In a paper featured in the American Journal of Political Science, both public and privatized utilities are compared and the results suggest that neither models are the perfect solution.
Private utilities often set their rates based on the cost of their investments, which means they can charge very high prices without much concern for how that affects low-income consumers.
On the flip-side, public utilities often have poor funding and fail to meet federal regulations with little to no result, as to be harsh with them only further hurts the public.
“Indeed, because private utilities prioritize their investors rather than their customers, they have little incentive to create, for example, tiered rate structures that are crucial for low-income households. “Low-income pricing schemes and rebate schemes and retrofitting—those are not going to be something the investor engages in, unless they have that in their contract with the municipality,” says Teodoro.
Public utilities do another thing that private utilities have little incentive to do: conserve. To use the example of water again, Americans’ per capita daily water use has plummeted in the last several decades—largely a triumph of conservation efforts by public utilities. “In what other business do people say, ‘Please buy less of our product’?” says Teodoro. “No private utility would ever do that.”
Still, utility infrastructure—particularly for water—is crumbling around the nation, and public utilities are having a lot of trouble getting up to code. There are some basic solutions: create subsidies for local governments so that they can get up to capacity without raising rates; ramp up enforcement from federal regulators; or, turn to private companies. But as for the last option, in this increasingly dry, overheating, and the economically divided world, there are just too many drawbacks.”
The full solution is yet to be found, but it is good that much thought and study is going into the issues surrounding privatization of public utility, which is good utility infrastructure management practice.
PHOTO CREDIT: Kenny Holston via Flickr Creative Commons License.