Faulty

Pipes

Why Public Funding —

Not Privatization —
Is the Answer for U.S.
Water Systems
About Food & Water Watch
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control and abuse of our food supply and water resources.

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Photo p. 18 courtesy of Holly Wren Spaulding, Sweetwater Alliance.

Copyright © September 2008 by Food & Water Watch. All rights reserved. This report can be viewed or downloaded at
www.foodandwaterwatch.org.
 Faulty Pipes
Why Public Funding — Not Privatization —
Is the Answer for U.S. Water Systems

Table of Contents
iv Executive Summary

1 Introduction: Is Water Changing?

RWE’s about-face and the rise of local control.

4 The Party’s Over

For the privatization movement, hope isn’t springing eternal.

7 In Water We Trust?
Flowers, birds and paintings have permanent funding sources, but water doesn’t.

9 Down to a Trickle
Why does the federal government want to spend less on infrastructure?

10 Who Comes First?

The Urban Water Council and the politics of priorities.

12 Conclusion: New Ways, New Thinking

Hopeful solutions for an uneasy future.

14 Case Studies: Three to Forget

Atlanta, New Orleans, Lexington — how it’s not done.

17 Case Studies: The Worst of the Rest

Top ten tales of trouble, from coast to coast.

Features
In the Spotlight
Three towns where citizens are taking matters into their own hands.
2 Felton, California
5 Champaign-Urbana, Illinois
10 Montara, California

8 Where the Money Comes From

Federal programs that support local water systems.

13 Private Players
A who’s who of the nation’s largest water corporations.
Executive Summary
From maintenance problems in Atlanta and sewage spills in Milwaukee, to corruption in New Orleans and
political meddling in Lexington, the recent history of water privatization in the United States is marred
by underachievement and failure. During the 1990s, corporations — many of them multi-billion-dollar
conglomerates based overseas — persuaded communities throughout the nation to transfer control of their
systems to the private sector.

Corporations offer themselves as the solution to financial, technical and organizational challenges faced by
municipalities throughout the United States. They are grappling with stricter standards, diminishing federal
funding and a citizenry not keen on rate increases. But these corporations — mainly European multinationals
RWE, Suez and Veolia — have produced mixed results at best. The privatization bubble is bursting.

As stories like those chronicled in this report have mounted in recent years, elected officials and citizens alike
have viewed water privatization with increasing skepticism.

Instead, the answer to the water infrastructure crisis is a renewed commitment to public funding through
enhancement of the State Revolving Funds and creation of a national water infrastructure trust fund. The
federal government maintains trust funds for roads and airports — even the Capitol Rotunda’s frescoes and
wildlife in South Dakota — but not for water. It’s time for the federal government to act and ensure the nation’s
aging water and wastewater systems will be able to provide communities with safe and affordable service.

Local elected officials and citizens also are taking matters into their own hands. Movements are afoot in a
growing number of communities — including Lexington, Kentucky, and Champaign-Urbana, Illinois — to buy
their water systems from corporations. The momentum for public control is only escalating after many recent
public victories in communities like Stockton and Felton, California.

Of the 254 million Americans on a community water system, 86 percent receive their water from public
utilities. Public utilities are accountable to the communities they serve and in most cases are extremely well
managed. It is in the best interest of the country to ensure these systems are preserved and improved.
“W ater links us to our neighbor in a way more profound and complex than any other.”
– John Thorson
Introduction: Is Water Changing? In November 2005, three months after saying the opera-
tion was “making progress,”3 RWE announced it was selling
September 17, 2001 was a bright day for RWE. Already a American Water. “Water’s changed,” corporate executives
major utility player in Europe, Asia and South America, the explained.4
German conglomerate announced it was buying American
Water Works, the largest investor-owned water and waste- “It’s a very local business,” added Harry Roels, RWE’s chief
water company in the United States. executive at the time. “[A multinational company] just
doesn’t have outstanding advantages.”5
The timing of the statement — six days after 9/11 — puzzled
some. But Dietmar Kuhnt, RWE’s President and CEO at However, it appeared that stockholders were growing uneasy
the time, said putting it off might send the wrong signal. with the corporation’s huge debt and lagging stock price.
“Rather than delay, we are making this announcement to- Selling American Water (as well as its UK operation, Thames
day because we believe it is more important than ever to Water), executives told stockholders, would allow the com-
show the world that we are investing in America,” Kuhnt pany to “return a substantial portion of cash to you.”6
said. “We believe in the courage and resiliency of its people
and remain ever confident in its future.”1 It took more than two years for RWE executives to act on
their promise to stockholders. Contributing delays to poor
As it was, such an aggressive entrance to the U.S. market conditions in U.S. markets, RWE pushed back its sale of
represented a giant leap for RWE and its stockholders. The American Water to April 2008. Meanwhile, continued op-
earnings potential in a country where for-profit corpora- eration of the company during just the last three months of
tions own only 14 percent of water systems was tremen- 2007 cost RWE $640 million, cutting away its profits and
dous. RWE also pledged to give something back, saying it bringing RWE into the red for that period.7
was “strongly committed to preserving the environment,
participating in local activities and otherwise adding value “[I]t’s going to be put on the market as quickly as we can,”
to the communities in which [we] operate.”2 company executives tried to assuage shareholders. “And it
will not eat up any more cash.”8
Invoking 9/11 elevated the acquisition to an even higher
level. The company wanted to help the United States re- But again, RWE spoke too soon. The initial sale of Ameri-
cover from one of the darkest days in its history. can Water fetched 10 to 17 percent less than the corpora-
tion had expected, and RWE — previously predicting a 10
RWE’s confidence lasted only four years. percent gain in annual profits — had to reevaluate their
 Faulty Pipes

In the Spotlight
The Good Tax: Felton, California
Yard sales. Silent auctions. Community barbecues. Benefit concerts, pizza dinners and
poetry contests.
Raising money to buy band uniforms for the local high school? Hardly. How about a
small town trying to buy its water system from a multinational corporation?
“They thought we were a bunch of hippies. They didn’t expect so much opposition from
the community.”
Jim Graham is the spokesperson of a campaign by residents of Felton, Calif., to buy its
water system from RWE’s local subsidiary, California American Water — better known as
Cal-Am.
Felton wasn’t really known for much more than its 19th century, narrow-gauge railway
that winds through a redwood for-est, until recently. Today, this rural town of about 1,000
just up the road from Santa Cruz has gained fame as the home of Felton FLOW — Jim Graham
Friends of Locally Owned Water.
FLOW began holding weekly meetings at the Felton Firehouse in November 2002, the day after Cal-Am proposed a 74
percent rate increase. “It’s been going like a tidal wave ever since,” says Graham, owner of a public relations firm who
vol-unteers for FLOW on the side.
FLOW has been fighting Cal-Am on many fronts. The group successfully fought to reduce a rate hike, urged Santa Cruz
County to create a public agency to control the water system and opposed Cal-Am’s plan to merge the Felton and Mon-
terey water districts. It’s raised about $90,000 for legal fees and other expenses. Members have knocked on every door
in town to get people informed and involved — three times.
One of FLOW’s major achievements is Measure W, which passed by a 3-to-1 margin in July 2005. Hard to believe as
it may be, Felton residents voted to raise their own taxes for up to 30 years — in Graham’s case, by $598 a year — to
amass $11 million to buy the water system from Cal-Am. And even more difficult to imagine, this victory came despite a
massive public relations effort by RWE and the tens of thousands of dollars it gave to a local property owners’ associa-
tion to fight FLOW’s efforts.158
Graham says, “What they typically try to do is co-opt an existing group in the community.” The property owners’ group
sued to keep Measure W off the ballot and then challenged the results. The corporation has conducted mailings criticiz-
ing the local buyout, tried to block FLOW from filing objections with regulators and according to The Monterey Herald,
backed legislation to restrict eminent domain actions. According to FLOW, the corporation even called the police on a
resident who took pictures of a water-main break.
The struggle, Graham says, has galvanized Felton like never before. “There’s a joke around here: The one good thing
about Cal-Am is that it has brought the community together.”
The town offered $7.6 million to buy the system, but RWE’s chief executive was not having it, claiming the system was
not for sale. The odd thing is, four months after Measure W passed, he announced RWE was selling the system and its
entire stake in the U.S. water market — American Water. “If people are interested in buying into their water supply,” he
said cheekily, “they can buy shares in American Water after the IPO [initial public offering].”159
But, as Graham said, FLOW was in it for the long haul: “Cal-Am has been given monopoly status and is taking money
out of our community. We are not going to stop until we get our water system.”
On the heels of RWE’s unappealing offer, the community moved much closer to tasting public water by using eminent do-
main to force Cal-Am into a sale. The company, however, still was looking for a way out. Upon dropping its legal opposi-
tion to the sale, Cal-Am claimed the town did not have enough money to buy the system, alleging its fair market value
was $25 million.160
This inflated offer didn’t last long. Days before a trial would have determined the purchase price, the company folded and
sold the system for $10.5 million,161 less than half of what it originally sought.
“This is a huge victory for the citizens of Felton,” said Jim Mosher, who headed up FLOW’s legal committee, “and should
inspire other communities to challenge private water utilities that are extorting huge, unjustified rate increases.”162

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 Food & Water Watch

forecast for 2008, saying, “RWE now expects net income

slightly below the previous year’s level.”9

This is a far cry from what RWE imagined would happen.

By purchasing American Water and Thames Water, the
company predicted water would become its “most profit-
able and fastest growing corporate division” and contribute
nearly one-third of its earnings before interest, taxes, de-
preciation and amortization.10 But the water division failed
to reach its growth targets — which the company’s chief
executive called “particularly disappointing.”11

In the end, what mattered most to RWE was not serving

communities or helping the United States rebound from
tragedy. It was the bottom line.

Prominent water industry analyst Debra Coy predicted as

much just eight months before RWE initially announced
the sale in 2005. “We would not be surprised to see some
European utility owners and operators start pulling out
of the U.S. in 2005,” she said, “as politics and poor profits coming more political, and citizens are getting involved like
continue to depress their interest in this market.”12 never before.

Indeed, perhaps there was something more to RWE’s deci- And there may be few corporations that know more than
sion than money. A leading industry publication, Global RWE about the power communities have when they orga-
Water Intelligence, blames the sudden retreat of multina- nize. In fact, the leaked minutes from RWE’s Supervisory
tional corporations not just on financial risks, but also on Board reveal that “considerable political resistance to priva-
politics — “the huge campaign costs to win.” And, it warned tization of the water sector” was one of the main reasons
that cities “may have to trim their expectations of savings RWE was eager to unload its U.S. operations.15
and performance guarantees,”13 which will no doubt put
intense pressure on elected officials to think twice about The Wall Street Journal also has underscored civil society’s
privatizing. influence. “In the U.S., RWE found itself fighting in town
referendums and state legislatures across the country,” it
Americans don’t seem to like the idea of privatization to explained, “winning many battles but losing the war.” Re-
begin with — they oppose the concept in general by a 45-31 porting from Felton, Calif. — where RWE suffered a major
percent margin, according to one national poll.14 defeat in July 2005 when the town voted by a 3-to-1 margin
to buy back their water system — the Wall Street Journal
Judging by what is unfolding in cities across America, deci- concluded, “[D]reams of heady profits evaporated amid
sions to hire — or fire — private water companies are be- heated opposition in places like this town of 6,500 people,
in California’s coastal redwood forests.”16

“God help any politician who brings this up again,” said

“We would not be surprised Craig Neely, president of the Borough Council of Emmaus,
to see some European utility Pa., which voted against privatizing its water system in Sep-
tember 2005.17 Council members in this small town near
owners and operators Allentown quickly backed away from the idea after receiv-
ing petitions signed by hundreds of residents and driving
start pulling out of the US in past storefronts with anti-privatization signs taped in their
windows.
2005.”
In Mexico, Mo., near Columbia, residents voted by a 2-to-1
– water industry analyst margin in April 2006 against selling the town’s wastewater
Debra Coy treatment facility to RWE subsidiary Missouri American,
surprising a local official who wanted to “get rid of the
thing.”18

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 Faulty Pipes

Veolia (then Vivendi), also headquartered in Paris, bought

California-based USFilter for $8 billion.

