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Report Highlights Benefits of Public Ownership of Waterworks

Sept. 17, 2002

Report Highlights Benefits of Public Ownership of Waterworks

Communities Better Served Through Municipal Control; Receive Lower Rates, Better Service

LEXINGTON, Ky. – Public ownership of water systems provides more stability, better economic development, more reliable service and lower rates than private ownership, according to a report released today by Public Citizen and Bluegrass FLOW, a citizens group based in Lexington. Both groups warned that privatization, despite its promise of efficiency and improved management, often fails to deliver stable rates and good customer service to the city in which it serves.

Six case studies of cities that have either purchased waterworks from a private company or are currently pursuing a buyout are documented in the report. From Lexington and Huber Heights, Ohio, to Peoria, Ill., strong evidence suggests that water utilities should be kept in the public trust and not treated as a commodity by private investors.

Bluegrass FLOW is taking action to persuade the Lexington-Fayette Urban County Government to regain control of the city’s water system. The group maintains that a municipal buyout of the privately owned company, Kentucky-American, would stabilize rates and provide more reliable service.

“Now is the time for Lexington to put power back into the hands of the people who live and work in this community, the people whose only vested interest is making this city a better place to live,” said Edward T. (Ned) Breathitt, former governor of Kentucky and a member of Bluegrass FLOW. “What we don’t need here is an international corporate giant that siphons profits off our water and invests that money into a new overseas venture instead of our city.”

In Peoria, the City Council voted in October 1998 to buy back Peoria’s water system from Illinois-American Water Company, a subsidiary of American Water Works, the largest water company in the United States. According to Raftelis Financial Consulting, a management consulting firm that specializes in water and wastewater finance, Peoria had the highest water rates in the country in 1998. This revelation prompted action by the city to regain its waterworks.

“All across the country, we’re seeing a demand for corporate accountability from citizens who are fed up with being on the losing end of the profit margin when it comes to their basic utilities,” said Wenonah Hauter, director of Public Citizen’s Critical Mass Energy and Environment Program. “When people see their rates increase repeatedly, they aren’t going to be happy, especially when they don’t see any of their money being re-invested into their own communities.”

Public utilities serve 85 percent of the U.S. population, including most major cities. A vast majority of these systems are operated by municipal employees. In the early 1990s, when corporations realized that water could be profitable, a wave of mergers and acquisitions swept the nation. The 15 percent of communities that had historically been served by small private companies were now being subjected to the whims of large, international corporations. French-owned Vivendi Universal, Suez and the German energy conglomerate RWE AG became the three largest water companies in the world. As local governments dealt with aging water infrastructures, the water giants were eager to offer solutions through privatization.

In Lexington’s case, the city was prompted to take action to pursue a buyout when RWE AG purchased American Water Works, the parent company of Kentucky-American, which is currently running Lexington’s waterworks. Many residents in Lexington objected to the idea of an international company running their local water system.

“The citizens of Lexington should be financially responsible only for their water system’s operations and improvement costs, not overseas expansion efforts or CEO bonuses,” said Hauter. “Lexington cannot afford to miss this unique opportunity to reclaim control of its water rates and economic development.”

Communities generally face an uphill battle when pursuing a buyout of private utilities. However, the effort is rewarded by many benefits that public ownership brings. Consider:

  • In 2000, Indianapolis officials decided to buy the local waterworks after their owner NiSource announced it would sell them to another company. The city feared dramatic rate hikes, which the new owner was expected to implement to recoup its investment. Indianapolis wanted to ensure that operating decisions and customer service and repair functions would remain in Indiana and that rates would remain reasonable. Following several months of dispute, the company agreed to an April 2001 city purchase. Under the terms of the deal, $17 million will be spent to resolve the odor and taste problems inherited from the private operations and another $7 million will be invested in the infrastructure.
  • In 1991, Washington Court House in Ohio moved to buy the local waterworks from the Ohio subsidiary of American Water Works because the company continuously raised rates and failed to meet the local development objectives. The city initially pursued the buyout via eminent domain, but after a two-year legal battle, the company settled. Following the buyout, Washington Court House achieved $500,000 in annual surpluses in just two years. As a result, the city gave a three-year, 10 percent rate discount and performed $9 million worth of capital improvements without raising rates.
  • In 2001, Duval, Nassau and St. Johns Counties in Florida saw their water rates cut by an average of 25 percent after the Jacksonville Electric Authority, a municipal body, bought those counties’ water systems from United Water, a private company, whose earlier rate hikes met significant local opposition. The buyout also brought water service to a development where residents were prevented from moving in for a year because the developer could not reach an agreement with United Water.

Click here to view the report online.