Publisher’s Note: Ed and I bumped into each other (electronically) on Linkedin. He posted a comment to a discussion that I started and noted that he had just completed a manuscript for a book entitled Water Rich: The History of Drinking Water in Wisconsin. His guest blog below examines the history of public and private water companies with a particular emphasis on Wisconsin.
by Ed Morse
The question of public versus private ownership of municipal water works has always been controversial. Today about 15% of municipally-supplied residents in this country are served by private water companies. But that proportion has been much higher in the past and it’s interesting to page back through history to see how we have arrived at this point.
The earliest water works were generally constructed for the common good, from large-scale projects such as the Roman aqueducts to the cooperative effort of a small settlement to dig a community well. With the industrial revolution came new technologies such as large steam-powered pumps as well as a more affluent middle class of tradesmen who could afford to pay for water piped to their homes and this helped usher in corporations formed specifically to supply water. Private water works soon became the norm for the larger cities of Europe. In fact in 1867, no fewer than nine separate water companies, some with competing mains laid side by side, served London.
When American cities began constructing water works at the end of the eighteenth century, they followed the European example and retained private companies. In 1805, 91% of municipal water works in this country were privately owned. However there was a steady trend through the 1800s toward municipal ownership and by the end of the century only 45% of municipal water works were private. That trend has continued today with for-profit companies supplying about 15% of municipal customers. In Wisconsin that proportion is the lowest of any state, only 0.5%. Wisconsin started out with a relatively high proportion of private water systems. In 1888, 51% of customers were served by private companies. By comparison, the same statistic for Illinois was 18% and nationally it was about 38%. In those days a water system was by far the most expensive public works project for communities. Municipal governments had little authority and even less revenue to work with. Therefore, it was less overwhelming and more expedient to grant a franchise to a private company to build and operate a water works.
Arguments put forth in favor of private ownership were centered around the higher level of professionalism and efficiency resulting in lower operating costs that an experienced company could offer. A nineteenth century government service, on the other hand, was likely to be headed by a patronage appointee who might be technically inept. Furthermore, in the operation of the municipal utility, many decisions would have to go through the cumbersome process of City Council approval. However, problems soon surfaced with private ownership. Water companies were not very profitable. They often balked at providing water sufficient for street cleaning and fire protection. They were also reluctant to expand to growing areas if costs could not be quickly recovered and to enlarge water works in anticipation of growth. They resisted abandoning polluted sources or even admitting that the water was unsafe. Also, they added a profit margin to the cost of providing water.
Critics of private water services pointed to their higher water rates. Around the turn of the twentieth century, the annual charges for publicly operated systems averaged $2.50 per person served while privately owned utilities charged an average of $3.00 per person. While it was countered that public rates were subsidized, it was also apparent that private corporations sometimes kept residential rates low by cost shifting. Charging inflated rates to the cities for fire protection made this possible. The requirements for fire fighting dictated the design of the water works. The high volume and pressure of water that had to be delivered during occasional emergencies determined the size of mains and pumps as well as the capacity and elevation of storage reservoirs. The common means of recovering those costs was through hydrant rentals. Although the value of fire fighting was a complicated calculation, the wide variation in hydrant rentals ($15 to $125 per hydrant per year in 1888) was evidence of arbitrary rate setting.
