F.A.Q

ABOUT INVESTOR-OWNED WATER COMPANIES

What are investor-owned water utilities?

Investor-owned water companies are professional water service providers that own regulated water and wastewater utilities, partner with municipalities to form public-private partnerships, or operate and maintain water and wastewater systems as contracted services providers. These companies may be privately owned or publicly traded.

In California, these professional water service providers who own and operate utilities are regulated by the California Public Utilities Commission (CPUC). The CPUC establishes rates and terms of service, as well as provides safety and security oversight and, with the State Water Resources Control Board, shares water quality and compliance responsibilities. In the course of regulating these public utilities, the CPUCreviews company costs, audits system needs, holds hearings on general rate cases, applications for capital projects and other formal proceedings, and render decisions that govern the utility’s relationship with its customers.

Investor-owned water utilities have more than two centuries of experience providing drinking water to communities of all sizes and in all areas of the United States. Today, nearly 73 million Americans —one of every four people in this country—receive water service from a investor-owned water utility or a municipal utility operating under a public-private partnership. In California, the regulated water utilities, alone, serve nearly six million people, or about one in six Californians. When you add partnerships and contract operations to this total, the percentage grows substantially.

 

What makes investor-owned water utilities unique? 

As privately held companies regulated by the California Public Utilities Commission, investor-owned public utilities are among the most scrutinized businesses in the state. The CPUC establishes rates for investor-owned water utilities, and in doing so, thoroughly reviews the requests for rate and service changes and the company’s costs, audits system needs, conducts public hearings for customers and holds formal legal hearings adjudicated by an administrative law judge.

Also, investor-owned water utilities own the infrastructure used to treat and distribute water to customers . Shareholders invest in that infrastructure, building and maintaining a facility’s water and delivery system in order to provide the best water service at competitive rates. They also pay franchise, property and other business taxes – something that does not apply to municipal utilities.

 

How do Investor-owned water utilities finance their operations?

Investor-owned water utilities use a combination of private equity capital (i.e., stock), short- and long-term debt (e.g., commercial paper, bonds) and contributed funds (e.g., from real estate developers or homebuilders) to build and expand their water treatment and delivery system. All financing costs are approved by the California Public Utilities Commission.

 

How do investor-owned water utilities benefit local economies?

Investor-owned water utilities help local economies by paying franchise, property and other business taxes. These taxes help support community services and facilities. They also contribute to a community’s economic base by providing quality water and dependable service, which helps demonstrate that the local community is an attractive place to live and work.

 

TAKEOVER ATTEMPTS

Why are there stories in the media about public interest groups trying to take over investor-owned water utilities?

Reasons for local takeover attempts vary, but the principal reason is ideological. Some people argue that the private sector cannot be trusted with water and sanitation services and that these services should be free to all customers, or heavily subsidized, and provided by government agencies. Also, local special interest groups and/or local governments sometimes seek more control over their water service, revenues from water service and/or discretion over water rates.

In reality, investor-owned water utilities have a well-established record of outstanding service and customer satisfaction. While isolated cases of condemnations and takeovers through an eminent domain process (where a government takes control of a utility’s private property, its water system assets) or localized opposition to investor-owned water utilities tend to get much publicity, there are far more instances where communities see positive outcomes from their partnerships with investor-owned utilities.

 

How do local takeovers of private water companies typically affect rates?

Studies that reflect all costs typically show that rates and other charges, including any tax increases, typically increase as a result of the takeover. This occurs because the acquiring government agency must pay fair market value, which is significantly more than the value recognized by the California Public Utilities Commission in setting rates. Also, the acquiring government agency ultimately must make the same investment and financial commitment as the investor-owned utility in order to maintain the distribution system.

 

Who is Food & Water Watch?

Food & Water Watch is a Washington, D.C.-based lobbying organization. It was created in 2005 by 12 former members of Public Citizen, the group formed by Ralph Nader in 1971. As an advocacy organization, the group has no technical water system management experience, yet has been very active around the country assisting local communities and special interest entities in their takeover efforts. Read more on the National Association of Water Companies Web site. [link to: http://www.nawc.org/knowledge-center/faqs.aspx]

 

RATES AND SERVICE

How are rates set for investor-owned water companies?

Investor-owned water utility rates are set by the California Public Utilities Commission (CPUC). In setting rates every three years, as mandated by California state law, the CPUC thoroughly reviews the company’s costs, audits system needs, conducts public hearings for customers, holds formal evidentiary hearings adjudicated by administrative law judges, and issues a final decision authorizing the utility to establish approved rates and terms of service.

 

Do municipal water providers have access to loans and grants and other public money that for-profit water suppliers don’t have?

Municipal water providers sometimes have access to certain kinds of loans and grants that investor-owned utilities do not; however, the regulated, investor-owned water utility industry continues to seek equal access of such loans and grants for the benefit of their customers. After all, taxes paid by investor-owned water utility customers provide for and subsidize these loans and grants, just as the taxes paid by customers of municipal suppliers do.

 

Overall, how do rates of for-profit water providers compare to the rates of public water suppliers?

It’s difficult to compare rates among water providers—whether municipal or investor-owned—even in the same geographic region. The factors that impact rates are diverse and unique to each water provider. These factors include the sources of supply, condition of the water system, water quality compliance costs, cost of purchasing water, the level of existing and needed investment and geographic location.

All water providers, public and private alike, must maintain and upgrade their systems’ infrastructure and meet the same water quality standards, costs that often impact rates. To avoid raising rates, a municipality may choose funding sources other than rates, such as developer impact fees, reserves or taxes – options that are not available to investor-owner utilites.  Some investor-owned water utilities offer the advantage of economies of scale, which means that they reduce costs to the customer by centralizing and sharing costs for certain services.

 

WATER QUALITY

Who makes sure that investor-owned water utilities provide high-quality water?

All water systems, whether investor- or municipal, must meet stringent water quality standards set by the state and federal governments.  The State Water Resources Control Board oversees investor-owned and municipal suppliers to ensure that they are complying with all standards. Additionally, the California Public Utilities Commission also oversees investor-owned water utilities to ensure that they are meeting these standards.