Felton Fights Privatized Water
Residents, activists and decision-makers battle German conglomerate RWE-AG over acquisition of Felton’s water rights

By Fhar Miess
The Alarm! Newspaper Collective

What does our own town of Felton have in common with Chattanooga, Tennessee, Lexington, Kentucky and Peoria, Illinois? All these cities, among many others, have engaged in struggles to reclaim their municipal water systems from private corporations and conglomerates. Felton is the latest to join the fight. Santa Cruz County Supervisor Jeff Almquist, whose district encompasses Felton and much of the rest of San Lorenzo Valley, recently discovered that a German multi-utility named Rheinisch-Westfälisches Elektrizitätswerk Aktiengesellschaft (say that ten times fast), or RWE-AG, has laid plans to purchase California-American Water Company (Cal-Am), which owns water rights and facilities that serve the Felton community. Unfortunately, notice of the acquisition and Public Utilities Commission (PUC) hearings to approve it went to the Santa Cruz County district attorney and county clerk, rather than the county counsel. According to Almquist, this mixup resulted in a delay that excluded Santa Cruz County from participation in the review of PUC proceedings.

Almquist and his staff have been vocal in their opposition to this corporate merger, as well as rate hikes proposed by Cal-Am of 57% over the next three years, despite earlier company promises that rate hikes would be on hold until 2005 after the company acquired Citizens Utilities Company in 1999.

It was first owned by a small, local company before being acquired by Citizens Utilities, based in Connecticut. Citizens bought a number of municipal water systems through the 90s and diversified into telecommunications with the deregulation of that industry. They subsequently sold their water utilities operations and management across the US to the various regional subsidiaries of American Water Works Company. In Felton, that meant the California-American Water Co. Throughout that time, Ginger recalls the same few people staffing the local office. While they were never particularly responsive to service requests, she claims that the various mergers have only served to add consecutive layers of bureaucracy to insulate them from their customers.

RWE, founded in Germany at the end of the 19th century, is a multi-utility conglomerate of 848 wholly-owned companies. It is Germany’s second largest publicly-held corporation and the world’s third largest for-profit water provider, behind French companies Suez and Vivendi. After its acquisition of American Water Works through its Thames subsidiaries, RWE will be the largest investor-owned water utility company in the United States.

For most of its history, RWE focussed on electricity production and delivery. It grew substantially during Hitler’s reign and even more so in the post-WWII period with the help of Allied powers and the Marshall Plan. It surpassed its peak war-time production levels within only a few years, despite the widespread destruction of its infrastructure near the end of the war.

More recently, the company has focussed on acquisition of smaller utilities companies in electricity, waste management and water, using their existing customer base to expand profits from the sale of other services to those same customers. They have drawn upon the leverage given to large corporations by economic liberalization to expand this model globally.

The company has come under fire from environmental groups for its practices of illegal dumping and storage of nuclear waste in Europe.

Thames Water, Britain’s largest water utility, was recently acquired by RWE. US water systems will be organized under the control of this new RWE subsidiary pending regulatory approval. According to the Environment Agency of England and Wales, Thames Water was Britain’s worst offender of anti-pollution regulations two years running (in 1999 and 2000).

RWE also recently acquired Azurix, the former water services division of Enron, in addition to hiring a number of mid-level power traders and structurers from the scandal-stricken energy giant.

The poor safety record of RWE’s US coal-mining operations has likewise opened the corporation up to public criticism.

American Water Works
While many local communities, Felton included, have fought privatization of their most basic resource on the basis of wanting protection from the interests of a foreign conglomerate, American Water Works (AWW) is not much better. Executives at AWW have been thoroughly behind the acquisition by RWE/Thames. There is nothing hostile about this takeover. While J. James Barr, CEO of AWW, will be retiring after the acquisition is completed, Marilyn Ware, Chairperson of the company’s Board of Directors will be taking a high-level consulting position in RWE-AG. The economic model that led AWW to be the leading private water service provider in the US through mergers and acquisitions is perfectly in line with the profit-driven and expansionist model of RWE.

AWW was bought by John H. Ware, Jr. in 1947 and has largely been in the control of the Ware family since then. Four of the company’s directors are members of the Ware family (according to Securities and Exchange Commission files, the occupation of one of those Ware family members is “homemaker,” revealing some fairly serious nepotism). All-American family though they may be, they are by no means protectionist.

