Reduced cost and local control stand out as the easiest to cite, but there are many other compelling reasons for public ownership of water.
1. Private water companies are wrongly motivated and cost more
Private water providers are monopolies. They are motivated mainly by their bottom line. The pressure to deliver high rates of return for shareholders drives them to drive up costs even when they are operating as regulated utilities. [I]
In a major analysis of state records throughout the US, it has been shown that private water companies charge, on the average, 33% more than community owned water companies. [For details of the study with complete footnoting of its sources, click on our reprint of the study called Water Bill Comparison Study.
Furthermore, private utilities are not more efficient than public utilities, according to a meta-analysis of 17 econometric studies about privatization and costs in water distribution by professors from Cornell University and the University of Barcelona.[ii]
2. Publicly owned water companies qualify for cost savings NOT available to Cal-Am
Publicly owned water companies qualify for a number of benefits that private companies do not. For example, Santa Cruz was given a grant for $12.5 million to test different Desal intake options (where, ironically, they concluded slant wells will not work). Besides grants, public water companies qualify for low interest rates and tax-free bonds and other financial perks not afforded private companies.
Just as private water companies do not want to motivate their employees to be cost efficient, public ownership demands the opposite. Publicly owned water companies can align the objectives of a well-run water company (water quality, ample supply, operating efficiency, and low operating costs) to the employees’ pay. Management can be incentivized to meet quality and productivity goals. Employees can be rewarded for innovation and productivity, benefiting everyone.
Finally, Cal-Am’s corporate profits, income and property taxes, and excess corporate overhead add at least 30 percent to operation and maintenance costs. None of these costs are incurred by public water companies.
3. We need to triple our investment in infrastructure
Many expensive changes are upon us. By now, you are probably aware that 70% of our water supply in 2017 must come from new sources such as recycling and desalination. Both are expensive and require tremendous capital investment and high operating costs. Private utilities profit disproportionately on new investments.
For example, using the mayors’ own cost estimates, the $250 million Desal facility will cost over $300 million more if it is owned and operated by Cal-Am (which we’ll pay for). It is bad enough that such a large investment is needed, but to pay an additional $300 million to Cal-Am is unconscionable!
4. Cal-Am has a poor track record – even on simple stuff
Cal-Am’s track record is that of a company looking out for itself, regardless of the economic damage it might cause. For more on their history, we’ve dedicated an entire page to their past performance. You should use it as an indication of future performance.
Click here for more on Cal Am’s blunders.
5. Cal-Am is a poor fit
An argument could be made that small water districts can benefit from private water companies since expertise can be shared throughout the companies without each district needing individual expertise. But we are hardly a small water district. And our water supply problems are complex and require considerable expertise Cal-Am doesn’t have.
Our own water management district has engineers and expertise that more than rival Cal-Am’s. Cal-Am has little experience with Desal facilities anywhere. We would be their first medium sized facility where they would take the lead.
6. Public water will be monitored by all concerned citizens
Unlike Cal-Am where its operations are a trade secret and expenses are kept from the public’s eye, our public water company’s balance sheet and all major decisions will be open to public scrutiny. By law, public water companies must review all major planning decisions in public meetings and accept community comments (and respond to them). This makes for a level of accountability that simply doesn’t exist with Cal-Am.
7. Public ownership is the only truly competitive option
In the case of public ownership, we have the option of asking multiple companies to bid on the Desal plant. That is TRUE competition. Not only can the local companies like Deep Water Desal and the People’s Project at Moss Landing be asked to bid, but National Companies with actual experience in design, construction, and operations of medium and large Desal facilities will also be included—PLUS the best bid would get the job, making it worth their while to prepare a bid.
And the bids may include financing, as in the case of the water district in Carlsbad, where a company called Poseidon has contracted with Carlsbad to design, finance, build, and operate the facility. Poseidon has experience building fully integrated facilities, both large and small.
In this fully integrated contract with Poseidon, the water district promises to pay a fixed amount for the water at minimum usage levels. At the end of 30 years, the system would be owned by the community for a $1 buyout! That’s what Poseidon is doing in Carlsbad, and the acre-foot cost is far less than what Cal-Am proposes to charge! Perhaps most importantly, Poseidon assumes all the risk, unlike what is being proposed here on the Peninsula.
Here in Monterey, Cal-Am has never considered accepting fixed bids from multiple integrators (companies that do the entire Desal project from design to construction to operations) to pick the lowest bidder. They want to build a gold-plated facility because they will make more money if they do.
8. The California Public Utilities Commission costs us
The CPUC is the State’s private utility regulatory agency, which is supposed to regulate Cal Am. But the CPUC has never seen a private utility, no matter how poorly run, that didn’t deserve a profit! The CPUC has NO standards for efficiency, NO quality rating system, and NO performance-based reward system. Just guaranteed profits for the companies they regulate.
If our water system is public, the CPUC will no longer collect fees or be involved in any way with our water here on the Monterey Peninsula!
[i] This is a well-established phenomenon known as the Averch-Johnson Effect, named for the economists who first modeled it in the 1960s. Under rate-of-return regulation, investor-owned water utilities make more money when they invest in infrastructure, giving them an incentive to gold-plate systems, driving up costs. Private companies that operate water systems have appalling track records of rate increases, poor system maintenance, faulty billing practices and other failures, sometimes even jeopardizing the health and safety of local residents.
[ii] Bel, Germà and Mildred E. Warner, “Does privatization of solid waste and water services reduce costs? A review of empirical studies.” Resources, Conservation & Recycling, vol. 52, iss. 12, October 2008 at 1342.
1. This report from 2009 is the most recent national comparison of how much lower public water rates were compared to corporate water rates.