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The Privatization of Public Utilities Has One Major Upside

When it comes to complying with important health regulations, private companies far outperform the public sector.
A flock of geese fly past a smokestack at the privately owned Jeffery Energy Center coal power plant near Emmitt, Kansas.
A flock of geese fly past a smokestack at the privately owned Jeffery Energy Center coal power plant near Emmitt, Kansas. AP Photo/Charlie Riedel

When local governments turn to private companies to manage vital utilities like water, energy, and public health, the poorest customers often lose. By law, private utilities can set their rates based directly on the cost of their investments, which means they can charge a lot, with little concern for how that impacts low-income consumers. Unlike public utilities, private utilities do not serve a constituency—they serve investors.

But according to a forthcoming paper in the American Journal of Political Science, the public utility model has some drawbacks, too. Its reliance on public support can compromise its ability to make crucial infrastructure upgrades. As a result of poor funding, public utilities can also fail to meet federal public regulations. And yet regulators are more lenient with them than with private utilities, since harsh punishment only further hurts the public.