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Tapwater Takeover

Pit a global conglomerate with revenues of over $52 billion a year, intent on swallowing up utility companies on every continent, against a California community of 4,900 people. Who would you bet on? Against the odds, tiny Montara, California, this year succeeded in reclaiming its municipal water system from a behemoth German energy group with the opaque name of RWE AG. The win is energizing communities across the U.S. to take their municipal water systems back from corporations.

With much of Europe's water systems already privatized and the Third World proving to be an unstable water market, global corporations see the real growth opportunity in the U.S., where all but 15 percent of Americans get their water from publicly owned utilities. In the past decade hundreds of towns have hired private companies to run their waterworks. A bill in Congress, the Water Quality Financing Act, would require cities to “consider” privatization in order to receive federal funds for improving their water systems. Privatization may mean direct corporate ownership or that a corporation runs a utility under contract, both of which introduce a drive for profit extraction and can result in reduced public accountability.

The corporate rush has sparked a citizen backlash. Citizen groups in communities from Kentucky to Illinois to California have been fighting to stop privatization deals. Montara is one of the first communities to succeed in returning its water system to public control after a corporate acquisition.

“I think the water companies are seeing dominos starting to fall against them,” said Scott Boyd, a citizen activist in Montara who serves on the board of the new Montara-Moss Beach Public Sanitation and Water District. “If we were the first domino, then good.” The water district of nearby Felton, California, whose water system RWE also recently acquired, has hired the lawyer who represented Montara, and the district is studying how the community can acquire the system from RWE using Montara's model.

The key to Montara's win is that the community has long been organized around its water system. A Montara community group originally formed 17 years ago to push for improvements in the municipal water supply, and they were easily mobilized when news came that, as part of its moves to expand into the U.S. market, RWE planned to acquire CalAmerican Water, the corporation that then owned Montara's water system. Montara became a major force pushing the California Public Utility Commission (PUC), which regulates utilities, not to approve the sale.

CalAmerican bought the system in 2002 from another company. Each time the system changed hands, Boyd noted, the price went up, a premium the acquiring company then needed to extract from its customers. RWE paid three times the book value for the company, according to U.S. Water News, an industry newsletter, and RWE has financed its acquisitions spree with debt of about $28 billion. Boyd said he and his community foresaw that RWE would push to extract short-term profits from its water contracts in order to service its debt—at the expense of the long-term needs of the community.

By the time RWE announced its intent to acquire CalAmerican, the community was unified in wanting the system put under community control. “We're little towns. We get our mail at the post office, so we're well connected. It's pretty easy to get together and get consensus,” Boyd said.

The PUC then approved the RWE buyout, but in the face of further pressure from Montara, it ordered CalAmerican to sell the system to the people who drink its water within 90 days of the company's purchase by RWE. A bond measure to fund an $11 million purchase deal was approved by 82 percent of the residents of Montara shortly after the RWE takeover was announced. The community bond vote was a major factor in the PUC's order, according to Juliette Beck, California coordinator of Public Citizen's Water for All campaign.

Montara is not alone in its hostility to RWE. The acquisition of CalAmerican was just one part of RWE's $8.6 billion takeover of CalAm's parent company, American Water Works, which runs 800 water systems around the U.S., serving 15 million people in 27 states and three Canadian provinces, according to U.S. Water News. Community efforts to stop the RWE takeover or return water systems to community ownership have sprung up in three other California towns; in Peoria and Pekin, Illinois; Charleston, West Virginia; and Lexington, Kentucky. These communities fear RWE will bring trouble. RWE's newly acquired U.S. water systems will be overseen by the UK-based Thames Water, one of the world's three biggest water companies, which RWE acquired in 2000. According to U.S. Water News, Thames has been fined repeatedly in England for environmental violations that included allowing raw sewage to flow into streets and onto lawns.

Nor is the hostility directed solely at RWE. In October 2002, New Orleans' water board voted to reject all bids to privatize the city's water. In January 2003, Atlanta officials voted to terminate the city's 20-year, $428 million contract with United Water, a subsidiary of Suez, accusing it of mismanagement, cutting staff to levels that threaten water quality and service, and charging the city for services it never provided. In Indianapolis, employees of U.S. Filter, the subsidiary of Vivendi that now runs the city's water system, are suing the company over cuts in benefits, including elimination of the defined benefit pension plan, that amount to $50 million over the life of the contract, according to lead plaintiff Tom Plummer. Customer complaints have more than doubled and 15,500 miscalculated bills were sent out last summer, according to the Indianapolis Star. A coalition of environmental and consumer groups is seeking to have the contract terminated and the utility turned over to a public trust.

The case of Indianapolis is cautionary, as the city acquired the water system from its corporate owners in 2001, but then contracted with U.S. Filter to run the utility. Juliette Beck says that Public Citizen is skeptical both of corporate ownership of water and of public-private partnerships, like that in Indiana, which reduce accountability of the system to the people who use the water. “Our work is about creating a movement for greater water democracy,” said Beck.

Scott Boyd points to Montara's long history of community organizing around water in ensuring that the new water district is accountable to the community. The new water district is both locally owned and locally run. “Those who answer the phone may be the ones who hop in their trucks to go fix the problem,” he said. Boyd's home number is on the cards he gives out as a water district board member. He tells people to call him if there is a problem. “And believe me, they do,” he said. It's unlikely the board of directors of RWE is so easy to reach.


Carolyn McConnell is Senior Editor of YES! . For more info on Montara see:Montara California Water and Sanitary District.

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