News Feature | October 23, 2017

For-Profit Water Companies Buying Up Troubled Utilities

Sara Jerome

By Sara Jerome,

Financial difficulties at public water utilities create an opportunity for for-profit water companies, according to Bloomberg BNA.

“Companies like American Water Works Co. and Aqua America Inc. are finding the time is right to purchase small, troubled water utilities from local governments that are facing political pressure to keep rates low — often by delaying infrastructure upgrades,” the report said.

“Acquisitions like these are helping private water companies grow even while per capita water consumption continues its long-term downward trend. And private companies say they can use their economies of scale to make the infrastructure investments that local politicians can’t, or won’t,” it continued.

Municipal water systems are "motivated sellers," the report said, citing sources at private companies. Chris Franklin, CEO of Aqua America, noted four factors that have increased the interest of small water utilities in privatization: the Flint crisis, the price of upgrading infrastructure, the cost burden of regulatory compliance, and rate regulations on for-profit providers. And, some states are making it easier to privatize municipal water.

“Laws recently passed in Pennsylvania, Illinois, and California removed some of the financial barriers that made these kinds of municipal-to-private utility transactions difficult in the past,” the report said.

Critics of privatized water say companies tend to raise rates. Water rates have risen almost 28 percent since Bayonne, NJ, privatized its tap water, according to a New York Times analysis.

Bayonne is hardly alone in bringing private money into the water system.

“More than 2,000 municipalities have entered public-private partnerships for all or part of their water supply systems, according to the National Association of Water Companies, which represents private water companies like Veolia North America and American Water,” Stateline reported.

Supporters of public-private partnerships say there are strong arguments to support this trend. They cite recent studies in Canada and Europe to “argue that private businesses operate more efficiently than governments do and that this translates into cost savings for citizens,” The New York Times reported.

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