Facing the double whammy of stricter water quality stan-

dards and aging infrastructure, local officials needed solu-
tions to serious political and financial problems. These mul-
tinationals seemed to offer hope. They said they could cut
costs — and thus keep rates down — through downsizing,
streamlining and other efficiency measures. They said they
had technical expertise public operators supposedly lacked.
And they said they had better access to capital.

The corporations played up the funding gap for water infra-

structure. Hundreds of millions of dollars were needed to
repair, upgrade and replace infrastructure, and there sim-
ply wasn’t enough public money available for the job. They
began a campaign to convince elected officials and citizens
throughout the United States that businesses could do the
job better and cheaper than governments.

In May 2006, RWE’s abrupt decision to drop a lawsuit These arguments began to take root despite a sizable
against Lexington, Ky. cleared the way for citizens to vote amount of evidence to the contrary: that 86 percent of
the following November on whether the city should acquire Americans on water systems receive their water from pub-
the water system by eminent domain. On July 4, 2006 — licly owned utilities that generally perform well,21 that pri-
Independence Day — the Illinois governor signed legisla- vate financing is almost always more expensive than public
tion that makes it easier for communities to condemn and financing and that governments don’t have to factor in the
take over local water systems — which Champaign-Urbana hefty expenses of taxes and profit.
and several other communities are exploring. Mayors and
elected officials in Charleston, W.Va.; Chattanooga, Tenn.; Many privatization experiments elsewhere in the world,
Gary, Ind. and a number of other cities are also weighing particularly in Latin America, were failing spectacularly.
options for purchasing their water utility now that RWE has Bechtel was forced out of Cochabamba, Bolivia, following
put shares of American Water up for sale. weeks of violent, deadly conflict in 2000. Corporations en-
countered serious problems in Argentina, Brazil and Chile,
In the small beach town of Montara, Calif., residents per- among other countries.
suaded regulators to force RWE to sell its water system to
the community. Local officials are investing in long-overdue Things were supposed to be different in the United States.
improvements, including new wells, storage tanks, meters Political and economic instability wouldn’t be a problem, a
and treatment equipment. “We can afford these things,” wealthier population meant customers would be more able
said Scott Boyd, president of the town’s water and sewer to pay their bills and suspicion and distrust of large corpo-
board. “We don’t have to show a profit.”19 rations is generally less pronounced.

Money and politics, so the saying goes. But the multinationals faced a different set of problems in
the United States. Instead of riots and boycotts, they con-
The Party’s Over
It’s hard to believe that within just a few years “the bubbles
seem to have gone flat for the global utility firms,” said in-
“God help any politician who
dustry analyst Debra Coy.20 brings this up again.”
RWE’s $7.6 billion acquisition of New Jersey-based Ameri- – Craig Neely, borough
can Water Works in 2001 was just one of three rapid-fire
mega-mergers that held the potential to realign the interna- council president of
tional water industry. Suez of Paris, the world’s second larg-
est water corporation, paid $6 billion for New Jersey-based
Emmaus, PA
United Water in 2000. And in 1999, world market-leader

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 Food & Water Watch

In the Spotlight
Thinking Locally, Acting Globally: Champaign-Urbana, Ill.
Just how serious is Mayor Laurel Prussing about buying back her town’s water
system from RWE? In April 2006, she traveled from Urbana, Ill., to the company’s
headquarters in Essen, Germany, to speak at its annual shareholder meeting.
There, she made her case to corporate executives and shareholders that they
should sell Champaign-Urbana’s water system to its 150,000 citizens — not put
it up for bid to Wall Street investors, as RWE was planning for its U.S. operation,
American Water.
“I told them we are willing to give them a good price. I said rather than get into a
big fight, all the effort and money that’s been spent on this political war should be
spent maintaining the system properly.”
Instead of boos and hisses, she got applause — and greetings from audience
members who said they didn’t know anything about the problems with the area’s Laurel Prussing
water system. Prussing said that since RWE bought American Water in 2002, sev-
eral boil-water notices have been issued, fire hydrants have malfunctioned and customer service has suffered.
“A few months ago, I got a notice on my door saying the water was turned off, and that when it came back on, I
needed to boil it before I used it. I called an 800 number, but they didn’t have a clue what I was talking about.”
This should really come as no surprise as the customer service call center is located in Florida.
When firefighters responded to a recent fire, Prussing said, the nearest hydrant wouldn’t open, so they had to
search for one that worked. “Nobody died, but someone could have.”
Prussing and Mayor Gerald Schweighart of neighboring Champaign backed legislation that makes it easier for com-
munities to use eminent domain to purchase privately owned water systems. The bill passed the House and Senate
in the spring of 2006 and Gov. Rod R. Blagojevich’s signed it into law on July 4, 2006. Prussing’s lengthy political
résumé helped: she’s a former state House member, Champaign County Board member and County auditor.
As it stands now, Prussing said, it’s easier for a foreign corporation to buy a water system than it is for a local
government. Pekin, near Peoria, tried buying its system from RWE subsidiary Illinois American Water in 2004 but
was blocked by state officials.
RWE has politicized the standoff, she says, by conducting biased “push poll” telephone surveys, influencing local
elections and distributing materials opposing the buyout plan. But Prussing, a public financing expert, said the
effort has nothing to do with politics. “It’s about quality and service — public health and public safety. And account-
ability. What’s theirs? Nada.”
“They’re willing to put money in a big PR blitz, but the way to promote good will is to provide good service – not
pulling the wool over people’s eyes,” she said. “All the money they’ve spent to terrorize us — it’s disgusting.
They’re trying to intimidate us so we won’t do anything. They crush small communities.”
A proposed 60 percent rate hike may have been the last straw. Following the request, Prussing called for a study
to explore takeover options, including using eminent domain, to transfer the system to public hands. “I believe this
(the proposed rate increase) is a clear indication we need to study all our options,” she said. “We can’t accept this
as inevitable. We ought to explore alternatives with Champaign, such as buying the company.”
Champaign Mayor Schweighart agreed. “We are already paying more than publicly owned water systems,” he
said, “and it just seems there’s no stopping them.”
Prussing says she’s still willing to talk with RWE about making an offer, but her patience is running thin.
“We don’t want to mess with these people anymore. It’s unnerving to deal with a company that’s so arrogant.
You can’t talk to them. They’re so big and used to getting their own way,” she says. “They aren’t running it for our
benefit — they’re doing it for their benefit. What it boils down to is: Who do you want to own the system? We think
we can do a better job.”

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 Faulty Pipes

rather than gaining it.”23 Ironically, the publication said

that free market conditions — on which the multinationals
“The concession model is banked their success — may have contributed to the down-
fall: “In the heat of competition, prudent contingency plan-
a failure. Everyone knows ning was discarded.”24

that.” This certainly helps explain RWE’s troubles. After purchas-

– Patrick Cairo, executive ing American Water, the company set an ambitious goal
of an 8 percent return on capital investment.25 It ended up
vice president of Suez’s with only about three quarters of that.26 In explaining the
failure to achieve this goal, a company executive acknowl-
North American edged, “We never said that it is an easy target.”27

operations In fact, during a meeting with its board of directors, com-

pany executives admitted that their goals were “chronically
too optimistic,”28 and “none of the expectations that [they]
fronted regulatory agencies protecting consumer interest, had attached to American Water had been fulfilled.”29 Part
skeptical citizens who did not particularly like the idea of of the reason? “[R]isks in the water business had been un-
private control of water and labor unions questioning the derestimated.”30
rationale of downsizing staff — before reducing other costs
— at a time when aging systems were in need of major ser- The executives then ran through these risks that made
vice. the prospect of selling off American Water exceedingly
desirable: “public resistance to privatization schemes of
The first major snag was New Orleans — a privatization companies was growing;” “some infrastructure … was out-
set to be the largest in the United States. Both Suez and dated;” “regulatory requirements [for water quality] … were
Veolia bailed out in 2002 after local officials grew wary of steadily growing in severity;” “extra costs incurred could
a proposed water contract, and voters won the right to re- not always be passed on to customers” and “the regulatory
ject privatization deals at the ballot box. A bribery scandal environment … was extremely difficult.”31
eventually emerged, as it had in connection with an earlier
sewer privatization contract. This list that RWE nicely outlined reveals one important
connection: Many of the very problems that companies
Then came Atlanta, where Suez’s largest U.S. contract was had emphasized to convince local governments to privatize
terminated in 2002 following chronic repair, maintenance, their systems — including aging infrastructure and stricter
billing and other problems. Corruption also reared its head water quality — became main reasons some multinationals
there, when the company was linked to questionable pay- ditched their U.S. operations. So much for that private sec-
ments to Mayor Bill Campbell, who was sentenced to thirty tor solution.
months in prison for federal tax evasion.
Clearly, governments are in a much better position than
The failure further raised citizens’ awareness — with a corporations to adapt to contingencies and emergencies.
growing opposition questioning whether these corporations They have no stockholders to appease, they are not subject
are offering a better deal, considering their tremendous to the whims of Wall Street and they can go into debt more
failures. easily. A crisis can force a city to borrow more money and
raise taxes, but it almost certainly won’t drive it into bank-
Just how gloomy is the future of privatization — or as the ruptcy. Plus, a corporation can abandon a municipality, but
corporations have labeled one way they get involved in the a municipality can’t cut-and-run on itself.
water game: public-private partnerships — in the United
States? “The concession model is a failure. Everyone knows Overall, how are things looking for the water privatization
that,” Patrick Cairo, executive vice president of Suez’s industry? Not that great. The latest annual assessment
North American operations, said in April 2006, referring to by Public Works Financing, a leading industry monitor,
the contracting model that in fact his own corporation has should give pause to any mayor or city council member
championed across the world.22 considering selling or outsourcing management of their wa-
ter systems:
The hype began to fade as early as 2003, when Global
Water Intelligence reported that, “after suffering severe • The corporate share of the operation-and-maintenance
indigestion last year, the big groups are now losing weight market is in a “drought” for the second year in a row,

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 Food & Water Watch

and recovery isn’t anticipated for 2008. “We are all recent slump in privatization: “Part of the challenge for
waiting,” explained the head of contract operations water/wastewater outsourcing contractors is the per-
for one company, “to see the increase in demand for ception that private profits can be put to better use by
our services driven by the infrastructure needs that public utility managers.”32
compete for the limited funds. … yet it isn’t happening
nearly as quickly as necessary.” Ultimately, elected officials looking for long-term solutions
to funding challenges must ask themselves this question:
• Major corporations have shifted focus to smaller What is more pragmatic? Putting their faith in private cor-
contracts to avoid legal battles and consultant evalu- porations that, despite their poor track record, assert they
ations of their proposals. These smaller contracts can operate facilities more cheaply and more efficiently,
bring in less money. Although the number of contracts while still earning enough money to allow for profits and
remained steady, the value of all contracts signed in taxes? Or increasing public funding for a system that al-
2007 dropped by 4 percent from the previous year, and ready is working?
design-build contracts fell by a third. Market leader Ve-
olia signed fewer contracts and reported an 11 percent In Water We Trust?
drop in government contract revenues. United Water, a
subsidiary of Suez, signed only one new contract, while There’s a National Botanic Garden Trust Fund, an Architect
losing its largest operation — Milwaukee. of the Capitol Trust Fund and a South Dakota Terrestrial
Wildlife Habitat Restoration Trust Fund.
• Municipalities are seeing less competition for contracts,
which invariably leads to less favorable bids. “Each of So while dedicated funding sources ensure that the Butter-
the major companies has developed its own niche with- fly Weed and Texas Prickly Pear are blooming, the frescoes
in the larger market of contract services, [Joseph Bur- inside the Capitol Rotunda remain presentable for tourists
gess, CEO of Veolia] says, so there are fewer bidders for and a seven-inch-long wading bird called the piping plover
each project. ‘Competition is sporadic,’ says Burgess.” has a place to roost, the federal government has yet to es-
tablish a trust fund to protect something all people need to
• Several cities, including Houston, Texas and Petaluma survive: water.
and Fairfield-Suisun, Calif., have canceled their con-
tracts and begun public operation of their utilities. The federal government actually maintains about 110 trust
They estimated savings of “10-15 percent by running funds. These include Social Security, Medicare and Super-
their systems with public employees.” In fact, such cost fund, of course, but there are also trust funds for highways,
savings of public operation may be contributing to the bridges, airports, mass transit, ports and harbors.

