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Private or public, water conservation is the real issue: part 2

A few weeks ago rumors – which to my knowledge are still only rumors – started to surface about Chicago exploring privatization of its water system (in the last few days both the Chicago Tribune and Crain’s have touched on the subject as well, see MPC’s letter to the editor of the Chicago Tribune for our response to the former).

When the rumors popped up I wrote here that if the goal of privatizing the water system is to conserve water, reduce leakage and loss, and be a better steward of our Lake Michigan water supply; and if a private firm can do that better than a public agency, then it’s worth exploring.  It’s a question of goals, not of whether private management is inherently better or worse than public.

Northeastern Illinois’ water supply is finite, and conservation is necessary to ensure sustainable supplies for future population growth and economic development.  Additionally, our vast system of water infrastructure (Chicago alone has more than 4,200 miles of pipes to move water through the city) is aging and often used beyond its designed capacity.  We need to maintain that system and be more efficient – both with we how we move water from one place to another, and in how we use water when it gets there – to extend the lifetime of our existing infrastructure and delay, or even better, avoid costly infrastructure expansion. All of that costs money.

At the same time, consumers need a reason to conserve or be more efficient.  If your monthly water bill doesn’t send you the right signal about the value of water, then it’s likely nothing will.  If all of us paid for the full cost of water – treatment, pumping, delivery systems, and removal – then we would all make more informed choices, and public or private utilities would have sufficient revenues to meet costs.

So when it comes to conservation and efficiency, the real issue is water rates, not private vs. public management. 

However, in Illinois, private utilities are required (overseen by the Illinois Commerce Commission) to charge for the full cost of providing water.  Public utilities are not.  As a result, water rates in communities with private utilities tend to be somewhat higher as a result, but they are also reflect the true cost of pumping, treating and delivering that water to you.  Yes, your per-gallon rate will be higher, but that tends to motivate people and businesses to examine their water consumption and shift to using the “right” amount of water, which will be different for every individual.  Perhaps a 7-minute shower instead of 10-minute one. Maybe less water-consumptive plants in the garden.  Again, “right” is different from user to user.  What you get is more efficient use.  Some people end up using less water, and actually paying a smaller bill despite higher rates. 

Illinois law leads to efficient rate structures being more correlated with private utilities … but that’s a function of the law, not the status of the utility. There always will be concerns about private utilities’ profit margin, and before entering any public-private partnership, there needs to be real scrutiny and transparency about what that will do to rates. Whether public or private, it’s important that the state and other organizations monitor spending to make sure that additional revenue from rate increases is justified and very clearly going back into the water system.  Public oversight is a must; even if water systems are privately managed, they are still a public good.  

Of course, the idea of raising water rates, regardless of public or private management, is rarely popular.  For the end user, experience with water service rarely changes – turn on the tap, out it comes.  So the value of the water never really changes in our minds either. 

However, the cost of providing that water does change. You need energy to pump water, and that costs money.  You need to fix pipes, and that costs money.  You need to pay people to do all that, and that costs money… and those costs increase every year… so water rates, in order to meet those costs, should too.  When they do, as is the case in recent memory with both the City of Joliet (public) and a handful of Illinois American Water-served communities (private), people get upset because their experience with water hasn’t changed, and so they don’t see that the cost of providing it has increased either.

Again, this isn’t a public vs. private issue.  It’s a rate issue.  There is no reason that a public system couldn’t charge for the full cost of providing water, but at the same time there are a number of reasons why a public utility would keep rates artificially low – primarily political pressure and to use low water rates as an economic development incentive.  

However, if you aren’t earning enough revenue from water service to pay for capital and operations, you often have to divert money from some other revenue source, secure federal and state loans to subsidize costs, use bonding authority to secure funding for capital improvement (which is often financed against future water use, creating a disincentive for conservation efforts), or delay maintenance and/or improvements to the system.  None of these is a great option, and they pretty much lead to paying more somewhere down the road.

That’s what it really comes down to – pay a little more now, pay more later, or don’t pay, which leads to aging, inefficient infrastructure and wasted water, energy and money.  “Pay more later” can end up including the cost of main breaks, depleted supply, or a host of other issues.  When those things happen, people realize the full cost of water service.

Water rates, like energy rates and tolls, should help us make informed decisions about consumption.  Until our water rates give us accurate signals about the cost of treatment and delivery, we’re pretty much guaranteed to continue undervaluing, and ultimately wasting, water.  We don’t get dressed in the dark because it leads to bad choices, so why cook, bathe, or irrigate that way?

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