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On June 15, I will

	vote YES. I think the sale of the suburban water system is the best move.
	vote NO. Selling off the suburban water system is the wrong thing to do.
	vote NO. I'm still undecided about the sale, but don't want to approve the sale now and regret it later.
	not vote.

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Update: American Water

Saturday, 14 March 2009 00:14

The Story of RWE and the Politics of Privatization

Executive Summary

Less than three years after purchasing American Water, the largest water company in the United States, German conglomerate RWE announced it was abandoning its hopes to turn water into “blue gold.” RWE, among the largest utility companies in the world, abruptly decided that water is a “very local business,” and that building a global water empire country-by-country was impractical.

In announcing its purchase of New Jersey-based American Water Works six days after 9/11, RWE pledged not only to make long-term commitments to restore failing municipal water systems, but also to help the United States recover from the tragedy.

But troubles quickly emerged. Customers protested huge rate increases — 2,000 percent in one community. Complaints of poor customer service, malfunctioning fire hydrants, boil-water notices and other problems mounted. And citizens grew uncomfortable with the idea of corporations controlling their local water system.

Perhaps most unsettling, under RWE’s ownership, American Water has engaged in a pattern of political and legal maneuvering — most notably in Lexington, Ky., where the corporation worked to defeat a local effort to return the city’s water system to public ownership. Nevertheless, despite its best efforts, the corporate behemoth has failed to suppress the movement for public water. Felton, Stockton and Montara, Calif., as well as several other cities and towns, have successfully pried their water systems from its stranglehold. Inspired by these victories, many more communities have mounted campaigns for non-profit, local water, including Larkfield-Wikiup, Calif.; Champaign-Urbana, Ill.; and Chattanooga, Tenn.

While citizens are trying to reestablish public control of their water systems, RWE is selling American Water to private interests through stock offerings on Wall Street. The results of the initial sale were disappointing. The stock fetched 10 to 17 percent less than expected. Although the reception was lukewarm, American Water’s CEO has plans to revive the company through expansion: “We will become a consolidator.”

RWE’s short, uneasy U.S. experiment is a cautionary tale for all concerned — water companies, regulators, elected officials and citizens alike. The American Water experience raises the question: Should a resource so essential to life be controlled by multinational, for-profit corporations, or safeguarded by the public with strong local oversight and accountability measures?

The full report from Food & Water Watch can be found here.

Below is an excerpt pertaining to Trenton's plan to sell the outlaying part of its water distribution system to New Jersey American Water. Citations have been removed, but can be found in the entire document at the link above.

Stopping the Sale: Trenton, N.J.

A battle over water privatization has engrossed New Jersey’s capital city and four of its suburban towns. Throwing the principle of economies of scale to wind, Trenton Mayor Douglas Palmer decided to divide the city’s water system and siphon off pieces to whatever company would buy them. American Water, of course, jumped at the chance and offered to buy the water lines for $100 million.

The mayors of the four affected townships – Hopewell, Ewing, Lawrence and Hamilton – all publicly opposed the sale, which likely would send rates through the roof.76 Hoping to stop the deal, the officials are working with Friends of Local control of Our Water supply, a grassroots organization inspired by the success of a similarly named group in Felton, Calif.

FLOW is worried about how the sale would affect household water bills. Under a potential American Water reign, rates would jump 35.6 percent initially and 114 percent over time as the corporation sought periodic increases.

“The townships will have to think smart and forget about the (municipal) boundaries (to fight the proposed sale),” said Morton Rosenthal, the lead organizer with FLOW. “We’ll have to think a little bit broader. These people are not going to walk away from a fight.”

In an op-ed in the local paper, Mayor Palmer of Trenton chastised the communities’ resistance to the sale. Yet, in arguing for privatization, he underscored the benefits of public water. He pointed out that several nearby private utilities charged upwards of 50 percent more than city rates. He asked, “And where is the appreciation to the city for the substantially lower rates we have charged suburban customers for many years?” Oddly, though, in the same breath, he added that these low rates would soon skyrocket. He said that the city planned to increase rates for all of its users by 40 percent. Although Palmer claimed the city needed the increase to pay for capital improvements, its timing and size suggested that the mayor intended to use it as a political ploy to make privatization seem more appealing. The city council approved the rate change in September 2008 a month after introducing the ordinance, and just one week before the state’s board of public utilities held a plenary hearing over the proposed sale. The hike was just high enough to make the city’s rates slightly more than what American Water planned to initially charge — a strange concurrence that the mayor called ironic.

Michael McGrath of FLOW said that the only justification for Trenton’s rate change was the impending sale. Although the increase brought an influx of cash, it also made the deal look better. “If you kill the sale,” McGrath said, “the rate hike will be rolled back.”

A consultant hired by the state public advocate to analyze the proposed sale believed that Trenton’s 40 percent hike was unnecessarily high, and a 21 percent increase would be more appropriate. He also found that the sale would “unfairly burden” suburban towns with rate increases.

Mayor Palmer, however, seemed to have little concern for these communities. Instead, he focused on his constituency. He claimed that by selling the system, “we will not saddle Trenton residents with the costly aspects of the infrastructure outside the city.”

McGrath called this reasoning misinformation because the outlying system was actually newer and required fewer repairs than the piping within the city. Because of its lower costs, the suburban areas were supporting the city. He added that the sale would cost the city revenue and could make future upgrades to its system unaffordable.87

Indeed, the suburban areas constituted 62 percent of Trenton’s customer base, and the city stood to lose a considerable amount of long-term revenue through the sale. The city was not selling the water lines because it was losing money on them. In fact, the water system had been a source of considerable income for the city over the years. In fiscal years 2006 and 2007, Trenton took a whopping $9.2 million from the water utility to balance the city’s budget.

FLOW refuses to let the city get away with the hike and the sale. It is exploring its legal options and other ways to pressure the state’s board of public utilities to reject the deal.

FLOW’s goals are very clear. “Derail the sale and spike the hike,” FLOW’s Rosenthal said.

Last Updated on Saturday, 14 March 2009 09:52