Private Water Company in the News
A small, private water company in Southwest Missouri is in the news because one of its pumps failed a few weeks ago. The Joplin Globe has the story (link via Combest). A key pump failed, the company was unable to fix the problem immediately, and for a few days the town — and the fire department — didn’t have a water supply. I did not write this post intending to discuss whether the Public Service Commission (PSC) is correct in its allegations against the company, or whether the company’s defense is true. It’s not that the allegations aren’t serious or important, just that I have no idea who is correct.
Rather, my purpose is to show how the system works with private companies. Private utilities in Missouri are closely regulated by a variety of actors. Water utilities report to the PSC, the Missouri Department of Natural Resources, and local county health departments. (The bulk of the regulations are at the state level — and this does not include the Environmental Protection Agency (EPA), because I believe state agencies enforce EPA guidelines.)
I am not automatically opposed to every aspect of the regulated utility system we use in Missouri. Technological improvements have demonstrated the absurdity of treating telephones and cable television like utilities and/or monopolies, and the legislative environment has properly adapted. I can at least understand the historic purpose behind telephones being regulated as utilities. Treating cable as a utility, though, was always idiotic, and often just a device for corruption. I believe electricity will eventually (in the long run) be deregulated as a utility, too.
As for water and natural gas, infrastructure issues will make it more difficult to move away from monopoly. They may be the best examples of natural monopoly, because the up-front investment costs alone make competition unprofitable. As David Henderson writes:
Economists tend to oppose regulating entry. The reason is as follows: If the industry really is a natural monopoly, then preventing new competitors from entering is unnecessary because no competitor would want to enter anyway. If, on the other hand, the industry is not a natural monopoly, then preventing competition is undesirable. Either way, preventing entry does not make sense.
My paper on privatizing the St. Louis water division dicusses one way to bring competition to the water industry on p. 17. Absent that price competition, I understand the reasons for some types of price regulations.
Back to the original subject. The PSC moved pretty quickly in addressing this potential issue. In fairness, the private company states that it attempted to move quickly, but could not move quickly enough. (The issue here could well be one of utility size, rather than a question of public vs. private.) I hope people don’t read a story like this and think the problem lies with private utilities. The problem in this case has been addressed. Fines may be imposed after the full details emerge. If there was a company failure, the company will be held accountable — the key word here being “if.” Private water, like other private utilities, works just fine under our system in Missouri.