German Giant Taking Over American Water Supply
MONTARA, Calif. (AP) - 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 recently completed $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 provinces.
"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 Lexington, Ky.
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.
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 bills.
Few issues are as prickly as RWE's German heritage.
"That really bothered a lot of people, especially older folks," said Kathryn Slater-Carter, a Montara resident since 1979. "Memories of World War II are still very strong."
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 local water systems and provide better protections against possible terrorist attacks on water supplies.
RWE isn't the only foreigner buying into the U.S. water industry; French companies Vivendi Environnment 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 from the division.
Besides running the Culligan bottled water service, USFilter, of
Palm Desert, Calif.
Suez, which collects about $8.5 billion in water revenue from 110 million people in 130 countries, entered the U.S. in 2000 with a $1 billion purchase of United Water Resources, based in Harrington Park, N.J., and a provider of water service to about 12.5 million people.
Before coming to America, RWE expanded beyond its primary business as a power utility by buying England's Thames Water for $9.8 billion in 2000.
The money provided by RWE and other 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, a 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.
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
RWE has repeatedly assured regulators it can repay its debt by expanding
into new U.S.
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.
RWE's rising debt prompted Moody's Investor Service to lower the company's credit rating last year.
Critics believe the hefty debt also contributed to RWE's decision to replace its longtime chief executive officer, Dietmar Kuhnt, who oversaw the company's recent shopping spree. Former Royal Dutch/Shell Group executive Harry Roels is become RWE's new CEO March 1.
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 customers.
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 low.
"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 community.
Montara and RWE are still trying to settle on a fair sales prices, said Slater-Carter, a board member for the Montara Sanitary District that will oversee the water system under public ownership. California regulators ordered RWE to reach a sales agreement by March 19.
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 be 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."
On The Net:
Montara Sanitary District: msd.montara.com
American Water Works: www.amwater.com
Lexington, Ky.'s For Local Ownership of Water: www.bluegrass.org
Public Citizen's "Reclaiming Public Assets": www.citizen.org/documents/ACF9FB.pdf
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