Who Should Own Your Water? The Public vs. Private Utility Debate

By Christian Bonawandt

For decades, policymakers, industry experts, and communities have debated whether water utilities should be publicly or privately owned. Proponents of private water management argue that market-driven efficiencies can lead to better service and infrastructure investment, while advocates for public utilities emphasize the need for affordability, transparency, and public accountability. Companies like American Water, the largest publicly traded water and wastewater utility in the U.S., play a significant role in this landscape, serving millions of customers under a range of ownership models. Yet, the evidence on which approach delivers better water quality and reliability remains mixed, with outcomes often shaped by regulatory oversight, local conditions, and long-term investment strategies.

Efficiency, Investment, And Innovation

Among the most common arguments in favor of privatization is the notion that it can lead to greater efficiencies. In theory, the drive for profit maximization incentivizes cost reduction and more effective resource allocation, which public utilities may lack. A study by the World Bank and William L. Megginson in the early 2000s indicated that privatization in competitive industries with well-informed consumers often led to improved efficiency. However, not all empirical evidence has been so conclusive. For example, a 2012 European Commission study found that privatization in Europe achieved only modest productivity gains, primarily through labor reductions and cost-cutting measures, which sometimes adversely affected employment and working conditions.

Speaking on a recent episode of the Water Online Show, Bill Becker, vice president at Hazen and Sawyer, noted that large private utilities, such as American Water, can achieve economies of scale. “They can centralize things like accounting, finance, engineering, and water quality,” he said. “So, when they operate in different plants and each state, each [private utility] operates as its own independent company, but there’s a tie back to corporate, so they can draw on that experience, whereas most utilities just don't have the scale to be able to do that.”

Becker also mentioned that private utilities often have mechanisms to fund capital improvements. A 2022 World Water Council report found that many privately owned utilities use fair value legislation ― which allows an asset to be appraised above book value ― to facilitate more investment and more favorable loans, which in turn can aid in asset acquisitions and fund capital projects. In states with favorable regulatory environments, many private utilities can also use tools such as the Distribution System Improvement Charges (DSIC) to bypass political hurdles and pass capital improvement costs directly on to ratepayers in between rate case reviews.  

It is often suggested that greater capitalization associated with privatization can also lead to faster proliferation of advanced technologies. “As far as actually putting those technologies in, I think that American Water is better able to do that because they can rigorously test stuff on a smaller utility and then, if it works, they can rapidly scale that up and implement it to their other utilities,” said Becker.

Affordability, Accountability, And Sustainability

To many, publicly owned water utilities provide significant benefits to communities, ensuring affordability, quality, and long-term sustainability. The aforementioned research shows that public water systems tend to have lower water prices on average compared to privately owned systems. The World Water Council study examined the 500 largest U.S. water utilities and found that public ownership correlates with lower annual water bills, with an average savings of $144 per year. This is particularly important for low-income households, who, in privately owned systems, spend a higher percentage of their income on water services –– 1.55% more on average –– compared to those in public systems.

For example, a 2021 study of Pennichuck Corp.’s transition from investor to government ownership in Nashua, NH, resulted in a lower cost of capital and ultimately lower rates for customers. Overall, the utility saved $1.7 million annually by eliminating corporate senior positions, corporate compliance, and other overhead costs of publicly traded companies. As a result, rates fell by about 10%.

Public ownership also has more safeguards against regulatory capture (where regulators pass laws in the interest of the regulated industry rather than the community at large) and profit-driven rate hikes. As of 2025, there are 15 states where regulations favor private providers with polices such as DCIS, which, while fostering investment, also result in higher water prices. Public utilities, on the other hand, are accountable to the community rather than corporate interests, ensuring that policies and pricing structures reflect public welfare rather than profit motives.

In addition, public utilities are more likely to operate with a service-first mentality, prioritizing community needs over profit. Unlike private companies that seek to maximize earnings and shareholder value, public utilities reinvest all surplus revenue into infrastructure improvements, maintenance, and service reliability rather than distributing it to investors. While regulatory oversight is the same for both public and private providers, the former have fewer incentives to reduce service quality to increase profit margins.

Lastly, although private utilities have greater resources to finance reinvestments, public utilities are more likely to take a long-term approach to investment. Private sector involvement, especially through hedge funds and private equity, can lead to short-term profit strategies that result in higher rates and affordability concerns. As Becker admitted to Water Online, “When big hedge funds come in and they privatize something and take it over, they're looking to make money.” Public utilities, by contrast, maintain control over essential infrastructure, allowing them to make decisions based on public interest rather than investor returns.

The debate over public versus private ownership of water utilities is complex, with strong arguments on both sides. While private utilities may bring efficiencies, investment, and economies of scale, public utilities prioritize affordability, transparency, and long-term community interests. The effectiveness of either model often depends on regulatory structures, local conditions, and financial strategies. As water infrastructure needs grow and affordability concerns persist, the focus should remain on ensuring reliable, high-quality service — regardless of ownership model.