Privatization of Water Services in the United States An Assessment of Issues and Experience (2002) / Chapter Skim
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4. Models of Water Service Provision
4. Models of Water Service Provision
Pages 56-80
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From page 56... ...
As noted in Chapter 1, water services privatization takes many forms and there are many permutations involving ownership and operation. Most choices regarding privatization do not represent a simple dichotomy between public and private ownership.
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From page 57... ...
But public officials must remain responsible for oversight and contract monitoring; for setting, monitoring, and enforcing water-quality standards; for protecting ecosystems; and for bringing the public into the process in an open and transparent fashion. Whether a public or private operation provides water services, failure of the organization to fulfill a community's expectations will result in public protests to the local government.
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From page 58... ...
divest public assets and transfer ownership to a private firm. Strategy 1 Improving Current Public Operations Professional water utility organizations like the American Water Works Association have long recognized the need for public utilities to address organizational and management issues.
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The procedure has been experimented with extensively in the United Kingdom, where privatized utilities are under the regulatory control of the Office of Water Services (OFWAT)
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Business process reengineering has been defined as the fundamental rethinking and radical redesign of existing business processes in order to achieve improvements in performance measures such as cost, quality, service, and speed. Reengineering in the water utility sector generally begins with goal setting and an assessment process that includes evaluation of a range lithe term "reengineering" (or "capacity building")
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From page 61... ...
These examples also highlight the importance of including labor to help improve organizational performance. In the East Bay Municipal Utility District (EBMUD)
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Strategy 2 Contracting All Public Service Operations to the Private Sector Increasing interest in the prospect of private sector involvement in the water and wastewater industries has led to the emergence of "privatizers," which include investor-owned utilities and other private interests that seek an expanded role in water and wastewater services. Some privatizers will operate utilities only where they hold ownership of the utilities' assets; these are often referred to as investor-owned utilities.
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From page 63... ...
indicated that the most frequently cited reason for outsourcing of water or wastewater treatment services was the expected reduction of operating costs. Environmental compliance and political ideology were also noted as factors that encouraged privatized operations (Box 4-2 describes the experience with water services privatization in Atlanta)
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From page 64... ...
population served, following IRS 97-13, the number of large cities contracting for their water and wastewater operations has increased. The award of a long-term contract typically does not depend on lowest price alone but rather on best value i.e., best combination of successful operating history, financial strength, technical expertise, and price.
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MODELS OF WATER SERVICE PROVISION 65 In addition to national-level regulations, the International Organization for Standardization (ISO) has developed a set of international standards for utility performance.
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When a public utility's operations are handed over to the private sector, the public agency's importance in running the agency does not diminish, but the way the agency performs its role changes dramatically. For the local government, it becomes a question of contract management versus traditional program management.
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From page 67... ...
Small and Rural Contract Operators The practice of contract operations has been common in the United States for small and/or rural communities including suburban or ex-urban subdivisions and mobile home parks. Water or wastewater systems for such communities generally serve less than 3,300 households and businesses.
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From page 68... ...
Systems serving fewer than 500 people violate drinking water standards for microbes and chemicals more than twice as often as systems serving larger communities (NRC, 1997~. A key problem concerns small, private developers that
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From page 69... ...
Strategy 3 Combining Public and Private Roles A third option for public utility officials considering improvements is a mixture of public and private services within the utility. This approach implies that the efficiencies that a private firm can achieve in the operations of specific tasks of the public utility can be achieved at less cost to the consumer despite the need for shareholder return.
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. Contract Operations Private contractor operates and maintains the public utility's facilities over the long or short term.
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From page 71... ...
A form of public-private partnerships that has recently gained a wider acceptance is the use of design-build or design-build-operate agreements between public agencies and private firms. In the construction of a capital asset, water utilities can enter into privatization agreements at three separate stages in the development of a capital facility: (1)
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From page 72... ...
In this model, one entity bears full responsibility for all elements of the project from design through 15-25 years of operation. This differs from conventional municipal procurements, which typically have started with the noncompetitive selection of a qualified engineering firm to design a new facility under a professional services agreement.
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From page 73... ...
The utilities can enter into an agreement with a private firm to develop source of supply, treatment facilities, and possibly distribution networks. By serving more than one community, joint projects can help the utilities share
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Lease Financing For utilities willing to delegate some elements of control, especially ownership, leasing has emerged as an alternative technique for financing equipment and facilities for water utilities. For investor-owned utilities, leasing is a means of reducing equipment costs and eliminating construction expenditures.
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From page 75... ...
Problems with lease financing result primarily from each party having a different view of the arrangement's advantages and disadvantages. The lender seeks a high return on borrowed funds; the lessor is concerned about the repayment of capital and tax benefits; and the lessee is concerned about the impact on costs, revenue requirements, and fulfilling the obligation to serve should something go wrong.2 Strategy 4 Private Ownership of Utility Assets Turning over ownership of utility assets to an investor-owned utility is the most extreme form of privatization, but there are situations where 2A bankruptcy by the lessor, for example, could force a sale of facilities, which may not be in the best interest of a utility or its customers.
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From page 76... ...
92 123,837 25 West Virginia American 78 141,674 19 Illinois American 74 131,255 32 Indiana American 73 152,004 28 California American 68 91,934 24 San Gabriel 53 76,649 28 Florida Water Services 53 129,996 N/A Middlesex Water Co. 41 51,300 17 Long Island (American)
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From page 77... ...
When considering privatization, local government officials should perform a series of analyses to evaluate water system needs, review current technologies, assess vendor interest, compare risks and benefits, inventory financing alternatives, and appraise legal and regulatory consid
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From page 78... ...
RISK MANAGEMENT Risk management is an essential part of any privatization agreement. Local government officials can ill afford to enter privatization agreements without a careful analysis of risks and a clear delineation of risk management methods (see example in Appendix C)
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From page 79... ...
Evaluating successes and failures of water services privatization must reach beyond the single measure of contract renewal. A broader concern is whether privatization achieves desired outcomes and is truly "successful." These outcomes can be measured not only in terms of the provision of water services, but also in terms of economic, environmental, and social goals.
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From page 80... ...
80 PRIVATIZATION OF WATER SERVICES IN THE UNITED STATES or by a combination of both. How a community's public officials choose to provide these services depends on community-specific circumstances.
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