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 Faulty Pipes

In the past, what has been the government’s rationale for sure that water is safe to drink and sewage is adequately
establishing trust funds? Essentially, it’s been to address a treated before it is dumped into rivers and streams?
national priority. Clearly, taking care of the sick and elderly,
cleaning up toxic waste dumps and building safe infrastruc- Many organizations have called for one, including those
ture projects — many of which cross city, county and state in the best position to understand that local governments
lines — are national needs that require national solutions. can’t afford to do the work on their own. Among them is
It simply wouldn’t make sense for each of the nation’s the Water Infrastructure Network (WIN), which includes
3,000-plus counties to collect its own Social Security taxes the National Association of Counties, National Association
and mail out checks to its own seniors. of Clean Water Agencies, National Association of Regional
Councils, National League of Cities, environmental and
It would be tough to argue that water is less worthy than consumer groups and many other government and industry
roads, bridges and subways — or flowers, paintings and groups.33
birds. And it would be just as tough to argue that safe and
affordable water — which also crosses city, county and state According to WIN, “Clean and safe water is no less a na-
lines — isn’t a national priority. tional priority than are national defense, an adequate sys-
tem of interstate highways, or a safe and efficient aviation
Congress said so when it passed the Clean Water Act in system.” Furthermore, “these latter infrastructure pro-
1972: “It is the national policy that Federal financial as- grams enjoy sustainable, long-term federal grant programs;
sistance be provided to construct publicly owned treatment under current policy, water and wastewater infrastructure
work.” Similar language appears in the 1996 amendments do not.”34
to the Safe Drinking Water Act, originally passed two years
after the Clean Water Act: “The Federal Government needs What’s more, the American people want a trust fund. In a
to provide assistance to communities to help the communi- national poll taken last year, 86 percent said they support
ties meet Federal drinking water requirements.” the creation of a water infrastructure trust fund. Respon-
dents went far beyond answering a simple “yes” or “no”
Congress actually goes beyond saying that clean, safe water question. Asked which projects most deserve a trust fund,
is a national priority — it extends the mandate to funding 71 percent said safe and clean water, while just 20 percent
projects to keep water clean and safe. said roads and highways (which receive $39 billion a year)
and 3 percent said airports and aviation (which receive $11
Why, then, hasn’t Congress created a trust fund to make billion).

Where the Money Comes From

There are four main sources of financing that the federal government provides to local utilities.
• The Clean Water State Revolving Fund (SRF) grew out of the Clean Water Act of 1972, which created
new national standards for wastewater treatment. A grant program was written into the law to help public
utilities comply with the new regulations. Today, the Clean Water SRF provides seed money for state-
administered loans to municipalities to build sewage treatment plants and improve water quality.
• The Drinking Water State Revolving Fund (SRF) is similarly designed to provide federal funding to
communities to help them comply with standards established by the Safe Drinking Water Act of 1974.
An important difference between this and the Clean Water SRF is that both privately owned and publicly
owned systems are eligible for funding.
• In addition to these two programs, Congress appropriates money each year for individual Water Infra-
structure Projects through earmarks in Appropriations for the Environmental Protection Agency
(EPA).
• Finally, Congress appropriates funds each year to the USDA for rural water and waste disposal grant and
loan programs.

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 Food & Water Watch

By a 3-to-1 margin, respondents said water funding is ul-

timately a federal, not a local, problem – with 88 percent
agreeing with the statement, “Clean water has no local
boundaries.” And by a 6-to-1 spread, people said they’d
rather see spending increased for water projects than en-
titlement programs.35

Frank Luntz, who conducted the survey, told a House sub-

committee in 2005, “It’s hard for me to believe, but I have
been a professional pollster for almost 20 years and I can
tell you from personal experience that such an overwhelm-
ing consensus about the role of Washington doesn’t happen
often — but it exists here.”36

Down To A Trickle
A trust fund probably wouldn’t be needed if the federal gov-
ernment had been fulfilling the promise of the Clean Water
and Safe Drinking Water Acts. Wastewater funding was
strong at first — at least $5 billion a year for the first several
years after the Clean Water Act became law. The $41 billion
invested through 1984, in fact, represented the largest non-
military public works program since the Interstate Highway
System.37

President Reagan, however, tried to phase out wastewater

construction funding in the mid-1980s, a disaster averted
in 1987 when Congress amended the Clean Water Act to Cutting the EPA’s infrastructure budget – or in the case of
include the State Revolving Fund (SRF) program. This seed the Clean Water SRF, eliminating it – would turn history
money, used to help states extend loans to communities, on its head. From 1991 to 2000, 57 percent of all federal
averaged about $1.6 billion a year throughout the 1990s. assistance for drinking water and wastewater projects came
from the EPA – $25 billion of $44 billion.40
President Bush has picked up where Reagan left off. Drink-
ing Water SRF funding has remained stagnant during the Today, ratepayers pay about 90 percent of infrastructure
Bush years, at around $840 million a year, despite new costs, and they are facing rate increases averaging 6 percent
demands on communities to upgrade standards for arsenic above the rate of inflation.41 In households with tight bud-
and many other contaminants. New arsenic rules went into gets, such as people on fixed incomes and retirees, these
effect in 2006, and new groundwater rules will kick in next increases can make a significant dent in available income.
year. In some cities, cutting households off from their essential
water services is not an uncommon sight.
Meanwhile, Bush has slashed Clean Water SRF funding in
half, from $1.35 billion in 2000 to $689 million in 2008. Rates will not be sufficient to cover the significant funding
He proposed just $555 million for 2009, cutting another 20 gap in water infrastructure today.
percent,38 and moving a big step closer to essentially elimi-
nating funding by 2011. Congress has been able to make up The federal assistance, however paltry as it may be, does
for some of the president’s cuts, but political opposition has go a long way. Ask the community of Cave Creek, Ariz. The
only allowed marginal increases. town was deeply unsatisfied with the shoddy service and
neglected condition of its water system, which had always
The Bush administration has stymied recent congressio- been owned and operated by a private company. The sys-
nal efforts to substantially increase funding for the SRFs tem was so poorly maintained that there were three system-
– ranging from $20 billion to $41 billion over five years.39 wide water outages during the summer of 2007 alone.
Efforts to formally reauthorize the SRFs have also failed; Understandably, Cave Creek wanted to take over the utility
the Clean Water and Drinking Water funds have not been and improve water service. “Facilities are falling apart,”
reauthorized since 1994 and 2003, respectively. explained the town’s utilities director. “There wasn’t a lot of
revenue going back into the system.”42

9
 Faulty Pipes

In the Spotlight
Moving Mountains: Montara, Calif.
If the citizens of Montara, Calif., can build a tunnel through a mountain, why can’t they run their own water system?
In November 1996, this beachfront community 20 miles south of San Francisco voted with the rest of San Mateo
County to block a freeway that would have carved a 225-foot gash through the Santa Cruz Mountains. Instead, resi-
dents said the problem of avalanche-prone Devil’s Slide, where Highway 1 snakes precariously high above ocean-
side cliffs, should be solved by building a tunnel through the mountains.
Measure T (that’s right, for tunnel) passed by a 3-to-1 margin in November 1996, and Montara hasn’t been the same
since.
Neither has Scott Boyd. Participating in the tunnel campaign got Boyd hooked on local politics. “Measure T taught us
how good it tastes to win.” So when the next hot issue came along, he was ready to get involved – and in the perfect
position. Boyd had become a member of the Montara water board and eventually took over as president.
Montara’s water system, which it shares with neighboring Moss Beach (combined population 5,000), had been
plagued for decades by shortages, equipment failure, unresponsive management and some of the highest rates in
California. “The system was in complete run-into-the-ground condition. The maintenance budget was embarrassing,”
says Boyd, whose day job is designing computer networks. “We had to do something. That’s the only thing I heard –
over and over.”
“The community had been moving in the direction of buying the system for many years,” says Boyd. But when Citi-
zens Utilities of Sacramento sold Montara’s system to American Water Works in 1999, “that was the wakeup call.”
(continued on page 11)

Thanks to federal SRF loans, Cave Creek could not only af- vate activity bonds (PABs).44 But 49 of 50 states are not us-
ford to buy the water system but also to make much needed ing the PABs that are already available, suggesting that they
repairs. In March 2008, the town fully owned and operated are not as attractive a funding source as the administration
its water system for the first time, and millions of dollars of believes. Where they are used, PABs require municipal
improvements were already underway.43 partnerships with private entities, which drive up the cost
of infrastructure through taxes, stockholder profits, third
Many other water and wastewater systems need consid- party audits and contract administration — expenses that
erable repairs and upgrades. Without increased federal public entities would not otherwise face.
funding, water and wastewater rates will rise an estimated
123 percent over the next 20 years to pay for these improve- Expanded use of PABs would cover only a small portion of
ments. Even if the government makes up just half of the the funding gap at best, and at higher cost than public in-
infrastructure funding gap, this jolt to ratepayers would be vestment in public utilities. Finally, this funding mechanism
reduced by a fifth. The government’s 10 percent contribu- would do nothing to help municipal water utilities, which
tion is also likely saving many small-town, bare bones op- serve 86 percent of Americans on community water systems.
erations from financial ruin.
Who Comes First?
Indeed, it is the funding gap that is fueling virtually all as-
pects of the debate over not only who should financially sup- One person who has spent a considerable amount of time
port, but also who should own, the nation’s water systems. and energy spreading news of the worst-case scenario while
urging more private involvement in public water is David G.
All stakeholders — government, industry and public interest Wallace, former mayor of the Houston suburb of Sugar Land.
— cite EPA’s projection that for the 20-year period from 2001
to 2019, up to $446 billion is needed for drinking water infra- As co-chair of the Mayors Water Council (MWC) — a com-
structure and up to $450 billion for wastewater projects. And mittee of the Conference of Mayors — Wallace marshaled
they reference EPA’s estimated funding gap of up to $267 bil- through a 2004 resolution calling on Congress to lift re-
lion for drinking water and $177 billion for wastewater. strictions on private companies’ access to PABs, including
The Bush administration has proposed filling the funding removing the state volume cap, which appropriately limits
gap by expanding tax-exempt private funding through pri- corporate access to tax-free financing.45

10
 Food & Water Watch

(continued from page 10) Community meetings were held at the local elementary
school. A web site went up. Volunteers chatted with residents in front of the post office.
They walked door to door. People put Duchy of Grand Fenwick flags on their walls. A
debate was scheduled for public access television but, Boyd said, it took them a while
to find someone to speak against the buyout.
In relatively short order, the Montara water district put a question on the ballot: Should
the district borrow $19 million to buy the system from American Water’s local subsid-
iary, Cal-Am? Measure V passed by a 4-1 spread, almost five years to the day after
Measure T. The initiative raised taxes on homeowners about $169 per year for every
$100,000 of assessed valuation.
When Montara residents made an offer to Cal-Am, Boyd says, “We were told to go
Scott Boyd pound sand.” So the following May, the water district filed an eminent domain action,
asking a local court to condemn the system so the district could purchase it.
Montara then achieved the improbable. The state Public Utilities Commission (PUC) ruled in December 2002 that
RWE couldn’t buy Cal-Am unless it sold Montara’s system to the community. Why did the PUC side with Montara?
“Because we pestered them,” says Boyd. Montara took control of the system the following summer, and it’s been in
refurbishing mode ever since.
Boyd says new wells are being dug (in hopes of lifting a 30-year-old ban on new hookups), new storage facilities are
in the works, filtration systems are being installed, every water meter will be replaced and a new technique is being
used to remove sediment from Montara Creek. “Unlike a private corporation, we don’t have to pay taxes,” he said.
“We can afford these things.
“We don’t have to show a profit. We get a bang for our buck by serving our citizens.”

