Analysis Group Principal David Sosa Argues Against Government Takeover of California Regional Water System in Op-Ed
March 23, 2018
A community group in California, Public Water Now, is advocating that a government entity take over the water system that supplies numerous communities on the Monterey Peninsula, currently owned and operated by the California American Water Company. In an op-ed published in the Monterey Herald, Analysis Group Principal David Sosa argues that Public Water Now has underestimated the cost of the takeover to customers and taxpayers, as well as the level of risk to water supply and quality, and that it has overstated the rate benefits that are achievable. Dr. Sosa bases his views on more than 25 years of experience in public utilities, including a study he completed last year, The Economic Consequences of Contested Government Takeovers of Investor-Owned Water Utilities. The study examined four contested water system takeovers in the state. In all of them, the takeovers proved to be two to three times costlier than initial estimates. Dr. Sosa explains that this generally will lead to higher, rather than lower, water rates.
Dr. Sosa's study also showed that claiming financial benefits from the elimination of taxes and private profit was misleading. The tax avoidance, he says, is not an economic benefit, but rather a wealth transfer from taxpayers to water customers, because a tax increase or a cut in government services will be necessary to compensate for the loss of tax revenues paid by the utility. And the “profit” that a company like California American Water earns, he argues, is simply the return that the company is allowed to earn under California regulations to recover the significant capital investment it must make in order to deliver safe, clean drinking water – investment that would otherwise have to be borne by the municipality.