Analysis Group Report Confirms Costly Nature of Water System Takeovers

Posted on Jan 31, 2017

Analysis Group Report Confirms Costly Nature of Water System Takeovers

The Economic Consequences of Contested Government Takeovers of Investor-Owned Water Utilities,” a report prepared by the Analysis Group, Inc. (AGI) for the California Water Association, highlights the effects of contested government takeovers of investor-owned water utilities. Based on the analyses of four contested eminent domain proceedings in Felton, CA, Montara, CA, Nashua, NH, and Missoula, MT, AGI concluded the takeovers “are typically very costly for the acquiring government entity and do not necessarily perform better than private ownership post-takeover.”

According to Dr. Sosa, who led AGI’s analysis team, “Arguments made in favor of government takeover of water utilities frequently cite lower costs, among the purported benefits. We examined case studies of four systems where eminent domain proceedings were initiated to examine these arguments and the effects of contested acquisitions, and we found these claims to be unsubstantiated.”

The report concluded that:

  • Government ownership of the Montara and Felton systems failed to deliver rate benefits promised to customers.
  • Ownership changes place immediate and substantial financial burdens on customers and taxpayers for which there is no compensating benefit.
  • There is no sound basis in accounting or economics to support the expectation of real benefits to ratepayers, in the form of lower bills, from the elimination of profits and taxes.
  • Acquisition costs tend to be underestimated – sometimes by more than 100 percent.
  • Contested takeover efforts have proven to be very costly to government entities due to eminent domain, acquisition and water system maintenance costs, which result in a significant economic burden on ratepayers and taxpayers.