care to use. They are now
proceeding with plans to negotiate a purchase, and I am as ambivalent about
the proceedings as is much of Lexington.
The American Water Works Company is in the business of selling water and making
a profit; conservation and a social agenda are not a high priority. I hardly
expect them to lower rates or develop infrastructure any more than the public
service commission requires them to do. Municipal ownership has worked elsewhere,
and local control of water supplies hopefully implies a greater conservation
ethic. But Lexingtons urban government does not have a stellar record
in providing municipal services, like paving the streets, so I have considerable
anxiety about how well they can provide safe water.
I have my own profit motive. I stand to get a lot more from my shares of stock
if RWE buys them rather than Lexington. I also have friends at the water company,
who have a much greater financial stake in this decision than I. But it annoys
me (although its understandable) that the water company bases its decisions
about water from the perspective of expanding its service base and potential
profit rather than protecting and preserving the local water resources.
Am I for privatization or public ownership of water systems? Ultimately, it
should be decided at a local level. The current owners need to prove that
they can treat and deliver safe, affordable water for the long term, and the
potential owners need to demonstrate the same. And as far as my water system
goes? At this point, I just dont know.
By Mark Coyne Associate Professor of Agronomy
University of Kentucky