“The state volume cap,” he said, “has effectively limited the Wallace’s preference for increasing private rather than public
amount of PABs used for water facilities.”46 funding is not all that surprising. He is a founding director of
the Margaret Thatcher Foundation and has personal connec-
Indeed, according to a 2005 survey by the MWC, only 0.8 tions with the former British prime minister,50 who privatized
percent of cities surveyed said they have used PABs as a England’s water system in 1989 (giving rise to Thames Water,
funding source. More than a third of the cities — 38 percent which RWE purchased in 1999 and then sold in 2006).
— have used SRF funds.47
Wallace has ties with another prominent conservative –
Despite these findings, Wallace told a House subcommit- former House Majority Leader Tom DeLay, who resigned
tee in 2004 that it should focus less on SRF funding and in June 2006 in the wake of his indictment on money laun-
instead should loosen tax rules and other regulations to dering and conspiracy charges. Wallace invited the Sugar
allow corporations to play a larger role in public water pro- Land resident to speak at a Mayors Water Council meeting
vision.48 In keeping with this position, the Conference of in March 2004. “Tell me what you need the federal govern-
Mayors the following year issued a resolution requesting ment to do to assist you with this problem,” DeLay said,
that the Drinking Water SRF be funded at the exact same “which may very well include telling us to get out of your
level as proposed by the Bush administration – $850 mil- way. Let us know what you need.”51
lion. The resolution called for the Clean Water SRF to be
funded at $1.35 billion, higher than what Bush requested Wallace — who sought the Republican nomination for De-
for FY 2006 but no higher than the 2000 level.49 These Lay’s seat but withdrew after the state Republican party en-
funding levels are far beneath what U.S. communities need. dorsed his rival52 — stepped down as co-chair of the Mayors
Water Council. The new chair is Albuquerque Mayor Mar-
And why should corporations get tax breaks when profiting tin J. Chavez, who has tangled with the issue of water in the
from privatized water? The MWC has a Water Develop- past. In 2003, the New Mexico State Legislature and Gov.
ment Advisory Board on which major water corporations — Bill Richardson took control of Albuquerque’s water utility
American Water, OMI, United Water (Suez) and Veolia — and transferred it to a new agency, a move Chavez strongly
have full memberships. It is hard to see how such advisors opposed. Chavez resigned as chair of the agency later that
can be impartial to awarding themselves tax breaks. year. “I’m not allowed by statute to quit the whole thing,”
he said. “I’d quit if I could.”53

11
 Faulty Pipes

Better alternatives are out there. Many cities have success-

fully reorganized their water and wastewater systems under
continued local, public control. These reformed systems have
saved money, rewarded employees and enhanced services
while maintaining or improving water quality and protect-
ing the environment. But instead of these additional savings
getting drained from the community in the form of corporate
profits, they are re-invested back into the community.

These are just a few of many success stories emerging

across the country:

• Phoenix and AFSCME Local 2384 formed the Partici-

pative Association of Labor and Management in 1996
to enhance efficiency, assure quality and keep rates
low. The five-year goal was to save $60 million. In-
Wallace’s departure gave the Conference of Mayors an op- stead, it saved $77 million.
portunity to send a message to Congress and the American • San Diego and two labor organizations created the “Bid
people about whether it favors solutions that place account- to Goal” program in 1998. They rang up savings of $37
ability in the hands of public or private interests. Unfortu- million in the first two years, nearly doubling their goal.
nately, Chavez is continuing in Wallace’s footsteps, advo- • Amid growing scrutiny of its performance, Miami-
cating on behalf of corporations. In his 2007 testimony to a Dade, with the help of AFSCME Local 121, established
House subcommittee, he echoed Wallace’s call for increased “POWER”– the Partnership Optimizing Water and
private financing and urged the expansion of PABs.54 Sewer’s Efficiency Reengineering Program. Operation
and maintenance expenditures were reduced by $52
With budgets at all levels of government running so close to million between 1997 and 2001.
the nub, the question must be asked: Is there enough extra • Working with four labor organizations, King County,
money in the system to allow for corporate profits? After all, Wash., saved $2.8 million in 2001, the first year of its
every dollar that goes to a stockholder is one less dollar that “Productivity Initiative”– despite skyrocketing electric-
could go to fix leaky pipes or build a new treatment plant. ity costs. The Seattle-area program is shooting to save
nearly $70 million over 10 years.
What happens before water and sewer bills reach the mail-
box — that is, who pays and gets reimbursed for infrastruc- Have a story to tell about water management in your com-
ture — is one matter. “But in the end,” says the Water In- munity? Contact Food & Water Watch at info@fwwatch.org
frastructure Network, “whether financing comes from local
governments or private firms, local citizens and businesses Public water and wastewater employees and managers have
will have to pay the bills.”55 Because this is true, the inter- many great ideas to save money. Too often, though, the
ests of water customers — not water providers — should missing ingredients are employee incentives to promote
come first. innovation and management flexibility to allow these inno-
vations to blossom. And while the specifics will differ from
city to city, the basic reengineering concepts of goals, stan-
Conclusion: New Ways, New Thinking dards and accountability create incentives, flexibility and
Governments and corporations operate at cross-purposes. an innovation-friendly environment.
Government’s prime directive is to serve its constituents.
Corporations’ prime directive is to serve their stockholders. Saving money, retaining local accountability and enhanc-
This fundamental gap simply cannot be reconciled. ing system performance aren’t the only benefits of reengi-
neering. Programs can be implemented quickly and sav-
Corporations offer themselves as the solution for funding, ings can be realized relatively quickly, sometimes within
technical and organizational challenges faced by communi- months. By comparison, competitive bidding processes are
ties throughout the United States. They face stricter stan- invariably plagued by delays, and they can take years and
dards, diminishing federal funding and a citizenry not keen cost millions of dollars, while uncertainty paralyzes the
on rate increases. But, as seen in this report, corporations public system and deflates employee morale. In the end,
have produced mixed results at best, and elected officials private operators often become more of a problem than a
and citizens alike are viewing privatization with increased solution.
skepticism.

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 Food & Water Watch

Private Players
Veolia Aqua America
Headquarters: Paris, France Headquarters: Bryn Mawr, Pennsylvania
Annual revenue: $48 billion (including its energy services and Annual revenue: $602 million
public transportation operations) Population served: 3 million people
U.S. subsidiary: Veolia Water North America Locations: 13 northeast, midwest and southern U.S. states
Population served: more than 14 million people Fully owned utilities: 96%
Locations: 37 U.S. states, the Virgin Islands, New Brunswick and Contract operations: 4%
Ontario.
Corporate details: Aqua America is the second largest publicly
Fully owned utilities: None
traded water and wastewater corporation in the United States. It
Contract operations: 600 communities (100% of revenue, $565
has completed nearly 200 acquisitions in the past 10 years, adding
million )
865,000 new customers, including New York Water Service Corp.
Corporate details: Veolia is the largest water and wastewater for $51 million in May 2006. Aqua America was formerly called
corporation in the world. Subsidiary Veolia Water North America is Philadelphia Suburban Corp.
the largest private operator of U.S. municipal water and wastewater
systems. In 2004, Veolia sold a portion of its industrial services and CH2M Hill
equipment manufacturing businesses to Munich-based Siemens.
Headquarters: Englewood, Colorado
Veolia was formerly owned by Vivendi.
Annual revenue: $5 billion (including its engineering, communica-
tions, construction and other municipal and industrial services
Suez U.S. subsidiary: OMI
Headquarters: Paris, France Locations: more than 30 states, Puerto Rico and Canada
Annual revenue: $70 billion (including its electricity, natural gas Fully owned utilities: 0% of revenue
and energy operations) Contract operations: more than 100 clients (100% of revenue,
U.S. subsidiary: United Water $235 million)
Population served: 7.3 million people
Corporate details: CH2M Hill is a multinational consulting firm.
Locations: 21 U.S. states.
Subsidiary OMI is the third largest private operator of U.S. municipal
Fully owned utilities: 25 utilities
water and wastewater systems.
Contract operations: 145 municipal systems ($216 million in
revenue)
California Water
Corporate details: Suez is the second largest water and wastewater
Headquarters: San Jose, California
corporation in the world. Its U.S. subsidiary, United Water, is the sec-
Annual revenue: $367 million
ond largest private operator of U.S. municipal water and wastewater
Population served: more than 2 million people
systems. In February 2006, Suez merged with French government-
Locations: California, Washington, New Mexico and Hawaii
controlled Gaz de France, the largest natural gas supplier in Europe.
Fully owned utilities: 95% of revenue
United Water bought Aquarion Water Company – New York in Febru-
Contract operations: 5% of revenue
ary 2007 and Aquarion Operating Services in June 2007.
Corporate details: California Water is the third largest publicly
RWE traded water and wastewater corporation in the United States and
the largest west of the Mississippi River.
Headquarters: Essen, Germany
Annual revenue: $63 billion (including its electricity, natural gas,
energy, garbage and recycling operations)
Southwest Water
U.S. subsidiary: American Water Headquarters: Los Angeles, California
Headquarters: Voorhees, New Jersey Annual revenue: $217 million
Annual revenue: $2.25 billion Population served: more than 2 million people
Population served: 15.6 million people Locations: 10 U.S. states
Locations: 32 U.S. states and Ontario, Canada Fully owned utilities: 100 systems (45% of revenue)
Fully owned utilities: 375 systems (90% of revenue) Contract operations: 700 contracts (55% of revenue)
Contract operations: 185 municipal systems (10% of revenue)
Corporate details: Southwest Water is the sixth largest private
Corporate details: RWE was once the world’s third largest water operator of U.S. municipal water and wastewater systems.
corporation. In 2006 it sold Thames Water, its UK subsidiary, to
Kemble Water Limited, which is led by Macquarie’s European
Infrastructure Funds. In Spring 2008 it sold off a minority share of
American Water, its U.S. subsidiary, on the U.S. stock exchange.
American Water is the largest publicly traded water and wastewa-
ter corporation and the fourth largest private operator of municipal
water and wastewater systems in the United States.

