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Private Control of Water IncreasesConsumer Costs
Food & Water Watch compared average water ratescharged by publicly and privately owned utilities in ourstates -- Caliornia, Illinois, Wisconsin, and New York.
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Theanalysis ound that privately owned water utilities chargecustomers signicantly higher water rates than their public-ly owned counterparts: anywhere rom 13 percent to almost50 percent more.
California
Data rom Black and Veatch’s 2006 Caliornia Water RateSurvey show that households in districts with privately owned systems are paying, on average, 20.28 percent moreper month or clean drinking water than households served by either municipal systems or special water districts creat-ed by citizens and overseen by government ocials. WhenFood & Water Watch divided the water districts into vepopulation size categories, publicly owned water systemsproved signicantly more aordable or every bracket.
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Wisconsin
 Wisconsin is served primarily by publicly owned waterutilities, but there are seven privately owned utilities oper-ating. Averages compiled rom a survey conducted by the Wisconsin Public Service Commission reveal that the aver-age monthly residential water price or customers served by the seven utilities to be a startling 49 percent more than theaverage bill or customers served by publicly owned utili-ties. While public customers paid an average o $22.98a month, private customers paid an average o $34.26 amonth. In other words, residents o cities where the pri- vate sector controls the water fow are paying an averageo $135.36 more each year.
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Illinois and Nine Other Midwestern States
 A 2000 survey o Illinois and nine Midwest states re- vealed that customers o privately owned systems paid13.65 percent more than customers o public municipalsystems.
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It stated that “publicly owned systems chargedan average o $1.28 per 1,000 gallons o water less thanprivate and ancillary systems.”
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Based on this survey’saverage monthly water consumption estimate o 6,000gallons, this price dierence equates to an additional$92.16 paid each year by consumers in privately owneddistricts.
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Economic Failures of Private Water Systems
December 2007www.foodandwaterwatch.org
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ities across the country have ound that, despite corporate claims, private owner-ship o water systems signicantly increases the price o water. A close look at datarom more than 1,000 U.S. utilities and existing academic research reveal that private water companies are not only no better perorming, but are also more expensive thanpublicly owned utilities.
City or waterdistrictpopulationcategoryConsumers in privatelyowned districts inCalifornia paid, onaverage, this much morethan consumers in publiclyowned districts each year
25,000 or less$63.4825,000 – 50,000$73.9250,000 – 100,000$107.88100,000 – 200,000$86.76200,000 or more$112.92
 
Economic Failures of Private Water Systems 
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New York 
The six largest private water providers in New York statecharge an estimated average o $34.25 to amilies consum-ing an average o 1,000 cubic eet (7,480.52 gallons) o  water per month.
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A survey conducted by the American Wa-ter Works Association estimated that the average monthly  water charge or households in this region consuming thesame amount o water is $27.29, making privately ownedNew York utilities 25 percent more expensive than the aver-age public utility in their region.
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Private Companies Charge Moreto Provide Water for a Number of Reasons:
Corporate Utilities Funnel Money Outof Communities and into the Pockets of Shareholders
International corporations can easily expect to make a 20percent to 30 percent margin o prot rom investment in water service. Multinational water-providing giants Veolia,Suez, and RWE are hugely protable corporations. In 2006, Veolia made a consolidated net income o €759 million(nearly $1.12 billion), according to its 2006 annual report.In addition, 35 percent o Veolia’s total revenue came rom water, with 10 percent rom North America.
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In the same year Suez earned a gross operating income o €7,083 mil-lion (nearly $10.38 billion), and RWE had a net incomeo €3,847 million (almost $5.66 billion).
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Some €689million ($1.02 billion) o RWE’s EBITDA (earnings beoreinterest, taxes, depreciation, and amortization) came romits water division, known as U.S. water provider American Water.
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In the United States, regulations limit the prots o private water companies to a margin o approximately 10 percent.However, companies get around this by leveraging their as-sets. In other words, instead o using money they had bor-rowed or needed improvements to water operations andinrastructure, the companies invest in side businesses orother activities that diversiy their operations to increaseprots. In general, private companies have incen-tives to spend more on investments not directly related to the original purpose o improving waterinrastructure so that more money goes into thepockets o corporate shareholders and executives.In Caliornia, three o the six corporate watercompanies reported a combined income o $78.88million in 2006.
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I this money had remained inlocal areas to be reinvested in water inrastruc-ture, it would have constituted a contribution inexcess o $20 million more than the entire ederalcapitalization grant to Caliornia or the Drinking Water State Revolving Fund (a ederal und thatadministers money to states or water projects), which was able to grant only $67.15 million in2006.
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Financing is More Expensive forPrivate Companies
In order to protect the public interest, private water companies, unlike public utilities, are not eligibleor municipal, tax-ree bonds that carry low interest rates.Thereore, they must rely on private bonds that carry inter-est rates 2 percent to 3 percent higher.
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These essentially are costs that companies oten pass on to consumers in theorm o higher water rates. Private companies also havetheir operating costs driven up by property and incometaxes rom which public utilities are exempt.
Private Control of Water Does Not
Lead to Greater Efciency
It is commonly believed that the private sector can o-er greater perormance and economic eciency than thepublic sector, but in the case o public water utilities thishas not proven to be true. Various studies have concludedthat publicly owned utilities have lower costs than privately owned utilities.
