vast majority of these systems serve small populations. In fact, 85 percent of U.S. community water systems serve only 10 percent of the population served by community water systems.

Investor-owned water supply utilities (i.e., “private utilities”) accounted for about 14 percent of total water revenues and for about 11 percent of total water system assets in the United States in 1995. Investor ownership of wastewater utilities is more limited than investor ownership of water supply utilities, in part because of extensive federal funding of wastewater treatment plants that began after World War II. Investor-owned water supply and wastewater utilities are subject to state economic regulation that oversees rates charged, evaluates infrastructure investments, and controls profits. In contrast, private contract arrangements under public ownership are not subject to this regulation. The private sector has favored public-private relationships that are not subject to state economic regulation. According to the National Association of Water Companies (NAWC), the proportion of water services in the United States provided by private water companies, whether measured by customers served or volume of water handled, has remained close to 15 percent since World War II (NAWC, 1999).

FACTORS DRIVING WATER SERVICES PRIVATIZATION

The magnitude of investments that will be required to continue to provide high-quality, reliable drinking water and wastewater treatment services to the nation is huge. A recent report from the American Water Works Association (AWWA) estimated the necessary investments in replacement of the nation’s water infrastructure to be $250 billion over the next 30 years (AWWA, 2001a; this estimate is based on a water utility survey). Public officials with limited financial and technical resources are interested in alternatives that may help meet these needs.

Customers increasingly demand high-quality, reliable drinking water and wastewater treatment service. Surveys have indicated that customers are often willing to pay more for high quality water and reliable service. Water bonds usually pass at elections, another indication of the public’s willingness to pay for high-quality services.

The Safe Drinking Water Act of 1974 has been a major factor in initiating changes in utility management and operations. With standards becoming increasingly stringent (illustrated by EPA’s 2001 arsenic standard), it has become more difficult, especially for small and medium-sized utilities, to comply with standards at acceptable cost levels. Small to medium-sized water utilities (those generally serving fewer than 50,000 people) face the greatest difficulties in meeting the full range of technical, business, and infrastructure needs and compliance with in-



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