13
 Faulty Pipes

Ingenuity can find better ways to build treatment plants

and replace leaky pipes. But these things require money.
“Water is life and
A growing gap between public financing and the money
needed to repair and replace deteriorating water infrastruc- infrastructure sustains it.”
ture threatens the current and future delivery of clean, af-
fordable drinking water and effective wastewater treatment. – Benjamin Grumbles, EPA
In order to enhance and sustain strong public water man-
assistant administrator
agement, Congress must step up to: for water
• Increase State Revolving Fund allocations;
• Create a trust fund for drinking water and wastewater;
• End federal funding mechanisms that favor privatiza- ship with Suez subsidiary United Water 16 years early.56
tion of water resources; This is not to say it wasn’t big news. Maybe journalists were
• Prohibit water corporations from obtaining access to just tired of writing about it.
public funding through tax-exempt private activity
bonds. Instead, these resources should be used to sup- New Year’s Day, 1999 marked the beginning of the largest
port strong public management of our water resources. water privatization in U.S. history — a $428 million deal
that United Water promised would cut Atlanta’s water costs
Communities must tell their congressional representatives in half. Everything would improve: repairs, maintenance,
to increase federal funding for our water infrastructure. billing, customer service, emergency response — you name
it. “Atlanta for us will be a reference worldwide,” Suez’s
Few have said it better than Benjamin Grumbles, EPA’s Chair Gérard Mestrallet said at the time, “a kind of show-
assistant administrator for water. Speaking at the U.S. Con- case.”57
ference of Mayors’ Winter Meeting in Washington, DC, in
January 2006, Grumbles said, “Water is life and infrastruc- It was also Suez’s coming-out party in the United States.
ture sustains it.” Eight months later Suez announced its purchase of United
Water, the nation’s second-largest water company, elevat-
ing its strategic alliance to an all-out merger.
Case Studies: Three to Forget Two years into the deal, the U.S. Conference of Mayors
When Chaos Meets Corruption bestowed Atlanta and United Water with its Outstanding
Achievement Award, remarking that the deal “exemplifies
Atlanta the type of corporate citizenship that makes cities stronger
By the time it was all over, it wasn’t even front-page news. and healthier.”58

Atlanta residents had to turn to page 2D on March 4, 2003, Clearly, the mayors’ organization spoke too soon.
to read that their City Council ended its 20-year relation-
Only 18 months later, in August 2002, the city was so fed up
with United Water’s poor performance that it threatened to
terminate the contract if the corporation didn’t turn things
around within 90 days. Due in part to dramatic staff cuts,
maintenance backlogs were “unacceptable,” repairs were de-
layed and responses to emergencies were “consistently and
habitually inadequate and potentially hazardous.” The city
was losing millions of dollars because United Water wasn’t
reading, installing and maintaining water meters frequently
enough, nor was it collecting enough late bills.

The city accused United Water of submitting bills for work

it didn’t do — even working on other contracts and trying
to win new contracts while on Atlanta’s dime. And the com-
pany refused to release certain billing records.59

Scandal broke two months later when former Mayor Bill

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 Food & Water Watch

Campbell, who had signed the original deal, announced he the time, Jackson’s company was advising the city’s Sewer-
never signed documents authorizing $80 million in extra age and Water Board on how to structure the privatization
payments United Water had requested.60 Though the public plan. He was sentenced to six years and ten months in
knew Campbell was under investigation at the time, few prison following his conviction on nine federal corruption
knew what would follow. charges.70 The federal probe also ensnared numerous public
officials and business figures in East Cleveland, Cleveland
After a lengthy probe, Campbell was charged in 2004 with and Houston.
multiple federal corruption charges, including accepting
$12,900 from United Water to pay for a trip to Paris with a Not even the local media was shocked. “So now we learn
female companion, and taking United’s $6,900 campaign that, even before the board was considering privatization,
contribution at a time he was not eligible for re-election.61 the process was corrupted to the point of illegality,” the
At Campbell’s trial in early 2006, it was suggested that Times-Picayune wrote. “Is anyone out there surprised?”71
one of Campbell’s top aides may have forged the letters.62
Campbell was convicted of tax evasion in March 2006, but New Orleans dropped its privatization plans in 2004, after
acquitted of racketeering and bribery. He was sentenced to five years and $5.7 million worth of study. The 20-year,
30 months in prison.63 United Water was not charged. $1.5 billion contract would have been the largest ever
awarded in the United States. It fizzled after city residents
It was not corruption, though, that doomed United Water, and the state legislature overwhelmingly approved mea-
but the corporation’s performance. Only half of the ex- sures giving voters the power to approve or reject any priva-
pected savings were realized.64 Fire hydrants were repaired tization contract worth more than $5 million.
at half the speed required. And a backlog of 14,000 work
orders had amassed.65 Still, a week after Atlanta officials an- Both Suez and Veolia cited the measures as reasons they
nounced plans to cancel the contract, a privatization advo- withdrew their bids. “If we now have to run an election
cate with the libertarian Reason Foundation said, “It’s still every time we want to get a job,” a Suez executive said, “it
the model. Just do everything completely opposite of what makes public-private partnerships cost-prohibitive.”72
Atlanta did.”66 It is hard to see how that would be an argu-
ment for other cities to follow suit. A few years before the water and sewer scheme was
hatched, bribes began flowing to help another private com-
Three weeks after Atlanta rescinded the contract, which pany keep its contract to operate two of the city’s sewage
United Water called “amicable,” CEO Michael Chesser left treatment plants.
the company after just 15 months on the job.67 Atlanta of-
ficials didn’t view the termination this way. The city council The president of Professional Services Group (PSG) (which
rejected United Water’s proposal for a gag order forbidding was implicated but not charged in a corruption scandal in
council members from discussing the final negotiations. “I Bridgeport, CT) was convicted and imprisoned for bribing a
am not going to bite my tongue,” said councilmember Feli- Sewerage and Water Board member in hopes of extending
cia Moore.68 PSG’s contract in the mid-1990s. The board member was
also convicted and jailed. PSG’s parent company, Aqua Al-
The Big Sleazy liance, pleaded guilty and paid a $3 million fine.73,74 Veolia,
New Orleans
In a city where corruption is akin to business as usual, ef-
forts to privatize both the water and sewer systems in New
Orleans have been stung by bribery scandals.

The latest scheme was masterminded by a politically con-

nected engineering executive, Gilbert Jackson, who was
linked to a four-city corruption ring that also entangled the
mayor of East Cleveland, who himself is serving a lengthy
prison sentence in part because of a water privatization
scandal (see “Corruption: Part 1”).

In January 2006, Jackson admitted he accepted $19,500

from a lobbyist representing Severn Trent, a multi-billion-
dollar British company vying to win a contract to operate
New Orleans’ water and sewer system in the late 1990s.69 At

15
 Faulty Pipes

which was not implicated, began investing in Aqua Alliance

in 1990 and owned a majority share by 1997.

No doubt, Mayor Ray Nagin’s comment after the water

privatization plan was dropped rings as true today as it did
in 2004: “I’m confident that this is a new day and we’re
headed for a new direction.”75

Not Politics as Usual

Lexington
What very well might be the nation’s longest-running and
nastiest water privatization battle is still hotly debated to-
day in Lexington, Ky.

Just two days after RWE stockholders approved the com-

pany’s purchase of American Water Works in January Then RWE hit council members who supported the condem-
2002, editors of the Lexington Herald-Leader said “control nation where it hurts most: the ballot box. Helping candi-
and decision-making about water is best left to local leaders dates who opposed the public buy back outspend opponents
who can be held accountable,” perhaps not “a profit-driven $244,000 to $149,000, RWE flipped a 9-6 minority into a
global behemoth.”76 9-6 majority in the council elections of November 2004.80

Members of the Lexington-Fayette Urban County Council A company-sponsored history book describes how it sty-
must have read the paper that day. Two days later, they mied Lexington’s first attempt to buy Kentucky-American
held the first of dozens of meetings to discuss taking over in 1960: “If the primary avenue of attack…is legal, the prin-
RWE’s local subsidiary, Kentucky-American Water Co. To cipal line of defense, and the obvious point of counterat-
which the company’s president responded, “Our company tack, is political.”81 The new RWE-friendly council promptly
is not for sale.”77 Funny thing is, it was just sold a week ear- ended the condemnation effort, twice overriding vetoes by
lier, and it would be on the auction block again four years Mayor Teresa Isaac, who signed a letter with elected of-
later. ficials from California and Illinois urging RWE to sell its
systems to communities.82
So if RWE wouldn’t sell Kentucky-American to the commu-
nity, council members figured they’d have to take it by legal A new coalition — Let Us Vote (LUV) Lexington — respond-
force. The day before the Fourth of July in 2003, city officials ed by collecting 26,000 signatures to get the issue qualified
filed eminent domain papers with a local court, seeking to for a ballot referendum. The referendum was placed on the
condemn and purchase RWE’s water systems in eight Ken- ballot for Nov. 8, 2005. RWE sued on another technicality,
tucky counties. “The filing of this petition on the eve of the this time claiming that no regular election was scheduled
anniversary of our Declaration of Independence…is the most that year, thus attempting to deny Lexington residents their
beautiful parallel there could be,” said a member of Blue- right to vote.
grass For Local Ownership of Water, or Bluegrass FLOW.78
After RWE was rebuffed by two lower courts, the state Su-
As it rarely if ever does, RWE didn’t back down. The corpo- preme Court sided with the corporation and canceled the
ration sued the county two weeks later to stop the condem- 2005 vote. Absentee ballots already in went 22-77 against
nation. The grounds? The council didn’t properly advertise the continuation of corporate ownership in Lexington. Edi-
the action, RWE alleged.79 tors of the Lexington Herald-Leader remarked, “Lexington
is a pawn in a great global water game.”83

Sensing perhaps that public opinion had turned against it,

however, the corporation abruptly dropped the case on May
“Lexington is a pawn in a 23, 2006, allowing the referendum to go on the November
2006 ballot. By this time, even Kentucky-American’s presi-
great global water game.” dent was saying, “The best thing for all of us is to let our
– Lexington Herald-Leader customers vote,”84 but the corporation probably was more
inspired by its multimillion-dollar plan to stop the public
takeover than by a sense of democratic civility. Through

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 Food & Water Watch

a flood of TV, radio and newspaper ads, RWE was able to Billions of gallons of raw and partially treated sewage have
frame the issue for voters in its terms before the 2006 vote.85 poured into Lake Michigan and local streams since United
Water (owned by Suez) took over the system in 1998. Many
After years of fighting for the referendum – it was a major of the spills were blamed on heavy rains, but others were
victory just to get it on the ballot – the November 2006 the fault of employees and malfunctioning equipment.
vote fell 60 to 40 in favor of RWE and continued private
ownership of the water system. The following day the edi- In one incident alone, 1.5 billion gallons of raw sewage
tors of the Lexington Herald-Leader assessed the outcome: spilled in May 2004, marking the second-largest mishap
“[W]hat played the biggest role in yesterday’s decision was since Milwaukee’s “Deep Tunnel” system opened in 1993.
money.” Although Kentucky-American was not required City officials blamed the rain, but the accident led state leg-
to disclose its campaign finance reports, a 2004 filing with islators to call for an investigation.91
the Kentucky Public Service Commission included the com-
pany’s plan to spend at least $2.71 million to influence city The spill came one year after a city-appointed auditor
hall and defeat the local control movement.86 raised questions about United Water’s management, in-
cluding whether the company cut staff too drastically (from
Despite its deep pockets, the corporation seems to be los- 300 to 209) and whether it had a sufficient inventory of
ing momentum in the political realm. A strong majority of spare parts. A backlog of uncorrected problems had also ac-
the county council members support a public takeover of cumulated — some dating back more than a year.92
Kentucky-American. And although incumbent Mayor Isaac
lost in the November 2006 election, the new mayor, Jim This audit came one year after a state review found United
Newberry — while not supporting a public takeover that Water likely violated its contract by shutting down pumps
uses eminent domain — also favors local control and hopes to cut costs — a practice that saved the company $515,000,
to secure public ownership of the utility.87 but which also caused the dumping of more than 100 mil-
lion gallons of sewage.93 The city threatened to void its con-
Since the referendum failed to pass in 2006, things have tract with United Water if “persistent and repeated failures”
only worsened for the community. A state regulatory continued.94
agency has accused Kentucky-American of several viola-
tions, including overcharging the community $500,000 The contract saved the city about $1 million more per year
and borrowing $12.5 million more than allowed — “a seri- than United Water promised,95 but at what environmental
ous breach of its statutory obligations.”88 Meanwhile, the costs? On top of public relations headaches, Suez acknowl-
corporation is refusing to put a cap on the price of a new edges it has lost money on the deal96 — a half-million dol-
treatment plant, expected to cost at least $160 million.89 lars in energy costs in May 2005 alone.97
The company will take home a percentage of the amount
it spends, so by inflating costs, Kentucky-American could After giving United Water at least 20 notices of contract
rake in greater profits — at the expense of the community non-compliance, the city decided against renewing its con-
footing the bill. tract in 2007. Instead, officials gave the deal to Veolia —
another French multinational and the only other company
“When those higher water bills arrive, people will wish that vying for it — with the expectation of great cost savings
someone had made Kentucky American do more about con- from Veolia’s no-profit bid.98,99
servation years go,” surmised the editors of the Lexington
Herald-Leader. “And some may even regret voting against
city purchase of the water company. A government-owned
utility has a much stronger incentive to keep rates down.”90

Case Studies: The Worst Of

The Rest
Deep Trouble
Milwaukee
Ten years of Suez operating its sewer system left Milwaukee
with a pile of environmental problems, and Veolia can only
be expected to add to the heap.

