The Coming Water Crisis
Many billions of dollars will be needed to quench America's thirst, but is private business the answer?
One spring Saturday morning this April, Chuck Maurer of San Antonio realized while brushing his teeth that he and his neighbors had become victims of a water conservation program gone awry. "It was grotesque," he recalls. "The water was brown in color and cloudy with particulates, and a really bad odor. It was sewer water." Precisely. The San Antonio Water System had accidentally cross-connected his neighborhood's drinking water lines with pipes delivering treated sewage water to a public golf course. Watering fairways and greens with "reclaimed water" has become popular in water-short tourist areas, especially Florida. But experts say such systems require extra care to keep sewage from entering potable systems.
Big business to the rescue. With immense challenges ahead, U.S. drinking water systems are considering something never tried here on a large scale: privatization. In March, Indianapolis announced a $1.5 billion agreement with USFilter, the largest U.S. privatization to date, and in May, San Jose, Calif., voted to consider privatizing. Private firms helped supply water to Boston as early as 1796, and utilities have long hired outside contractors to build, but not operate, plants and distribution systems. But over the past five years, an IRS ruling that helped firms obtain longer-term tax-free water contracts, combined with politicians' push for deregulation and municipal-system breakdowns, opened the door for firms to actually manage systems. Only 15 percent of utilities are investor-owned, but in recent years, a handful of big water corporations, mostly foreign owned, have moved onto the U.S. scene: from France, Suez and the media-water conglomerate, Vivendi; from Germany, the utility RWE. (One domestic player with giant ambitions was Enron's water subsidiary, Azurix, which had touted a plan to plumb the Everglades and manage the water.)
Congress is considering hiking federal funding for infrastructure, but the Bush administration encourages the privatization trend, saying that water systems cannot expect to get all the dollars they need from Washington. Says G. Tracy Mehan, EPA assistant administrator for water: "I think the needs are so great especially when you see the demands of homeland security and the federal budget. Private capital is one of several options that are going to have to be considered much more than they have been."
One private-sector success story is Leominster, Mass., a town of 40,000, which signed a 20-year deal with USFilter in 1996. Before then, "our treatment plant was totally corroded. We fixed leaks by putting out old coffee cans to catch the water," says Mayor Dean Mazzarella. USFilter saved the city money it then used to upgrade a 60-year-old filtration plant that was "held together by wire and chewing gum," says city environmental inspector Matthew Marro.
Experience in other countries suggests that privatization can, indeed, pour needed capital into drinking water. Investment in the United Kingdom increased more than 80 percent after it turned to total privatization. "Public-private partnerships are going to sweep the U.S," says Andrew Seidel, president of USFilter. "The country has 50,000 different water systems, and those will consolidate into bigger systems aligned with private companies and able to handle the growing number of water-treatment issues."