U.S.: Can private companies save the crumbling water systems and infrastructure?

Increasingly, in the United States (U.S.), ownership of water systems as well as water pipes – used to transport drinking water and move waste – have been shifting to private companies.

And according to Bluefield Research, companies have spent, or are planning to spend, approximately US$2 billion in 53 deals that involve water and wastewater utilities, and the trend is expected to continue growing over the coming years ahead.

The reason is simple: Because many counties, cities, and towns, strapped for cash, can no longer afford to provide residents with clean water, bogged down and overwhelmed by the mounting challenges of restoring crumbling and aging infrastructure against a backdrop of federal funding that has been declining for ten years.

But while the money spent on privatising water utilities and facilities may seem small, it is noteworthy, especially as the U.S. has an estimated 78,000 community water and wastewater systems, president of Bluefield, Reese Tisdale, noted. But the huge opportunity for private investment in water plays a huge role too, standing at around US$728 billion.

“There seems to be no shortage of interest, and capital for that matter,” Tisdale said to CBS. “Rather, the challenge for new market entrants, particularly for those looking to secure a platform from which to grow, is scale. Big deals are difficult to find.”

Although most are served by water and wastewater systems that are publicly-owned today, Bluefield Research has estimated that approximately 15 per cent of the systems are owned by the private sector. In 2010, according to the U.S. Geological Survey, around 86 per cent, or 268 million people, depended on public-supply water for household use.

But beyond old pipes and aging infrastructure, numerous factors have municipalities and counties seeking different methods to fund or replace systems.

One of the most pressing issues is higher water rates, with bills in an average household in the U.S. rising 18.5 per cent since 2012, or 4.4 per cent on average per year. Recently, a Michigan State University study found that the number of households who will start finding water bills to be unaffordable has the potential to triple from 11.9 per cent to 35.6 per cent over the coming half decade.

Another issue is that even as they are being used, systems are crumbling. The 2017 Infrastructure Report Card from the American Society of Civil Engineers (ASCE) showed that around 240,000 water main breaks happen every year.

Recently, bad water main breaks in Boston, San Diego, and Chicago, among others, have dominated news headlines. More than the D grade the ASCE gave their drinking water infrastructure, the more than 1 million kilometres of pipes that were laid there from the early to mid 1990s have an average lifespan of 75 to 100 years, and need to be replaced soon.

But despite the urgent and crucial issue, the federal government is far less likely now to help with the cost than before if historical records are anything to go by. According to Bluefield, funding for water utilities reached its highest peak in 1976 at US$16.9 billion. By 2014, it had dropped to US$4.3 billion. Simultaneously, 5,300 public water systems are facing serious system and environmental violations.

Thus, for local governments struggling to keep afloat with diminishing funds, selling a water system to a company in the private sector to either own or operate is a way in which they can both resolve a debt situation while also paying for the repairs the water systems need so badly. It can also free up funds that can be used for schools and the police force, among others.

Now, California, Indiana, and Pennsylvania, along with a few other states, have made it much easier for private companies to invest in water utilities with legislation that emphasises a “fair market value” on systems.

However, privatising a system that is largely considered a public service can leave residents visibly bristling, with community oppositions capable of making purchases contentious.

But it is still a trend that is growing, and will likely not be going anywhere in the foreseeable future.

“There are more dollars going into the utility network than there used to be,” Tisdale commented.


Sources: CBS, Bluefield Research, American Society of Civil Engineers