17
 Faulty Pipes

Whether Veolia will better serve the city and meet environ- anticipated,” Veolia President Tim Hewitt said. “We’ll get
mental regulations remains to be seen, but based on its re- through this but have a black eye.”108
cord, including sewage spills in Burlingame and Richmond,
Calif. — Veolia seems likely to continue in the noncompli- What followed, however, must have given the company an-
ant tradition of its fellow French conglomerate. other black eye. In April 2008, community members sued
Veolia, accusing the company of failing to read meters on
Awash in Problems schedule, overestimating water usage and overcharging hun-
dreds of thousands of customers.109 Numerous complaints
Indianapolis making similar claims have prompted the Indiana Utility
The largest U.S. water privatization has become one of Veo- Regulatory Commission to begin an informal investigation of
lia’s biggest headaches. the company’s meter reading and billing practices.110

In October 2005, four Veolia employees were subpoenaed These cases are pending, but it is understandable why resi-
by a federal grand jury as part of an investigation into alle- dents suspect they’re being overcharged; they’re paying too
gations that water quality reports were falsified. The probe much for what they’re getting. According to Men’s Health
began amid accusations by Indianapolis City-County Coun- Magazine, Indianapolis has the second worst drinking water
cil members that Veolia’s local subsidiary has cut back on quality in the nation, ranking 99th out of 100 large cities.111
employees, water testing, purification chemicals and main-
tenance. Some even allege the corporation has cooked its Turning the Tide
books in order to collect financial incentives.100
Although the investigation resulted in no charges,101 the sub- Lee, MA
poenas represent just one of the many embarrassments for One of the nation’s most vigorous debates over water priva-
Veolia, which in 2002 received a 20-year, $1.1 billion con- tization occurred here, in the quiet western Massachusetts
tract to provide water service to more than 1 million people. marble town of Lee — the “Gateway to the Berkshires.”

Since the deal was signed, non-union employees have seen After initially favoring the deal, town representatives in
their pension, health care and other benefits slashed;102 lo- September 2004 voted overwhelmingly against turning over
cal residents went to court (though unsuccessfully), claim- its water and sewer system to Veolia — the only company to
ing the contract violated state law;103 more than a million respond to the city’s advertisement for a private operator.
people were put on a boil-water alert after an employee Veolia said it could save the city $6 million over 20 years,
apparently entered the wrong number into a computer;104,105 but residents grew uneasy with the arrangement when
and supply shortages forced customers to cut their water they read the fine print. Made public only days before the
usage during peak hours.106 vote, the contract gave Veolia the right to set rates to treat
trucked-in waste from outside Lee, allowed the town only
Fed up, Council member Jim Bradford called for a perfor- limited access to documents and lacked a credible cost esti-
mance audit of the company in the summer of 2005.107 mate against which promised savings could be measured.112

The corporation has had to question its own performance, The Berkshire Eagle published letters to the editor by the
having sustained multi-million-dollar losses every year score. Opponents packed special town meetings held at the
since the takeover. “We did lose money, more than we local high school. And the city’s public works staff staged a
protest in front of City Hall. “They may tell you that you’ll
save money, but you won’t,” one town employee said. “I
think we should do this ourselves.”113

Not only did Veolia lose the contract, but one of its corpo-
rate vice presidents — who announced prematurely three
weeks before the vote, “Yeah, we wrapped it up”114 — lost his
position as town moderator. A leader of the privatization
effort, he was defeated the following spring.

Back to Ground Zero

Laredo, Texas
When this border town turned over its water system to Su-
ez’s United Water division in 2002, it hoped to save enough

18
 Food & Water Watch

money to dig a well to supplement the drinking water it

pumps from the polluted, over-tapped Rio Grande.

Suez didn’t deliver on its promises, and halfway through its

“I’m just glad to see them go.”
5-year, $47 million contract with the city, the corporation – Laredo Councilman Jose
was run out of town.
Valdez Jr.
Suez, as well as Colorado-based OMI, had lobbied the city
intensely for years until it hired a consultant in 2001 to
study water privatization. The consultant said Suez could Local officials disagreed and accused the corporation of
deliver annual savings of $4.2 million, but its first year on poor performance. “Basic services such as providing drink-
the job yielded only about $950,000.115 ing water, better sewers and better infrastructure have
not improved,” Puerto Rico’s ombudsman said.125 PRASA
Blaming its underachievement on the city’s aging infra- balked at paying the $93 million, cancelled the contract and
structure, Suez asked the city for $5 million for unexpected regained full control of the system in June 2004.
expenses plus an additional $3 million per year. City offi-
cials refused, saying the company knew what it was getting Though it lasted less than a decade, Puerto Rico’s dalliance
itself into and calling the corporation’s claims “bogus.”116,117 with privatization came at a staggering cost — social, politi-
cal and financial. Service interruptions, poor water quality
The city also rejected Suez’s offer of $500,000 to sever the and other problems went largely unsolved, and PRASA now
contract. The sides finally reached an agreement in March faces an operational deficit of $1.2 billion — much of which
2005, with Suez paying the city $3 million and turning over could be passed on to citizens.126
some of its equipment.118
Corruption: Part I
City officials say they’ve learned a lesson. “They tried to do
what they could do, but at the end of the day it wasn’t go- East Cleveland, Ohio
ing to work,” Councilman Jose Valdez, Jr. said of Suez. “I’m How the mayor of this Cleveland suburb became entangled
just glad to see them go.”119 in a nationwide corruption scandal is among the most bi-
zarre tales in the annals of water privatization.
Double Failure
Puerto Rico At age 22, Emmanuel Onunwor left Nigeria in hopes of
finding a fresh start in the United States. Fifteen years later,
During the past decade, not one but two of the world’s in 1997, he became the first African-born mayor in U.S.
largest water corporations have tried to demonstrate that history. His improbable success story ended in disgrace in
Puerto Rico and its 3.9 million citizens are better served by September 2005, when Onunwor was sentenced to nine
the private sector. Both attempts failed. years in federal prison after being convicted of receiving
bribes, kickbacks and secret payoffs.
First, Veolia (then as Vivendi) took over the island’s water
and wastewater system, PRASA, in 1995. The experiment CH2M Hill received a 3-year $3.9 million contract to run
ended in 2001, when the corporation was forced to leave the city’s water and sewer system in 2002. OMI, then a
after racking up $6.2 million in fines, more than 3,000 subsidiary of CH2M Hill, handled the contract. But instead
operational, maintenance and administrative deficiencies of going through a bidding process, federal prosecutors say
and $695 million in losses.120 In 2003, the Veolia subsidiary the company won the contract by bribing Onunwor through
had to pay $58 million in fines and damages after legal ac- a series of intermediaries — including a front company that
tion by the waterworks authority. It accused the company worked for CH2M Hill.127 The ringleader (who did not work
of environmental negligence, including dumping untreated for CH2M Hill) was later convicted on 36 federal charges
wastewater, and failure to pay electricity bills and employee related to bribing officials in East Cleveland, Cleveland,
wages on time.121,122 Houston and New Orleans (see “The Big Sleazy”).128

Suez stepped in a year later and announced a “historic” The OMI contract was doomed even before Onunwor’s
10-year, $4 billion deal in May 2002. This arrangement fall. In March 2004, the corporation said it was pulling
was even shorter-lived. After 18 months on the job, Suez out because the city — which had been in a state of fiscal
demanded an extra $93 million from the government, al- emergency since 1988 — owed it $5.1 million. City officials
leging it was given false information about the size of the criticized OMI for giving them little warning and presenting
water system.124 flawed financial projections.129

19
 Faulty Pipes

Corruption: Part II celled. “The whole situation is really unfortunate,” a Veolia

Rockland, MA spokesperson said. “Our company does so many wonderful
things.”138 The company didn’t persuade a federal court.
It all started to unravel for Rockland in the summer of
2002, when a town official went to the bank and tried to While a federal jury rejected both of the larger claims,139
deposit a check payable to the sewer utility into his personal a U.S. District Court later sided with the city and found
account.130 that Veolia’s subsidiary “acted unfairly and deceptively”
to win the contract. The court awarded the city more than
Four years earlier, Veolia signed a 10-year, $12 million deal $230,000, doubling the amount of actual damages because
to continue operating the sewage plant in this small town of the corporation’s “willful misconduct.”140
just southeast of Boston. By 2004, Rockland had cancelled
the contract after state officials found the agreement may Corruption: Part III
have been illegal because it was specifically tailored to Veo-
lia and excluded other bidders.131,132 Bridgeport, CT
By all accounts, being mayor of Bridgeport was merely Jo-
“It is sound public policy,” the state Inspector General’s Of- seph Ganim’s day job.
fice told the city, “to abandon a contract that you have de-
termined is tainted by scandalous activity, poorly serves the When he wasn’t gaveling the city council into session and
financial interest of your community, and has given rise to attending ribbon-cuttings, Ganim was drumming up busi-
an appearance of misfeasance in the use of public funds.”133 ness — for himself and some of his closest friends.

But that was just the beginning. The same city official and In one of the most notorious corruption scandals in Con-
Veolia employee who worked together to tailor the contract necticut history, Ganim was sentenced to nine years in pris-
for Veolia were convicted of stealing more than $300,000 on in 2003 following his conviction on 16 federal charges,
from the city by submitting phony invoices and intercepting including racketeering. The five-term mayor schemed to
reimbursement checks. The official has served 18 months collect more than $1 million in bribes from Professional
in prison and is now completing a five-year probation; the Services Group (PSG) to win and then extend by 18 years
Veolia employee received five years’ probation.134,135 a contract to run the city’s sewer system. Ganim split the
money with his chief fundraiser and his former campaign
And there’s more. A city auditor found that $77,000 in ques- manager. Ganim was also convicted of receiving kickbacks,
tionable charges from the sewer plant was billed to the city, using city money to buy himself a life insurance policy, and
including parties, clothing, gift cards and Christmas trees.136 filing false income tax returns.141

It wasn’t over yet. In 2008, the state Inspector General’s PSG of Houston, which has since been purchased by Veolia,
Office found even more corruption had oc- was not charged in the affair. Two years before, however,
curred during Veolia’s tenure, this time PSG pleaded guilty to bribery charges in New Orleans (see
involving a town water commission- “The Big Sleazy”).
er, identified as a “conduit for kick-
backs” who also kept some money Rush to Judgment
for himself. Because the statute
of limitations for prosecution had Guam
already passed, the town could do Despite the public sector’s making significant improve-
little about this new finding that ments and receiving praise from independent experts, and
left many elected officials worried without the benefit of public input, Guam charged ahead
about the pervasiveness of such cor- and privatized its sewer system to French multinational
ruption. “You have to wonder just what Veolia at the end of 2006.
was going on,” said the chairperson of
the town’s board of selectmen; “how far Then, in September 2007, under Veolia management,
reaching is this?”137 Guam received its largest EPA penalty since a 2003 federal
court order mandating improvements – $40,000 – for fail-
In the end, the city and Veolia wound ing to meet deadlines on upgrades to two wastewater treat-
up suing each other in federal court — ment plants.142
the city claiming Veolia bled it of $1.6
million, and the corporation alleging The Consolidated Commission on Utilities voted in De-
the contract was improperly can- cember 2005 to hire a private corporation to run the island