Attempts by city officials to correct problems revealed the lack of accountability of corporate officers to the public they were supposed to serve. It was clear that a basic conflict existed between a company’s primary goal of maximizing profits and the best interests of the community. The public took a dim view of the resulting health problems, fire losses and lack of responsiveness, and increasingly advocated for municipal ownership. Cities wanted more control over their water service as well as pride of ownership. Private utilities were not held in high regard and this sentiment can be found in old documents, such as the following from the 1889 Engineering News Publisher’s Manual of American Water-Works, regarding private ownership: “Indiana compares badly with other states of the [North Central States] group in this as in other details: 55 per cent of its water-works population has had to trust to private enterprise for water, against 15 per cent for Ohio …”
A common pattern was to use a private company to get a water works started and then to assume municipal control soon afterward. There were other factors affecting Wisconsin’s nearly total shift to municipal control. Wisconsin was one of the first states to regulate the operation of natural monopolies, including water utilities, when in 1907 the state legislature authorized the Railroad Commission (later renamed the Public Service Commission) to assure, through regulatory oversight, quality service at fair and nondiscriminatory rates. At about the same time, and although a very complex process, the “Municipal Acquisition of Utilities” statute (CH 197) made it possible for municipalities to take over private utilities within their jurisdiction, regardless of signed agreements. More recently the “Holding Company Law” (CH 196) required that a private utility have at least 75% of its assets within the state. These were serious disincentives for privatization in Wisconsin.
Over the years, municipalities have bought private water works, and today Superior is the only city with a privately held water works in the state. Superior Water, Light & Power has owned and operated the system since 1889. But private utilities did not always surrender quietly, even when confronted by technical problems and an irate public. The port of Ashland on Lake Superior was typical of most Wisconsin cities when in 1885 a private company supplied its first water. The new Ashland Water Company built a pumping station on the shore and laid an inlet pipe into Chequamagon Bay. The water was distributed without treatment and at the same time raw sewage from the rapidly growing city was discharged into the bay. To make matters worse, there was poor circulation between the bay and Lake Superior to provide dilution and although the inlet extended 2,200 feet from shore, it had been laid directly on the bay floor where it was repeatedly broken by anchors dragged by the many ships hauling iron ore and lumber from the busy port. Because of high typhoid rates, in 1889 a new intake was laid almost a mile into the bay and this time it was buried to prevent damage. However, the federal government then built a breakwater extending just beyond the inlet, further restricting circulation in the bay and typhoid continued to plague the city.
Ashland was all too familiar with typhoid fever which arrived each fall as infected workers from the nearby unsanitary lumber camps were brought to the city’s hospitals. Wastewater from the hospitals was flushed through the sewers into the bay and with untreated bay water being served to the public, it was not surprising when in 1893 the city was visited by a severe epidemic. Because the cause and effect were obvious, the decision was made to switch to groundwater from the shallow artesian aquifer beneath the city. The company began digging an open well that was claimed to be the largest in the state. When completed in 1895 it measured fifty-eight feet in diameter and thirty-nine feet deep with three well points driven into the bottom. The large diameter was intended to maximize yield but also the huge well served as a storage reservoir. However, its yield fell far short of expectations and it became clear that the city would have to rely on lake water.
Confronted with growing criticism, the company owner, William Wheeler, traveled to Germany to see the latest technology and returned with plans to build a slow sand filter. The filtration plant was put into operation in1900 and the typhoid rate immediately dropped. However, in 1901 there was another outbreak of typhoid with about 200 cases and 30 deaths. The citizens of Ashland had run out of patience. The pollution of the water system had been repeatedly brought to the attention of Mr. Wheeler by the City and the State Board of Health without results. In 1897, Julia Green sued Ashland Water Company over the death of her husband, Lars, who contracted typhoid from drinking city water. A court in Stevens Point awarded her $5,000 but the State Supreme Court reversed the lower court in a precedent-setting decision, finding that a water company is not responsible as implied warrantor of the purity of water that it delivers and that furthermore, at Ashland the presence of typhoid was well known and Mr. Green should have been aware of this. For the next thirty years, Green vs. Ashland Water Company was cited across the country in many other court cases involving typhoid in city water supplies.
One frustration was that the city had granted a fifty-year franchise rather than the more common twenty-year term. Although the City tried repeatedly to buy or force transfer of the utility through legal means, the company resisted and it was not until the end of the franchise in 1935 that the city was able to take ownership. There are many other interesting examples of struggles between cities and private water utilities and they all contributed to the public’s attitude toward ownership of their water systems.