Why does it cost private water companies more to do business
than municipal and regional water authorities?
Why do customers of private water companies pay more for water
than customers of municipal and regional water authorities?
In general, private water companies have additional costs that public suppliers do not, based in part on public policy decisions at the state and federal level. Private companies pay local, state and federal taxes not paid by their municipal counterparts.
1. Inequities in the regulation and taxation of private and investor-owned water companies as compared to municipal and regional water authorities have created a disparity in the cost of doing business and water service rates between the two, largely because private companies are required to pay a variety of taxes and comply with regulations from which municipal or regional water authorities are exempt. These taxes are passed on to the customers. As a result, customers of private investor-owned water companies pay higher rates for water.
2. Private water companies are subject to four separate taxes which are not applied to municipal or regional water authorities in the same way. These taxes typically represent about 25 cents on a dollar for the private companies. These taxes increase the cost of providing service and are, ultimately passed on to consumers in the form of higher rates:
- CT Corporation Business Tax
- Federal Income Tax
- Local Real Estate and Property Tax paid in all towns where property or facilities are located
- Sales Tax
3. Private water companies are subject to a number of legal and operational precepts that increase the cost of doing business:
- Private companies must reflect total operating costs in rates rather than offset expenses through other taxes, fees or operating budgets. Their rates, therefore, reflect the true cost of operations.
- Private companies most often are selected by the Department of Public Utility Control (DPUC) to take over failing water systems. The acquisition costs are minimal compared to the cost of bringing the system into compliance with state and federal regulations.
- Private companies do not have the option of assessing property owners for main extensions.
4. Private companies must comply with certain local, state and federal requirements that do not apply to government-owned utilities. These additional requirements further increase operating costs of private companies. Because private water companies are considered public service companies under state law:
- Rates and quality of service are regulated by the DPUC. Private companies are, therefore, subject to a number of procedures and reporting requirements which do not apply to municipal or regional water authorities.
- Private companies must pay Contributions in Aid of Construction (CIAC) tax on developers' new water main and extension projects.
- Private companies are subject to permit and fee requirements of local boards and commissions.