In 2002 the National Research Council's Committee on Privatization
of Water Services in the United States issued its Assessment
of Issues and Experience on the topic of privatization.
The report quotes the National Association of Water Companies (NAWC)
as saying that private water companies have provided 15% of water
handled and have served approximately 15% of United States customers
since World War II. The committee finds that the private sector
has reacted to state economic regulations by focusing on private
contract arrangements with the publicly owned facilities, rather
than investing in the wastewater and water supply utilities directly.
The report looks at the economic, fiscal, and regulatory implications
of water service privatization, and predicts that "many public
water utilities are likely to respond to the pressures of possible
privatization by improving their performance, rather than privatizing
parts or all of their operations and ownership." This prediction
is supported by several key findings contained in the report.
The committee credits the existence of privatization alternatives
with the many improvements in the water services industry's performance
standards. The 1974 Safe Drinking Water Act has also improved the
operations of many utilities. Many small and medium-sized plants
have had to seek assistance from private companies in order to meet
the new standards. These small to medium-sized utilities often have
the most difficulty in meeting the new standards, and are the best
candidates for receiving help from outside public or private organizations.
The report also suggests that the regionalization of small utilities
could also greatly improve performance.
Although customers appear willing to pay higher prices for higher
quality water services, the report finds that "public officials
are often unwilling to charge appropriate prices because of a history
of underpricing and a fear of criticism." Underpricing and
wastewater systems' low budget-priority status have made it difficult
for the industry as a whole to perform much-needed maintenance and
replacements, a situation which has been aggravated by the strain
put on systems by increasing urban populations.
The report also mentions environmental and labor issues as being
subjects of concern for both the industry and consumers. The committee
suggests that the impacts of water system privatization on watershed
environments be examined when investigating its feasibility, as
the "preservation of watershed lands that do not generate revenue
may be a loss to shareholders but are often a boon to local residents
and customers." Communities are also often concerned with the
possibility of privatization changing "traditional patterns
According to the report, the liberalization of federal tax laws
has encouraged the participation of private organizations in the
operation of wastewater utilities. There has been no such increase
in the private ownership of such utilities, and existing privately
owned systems have not been greatly affected by the new tax laws.
Contributed by Emily R. Scott, AGI/AIPG 2003 Summer Intern