20
 Food & Water Watch

territory’s sewer system, and it approved a plan to pursue tion, which urged people to remove their names from the
a similar measure for its water system. Only after the vote original petition.149
were citizens permitted to speak.143
A San Joaquin County judge threw out the Thames/OMI
Though admittedly troubled by failing equipment and a contract in December 2003, agreeing with public interest
lack of expertise, Guam’s water system had been on the groups that argued the city violated state law by not con-
rebound under public operation. In December 2004, the ducting a full review. He even went on to say, “Often private
island met a U.S. Environmental Protection Agency dead- industry looks only as far as the next profit and loss report in
line to implement a plan to install chlorinators in all of its planning.”150 Nevertheless, he later changed his own ruling
wells.144 And in 2005, two non-profit scientific organiza- and the case became snarled in court for three more years.
tions found the system had made numerous strides, includ-
ing complying with the Safe Drinking Water Act, hiring Stockton Mayor Gary Podesto hoped to parlay his apparent
more certified employees, operating more efficiently and victory into a move up the political ladder, but he lost a run
reducing cronyism and outside political interference.145 for the state Senate in 2004, in what reportedly at the time
was the most expensive state legislative race in U.S. history
Further, the organizations — whose leadership includes — $10 million.
industry representatives — offered words of caution about
private involvement in water: Meanwhile, the local group Concerned Citizens Coalition
of Stockton reported that rates had risen, customer service
“[We] have seen mixed results from public/private partner- requirements had been unfulfilled, the amount of unac-
ships on the mainland… [E]xtremely well written contract counted-for water had tripled and maintenance tasks had
provisions must be developed and enforced. If not, privatiz- been backlogged.151
ers will quote low initial prices and raise the rates signifi-
cantly in later years of a long-term contract; after all, the Just three years into the 20-year deal, a San Joaquin Coun-
primary motive of private enterprise is to deliver returns to ty Superior Court judge officially overturned the Thames/
its stakeholders. OMI contract, determining that it would have “significant
environmental impacts.”152 Six months later, in the summer
“This is why historically in the United States, the public has of 2007, the city council, with only one member remaining
demanded their water and wastewater service, so critical to who had supported the original privatization, unanimously
life and preservation of the environment, be entrusted to voted to end its contract with Thames/OMI and resume
public management and operation.”146 municipal operation of the systems.153 It was a great victory
for the community that spent years fighting and organizing
Victory for Public Water for public control.
Stockton, CA Agreeing to pay the city $2.1 million, OMI called it an
On March 1, 2008, after the community spent years fighting “unfortunate” ending to a contract that had already cost it
for public water, and after the city spent millions of dollars nearly $8 million over the preceding three years.154,155 Even
defending privatization, public operators took their position former Mayor Podesto, who had pushed through the priva-
in the control rooms of Stockton’s water and sewer plants.147 tization deal, agreed with the council’s decision. He said, “If
I were there, I would do the same thing.”156
This Central Valley community burst into the national spot-
light in February 2003 when the city council voted to pay Fortunately, Stockton will never again have to deal with
a partnership of Thames and OMI $600 million to operate such a fiasco. Thanks to the citizens’ ballot measure, any
its water and sewer system for 20 years.148 Industry experts privatization deal of similar magnitude must first gain pub-
said it was the biggest such contract ever signed in the west- lic approval. And that’s why the community declared vic-
ern United States. Not long after the contract was signed, tory not just for themselves but also for democracy.
the resulting debacle was featured in a 2004 film, Thirst,
which was broadcast on PBS. In the words of the editors of Stockton’s The Record, “Pow-
er to the people.”157
City leaders barely beat their constituents to the punch.
Just two weeks later, voters approved Measure F, which For more information visit us on the web!
blocks any utility privatization deal worth more than $5 Protect America’s Water:
million. Subsequently, citizens sought a referendum to www.foodandwaterwatch.org/water/trust-fund
rescind the contract but came up 800 signatures short, in More stories:
part because of counter-petitions circulated by the opposi- www.foodandwaterwatch.org/water/private-vs-public/usa

21
 Faulty Pipes

ENDNOTES 32
“PWF’s 10th Annual Water Outsourcing Report.” Public Works Financing, March
1
“RWE Announces the Acquisition of American Water Works.” RWE press release, 2006.
Sept. 17, 2001. 33
Food & Water Watch, which is a member of the Water Infrastructure Network,
2
Ibid. supports the establishment of a federal drinking water and wastewater trust fund, but
3
“Q2 2005 RWE AG Earnings Conference Call.” Fair Disclosure Wire, Aug. 11, 2005. not one that requires communities to consider forming public-private partnerships
4
“RWE’s decision to focus primarily on electricity and gas business — Conference before they can receive federal funds. This provision is included in the Clean Water
Call.” Fair Disclosure Wire, Nov. 7, 2005. Trust Fund Act (H.R. 4560), introduced in December 2005 by Rep. John Duncan
5
Esterl, Mike. “Dry hole: great expectations for private water fail to pan out; under (R-TN).
fire, Germany’s RWE plans to exit U.S. market; global ambitions thwarted; an uprising 34
Water Infrastructure Now: Recommendations for Clean and Safe Water for the
in California town.” Wall Street Journal, June 26, 2006. 21st Century. Water Infrastructure Network, Washington, DC, February 2001.
6
“Q2 2005 RWE AG Earnings Conference Call,” op. cit. 35
“New Poll: Americans Overwhelmingly Support Federal Trust Fund to Guarantee
7
Moore, Matt. “German utility RWE profit falls.” Associated Press, Feb. 22, 2008. Clean and Safe Water.” Luntz Research Companies (Alexandria, VA) and Penn, Shoen
8
“Full Year 2007 RWE AG Earnings Conference Call.” Fair Disclosure Wire, Feb. 22, & Berland Associates Inc. (New York), March 3, 2005.
2008. 36
Testimony of Dr. Frank Luntz, President, Luntz Research Companies, to the House
9
“RWE sells 36 percent of American Water, sees charge lowering profit.” The Subcommittee on Water Resources and Environment, Committee on Transportation
Associated Press. April 23, 2008. and Infrastructure, Washington, DC, June 8, 2005.
10
“Excerpt from the Supervisory Board minutes dated September 16, 2005.” RWE 37
Copeland, Claudia and Tiemann, Mary. “Water Infrastructure Needs and
supervisory board, Sept. 16, 2005, p. 2. Available from www.foodandwaterwatch.org/ Investment: Review and Analysis of Key Issues.” Congressional Research Service, May
water/corporations/american-water/rwe-boardminutes.pdf/view 5, 2006.
11
“Excerpt from the Supervisory Board minutes dated November 4, 2005.” RWE 38
“Brief Analysis: President Bush’s FY 2009 Budget.” Majority Staff, Senate Budget
supervisory board, Nov. 4, 2005, p. 1. Available from www.foodandwaterwatch.org/ Committee, United States Senate, Washington, D.C., Feb. 5, 2008, p. 5.
water/corporations/american-water/rwe-boardminutes.pdf/view 39
Copeland, Claudia and Tiemann, Mary, op. cit.
12
“Riding the wave: The rise of new leadership in the water industry,” Public Works 40
“Water Infrastructure: Information on Federal and State Financial Assistance.” U.S.
Financing, March 2005. General Accounting Office, GAO-02-134, November 2001.
13
Cheroff, Larry. “US private firms shrink from weak deals.” Global Water 41
Copeland, Claudia and Tiemann, Mary, op. cit.
Intelligence, August 2003. 42
Read more about Cave Creek on our website at www.fwwatch.org/water/private-vs-
14
“Public services on the auction block.” AFSCME Public Employee, January/ public/usa
February 2000. 43
Duckett, Beth. “Cave Creek water upgrades OK’d.” Scottsdale Republic North. Jan.
15
“Excerpt from the Supervisory Board minutes dated September 16, 2005,” op. cit. 9, 2008.
p. 2. 44
Companies’ access to private-activity bonds and other funding sources available to
16
Esterl, Mike, op. cit. public agencies is restricted in various ways – by state volume caps, provisions in state
17
Kraft, Randy. “Emmaus will keep its water system.” Allentown Morning Call, Sept. constitutions and various federal tax rules.
7, 2005. 45
Two bills have been introduced in Congress to remove the state volume cap – HR
18
Mortice, Zach. “Opponents pull the plug on wastewater facility sale.” Mexico Ledger 3410, sponsored by Rep. Jim Davis (D-FL), and HR 1708, sponsored by Rep. E. Clay
(MO), April 7, 2006. Shaw (R- FL).
19
Phone interview, May 2006. 46
Testimony of The Honorable David G. Wallace, Mayor of Sugar Land, Texas, on
20
“Riding the wave: The rise of new leadership in the water industry,” Public Works behalf of the United States Conference of Mayors, before the House Subcommittee on
Financing, March 2005. Water Resources and the Environment on “Aging Water Supply Infrastructure,” April
21
Community Water System Survey, U.S. Environmental Protection Agency, Office of 28, 2004.
Water, January 1997. 47
“National City Water Survey 2005.” Urban Water Council, US Conference of
22
Blue Gold: Defending Water Rights from the Great Lakes to Ghana. (public forum) Mayors, Washington, DC, Nov. 15, 2005.
All Souls Church, Washington, DC, April 27, 2006. 48
Testimony of The Honorable David G. Wallace, Mayor of Sugar Land, Texas, on
23
“Sellers join the queue.” Global Water Intelligence, August 2003. behalf of the United States Conference of Mayors, before the House Subcommittee on
24
Cheroff, Larry. “US private firms shrink from weak deals.” Global Water Water Resources and the Environment on “Aging Water Supply Infrastructure,” April
Intelligence, August 2003. 28, 2004.
25
“Q1 2004 RWE AG Earnings Conference Call.” Fair Disclosure Wire, May 11, 2004. 49
2005 Adopted Resolution: “Increasing Federal Funds to Help Communities
26
“Excerpt from the Supervisory Board minutes dated September 16, 2005.” op. cit., Improve Water Infrastructure and Meet Federal Water Mandates.” US Conference of
p. 4. Mayors, 73rd Annual Conference, Chicago, June 10-14, 2005
27
“Q1 2004 RWE AG Earnings Conference Call.” op. cit. 50
Hylton, Hilary. “Frontrunner: Wallace launches bid for DeLay’s seat.” Time, April
28
“Excerpt from the Supervisory Board minutes dated November 4, 2005.” op. cit., p. 4, 2006.
1. 51
Newsletter of the Urban Water Council, US Conference of Mayors, Washington, DC,
29
Ibid. p. 4. May 2004.
30
“Excerpt from the Supervisory Board minutes dated September 16, 2005.” op. cit., 52
Hanson, Eric and Rendon, Ruth. “Sugar Land mayor quits District 22 race /
p. 2. Wallace, saying GOP should be united in write-in campaign, backs Sekula-Gibbs.”
31
Ibid., p. 4. Houston Chronicle, Aug. 22, 2006.

