Introduction
Across the United States, there has been an increasing
trend towards privatization of public utilities. This is
particularly true for water utilities. The trend is for
local governments to relinquish some or all of their control
over the design, construction, ownership, and operation
of water services. This trend has accelerated as giant multinational
corporations have sought to enter into the U.S. utility
market. Today, approximately 15% of U.S. water delivery
systems and 5% of wastewater utilities are privately owned,
serving about 15% of U.S. utility consumers.(1)
Local governments that lack the financial resources to
upgrade aging water systems are tempted by large private
offers that promise to retain quality service at more competitive
rates. Private water corporations claim they can offer better
rates because of lower operating costs and higher efficiency,
but studies show that evidence of this is inconclusive.(2)
Aside from consumer costs, there are many other issues
involved in water privatization. The transfer of control
from public to private entities of such a basic human right
as access to water raises public interest concerns. Entrusting
a profit-driven company with an indispensable public service
has always been a controversial concept because of, in large
part, the possible contradiction between short-term profit
maximization and long-term needs to protect infrastructure
and natural resources.
The sale of public water utility services to private corporations
can also result in lower water quality because private water
companies have little incentive to address low levels of
pollutants that may result in long-term health problems.(2)
In addition, if water becomes a private commodity, economically
poor communities may be priced out of the water market.
While public entities have good reasons to consider social
equity and affordability, private corporations, in their
desire to increase profits and operational efficiency, may
not. Several case studies have documented inequity in water
service and quality between high income and low income or
minority neighborhoods. A water service owned and operated
entirely by a private company may not be required to address
discrimination issues; the Equal Protection Clause of the
U.S. Constitution applies only to “state action,” not private
discrimination.(2)
Private entities seeking the highest profit may also ignore
ecological and environmental issues that have everything
to do with water quality, watershed health, and sustainability.
Private companies often sell or redevelop watershed reserve
lands or groundwater recharge overlay lands that are traditionally
marked as open space to protect watersheds and groundwater
sources. Development increases impervious cover and contaminated
runoff, results in loss of important habitat and ecosystem
services, affects hydrology patterns, and diminishes open
space.(2)
When seeking cheap sources of water, private companies
often fail to consider impacts on the natural environment,
including watershed ecosystem services, instream flows,
and aquifer health. While public entities are obviously
not immune from poor environmental decision-making, they
are often more responsive to public protest.(2)
A private utility company also has little reason to encourage
conservation when its profits depend in part on the volume
of water sold. Globally, concerns are rising over the sustainability
of water resources and, consequently, conservation should
be a main focus as we consider privatization.
There is also concern over local economies where privatization
efforts have been implemented. In particular, city employees
fear that they may lose their jobs if public water utilities
are purchased by large private entities. Even in cases where
the contract guaranteed the hiring of city water employees
by a private company, benefits packages have often been
reduced and, in many cases, the employees had been fired
later on or phased out slowly.(3)
Finally, case studies of privatization efforts in the U.S.
and around the world have demonstrated that these concerns
can play out in ways that can be damaging to human health,
local economies, and the environment. Please refer to SERC’s
Water Privatization Package (Coming
Soon!) for information on the harmful effects that
water privatization efforts have had on pricing, service,
local economies, and the environment in the states.
Talking Points
- As a basic human need, water service should be a responsibility
of governments. Transfer of control to a private entity
that seeks to maximize profits reduces public accountability
and can adversely affect the quality and equity of service.
- Water privatization can negatively impact low-income
and underserved communities by unfair rate increases and
poor service to these communities.
- Water privatization may lead to lower quality service
and higher rates. In cases where communities have tried
to reclaim their water systems from private entities,
poor water quality, unresponsiveness to customer complaints,
and rate hikes have been the most frequent complaints.
- Private multinational companies don’t have a stake in
the community in which they operate. This can have negative
effects on small communities when it results in firing
city employees and hiring new staff or significantly cutting
benefits to long-time employees.
- Many privatization agreements fail to include adequate
public participation. In addition, many of these contracts
do not include enough provisions for contract monitoring
and accountability.
- Many privatization efforts ignore the impact on local
ecosystems and downstream water users, and may have long-term
negative effects on the environment.
Private companies, which stand to make more money for
the sale of more water, may neglect the potential for
water use efficiency and conservation improvements.
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