U.S. Water News Online
MONTARA, Calif. -- The influence of foreign business can be
seen across America, with consumers cheerfully buying Japanese cars,
Korean TVs and clothing made in China. But many Americans aren't so
happy about foreigners controlling their water supply.
A recent $8.6 billion takeover of American Water Works by
German-based industrial giant RWE has led to a backlash from a
handful of cities across America. The deal covers more than 800 water
systems serving 15 million people in 27 states and three Canadian
``As soon as people find out their water service is being bought
by a German company, they are up in arms about it,'' said Juliette
Beck, a senior organizer for Public Citizen, a Ralph Nader-backed
group that has been rallying resistance to the RWE takeover.
The misgivings are driving community efforts to buy out RWE and
regain control of local water systems in two Northern California
communities, Montara and Felton; in Peoria and Pekin, Ill.; and in
Charleston, W.Va., is considering a bid for its water system,
while the Southern California city of Thousand Oaks is trying a
different tactic, urging state regulators to reverse their previous
approval of RWE's takeover.
West Virginia was the last state to approve the buyout as the
state Public Service Commission signed off on the deal in January.
American Water's subsidiary, West Virginia-American Water, provides
25 percent of the state's water supply.
Much of the opposition to the RWE deal has been orchestrated by
Public Citizen, a critic of corporations inside and outside America.
The objections have ranged from concerns about whether the
foreign-owned conglomerate will weaken U.S. environmental practices
to worries that RWE's enormous debt load will lead to higher water
Officials from American Water and the water industry say the
backlash against RWE is misguided. ``Public Citizen is doing a pretty
good job of fanning the flames and playing on people's xenophobia,''
spokesman Tom Thoren said.
Supporters of the takeover say RWE's financial clout and expertise
will help pay for much-needed improvements in water systems and
provide better protections against possible terrorist attacks on
RWE isn't the only foreigner buying into the U.S. water industry;
French companies Vivendi Environnement and Suez also have bought
local water systems within the past few years.
Vivendi entered the U.S. market in 1999 with a $7.9 billion
takeover of USFilter. The French company provides water and
wastewater service to 110 million people in 100 countries, generating
about $12 billion in annual revenue.
Besides running the Culligan bottled water service, USFilter of
Palm Desert, C alif., delivers water to about 13 million people in
600 communities. Suez paid $1 billion for United Water Resources of
Harrington Park, N.J., which provides water service to about 12.5
Before coming to America, RWE expanded beyond its primary business
as a power utility by buying England's Thames Water for $9.8 billion
The money provided by foreign companies will pay to replace aging
pipes and strengthen security -- the kind of improvements many
cash-strapped communities can't afford, said Peter Cook, executive
director for the National Association of Water Companies trade group.
Thames, which will oversee RWE's newly acquired U.S. water
systems, has invested $6 billion in service improvements, mostly in
Britain, since 1998.
The opposition to RWE's U.S. expansion is ``so much hokum and
jingoism,'' Cook said. ``Foreign ownership can bring many benefits to
Critics fear RWE and Thames mostly will bring trouble. Thames, for
instance, has been fined repeatedly in England for environmental
violations that included allowing raw sewage to flow into the streets
and onto people's lawns.
RWE's debt-heavy balance sheet has convinced many customers their
water rates will have to go up to pay back the loans. RWE is buying
American Water for nearly three times the company's book value --
equivalent to paying $1 million for a house worth about $333,000.
The German company ended 2002 with an estimated debt totaling
about $28 billion. RWE has repeatedly assured regulators it can repay
its debt by expanding into new U.S. markets instead of raising rates
in the systems picked up in the American Water deal. In some states,
such as California, RWE has even consented to rate freezes.
Still, some critics think RWE is on the same perilous path as
Enron, the once-powerful energy merchant that collapsed in 2001 after
bingeing on debt to finance years of rapid expansion.
``There are a lot of serious warning signs building up at RWE,''
said Richard Hierstein, city manager for Pekin, Ill.
The communities trying to buy their water systems are betting they
will be better off on their own because of the savings available
under local ownership. Publicly owned agencies don't have to pay
income taxes or generate profits for shareholders, so in theory, they
could invest in improvements without raising rates.
But money from water rates might also be diverted to pay for other
government services facing a shortfall, which might not help water
About 85 percent of U.S. water systems are still owned by the
communities they serve.
``Providing water is at the core of what municipal governments do,
right up with providing police and fire (protection),'' said Scott
Mitnick, assistant city manager for Thousand Oaks.
People in Montara, a community of 3,000 about 20 miles south of
San Francisco, have been unhappy with their privately owned water
system for decades.
With monthly bills averaging more than $90, Montara's rates are
among California's highest, yet residents like Jim Montalbano
sometimes can't even take a shower because the water pressure is so
``If the guy down the street just flushes his toilet, I have to
wait for a while or I can't get any water,'' he said.
The problems were hard enough to bear while two different U.S.
companies ran Montara's water system. They became intolerable after
RWE announced its plans to buy American Water in September 2001.
RWE's German connection wasn't Montara's only concern. Residents
are also incensed about steadily rising rates -- a trend that
continued in 2002 with a 43 percent rate increase over seven years.
RWE is continuing to push for an additional rate increase of nearly
20 percent filed last year by American Water.
In November 2001, more than 80 percent of the voters in Montara
and neighboring Moss Beach approved a $19 million bond to buy the
water system. California regulators handed Montara another victory in
December 2002 by ordering RWE to sell the water system back to the
Montara and RWE are still trying to settle on a fair sales price,
said Slater-Carter, a board member for the Montara Sanitary District
that will oversee the water system under public ownership.
Although they all have initiated the process to buy their water
systems, community leaders in Felton and the cities outside
California say it probably will take many more months -- and in some
cases, years -- before their crusades pay off.
It's no surprise that other cities hope to follow Montara's
example, said Terry Kohlbuss, who is marshaling Peoria's effort to
buy back its water system.
``There is going to be uneasiness,'' he said, ``if you take
something as important as the air that you breathe and turn it over
to a foreign company.''
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