TFTT Report

Al Jazeera America recently published an article on private water and wastewater operations in Coatesville, Pennsylvania, that ignores important, well-documented facts.

Although it is not unusual for activist groups like Food & Water Watch or Corporate Accountability International to present biased, partial stories, it is truly unfortunate when journalists join in the effort.

Here are six key points to keep in mind when reading Al Jazeera’s piece:

1. PENNSYLVANIA AMERICAN WATER HAS INVESTED MILLIONS IN THE COATESVILLE SYSTEM 

Since acquiring the Coatesville water and wastewater systems in 2001, Pennsylvania American Water (PAW) has invested heavily in critical infrastructure updates. The significant investments include building a new $55 million sewer treatment facility and a $24 million water treatment facility upgrade. Currently, the company is investing $7.6 million in the Coatesville system to replace deteriorating water and sewer lines that date back to the 1920s.

The investment in Coatesville’s wastewater treatment facility was required to resolve environmental issues that the Pennsylvania Department of Environmental Protection had identified in a Consent Order dated November 30, 2005, pertaining to hydraulic overloads at the wastewater plant. The new facility replaced an antiquated plant dating back to 1932.

This information was provided to Al Jazeera but was not included in the story.

2. WATER RATES ARE SET BY A STATE COMMISSION BASED ON THE COST OF SERVICE, NOT RAISED AT WILL BY A PRIVATE COMPANY

Al Jazeera insinuates that PAW is able to raise rates at will, arguing in the article that “thousands of low-income people must pay exorbitant prices” for water while featuring quotes that question whether “these rate increases are for … improving the pockets of investors.”

Here are key facts that didn’t make it into the story:

First, under all models of private operation, water rates are set and approved by a municipality, state utility commission or another public authority. Private water operators cannot and do not increase rates without public input and approval.

Second, a public authority sets rates based on the total cost of running a water system. Factors that affect costs include investment needs, water source, service area density, service area elevation, and water treatment needs.

No matter the model – public or private – the main driver of costs is infrastructure investment. A system with substantial and urgent infrastructure investment needs, as Coatesville had when PAW began operating the system, is going to have significantly higher rates than a system that only requires routine maintenance.

3. RESIDENTIAL WATER BILLS IN COATESVILLE AVERAGE $55.00

The Al Jazeera article reads:

“By all practical measures, Coatesville is 2 square miles of ghetto. Yet more than a dozen residents told Al Jazeera that, despite low use, they spend more than $100 each month for water, on par with residents of major cities such as San Francisco …”

Here are the facts:

The average water bill for a residential customer in Coatesville is $55.00. Therefore it is false to say that residential customers spend “more than $100 each month on water.”

The reporter’s confusion was driven by his refusal to understand that residents in Coatesville are billed for water service and wastewater service – two very different services – on the same bill. While the story claims that “water bills” of over $100 are common in Coatesville, this is simply not true, and the reporter repeatedly refused to provide this context in his report.

4. PAW REQUESTED LOWER WASTEWATER RATES IN 2013

The Al Jazeera article reads:

“In 2013, PAWC applied for a second rate hike, this time statewide, with the Pennsylvania Public Utility Commission. A number of entities, including the state’s Office of the Consumer Advocate, filed complaints in response, alleging the hikes were unjust. The resulting settlement, drafted by the commission, raised rates around the state overall, but regulators insisted on a slight decrease in Coatesville residents’ projected wastewater bills for 2014, which were set to rise based on the annual phased-in hikes that began in 2010.”

Here are the facts:

On April, 30, 2013, PAWC requested a wastewater rate decrease of 29% for Coatesville’s residential customers. The company actually proposed lowering wastewater rates, which the Public Utility Commission approved in its settlement of the rate case.

This information and relevant documentation were provided to the reporter but were not included in the story.

5. THE CITED FOOD & WATER WATCH RATES STUDY IS BOGUS; EXPERTS WARN AGAINST SUCH OVERSIMPLIFIED RATE COMPARISONS

One of the many misleading tactics that Food & Water Watch routinely employs is not telling the full story on water rates.

Food & Water Watch reports constantly compare the monthly water rates of systems – usually municipal-run systems to privately operated systems – to claim that private operation is more expensive.

As the Al Jazeera article reads:

“A comprehensive study by Food & Water Watch found that customers in communities that sold or leased their water systems paid 33 percent more for water, on average, than those served by municipally owned systems.”

While these comparisons on the surface may make sense to a casual observer, they are misleading and oversimplified platitudes that don’t tell the full story.

Costs and rates are important topics that shouldn’t be oversimplified. There are dozens of factors that influence water rates, including investment needs, water source, service area density, service area elevation, and water treatment needs. As a result, it is extremely challenging to fairly and accurately compare the rates of different service territories with fundamentally different needs.

Additionally, comparing government-owned utilities to privately-owned systems is further complicated by other cost and revenue factors. For example, a government-owned utility receives revenue support through resident property taxes while a private system does not. This ‘subsidy’ can significantly lower customer rates for public systems, making them appear cheaper than private systems. In addition, a private system must pay taxes and fees that a government-owned system does not, further exasperating the differences between the models.

Given all of these varying factors, it is impossible to make comparisons of rates from one municipality to another, or between privately run systems and those run by municipalities. In fact, experts explicitly argue against these comparisons, cautioning that “comparisons of rates are strongly discouraged” since “many factors influence water costs and rates.”

Unfortunately, Al Jazeera failed to think critically about its sources or consider well-documented rebuttals before citing a misleading Food & Water Watch study. 

6. PRIVATE COMPANIES HELP MUNICIPALITIES ADDRESS THE WATER INFRASTRUCTURE CRISIS  

When it comes to infrastructure, unfortunately Coatesville is not alone. Our nation’s municipal water systems need a lot of work with some upgrade estimates reaching $1 trillion over the next 20 years. The state of Pennsylvania’s water and wastewater infrastructure need alone exceeds $32 billion over 20 years. At the same time, the federal government is providing limited funds for water infrastructure investment.

Local governments across the country face urgent and significant water infrastructure needs, and public capital alone can’t cover the associated costs, especially for municipalities with other competing investment priorities or strained fiscal environments.

There is widespread recognition that private finance and public-private partnerships are crucial to meeting infrastructure challenges. The U.S. Conference of Mayors, the National League of Cities, the Brookings Institute, the Pacific Institute, dozens of academics from across the country, and even the President of the United States agree that public-private partnerships are a proven and important option for municipalities facing water infrastructure and operation needs.