Privatization of Water Services in the United States An Assessment of Issues and Experience (2002) / Chapter Skim
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3. Forces of Change in the Water Service Industry
3. Forces of Change in the Water Service Industry
Pages 41-55
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From page 41... ...
These pressures have created a market opportunity for private firms seeking to expand their role in the water services sector. These include investor-owned water utilities, which have seen limited expansion through acquisitions, and private domestic and foreign firms that offer services on a contractual basis to publicly owned water and wastewater systems.
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From page 42... ...
Many publicly owned systems continue to be reluctant to charge customers for the true cost of water and wastewater services, although this is not the case for special purpose public agencies or investor-owned utilities. Underpricing of water services may satisfy political goals, but it also undermines economic efficiency and results in higher long-term costs to users.
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From page 43... ...
In addition, there is an increased interest in how utility operations affect the environment and water quality, and the public today is generally better informed on scientific and technical issues. A heightened awareness of national security issues since the terrorist attacks on September 11, 2001, is sure to sharpen the public's interest in the security of the nation's water utility systems.
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From page 44... ...
a program called "Qualserve" provides a formal employeebased and peer-review procedure to determine appropriate changes in the functions of water utilities. Factors driving local officials toward these changes include long-term cost reduction, obtaining a risk-sharing partner for regulatory compliance, difficulty of attracting new employees with adequate technical capability, and the need to focus civic energies and resources on more immediate social problems.
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From page 45... ...
, to relegate utilities to last priority in budgeting, and to delegate utility operations under the "out of sight, out of mind" principle. But contemporary health and environmental priorities have elevated water supply and wastewater management in the public consciousness and have added significant future cost concerns.
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From page 46... ...
Larger private water companies in the United States usually are regional in nature, extending beyond local geopolitical boundaries and often operating multiple water systems. Private companies could bring professional management, technological expertise, and economies of scale to small and medium-sized water systems.
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From page 47... ...
The Safe Drinking Water Act provides for state revolving funds that can be of some assistance, and although overall funding remains at low levels, it is available to both public and private utilities (Appendix B provides an overview of the Safe Drinking Water Act)
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From page 48... ...
Little financial assistance for compliance is available, and to a large extent, systems funded by previous EPA grants now require rehabilitation. The Clean Water Act and the Endangered Species Act complicate the provision of water services.
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From page 49... ...
RISK SHARING Several factors increase the risks associated with operating water and wastewater systems. These risks include the challenges associated with meeting increasingly stringent water quality standards, potential litigation actions by the public, increasing amounts of damage awards, and a low public tolerance for service outages, even during natural disasters.
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From page 50... ...
With few exceptions, publicly owned water and wastewater facilities in the United States have been maintained as independent units even when economic analysis has demonstrated the benefits of consolidation. In 1972, the wastewater grant incentives of Public Law 92-500 and the increasingly stringent discharge standards have occasionally caused consolidations.
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From page 51... ...
The availability of financial assistance to small utilities is growing. Federal appropriations since 1997 in the Safe Drinking Water Act State Revolving Funds have been about $800 million per year.
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From page 52... ...
In more pragmatic terms, if the local government were to acquire the privately owned utility described here, all levels of government would lose $148,500 in tax income. This would be ultimately recovered by either increasing tax rates or other taxes, or reducing government services, or both.
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From page 53... ...
The Water Infrastructure Network (WIN) , a group representing most associations concerned with investment in water infrastructure, issued a 2001 report advocating new federal funding to capitalize state-administered grant and loan programs in the amount of $57 billion through a new generation of state funding organizations called "Water and Wastewater Infrastructure Financing Authorities." The report recommended changes in financial assistance to meet needs that have exceeded recommended grants and loans to municipalities.
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From page 54... ...
54 PRIVATIZATION OF WATER SERVICES IN THE UNITED STATES infrastructure, have provided an opportunity for private sector water firms. Customer expectations of high-quality water, along with minimal risks to public health and high levels of environmental protection, provide a water delivery challenge to both the public and private sectors.
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From page 55... ...
New standards for performance, continuing concerns about cost and efficiency, and new management cultures and attitudes are creating a pace of change not previously experienced in the industry. Increased use of the private water utility sector will require careful consideration of unique characteristics of each local utility service area.
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