Government Takeover of Water Utility is All Wet

An underreported controversy is now taking place in the Albuquerque area that will determine whether a government monopoly expands, ultimately costing water users in the form of higher rates, or whether satisfied customers are allowed to stay with their private provider.

The battle is over New Mexico Utilities, a for-profit utility that provides water to parts of Albuquerque’s Westside and the city of Rio Rancho. In fact, having previously discussed ways to “condemn” the privately-owned company, it was recently revealed that two government water utilities have already made a $37 million offer to purchase the right to serve New Mexico Utilities customers.

The issue at hand is the assertion by the Albuquerque-Bernalillo County Water Authority that New Mexico Utilities’ customers have less incentive to conserve water than do customers of the government water provider. Not only is this argument false in this particular case, but studies have shown that private companies are better stewards of the environment than their government-run counterparts.

For starters, a 1999 study examined public-private partnerships in water and wastewater systems in 29 cities serving more than three million customers throughout the United States. It found that all of the privatizations resulted in lower rate increases than were planned prior to privatization. As an example, five of them, or 17 percent, brought cost savings of between 10 percent and 40 percent, allowing local governments to avoid large increases in water rates.

The cost savings associated with private water management are important, but they do not come at the expense of the environment. In fact, President Clinton’s Environmental Protection Agency (EPA) endorsed privatization as a means by which local governments could meet environmental standards. Indeed, the EPA wrote, “[Privatization case studies] provide concrete examples to local officials of how successful partnerships and other models can be used by communities to provide needed environmental services more efficiently.”

In the specific case of New Mexico Utilities, it is hard to argue that the government-run water authority is acting as a more responsible environmental steward based on water usage. In fact, back in 1994, customers of the private company used 206 gallons per day on average and customers of the government monopoly used 252 gallons daily. At the time, customers of the private company were using 81.7 percent as much as much as customers of the Albuquerque-Bernalillo County Water Authority. By 2005, customers of the private company had reduced their usage to 119 gallons per day as compared to 174 gallons per day for customers of the government-run company. Thus, by 2005 customers of the private company were using just 68.4 percent of what the monopoly’s customers were using.

The amazing thing about New Mexico Utilities’ reduced water usage relative to the Albuquerque-Bernalillo County Water Authority is that customers of the private company conserve water while paying less for their water than customers of the monopoly provider. In fact, while the monopoly provider charges $1.39 per 100 cubic feet, New Mexico Utilities charges only 96 cents for the same amount of water.

The fact that private companies can make a profit while providing less expensive service than their government-run counterparts, must be frustrating to those with undying faith in government power.

Clearly, customers of New Mexico Utilities should be concerned that their water rates will rise if the Albuquerque-Bernalillo County Water Authority purchases or is able to simply forcibly condemn the private provider. Anyone who has seen monopolies, especially government-backed monopolies, in action should understand that the government is going to be more expensive and less efficient than private industry. Why would it be any different when it comes to water?

Rather than considering ways to eliminate the last bastion of private water provision from the region, our elected officials should, instead. be looking for ways to break up or at least make our government provider more competitive. That is a fact that New Mexico Utilities’ customers and those who are truly concerned about efficient management of water as a precious resource should agree on.

Paul Gessing is the president of the Rio Grande Foundation, a nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.