Privatizing the Problem: Federal Endorsement of Water Privatization

By: Taya Fontenette, Policy and Research Coordinator

The United States' water infrastructure system, responsible for providing safe drinking water and managing wastewater for millions, is facing a multitude of challenges. These challenges encompass aging infrastructure, a heightened presence of contaminants, and the increasing threat of more frequent and severe weather events due to climate change. Furthermore, many communities and utilities grapple with insufficient funding, resulting in deferred maintenance and a growing backlog of necessary upgrades and repairs. In 2021, the single largest investment in the nation's drinking water and wastewater systems became law with the Bipartisan Infrastructure Law, earmarking $15 billion for the removal of lead pipes and an additional $50 billion for clean water infrastructure. This historic legislation underscores the immediate need for the federal government to embrace a comprehensive and strategic approach to secure the long-term sustainability of our country's water infrastructure.

National Infrastructure Advisory Council

The National Infrastructure Advisory Council (NIAC) serves as the primary body advising the President of the United States on devising practical strategies to mitigate complex risks within essential infrastructure sectors. Notably, the Council consists of up to 30 senior executives and leaders from both the public and private sectors, dedicated to comprehensively examining cross-sector infrastructure security and resilience issues while providing recommendations to safeguard the nation's infrastructure.

On December 27, 2022, the National Security Council tasked the NIAC with answering the following:

How should the U.S. Federal government help critical infrastructure owners and operators prepare for the rapidly evolving water crisis (including the Colorado River Basin) and what actions should we take now to minimize cross-sector impacts?

2023 NIAC WATER REPORT

In August 2023, the Council unveiled a comprehensive set of 14 challenges and 11 recommendations in their report, "Preparing United States Critical Infrastructure for Today's Evolving Water Crisis." This report disclosed critical statistics, revealing that although the U.S. boasts over 150,000 public water systems, just 9% of community water systems provide water to 80% of the nation, while the remaining 91% serve smaller communities (p. 10). Public water consumption accounts for just 12% of total water usage, with the majority devoted to power generation (41%), irrigation (37%), and various industrial applications (6%), as reported by the U.S. Geological Survey (p. 6). Over the years, the U.S. government's contribution to capital costs for water infrastructure has declined significantly, falling from approximately 60% in 1977 to less than 10% in 2020 (p. 6). Despite these challenges, the nation's potable water supply continues to be recognized as one of the safest and most reliable in the world (p. 7).

NIAC Recommendations

Mitigate Cross-Sector Impacts

Invest in reliable infrastructure in U.S. river systems to provide for energy generation needs.
Modernize and make flood resilient the inland waterways transportation system.
Support adaptive practices and promote smarter irrigation technology so farmers, ranchers, and forest landowners can better deal with climate variability.

Create a National Water Strategy

Elevate the importance of water in the national consciousness through a public awareness program.
Institute either a Department of Water or some other entity that stewards water at the Cabinet level.

Aid Infrastructure Owners and Operators

Create, incentivize, and enforce standards for water use and quality
Remove barriers to new ways of funding water projects.
Invest in innovation.
Assist low-income and vulnerable populations
Increase national resiliency to drought, floods, and other water-related crises.
Invest in the water infrastructure workforce.

Recommendation of Concern: Water Privatization

The most concerning aspect of the report is the recommendation to endorse the privatization of public water systems (p. 14-15). The second recommendation in the "Recommendations to Aid Infrastructure Owners and Operators" section states:

Remove barriers to new approaches in financing water projects.

“Remove barriers to privatization, concessions, and other nontraditional models of funding community water systems in conjunction with each state’s development of best practice approaches to using these nontraditional finance models in the water sector.”
“Allow access of privately-owned water providers to Water Infrastructure Finance and Innovation Act (WIFIA) and U.S. Federal grant programs.”

This recommendation calls for the federal government to both eliminate regulatory obstacles and allocate taxpayer funds to privately-owned, profit-generating water utilities.

In 2022, a study titled 'Water Pricing and Affordability in the U.S.: Public vs. Private Ownership' examined the affordability of the nation’s 500 largest community water systems, collectively serving 140 million people. The study found that privately owned systems tend to have higher annual bills and lower affordability, consistent with previous research. After accounting for variables such as the system's size, age, water source, poverty level, and other relevant factors, the research team concluded that private ownership had the most substantial influence on annual water bills, resulting in an average increase of $144. In 2016, a report by Food & Water Watch revealed that privately owned water utility services imposed charges 59% higher than those of public water services, amounting to approximately $185 annually. In addition to the financial burden on consumers, the privatization of water systems often leads to local governments ceding control over a fundamental public resource. This loss of control limits their ability to adapt to changing community needs and respond to unforeseen emergencies. Furthermore, private water companies may not consistently prioritize environmentally sustainable practices, which pose risks such as over-extraction of water resources and inadequate environmental protections. These consequences can have long-term impacts on both the environment and public well-being.

Water pricing and affordability in the US: public vs. private ownership. Water Policy (2022) 24 (3): 500–516.

To effectively address the neglected state of our nation's water infrastructure, the federal government must adopt a comprehensive approach. The approach must emphasize increasing funding and implementing advanced technologies while preserving every citizen's access to water and maintaining municipal control over water resources for accountability. Additionally, policymakers and water utilities should prioritize the development of affordability programs to aid those in need. As co-author of the 2022 study, Mildred Warner states, "We have these policies for energy, we have them for telephone service – but we don't have them for water, a basic human need." This collective effort to address these pressing issues goes beyond the need for modernization; it represents a fundamental dedication to protecting the well-being and future of our nation.

