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Community Corner

Sale of Bethel's Water System Would be a "Tax Through the Tap"

<img class="alignright size-full wp-image-15375" src="http://www.foodandwaterwatch.org/wp-content/uploads/2011/10/ProtecttheHumanRighttoWater.jpg" alt="" width="200" height="133"/>The proposed sale of Bethel, Connecticut’s drinking water system to Aquarion is a bad deal for residents and one that they should reject. Not only would the privatization mean much higher water rates for town residents in the future, it would also take the drinking water system out of local public oversight and control.

Aquarion agreed to charge the same rates as the town would charge through 2015, but after this period, the company will likely bring Bethel’s rates up to those of its Eastern Division – an extra $141 a year, or 37 percent more. Plus, Aquarion seeks a rate increase once every three years, and right now, the company is seeking to hike its Eastern Division rates by 23 percent over the next three years, which would bring the typical household’s annual bill up to $642 by 2015.

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Statistically, privately owned water systems charge higher rates than publicly owned water systems of the same scale. This makes sense. Privatized water systems have two key disadvantages that drive up their rates significantly. First and foremost, private utilities demand profit on their investments. This profit motive compels regulated utilities to overinvest and prioritize reimbursed capital expenditure over efficiency. This is a well-established economic phenomenon, and it comes at the expense of ratepayers.

Second, private financing is much more expensive than public borrowing, and this extra cost is always passed on to consumers. Bethel has a good bond rating and can issue long-term tax-exempt municipal bonds with interest rates of 4 to 5 percent to pay for necessary improvements. Companies like Aquarion use a mix of private equity and debt to finance projects. Aquarion says its after-tax cost of capital is more than 8 percent, including its desired return on equity of 10.6 percent. The company can also pass on its tax expenses to consumers. Therefore, any new property taxeds gained by the town from Aquarion would be charged right to the people of Bethel.

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Higher water rates are just part of the problem with this sale. The deal would also relinquish public control over a vital resource, and once the town loses control, it’s very difficult to get it back. For example, the town of Hingham, Massachusetts is seeking to purchase its water system back from Aquarion Water after a town committee found that public ownership would save residents more than $70 million over 20 years. Aquarion, is of course resisting Hingham’s efforts to regain control, and the town recently filed suit to set the purchase price. Countless other municipalities across the country have made attempts to regain public control of their water systems after disappointment with private operation.

Privatization of a water system turns a public service into a corporate monopoly. And make no mistake – typically lax state regulation of private rates is a weak alternative to ballot-box accountability of our elected public officials. Our public officials should be stewards of our water resources and seek to provide the highest quality service at the most affordable price.  Selling off the water system is an abdication of local leadership and a great example of “kicking the can down the road” for ratepayers to deal with for years to come.

For towns like Bethel, there are sound solutions to maintaining water infrastructure and improving service for residents that don’t involve privatization. One would be seeking public-public partnerships with other municipalities that would allow for greater efficiency and cost-effectiveness while maintaining local public control.

The privatization of Bethel’s water system would result in a new “tax through the tap” for every rate-paying resident. Bethel’s families deserve efficient public control over their essential water services.

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