Privatization of Water Services in the United States: An Assessment of Issues and Experience

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and in 1999 the WSTB appointed a committee of experts to examine the issue of water services privatization in the United States. The committee’s study was conducted with support from the following sponsors: American Water Works Company, Inc.; the University of California; the California Water Service Company; Severn-Trent Environmental Services; and the U.S. Environmental Protection Agency. The charge to the committee was as follows:

This study will assess issues associated with various forms of ownership and operation of drinking water supply and wastewater systems in the United States, including strengths and weaknesses. Ownership and operation of water services ranges from fully public to fully private, with several possible public-private partnerships in between.

This study will assess public, private, and public-private drinking water supply and wastewater systems in the United States in light of the following water management concerns: long-term water supply; stewardship of water resources; the ability to manage water from a regional or watershed perspective; the ability to implement conservation strategies; water quality (both at the tap and in the environment); reliability of services; economies of scale; efficiency of operation and management; political and financial incentives and disincentives for improving management and service; and fiscal and policy implications.

FORMS OF WATER SERVICES PRIVATIZATION

Four types of privatization considered representative of the range of privatization arrangements available in the United States are considered in this report. In order of private responsibility and risk assumption, they are (1) “outsourcing” of the performance of specific public utility support services to private companies; (2) full-service contract operation and management by private companies of publicly owned treatment works; (3) coupling design and construction services with comprehensive operating agreements for new, expanded, or upgraded facilities under design-build-operate (DBO) contracts; and (4) the sale of government-owned water/ wastewater assets to private water companies.

Only the fourth option fully transfers risks and responsibilities of asset ownership, operation, maintenance, and replacement to the private sector. Private companies that operate as tax-paying corporate entities currently collect about 14 percent of the revenues and own about 11 percent of the assets providing drinking water in the United States (EPA, 1997). They typically operate under long-term franchises granted by local municipalities. State commissions regulate their rates and charges.

The first three forms of privatization involve variously detailed contracts for private participation in publicly owned facilities where financ-

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