Privatization

Cash-strapped municipalities with failing water systems might be tempted to contract with private companies to manage their water and sewer systems. Economic drivers, such as the collapse that occurred in 2008, affect users ability to pay for public water systems. In the U.S., about 20% of water supplies are privatized at present. In evaluating this option, one must keep in mind that corporations are for-profit entities, and will need to recoup the full costs of providing water while adding a margin for profit to benefit the corporation and/or their stockholders. Public utilities can be held responsible for controlling costs and providing clean water supplies, whereas it is more difficult for the public to do so for private companies.

There are a number of examples where privatization has apparently failed consumers. Pushed by the costs of renovating their failing water supply infrastructure, Atlanta, GA, for example, handed over control of their water system to United Water, which took over in 1999, with a 20-year contract. Atlanta had long-deferred most maintenance because their revenue was insufficient to cover the full cost of providing service, and because of rapid population growth and their aging system, expansion and improvement was required. Their sewage system was more of a problem than the water supply system, and they were being sued under the U.S. Clean Water Act for that problem as well.

But, in 2003, the city of Atlanta withdrew from the agreement because a number of issues with United Water (see What Can We Learn From Atlanta's Water Privatization for the full story), which included costs, viewed as excessive, and poor performance in maintenance, meter installation, and bill collection.

The situation in Detroit has been much in the news of late (for example – see this MSNBC article, Detroit residents and national allies protest water shutoffs). As the result of the economic downturn, the Detroit Water and Sewer Department has recently gone on a campaign to force users to pay their outstanding water bills with the threat of cutoffs. In addition, the city of Detroit is pursuing the possibility of privatizing their water and sewer systems. Although clearly having its own perspective and position, an interesting argument against water privatization in Detroit is found on The Blue Planet Project website. One common argument against privatization is the rapid increase in costs of water to consumers. Of course, in many cases this may occur because the public purveyor was not charging for the full cost of providing the water in first place.