A recent takeover of an American water company by a German industrial giant has led to a backlash in several cities nationwide. The $8.6 billion takeover of American Water Works by RWE coversmore than 800 water systems serving 15 million people in 27 states, including the city of Alexandria 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 spurring community efforts to buy out RWE and regain control of local water systems in Montara and Felton, Calif.; in Peoria and Pekin, Ill.; and in Lexington, Ky.
Virginia’s State Corporation Commission, which regulates water, approved the deal in April, agency spokesman Ken Schrad said.
But most Alexandria residents likely are unaware of the ownership change, said Mark Jinks, assistant city manager for Alexandria.
“The average city resident probably doesn’t know because it hasn’t directly affected their water bills,” Mr. Jinks said.
For now, Alexandria residents will not see a rate increase because the commission turned down a request to raise rates in the city.
Charleston, W.Va., is considering a bid for its water system, while the Southern California city of Thousand Oaks is urging state regulators to reverse their 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 protection against terrorist attacks on water supplies.
Mr. Jinks said the city of Alexandria hopes RWE will repair and expand main water lines.
“Alexandria can’t afford to have a pipe burst on Duke Street during rush hour, because there aren’t many street options for commuters,” he said.
RWE isn’t the only foreigner buying into the U.S. water industry; French companies Vivendi Environment and Suez have bought local water systems in 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., delivers water to 13 million people in 600 communities.
Suez, which collects about $8.5 billion in water revenue from 110 million people in 130 countries, entered the United States in 2000 with a $1 billion purchase of United Water Resources, based in Harrington Park, N.J., and a provider of water service to 12.5 million people.
About 85 percent of U.S. water systems are still owned by the communities they serve.
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 representing private and investor-owned businesses.
The opposition to RWE’s U.S. expansion is “so much hokum and jingoism,” Mr. Cook said. “Foreign ownership can bring many benefits to a community.”
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 increase to pay back the loans. RWE is buying American Water for nearly three times the company’s book value.
The German company ended 2002 with an estimated debt totaling about $28 billion. Management wants to reduce the debt to $26 billion by the end of this year as part of debt reduction that will continue through at least 2005.
RWE has repeatedly assured regulators it can repay its debt by expanding into new U.S. markets instead of raising rates in the systems picked up in the American Water deal. And in some states, such as California, RWE has agreed to rate freezes.
Critics say the hefty debt 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 will become CEO on 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 be diverted to pay for other government services facing a shortfall, which might not help water customers.
“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.
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 cities are trying to buy back their water systems, said Terry Kohlbuss, who is marshaling Peoria’s effort.
“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.”
Staff writer Marguerite Higgins in Washington contributed to this report.