22
 Food & Water Watch

53
Asher, Ed. “Mayor to yield reins of water authority.” Albuquerque Tribune, Nov. 29, 81
Stamper, John and Ku, Michelle. “Voters’ message: end condemnation.” Lexington
2003. Herald-Leader, Nov. 7, 2004.
54
Anderson, Rick. “Albuquerque (NM) Mayor Chavez testifies in House hearing on 82
Statement of U.S. Mayors and Local Elected Officials to RWE, April 10, 2006. www.
water quality act reauthorization.” Newsletter of the Mayors Water Council of the foodandwaterwatch.org/water/corporations/RWE/official-statement_rwe.pdf
United States Conference of Mayors, Spring 2007, p. 6-8. 83
“Up for grabs again: City sidelined in resale of water utility.” Lexington Herald-
55
Water Infrastructure Now: Recommendations for Clean and Safe Water for the Leader, Oct. 28, 2005.
21st Century. Water Infrastructure Network, Washington, DC, February 2001. 84
Mead, Andy. “Water company drops suit; referendum on November ballot.”
56
Suggs, Ernie. “Council agrees to end water deal, rejects gag rule.” Atlanta Journal- Lexington Herald-Leader, May 23, 2006.
Constitution, March 4, 2003. 85
Mead, Andy. “Water issue rode changing tide – ballot delay, storm helped ‘no’ view
57
Cheroff, Larry. “US private firms shrink from weak deals.” Global Water prevail.” Lexington Herald-Leader. Nov. 13, 2006.
Intelligence, August 2003; Hairston, Julie B., “Atlanta Bid Could Be Fierce,” Atlanta 86
“Water under the bridge – no local control of utility, but it was worth the fight.”
Journal-Constitution, www.waterindustry.org/New%20Projects/atlanta-3.htm. Lexington Herald-Leader. Nov. 8, 2006.
58
“United Water receives national award from the US Conference of Mayors.” United 87
Pettit, H. Foster. “Uncertainty ahead for water utility’s customers – franchise
Water press release, Jan. 29, 2001. renewal should include first-refusal right.” Lexington Herald-Leader. April 20, 2007.
59
Rubenstein, Sarah. “City blasts United Water,” Atlanta Business Chronicle, Aug. 9, 88
Jordan, Jim. “Loans put Ky. American in hot water — borrowing cap exceeded
2002 violation case is third in a year.” Lexington Herald-Leader. May 18, 2007.
60
Bennett, D.L. “Ex-mayor denies he signed off on water.” Atlanta Journal- 89
Mead, Andy. “Price cap urged on water plant proposal.” Lexington Herald-Leader.
Constitution, Oct. 5, 2002. March 21, 2008.
61
Torpy, Bill. “Campbell divides Atlanta – again.” Atlanta Journal-Constitution, Jan. 90
“A better solution utilities need incentives to conserve.” Lexington Herald-Leader.
15, 2006. Dec. 18, 2007.
62
Scott, Jeffry. “Closing arguments wind up case today.” Cox News Service, March 7, 91
Schultze, Steve and Rohde, Marie. “Dumping of sewage second largest ever.”
2006. Milwaukee Journal Sentinel, May 20, 2004.
63
Cook, Rhonda. “Prison term cut for ex-Mayor Campbell.” Atlanta Journal-the 92
Rohde, Marie. “Review raises concerns about sewerage upkeep.” Milwaukee
Constitution, March 1, 2008. Journal Sentinel, June 24, 2003.
64
Roberts, Kristin. “US water privatization effort trips in Atlanta.” Reuters, Jan. 29, 93
Schultze, Steve and Rohde, Marie. “Sewage dumping policies faulted.” Milwaukee
2003. Journal Sentinel, July 31, 2002.
65
Chertoff, Larry. “US private firms shrink from weak deals.” Global Water 94
Rohde, Marie. “Improper maintenance blamed in dumping.” Milwaukee Journal
Intelligence, August 2003. Sentinel, Sept. 21, 2002.
66
Roberts, Kristin, op. cit. 95
Rohde, Marie. “United Water delivering savings in 10-year contract.” Milwaukee
67
DeMarrais, Kevin. “United Water shakes up executive ranks with new leadership.” Journal Sentinel, June 16, 2003.
Bergen County Record, March 26, 2003. 96
Ibid.
68
Suggs, Ernie. “Council agrees to end water deal, rejects gag rule.” Atlanta Journal- 97
Ryan, Sean. “Milwaukee Metropolitan Sewerage District saves money by using
Constitution, March 4, 2003. private contractor.” Milwaukee Daily Reporter, Aug. 17, 2005.
69
“Ex-New Orleans political figure pleads guilty.” Associated Press, Jan. 5, 2006. 98
Behm, Don. “MMSD won’t renew deal with operator.” Milwaukee Journal Sentinel,
70
“Tax evasion sentence hearing put off.” New Orleans Times-Picayune, May 5, Nov. 16, 2007.
2006. 99
“PWF’s 12th Annual Water Outsourcing Report,” op. cit.
71
Grace, Stephanie. “S&WB deal smelled bad from the start.” New Orleans Times- 100
O’Shaugnessy, Brendan. “Water company awash in controversy.” Indianapolis
Picayune, May 17, 2005. Star, Oct. 7, 2005.
72
Carr, Martha and Russell, Gordon. “Company bails out of N.O. sewer bid.” New 101
Murray, Jon. “State begins informal probe of complaints by water users.”
Orleans Times-Picayune, June 27, 2003. Indianapolis Star. April 27, 2008.
73
Grace, Stephanie. “Texas jury finds pair guilty in S&WB case.” New Orleans Times- 102
Miller, Jack. “More troubled water: Problems plague Indy’s water company,” Nuvo,
Picayune, June 9, 2002. April 7, 2004.
74
Carr, Martha. “Ex-S&WB member finally goes to prison.” New Orleans Times- 103
Kelly, Fred. “Utility’s management not legal, suit claims.” Indianapolis Star, Aug.
Picayune, Jan. 4, 2005. 3, 2004.
75
Russell, Gordon. “S&WB votes to end effort to privatize.” New Orleans Times- 104
Fritze, John. “Inquiry: Typo led to boil advisory.” Indianapolis Star, Jan. 19, 2005.
Picayune, Aug. 19, 2004. 105
Hupp, Staci. “No fines likely for water company,” Indianapolis Star, Jan. 8, 2005.
76
“A lot to drink in: Lexington should consider buying water company.” Lexington 106
O’Shaugnessy, Brendan. “Water company awash in controversy.” Indianapolis
Herald-Leader, Jan. 20, 2002. Star, Oct. 7, 2005.
77
“City discusses buying water supply.” Associated Press, Jan. 27. 2002. 107
Ibid.
78
Stamper, John. “Lexington files petition for condemnation; The fight over the 108
Ibid.
waterworks.” Lexington Herald-Leader, July 4, 2003. 109
Russell, John. “Water utility overbills users, lawsuit says.” Indianapolis Star, April
79
Stamper, John. “Water firm files lawsuit against city.” Lexington Herald-Leader, 24, 2008.
July 18, 2003. 110
Murray, Jon, op. cit.
80
Stamper, John et al. “Vote reverses Council on water ownership.” Lexington 111
“Drinking problem? How clean is your drinking water?” Men’s Health Magazine,
Herald-Leader, Nov. 3, 2004. 22(2):80, March 2007.

23
112
Draft service agreement between Town of Lee and Veolia, August 2004. 141
Mayko, Michael. “Counts used to convict Ganim.” Connecticut Post (Bridgeport),
113
Gentile, Derek. “Opponents of Lee water system plan pack auditorium.” Berkshire March 23, 2003.
Eagle, Sept. 3, 2004. 142
Kelman, Brett. “EPA fines GWA $39,000.” Pacific Daily News. Jan. 16, 2008.
114
Gentile, Derek. “Lee protesters decry privatization.” Berkshire Eagle, Sept. 2, 2004. 143
Worth, Katie. “Private sewage service gets OK.” Pacific Daily News, Dec. 7, 2005.
115
Cortez, Tricia. “City water deal going sour.” Laredo Morning Times, July 19, 2004. 144
Quinata, Natalie. “GWA meets program deadline.” Pacific Daily News, Dec. 1,
116
Cordova, Erica. “City takes back water duty.” Laredo Morning Times, March 19, 2004.
2005. 145
“QualServe Peer Review Report.” Prepared for the Guam Waterworks Authority.
117
Cordova, Erica. “City may retake system,” Laredo Morning Times, Feb. 22, 2005. American Water Works Association and Water Environment Federation, May 20,
118
Cordova, Erica. “City takes back water duty,” op. cit. 2005.
119
Ibid. 146
Ibid.
120
Ruiz-Marrero, Carmelo. “Water company near collapse.” Rios Vivos, May 147
Siders, David. “It’s official: water deal is history.” The Record (California), March
26, 2001. 2, 2008.
123
“Ondeo (SUEZ) wins the world’s largest O&M water services 148
One of the UK’s most notorious polluters; subsequently
contract in Puerto Rico.” Canada NewsWire, May 2, 2002. purchased by RWE.
124
Federal Water Review. Association of Metropolitan Water 149
Concerned Citizens Coalition of Stockton. <www.cccos.org>
Agencies, November-December 2003. 150
“Court blocks Stockton deal.” Global Water Intelligence. Nov.
125
James, Canute. “Talks over Puerto Rico water deal.” Financial 11, 2003.
Times, Dec. 5, 2003. 151
“Annual Service Contract Compliance Review.” Concerned
126
Blasor, Lorraine. “Government To Retake money-Losing Prasa Citizens Coalition of Stockton, Dec. 7, 2004.
On April 1,” Caribbean Business, January 125, 2004. 152
Siders, David. “Ruling has environmentalists declaring victory
127
Caniglia, John and O’Malley, Michael. “Snapshots of a bribe.” over Stockton water, sewage.” The Record (California), Nov. 7,
Cleveland Plain Dealer, Dec. 9, 2004. 2006.
128
Luttner, Steve. “Jury convicts Gray in 2 trial.” Cleveland
nd 153
“Stockton water privatization failure not a total waste.” The
Plain Dealer, Aug. 18, 2005. Record (California), July 23, 2007.
129
Ott, Thomas. “Firm wants out of E. Cleveland deal.” Cleveland 154
Siders, David. “$600M water deal runs dry: Stockton gives up
Plain Dealer, March 13, 2004. court appeal in privatization pact.” The Record (California), July
130
“Professional Services Group, Inc. v. Town of Rockland, et al.” 18, 2007.
Civil Action No. 04-11131-PBS, decided by Saris, Patti USDJ in 155
Siders, David. “Quiet dealing ended water contract.” The Record
United States District Court, District of Massachusetts, Sept. 26, (California), Aug. 11, 2007.
2007. 156
Siders, David. July 18, 2007, op. cit.
131
2003 Annual Report. Office of the Inspector General, 157
“Stockton water privatization failure not a total waste.” The
Commonwealth of Massachusetts, June 2004. Record (California), July 23, 2007.
132
Stockton, Paysha. “$1.63M sought from ex-operator of sewer 158
Esterl, Mike, op. cit.
plant.” Quincy Patriot Ledger, May 22, 2004. 159
Ibid.
133
“US Filter is reeling from cascading problems in 160
Brown, J.M. “Cal Am drops fight over public interest of water
Massachusetts.” Global Water Intelligence, March 2004. buyout.” Santa Cruz Sentinel. March 11, 2008.
134
Stockton, Paysha. “Ex-official admits stealing thousands from 161
Brown, JM, “Cal Am agrees to sell Felton water system for $10.5
Rockland.” Boston Globe, Sept. 30, 2004. million,” Santa Cruz Sentinel, May 31, 2008.
135
Stockton, Paysha. “Manager pleads guilty in sewer case.” Boston Globe, Nov. 11, 162
“Felton prevails in six-year fight to acquire water system from California-American
2004. Water and German multinational corporation RWE,” Felton FLOW, May 30, 2008.
136
Stockton, Paysha. “Accused company alleges unfair firing.” Quincy Patriot Ledger, Available at www.feltonflow.org.
June 4, 2004 163
Monson, Mike. “Prussing: Cities should consider utility purchase.” The News-
137
Hollands, Courtney. “Town countersues fired sewer plant operator.” Quincy Patriot Gazette (Champaign-Urbana), Feb. 26, 2008.
Ledger, July 23, 2004. 164
Ibid.
138
Hollands, Courtney. “Town countersues fired sewer plant operator.” Quincy Patriot 165
Currency conversions based on the EURO-USD exchange rate on Dec. 31, 2007.
Ledger, July 23, 2004. 166
“PWF’s 12th Annual Water Outsourcing Report,” op. cit.
139
Kelly, John P. “Former treatment plant operator cleared; officials still hoping town 167
Currency conversions based on the EURO-USD exchange rate on Dec. 31, 2007.
will be awarded $2M-plus in damages.” Quincy Patriot Ledger, Aug. 26, 2006. 168
Currency conversions based on the EURO-USD exchange rate on Dec. 31, 2007.
140
“Professional Services Group, Inc. v. Town of Rockland, et al.” op. cit. 169
Includes all unregulated businesses.

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