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Insurance Company’s Acquisition of Private Water Utility Highlights Risky Trend for Consumers

May 20, 2005

Insurance Company’s Acquisition of Private Water Utility
Highlights Risky Trend for Consumers

Statement of Wenonah Hauter, Director of Public Citizen’s Water for All Campaign

Wednesday’s announcement of an insurance giant’s buyout of a private water company should set off a warning bell for consumers because the acquisition will likely lead to higher water rates, a loss of local accountability and control, and degradation of customer service, repairs and maintenance.

New York City-based American International Group (AIG) is one of the largest insurance and financial services companies in the world, with revenues of $100 billion in 2004 alone. The company just announced that it will purchase Utilities, Inc., a privately held water and wastewater company, from Dutch-owned Nuon. Utilities is headquartered in Illinois and operates in small suburban and rural communities throughout 17 states, including Arizona, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maryland, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, South Carolina and Virginia.

In recent years, AIG—like other large financial firms—has been purchasing energy assets, inexpensively, from energy companies in financial distress. For example, it bought 100 percent ownership of the Southern Star Central natural gas pipeline, which runs from Texas to Wyoming.  Now it appears to be moving into yet another essential resource: water.

Though small by comparison to water industry giants such as Veolia, United Water or American Water, Utilities claims it is the largest privately held water utility in the country. With AIG’s acquisition, water and wastewater service in the small communities served by Utilities will no longer be owned by a privately held company but by a publicly traded corporation under market performance pressures. Experience shows that the desire by similar corporations for profit supercedes any concern over customer satisfaction, reliability of service or reasonable rates.

More alarming is AIG’s recent track record. The company has been plagued with allegations of widespread scandals and fraud. It was named as a co-conspirator on charges of widespread bid-rigging along with another insurance company, Marsh & McLennan. This does not bode well for Utilities’ water customers.

When investment banks and insurance companies gobble up our public services to squeeze out profits, consumers are almost always on the losing end of the deal. No company invests in a utility company to improve customer satisfaction. Rather, these companies eye utilities with shareholder satisfaction in mind, which translates into making money off them. That money can only come from consumers’ wallets through escalating rates. 

Public Citizen urges the regulatory agencies in the states where Utilities operates to be vigilant in monitoring rate hike requests in the next couple of years. This dangerous trend could do significant damage to consumers and to our economy. 

To learn more about AIG and where Utilities operates, click here.