This comprehensive approach highlights the significance of public stewardship and underscores the need for effective governance in the management and protection of drinking water. Given the repairable state of American infrastructure, why, then, is the Biden Administration considering water privatization?

Councilmembers’ Conflicts of Interest

Power Map of Private Water Ties to the National Infrastructure Advisory Council via LittleSis.

In August 2022, the Biden Administration announced the appointments to the National Infrastructure Advisory Council. Notably, the Chair of the Council, Adebayo Ogunlesi, is a Founding Partner and the Chairman and Chief Executive Officer of Global Infrastructure Partners (GIP), an investment bank with a diverse portfolio of over $84 million in assets, including those related to water and wastewater services. In 2022, Veolia, the world’s largest private water company, closed a multi-billion-dollar acquisition of Suez Group, a leading force in water privatization across Europe, Asia, and Africa and a client of GIP. This acquisition cleared the way for GIP to acquire a 40% stake in "New Suez." This intricate web of connections raises concerns about the impartiality of recommendations provided by its members, but it does end here.

Several other Council members have deep ties to corporations with a vested interest in expanding water privatization in the United States as well as connections to oil and gas companies. David Gadis is the current CEO and General Manager of DC Water, a public utility providing services for nearly 700,000 residents. Gadis previously held the positions of Executive Vice President at Veolia North America and CEO and President of Veolia Water Indianapolis. In addition, Sadek Wahba is the Chairman and Managing Partner at I Squared Capital, a global infrastructure investment management firm overseeing a portfolio exceeding $15 billion. Wahba also served as the CEO of Morgan Stanley Infrastructure Partners, which maintained financial relationships with Veolia.

These connections are detailed in an extensive report by Eyes on the Ties, a site aimed at bringing more transparency to the role that corporate power plays in shaping public policy. Regrettably, the NIAC report does not acknowledge the glaring conflict of interest, particularly in the case of Adebayo Ogunlesi and other members who stand to potentially reap substantial financial gains should the Biden administration support the report's recommendations.

Louisiana’s Water Systems

The Louisiana Department of Health (LDH) is responsible for overseeing more than 1,300 public water systems in the state and ensuring compliance with state and federal drinking water standards. In May 2023, LDH released the final water grades for 951 community water systems evaluated in 2022. These assessments revealed that 33% of systems received a C, D, or F grade, highlighting areas in need of significant improvement.

Louisiana Department of Health. Community Drinking Water Accountability Rule.

Louisiana's lowest-rated water systems served some of the least-populated parishes in the state. In these rural areas, the limited customer base present a significant challenge when it comes to securing the financial resources required for system improvements, which are essential for both regulatory compliance and operational efficiency. As a result, these systems may find themselves vulnerable to privatization as a means to meet the necessary standards; an outcome that could increase water bills for residents in already vulnerable communities who may not be able to afford those increased rates.

New Orleans’ Public Water Utility

Within the state of Louisiana, the Sewerage and Water Board of New Orleans (SWBNO) stands as the largest public water utility, delivering approximately 165 million gallons of freshwater daily to over 375,000 residents. The utility operates two water treatment plants and two wastewater treatment facilities.

In the early 2000s, the Sewerage and Water Board explored the possibility of privatization, the details of which are documented in a comprehensive report created by the Bureau of Governmental Research. The consideration of privatization emerged as a response to potential significant rate increases for SWBNO customers driven by federal mandates requiring extensive upgrades to New Orleans' aging water infrastructure, with a total estimated cost of $455 million. Meanwhile, federal investments in water infrastructure had been dwindling since the 1970s, placing the financial burden on residents to pay the cost for upgrades and maintenance.

This procurement endeavor had the potential to become one of the largest privatization efforts in the United States, as it was set to encompass both water and wastewater systems. The contract term was proposed to range from 10 to 20 years, with an estimated total value of $1 billion. Though it did not come to fruition, it is important to recognize how the lack of funding for essential infrastructure upgrades can drive struggling systems, large or small, to consider privatization.

Conclusion

The dangers of water privatization cannot be understated. Privately owned systems tend to have higher annual bills and lower affordability for customers, and municipalities lose primary control of a public resource. The recent recommendation by President Biden's National Infrastructure Advisory Council to eliminate barriers and financially support private water systems is ill-advised, and the impartiality of the Council should be questioned. Placing profit-driven motives at the core of managing such a fundamental public right and resource may lead to skewed priorities, jeopardizing our nation's long-term sustainability. The apparent conflicts of interest within the Council are not to be dismissed lightly, as they carry profound implications for the American people.

In light of these complex challenges, it is crucial that we remain steadfast in our opposition to water privatization and emphasize the importance of state and federal involvement in supporting our public water systems. Louisiana's 2022 water system assessment reveals that a third of the state’s systems have significant room for improvement, and our federal and state tax dollars should be put to work to correct the inadequacies of all of our nation’s public water systems.

The recent passage of the Bipartisan Infrastructure Law represents a notable step towards addressing the issues of aging infrastructure, lead pipe removal, and clean water initiatives with substantial investments into state revolving funds. The federal government's role is pivotal in resolving these pressing issues that affect communities nationwide. The Water Collaborative of Greater New Orleans firmly opposes the privatization of community water systems in the United States. Our water infrastructure is not just a matter of economics but a vital component of public health, environmental protection, and the well-being of our communities. As such, we must advocate for a comprehensive approach that prioritizes public control and accountability, ensuring that access to clean and affordable drinking water remains a fundamental right for all.