Introduction to the Framework

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This framework is a tool to assist public policy makers with the decision to change the ownership and management structure of their local water utility, evaluating four alternatives that range from public ownership to full privatization.

Water utilities in the United States are facing the staggering cost of maintaining aging system infrastructure, meeting the demands of population growth, and complying with increasingly stringent water quality regulations. The fiscal pressures facing local governments have led some municipalities to look to the private sector for the financial and technical resources necessary to address these issues. At the same time, in some cities concerns about the performance of private companies in operating local water systems have led to public acquisition of utility assets, referred to here as “municipalization.”

The decision to implement a different ownership model may be driven by politics and ideology, rather than a systematic assessment to determine which model best addresses local management priorities. This framework is designed to assist public sector decision-makers with evaluating four scenarios for changing the ownership and management of retail water distribution systems:
1. CIP: Implementing operational and management changes to improve the efficiency of a public water system, referred to as a Continuous Improvement Program
2. Municipalization: Purchasing the assets of a private water system, transferring ownership to a public entity
3. PPP: Contracting out the operation and maintenance of a public water system to a private company, also known as a public-private partnership
4. Asset Sale: Selling the assets of a public water system, transferring ownership and operating responsibility to a private company

Public and private firms face different constraints and incentives in the operation of water systems. Given these differences, when deciding to replace one ownership model with another, it is important to systematically evaluate alternatives and establish a basis for decision-making that provides the best potential for meeting local needs and priorities.
Using a set of ten management objectives applicable to water utility operations, this framework identifies key considerations under each scenario and, where possible, recommends actions to improve results. The management objectives evaluated herein are: local control, water conservation, local accountability, rate affordability, supply reliability, water quality, system reliability, customer satisfaction, operational efficiency, and public acceptance. Each tab in this framework reviews one management objective, summarizing our key findings and recommendations for each of the four decision scenarios listed above.

This decision-making framework was developed as part of a year-long Master’s thesis project conducted by students at the Donald Bren School of Environmental Science and Management at the University of California Santa Barbara.

The framework is informed by four primary research elements. These include: 1) A case study analysis of one public and two privately owned water utilities operating in the City of Thousand Oaks, California, 2) Legal research conducted by students at the University of California Los Angeles School of Law’s Frank G. Wells Environmental Law Clinic, 3) Interviews with water sector experts, including public officials, water industry executives, utility managers, regulatory officials, and non-governmental research and advocacy personnel, and 4) Review of relevant literature.

The conclusions and analysis from our case study are our own, and do not represent the views of the City of Thousand Oaks, California American Water Company, or California Water Service Company.