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Water Merger Would Threaten Consumers’ Service and Control

Dec. 19, 2002

Water Merger Would Threaten Consumers’ Service and Control

Commission to Vote on Controversial Buyout of California American Water by German Energy Conglomerate

SAN FRANCISCO, Calif. – The California Public Utilities Commission’s (PUC) likely approval today of the sale of California American Water Co. (Cal-Am) to Germany energy giant RWE AG will hurt local communities, causing them to lose control of their water systems, experience lower service quality and face higher rates, Public Citizen said today.

RWE already has purchased New Jersey-based American Water Works (AWW) – the largest private water utility in the United States, with 2.6 million customers in 1,300 communities in 23 states – for $7.6 billion.

RWE is making aggressive moves into the domestic water sector through its British subsidiary Thames Water, the world’s third largest water company. If this sale is approved, RWE would be the first transnational corporation based abroad to own a California water utility. Cal-Am has about 500,000 customers in fifteen localities including San Diego, Thousand Oaks, Sacramento, Felton, Monterey, Montara and Larkfield.

“This is an ominous development for California and the nation,” said Jane Kelly, director of Public Citizen’s California office. “Our water utilities are becoming a small link in a long chain of corporate profiteering. Why risk the Enronization of our water systems?”

Several unanswered questions surround RWE’s proposed purchase of Cal-Am via acquisition of Cal-Am’s parent, American Water Works. Can California regulators hold multinational utilities to state and local laws under international trade agreements? Will RWE siphon profits from water service to subsidize the corporation’s far-flung enterprises in nuclear energy, coal, natural gas and other businesses? How is RWE going to recover the $7.6 billion cost of purchasing (including debt) American Water Works without gouging consumers? And, an administrative law judge has already found that customers of the Montara Sanitation District would be better served if Cal-Am turned the system over to public ownership rather than deliver it to RWE. If public ownership, with lower financing costs and enhanced local accountability, is preferable in Montara, why won’t other communities be better served by shedding the yoke of private ownership and keeping water system revenues at home?

These and other questions have been inadequately addressed or neglected altogether in regulatory proceedings, Kelly said. But as national press reports have noted, RWE’s efforts to control water systems throughout the United States could well hinge on the decision made by California regulators.

That’s because the managing director of Thames Water, James McGivern, recently stated before the California PUC that Thames intends to use AWW as a platform for expanding its wastewater and water services and customer base and seeking new long-term service contracts. RWE/Thames has promised that the utilities in question, regulated by the PUC, will never have to pay for the $7.6 billion cost of buying AWW. It says this debt will be paid off through a 60-year growth strategy that includes obtaining water and wastewater contracts similar to the one they are now negotiating in Stockton, despite strong public opposition.

“Thames Water’s growth model is full of hot air – there is no public support for turning over water systems to global corporations,” said Kelly. “That’s why the European giants are using shady, backroom trade negotiations to try to pry open the domestic market in the United States.”

Customer service is likely to erode, response time to emergencies is likely to increase and rates are likely to go up, based on others communities’ experience with private ownership, Public Citizen said. Customers of AWW subsidiaries in cities such as Peoria, Ill., and Charleston, W. Va., have paid some of the highest water bills in the country. Private companies’ tendency to cut corners can even hinder emergency response teams, as was the case in Pekin, Ill. when firefighters were hindered by the AWW subsidiary’s failure to respond quickly to address low water pressure. Now a number of municipalities, such as Pekin and Peoria, as well as Lexington, Ky., are fighting to gain control of their AWW-owned utilities, fearing even higher rates, further deteriorations in service, and even less control over their water systems if acquired by RWE.

Citizens in those and other communities have also been alarmed to learn that Thames Water has a spectacularly poor environmental record, and has been worst polluter in its native England for two of the past three years.

Today’s PUC meeting will be held at 10 a.m. in the PUC auditorium in San Francisco, 505 Van Ness Avenue.