News Feature | July 18, 2017

Some Towns 'Regret' Selling Water Utility

Sara Jerome

By Sara Jerome,

Towns that sell their public water systems have been known to catch a case of seller’s remorse.

Despite initially seeing benefits in water utility privatization, some communities have come to regret the decision, according to a new report in The Washington Post.

“Even as more cities consider selling their water infrastructure, others are trying to wrest control of their systems back from private operators, usually because of complaints about poor service or rate hikes. Since private owners are rarely willing to surrender these lucrative investments, cities usually end up pursuing eminent domain in court. That means proving that city ownership is in the public’s interest and then paying a price determined by the court. Those prices can be exorbitant,” the report said.

Mooresville, IN, is one example. City residents became annoyed with rate hikes by American Water and tried to regain control of their utility.

“A judge ruled in Mooresville’s favor in 2014, but the court-approved price — $20.3 million — was more than the town of 10,000 was willing to pay. Today, Mooresville’s water system is still privately owned,” the report said.

Similar tensions played out in Fort Wayne, IN.

In 2015, the city “finished paying $67 million to take control of water systems in two areas served by private companies, most recently by Aqua America. The eminent domain effort lasted 13 years and included two separate court cases, a trip to the Indiana Supreme Court, and protracted battles over price,” the report said.

Missoula, MT, is another example.

Missoula “took ownership of its water system in June after winning a fight that left the city of 70,000 facing an $88.6 million bill, plus millions of dollars more in expenses,” the report said.

The benefits of selling a public water utility are clear, especially as the water infrastructure crisis continues to play out across the country.

“The prospect of offloading these headaches to for-profit water companies — and fattening city budgets in the process — is enticing to elected officials who worry that rate hikes could cost them their jobs. Once a system has been sold, private operators, not public officials, take the blame for higher rates,” the report said.

Supporters of public-private partnerships say there are strong arguments in favor of investing private money in the water supply.

“Proponents of the public-private partnerships, citing recent studies in Canada and Europe, argue that private businesses operate more efficiently than governments do and that this translates into cost savings for citizens,” The New York Times reported.

However, selling does come with some downsides.

“Privatization will not magically relieve Americans of the financial burden of upgrading their water infrastructure. Water customers still foot the bill. And although there is no reliable data to compare the service or safety records of public and private utilities, studies show that in most cases, the tab rises when for-profit companies are involved,” the report said.

Janice Beecher, who studies public and private systems as director of Michigan State University’s Institute of Public Utilities, offered advice for communities considering privatization.

“[Elected officials and the public] should ask good questions, and they should understand the trade-offs [before agreeing to sell municipal water systems],” Beecher said. “[Selling a publicly-owned water utility] shouldn’t be rushed. Once it’s gone, it’s gone.”

One thing is clear: The nation’s water infrastructure is in crisis. According to the American Society of Civil Engineers, "At the dawn of the 21st century, much of our drinking water infrastructure is nearing the end of its useful life. There are an estimated 240,000 water main breaks per year in the United States."

"Assuming every pipe would need to be replaced, the cost over the coming decades could reach more than $1 trillion," the American Society of Civil Engineers reported, citing the American Water Works Association (AWWA).

To read more about how water utility finances visit Water Online Funding Solutions Center.