About Private Water Service Providers
Myths:
- Publicly Owned Utilities Are More Responsive To Their Customers Than Privately Owned Or Operated Systems.
- Customers Of Private Utilities Pay More For Water Service Than Do Those Of Municipally Run Systems.
- The Private Water Industry Doesn't Care About The Environment.
- Water Utility Employees Lose-Out And Are Often Fired When A Facility Enters Into A Public-Private Partnership.
- Because Some Companies And Utilities Are Owned By Foreign Companies, Americans Will Lose Control Over Their Water And Ability To Regulate It.
- International Agreements Take Precedence Over American Law For Foreign Owned Utilities And Service Providers.
- Private Utilities Fight Conservation Efforts.
- The Public-Private Partnerships In Atlanta And Puerto Rico Prove Such Arrangements Don't Work And Are Bad For The Consumer.
MYTH #1: Publicly Owned Utilities Are More Responsive To Their Customers Than Privately Owned Or Operated Systems.
Facts:
- Water service providers are extremely responsive to the public and their concerns. In fact, systems operated by a private contractor (public-private partnerships) typically have contracts with termination clauses if strict performance criteria for cost, quality and customer service are not met. Conversely, in the case of publicly owned utilities, the public simply has no such assurances.
- A private company’s interest in protecting its national reputation (and business viability) provides a very strong incentive to be responsive to the public. Few, if any, municipally run utilities operate with concern for their national profile.
- Privately owned utilities are among the most heavily regulated industries in the country, and thus necessarily responsive to the public. In addition to health and environmental regulations that all utilities, both public and private, must follow, only privately owned utilities are also economically regulated by various state Public Utility Commissions, which set and approve rates, monitor compliance with health standards, and assure sounds capital investments and good service.
- Furthermore, recent history shows that privately owned utilities have been on the forefront of customer service innovations and consumer confidence reporting.
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MYTH #2: Customers Of Private Utilities Pay More For Water Service Than Do Those Of Municipally Run Systems
Facts:
- It has been shown that public-private partnerships between municipalities and private firms can save anywhere from 10 – 40% 1 compared to purely municipal operations. These savings are realized through economies of scale, effective cost controls, innovation, and sound asset management practices.
- Because we run very efficient utilities, the rates paid by customers of privately owned and operated utilities are comparable to those paid by municipal utilities, in spite of the fact that private utilities must pay taxes to all levels of government and do not have access to tax exempt municipal bonds.
- Private utilities are efficient in part because they use business or enterprise accounting, which gives them a clear understanding of the costs of all aspects of their water service. These costs are reflected in full cost of service water bills assuring the water services provided are fully supported by those receiving the service.
- With municipally run utilities there are often complex and opaque governmental cross-subsidizations, resulting in the customer not knowing the true cost and value of service. These byzantine municipal practices can discourage conservation and lead to undesirable practices such as deferred investment and cutbacks in service or health protection.
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MYTH #3: The Private Water Industry Doesn’t Care About The Environment.
Facts:
- Job number one for water utilities is health and environmental protection, no matter the model of ownership or operation. The US Environmental Protection Agency and the States make no distinction between ownership or operational models when it comes to environmental and health protection. All utilities must meet State and EPA water standards.
- Private Water Service providers – in both the privately owned and public-private partnership models – care deeply about both protecting the health of the customers they serve and the environment in general, and make it their business to achieve those goals. Consequently, their businesses will not survive if they do not meet or exceed all the health and environmental regulations laid down by the government.
- Privately owned and operated utilities have excellent environmental compliance and service records. While the US EPA does not keep statistics on such compliance identified by system ownership or management model, there is plenty of data showing utilities turning to and staying with the private sector to address health and environmental challenges.
- If a privately owned or operated utility performs poorly and looses the public trust through non-compliance there are a number of ways their businesses can and will suffer. In addition to the enforcement provisions of the State and Federal environmental laws to which all utilities are subject regardless of ownership and management, privately owned and operated utilities face serious additional penalties if they do not comply. For example, privately owned utilities can have penalties imposed on them by their State Public Utility Commission and they can be condemned and taken over by a local government, putting them out of business for good. Similarly, private contract operators of utilities can face stiff penalties for non-compliance, see their contracts cancelled, and have serious difficulty signing new contracts.
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MYTH #4: Water Utility Employees Lose-Out And Are Often Fired When A Facility Enters Into A Public-Private Partnership.
Facts:
- Under public-private partnerships employees fare very well, and can prosper.
- In partnerships companies readily agree to contract terms protecting existing employees, and compensation is maintained or increased. Staff reductions, if they occur, do so only through attrition or termination for cause.
- Furthermore, private industry, which often has various types of operations, offers employees greater opportunities for training and advancement than are available to employees of purely municipal utilities.
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MYTH #5: Because Some Companies And Utilities Are Owned By Foreign Companies, Americans Will Lose Control Over Their Water And Ability To Regulate It.
Facts:
Environmental Regulation
- While some private utilities and private service companies are global businesses and have parent companies based abroad, this does not affect the domestic regulation of water.
- Notwithstanding any foreign interest in a utility or service provider, the utility is still subject to the same regulation by the US Environmental Protection Agency and the States as a domestically owned utility.
Water Ownership
- In any model of water service, e.g. municipally owned and operated utility, privately owned and operated utility, or public-private partnership, the ultimate control of the water itself stays in public hands. The utility, regardless of ownership/management model, merely treats the water to meet health and environmental regulations and delivers it to the public.
- Water utilities 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.
Water Rates
- For privately owned utilities the various State Public Utility Commissions exercise complete jurisdiction over rates and the ultimate ownership of the utility is not a factor.
- Under public-private partnerships, the municipality, not the service provider, typically sets rates and again the ultimate ownership of the service provider is not a factor.
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MYTH #6: International Agreements Take Precedence Over American Law For Foreign Owned Utilities And Service Providers.
Facts:
- International agreements and laws DO NOT take precedence over US 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.
- The WTO correctly says, “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.”2
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MYTH #7: Private Utilities Fight Conservation Efforts
Facts:
- Under both public-private partnerships and private ownership full cost-of-service rates are the norm. Full cost-of-service rates send clear signals to the customer on the value of water and thus encourage conservation.
- Conversely, many municipalities mask the true cost of water by various hidden subsidies. The public, paying rates below the true cost of providing the service, has little motivation to conserve.
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MYTH #8: The Public-Private Partnerships In Atlanta And Puerto Rico Prove That Such Arrangements Don’t Work And Are Bad For The Consumer.
Facts:
- The contract terminations in Atlanta and Puerto Rico indicate that the system works to the customers advantage, and that ultimately a private contractor in a public-private partnership takes on virtually all the risk, while the municipality and the customers take on very little risk.
- In both cases, the utilities’ infrastructures, after years of municipal management, were in far worse condition than the private contractor understood at the beginning of each contract. The private contractor and municipality were unable to negotiate mutually agreeable contract adjustments based on the work that actually needed to be performed.
- In both cases, there was an amicable termination of the projects. There was no legal action by either party, and the change in operation back to the municipality was smooth and nearly invisible to the customer.
- Though the lives of the contracts were far shorter than originally intended, the municipalities still saved millions of dollars.
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- The Hudson Institute: The NAWC Privatization Study; A Survey of the Use of Public-Private Partnerships in the Drinking Water Utility Sector; June 1999.
- The World Trade Organization, GATS Fact and Fiction, Misunderstandings and Scare Stories: The WTO Is Not After Your Water.
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