Privatization: The Only Solution?

A growing number of experts think so. They point to a recent EPA report predicting that more than $650 billion will be needed by 2019 repair the nation’s increasingly outmoded water utilities.

Americans have traditionally relied on publicly owned municipal utilities for treated water. About 85 percent of what is now spent on upgrading and maintaining these facilities come from fees charged to local subscribers. The rest comes from federal loans and grants.

In recent years, however, federal appropriations have not kept pace with population growth and the new array of stringent federal and state drinking water standards with which local utilities are required to comply.

Many experts are increasingly concerned Congress will not be able to scrape together the more than half-trillion dollars needed to upgrade the nation’s utilities. But if Congress can’t foot the bill, who will?

"It could cost as much as $30 million just to upgrade a small-town utility – a cost that couldn’t possibly be passed along to local subscribers," says Dr. Jim Hairston, an Alabama Cooperative Extension System water quality scientist.

Without federal funding, Hairston says, privatization is turning out to be the only viable option for many of these communities.

"You’re going to have it no matter what. We’re at the point where privatization seems to be the only way to save small-town utilities that otherwise can’t pass along the costs to their customers."

"They will have no other choice but to cap their wells and hook up to a privatized water utility in a larger city better equipped to pass along some of these costs to their customers."

Even so, Hairston says, there are drawbacks to water utility privatization. For starters, what’s to be done with all sectors of the population unable to afford the higher water and sewage prices that may follow privatization?

"Water has historically been viewed as a public domain product that can’t be hoarded and sold at an unfair profit," Hairston says. "So no matter how far you go with privatization, you’re still going to have to have government involvement – some sort of subsidized program so that the very poor have access to water and can pay for it," he says.

This, Hairston believes, is one reason why privatized water utilities ultimately may be regulated like other utilities, such as power companies, which must seek the approval of state regulatory commissions before raising prices.

One example of how emerging regulatory trends are driving the push toward privatization involves debate over new arsenic standards.

The current drinking water standard for arsenic, set at 50 ppb (parts per billion), is viewed by many experts as inadequate, especially in light of recent scientific studies showing a link between ingestion of trace amounts of arsenic and certain forms of cancer, especially skin cancer.

Partly for these reasons, they are pressuring EPA to lower the arsenic standard to as low as 3 parts per billion.

While some communities will have a relatively easy time complying with this new standard, others will find it well nigh impossible without adequate funding.

To comply with these types of standards, communities typically have used relatively cleaner water to dilute water with higher levels of a specified contaminant.

The problem arises when these relatively cleaner water supplies are not available.

"The problem is that you have some states whose entire groundwater supply may contain arsenic levels that are well below the current 50 ppb federal standard but exceed the levels of 3 ppb that ultimately may be imposed."

"This is one example of how complying with new standards could cost millions of dollars," Hairston says.

So what does a small-town utility do? Does it pass along the costs of complying with these new regulations to its 850 subscribers, or does it explore new options such as hooking up with a well-funded private utility?"

"The answer should be obvious."

(Source: Dr. James E. Hairston, Extension Water Quality Scientist, 334-844-3973.)
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