The Coming Water Crisis
Many billions of dollars will be needed to quench America's thirst, but is private business the answer?
Privatization worries have even made it to Broadway: In the comedy Urinetown, a firm privatizes toilets and raises toilet fees. Residents caught urinating in other places are arrested. "With private control, who guarantees that the less well off will get affordable water, and who picks up the cost if the private company fails?" asks Sandra Postel, director of the Global Water Policy Project, a research institute in Amherst, Mass.
Progress report. Indeed, the financial viability of some leading water companies has been called into question recently. Cadiz lost $2.5 million in the most recent quarter; the firm recently tried to reduce its debt through a deal with Saudi Prince Al Waleed ibn Talal, but in July the effort collapsed. Suez's water arm saw revenues grow by just 1 percent. Vivendi, though experiencing revenue growth of 12 percent, made major missteps in its media division that have left it laden with debt and is divesting its stake in one water investment, Philadelphia Suburban.
Nor have private companies, by and large, delivered savings to consumers. In fact, most private water providers surveyed by U.S. News charged higher-than-average rates (table). George Raftelis, a Charlotte, N.C., industry consultant, points out that unlike public utilities, private firms do not enjoy tax-exempt financing, are subject to income taxes, and must return profits to shareholders. Moreover, "privatization does not equal competition," says Janice Beecher, director of the Institute of Public Utilities at Michigan State University. "After bidding, you're transferring the monopoly powers of a public utility to a private company." She suggests cities and towns award shorter contracts and make public utilities and private firms compete.
Citizen outcry over the water rates private firms charge has boiled over into riots in countries such as Bolivia. But so far in the United States disputes have been hashed out in the political process. Peoria and Pekin, Ill., both are moving to deprivatize their water systems, having determined that if private ownership continued, future rate increases would be as much as 60 percent higher than if the systems were publicly run. Because other communities have done the same, Curtis of AWWA does not see a mass movement to privatize: "Some are looking at it, and some are trying to move in the other direction."
But the harsh reality is that the price of drinking water will most likely rise whether private industry or government manages the system. The EPA estimates that the water bill consumes only seven tenths of 1 percent of U.S. household median income; Americans spend more than triple that on bottled water and filters. A recent Harvard School of Public Health analysis pointed out that rates in many developed countries are significantly higher. "[W]ater rates have been insufficient to cover long-run costs," such as maintenance of pipes and plants, let alone larger issues such as preserving clean rivers and surrounding watershed, the report said.
"People think water is free because it falls from the sky," says Seidel of USFilter. "Well, it is--but treated, filtered, and piped water isn't." Privatization advocates contend that only market-oriented pricing can force H2O-hogging Americans to conserve. "Unless you put a market-determined price on something, it is not respected," says Clay Landry, a research associate at Bozeman, Mont.'s Political Economy Research Center. "Right now, who even thinks about the cost of water coming out of their tap?"