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Another study o 214 water providers inthe United States ound that public sector perormance wassuperior to private sector perormance.
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 Average Public and Private Water Rates in Four States
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$41.70$34.26$26.56$34.25$34.67$22.98$23.37$27.29
$0$5$10$15$20$25$30$35$40$45
California Wisconsin Illinois New York
   A  v  e  r  a  g  e  m  o  n   t   h   l  y   h  o  u  s  e   h  o   l   d  r  a   t  e
Private Public
 
Food & Water Watch
The theory that private ownership is superior to publicownership is based on the assumption o competition inthe marketplace. However, in the case o water utilities,one system controls an entire area, so competition rarely,i ever, exists. Economists Germá Bel and Mildred Warner write: “That private production has ailed to deliver con-sistent and sustained cost savings shows the inadequacy o theoretical approaches based mainly on assumptions aboutcompetition and ownership.”
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Because competition is ab-sent in the water sector, they conclude that, “Little supportis ound or a link between privatization and cost savings.Cost savings are not ound in water delivery.”
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Writing inthe journal Land Economics, Arunava Bhattacharyya oundthat, “private water utilities in the sample o the study areless ecient than public water utilities both technically andin the use o variable inputs o labor, energy, and materi-als.”
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Lessons From the United Kingdomand France
The United States would do well to learn rom the prob-lems o France and the United Kingdom, where govern-ments have given private companies much greater controlo water. In France it was ound that choosing to involveprivate companies in water distribution over direct publicmanagement increases the average retail price o water. “Inall specications, we nd that consumers pay more whenmunicipalities choose PPPs [public-private partnership].”
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 Chong et al. ound that the average price or 120 cubic me-ters o water in a year jumped rom approximately €151 to€176 when French public authorities decided to contract with private companies instead o managing their own sys-tems.
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Several studies have ound that water privatizationin the United Kingdom has also been unsuccessul. Saaland Park ound higher prices and little improvement inproductivity ollowing the 1989 U.K. privatization o wa-ter.
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Cowan et al. estimated that “privatization in the U.K.led to a net loss in total welare, with consumers and thegovernment net losers and the rm [private corporation]and its employees net gainers.”
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Conclusion and Recommendationsfor the Future of America’s Water
Many citizens have had no choice but to pay a privatecorporation or their water. They are orced to pay higherrates and contribute to the prots o distant executivesand stockholders. Whereas private corporations are biasedtoward capital-intensive solutions that benet the corpora-tion, and raise consumer rates, public utilities emphasizethe needs and goals o the local community. Public man-agement gives every citizen part ownership and direct say in the policies o their water service provider and reinvestsmoney in local inrastructure. To prevent private corpo-rations rom manipulating money-scarce municipalitiesinto believing that privatization will benet their system, America needs secure public unding or water. Communi-ties oten are pressed into privatization in hopes o avoid-ing the nancial investments needed to maintain a waterutility. To protect America’s water, the ederal governmentshould have a share in these investments. The establish-ment o a clean water trust und will ease the nancial burden on communities, help maintain public ownershipo water utilities, and keep water clean, sae, and aordableor everyone.
Endnotes
1
In order to draw comparisons, Food & Water Watch determined aver-age rates per month regardless o whether the utility billed monthly, bi-monthly, or quarterly. For instance, i a utility billed by the quarter, theseaverage rates were divided by three to create a monthly average.
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Calculations conducted by Food & Water Watch based on data drawnrom the cited survey, “2006 Caliornia Water Rate Survey.” Black & Ve-atch, Los Angeles, Caliornia. Available by calling: 213.312.3300.For more inormation, please call 202.797.6550 or emailoodandwater@wwatch.org.
3
Calculations conducted by Food & Water Watch based on data drawnrom the cited study, “Comparison o Net Quarterly Bills o Wisconsin Wa-ter Utilities Using Rates in Eect as o February 26, 2007.” Public ServiceCommission o Wisconsin, Division o Water, Compliance and Consumer Aairs, Bulletin 25, February 2007. Available at:http://psc.wi.gov/apps/waterbill/bulletin25/deault.aspFor more inormation, please call 202.797.6550 or emailoodandwater@wwatch.org.
4
“Benchmark Investigation o Small Public Water Systems Economics.”Department o Geography and Department o Agribusiness Economics,Southern Illinois University Carbondale, Carbondale, IL, November 2000,p V-26. Available at:http://mtac.sws.uiuc.edu/mtacdocs/BenchFinRpt/BenchFinRpt00.pd 
5
Ibid. p. VI-26
6
Calculations conducted by Food & Water Watch based on data drawnrom the cited study.Ibid.$1.28 x 6 (per thousands o gallons a month) x 12 months a year = $92.16a year.For more inormation, please call 202.797.6550 or emailoodandwater@wwatch.org.
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Calculations conducted by Food & Water Watch based on the taris listed by the cited companies’ websites in October 2007.Long Island American Water: www.illinoisamerican.com/awpr1/nyaw/customer_service/rates/rates_schedules/page5097.htmlNew York Water (acquisitioned by Aqua New York Inc): Tari Query –New York Water Service Corporation, Electronic Tari System, New York Public Service Commission. Available at: www2.dps.state.ny.us/ETS/home/index.cmUnited Water New Rochelle: www.unitedwater.com/uwnr/customer.htmUnited Water New York: www.unitedwater.com/uwny/customer.htm
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