Marilyn Ware is Chairperson of the Executive Committee of the Eisenhower Fellowships, an organization committed to promoting “international understanding and productivity through the exchange of information, ideas and perspectives among emerging leaders throughout the world.” The Chairman of this organization is Henry Kissinger. The two men listed as “Honorary Chairmen” are former presidents George Bush and Gerald Ford. Donald Rumsfeld is identified as “Chairman Emeritus” of the Eisenhower Fellowships.

Last month, President Bush appointed Marilyn Ware to the National Infrastructure Advisory Committee, charged with safeguarding the security of US banking and finance, transportation, energy, information technology and manufacturing infrastructures.

Ms. Ware’s ties to the Bush family go deeper than this, though. She and other members of the Ware family have given over $100,000 to Bush election campaigns in addition to organizational support. The Bessemer Group, which manages investments for rich folks with at least $10 million to spare, invests millions of shares in American Water Works Company, giving it a 6.2% stake in the company in 2001. The Bessemer Group also manages the not-insignificant investment finances of George Bush, Sr. If the RWE acquisition survives regulatory scrutiny (as it likely will), the massive proceeds of the sale will not go primarily to faceless and feared German bureaucrats and investors, but to an all-American plutocrat whose mug we are all too familiar with.

In our own back yard
RWE executives, however, seem to have underestimated the anti-German sentiment that still lurks in American society. Communities across the country, already irked by rate hikes and poor service from American Water Works, are drawing the line at having their water rights owned and controlled by what they perceive as a foreign power hostile to us just decades ago and becoming increasingly antagonistic to our present federal administration on the question of Iraq. Through referenda, bond measures and eminent domain proceedings, communities as far flung as Chattanooga, Tennessee and as nearby as Montara, California (just north of Half Moon Bay) are kicking American Water Works and RWE out, often urged on by a fear of German economic invasion, shrouded in the language of “security.”

Of course, not all of the critiques of for-profit water service fall into the protectionist, nationalist (or regionalist) categories so often and so easily derided by “liberal” economists. For instance, some of County Supervisor Jeff Almquist’s constituents have expressed frustration that he remained silent on continuing problems with the operation and management of Felton’s water system until a foreign conglomerate came into the picture. Residents of Felton and local activists are now calling for the seizure of the utility’s facilities in the area so that it can be merged with the neighboring San Lorenzo Valley Water District, a local, publicly-controlled utility. Aside from RWE’s poor environmental record in Europe, residents note the years of poor service under both Citizens Utility and California-American Water Company, which is only likely to get worse as management is taken over by RWE’s subsidiaries.

Felton residents also point to exploitive rate hikes, which could be avoided by capitalizing and managing the water system locally. Adding insult to injury, according to residents, RWE is in negotiations with Arrowhead Water Company, now owned by Perrier Corporation of France, to export water from Felton. Arrowhead was caught stealing water from the area in 1989 and was fined $100,000 in what was at the time the largest land-use fine ever collected in the State of California.

As municipal water systems have changed hands and for-profit providers have been unable to consistently deliver customer service or clean water, many communities became antsy but were often unable to develop the political will to reclaim their water systems in the face of mammoth public relations campaigns (American Water Works subsidiaries spent $6 million in the Peoria and Chattanooga fights alone, much of it going to the PR firm of Burson-Marsteller). But as French and German firms attempt to take over, the combination of a nationalism mirroring the unilateralism of the Bush administration and a still-burgeoning anti-globalization movement has begun to mount resistance to the expansion of privatization.

A global struggle
But all too often, the struggle in US communities against investor-owned water utilities remains isolated from the struggle of communities around the world facing similar threats. Water giants such as Suez, Vivendi, Perrier and RWE (that many of the largest companies are French is no accident—France was the first to privatize water on a large scale under Napoleon III), in combination with US firms such as Bechtel and Monsanto, are systematically divvying up the entirety of the planet’s fresh water resources. Much of this splitting of the spoils has been facilitated and encouraged by governments and international bodies such as the United Nations, which recently declared fresh water to be a “need” rather than a “right”, thereby sanctioning its commodification.

The Water Investment Act of 2002, passed earlier this year by the US Congress, makes federal funding for municipal water projects contingent on the local government “considering” selling its water systems to for-profit corporations. Most local jurisdictions lack the capital resources to fund improvements for water treatment and distribution facilities. These facilities are increasingly taxed by development pressures, more stringent quality standards and dwindling fresh water resources. The 2002 Water Investment Act puts considerable pressure on local communities in the US to privatize their water systems to fund these projects.

The International Monetary Fund has several times made funding for debt relief contingent on a country’s privatization of its water supply in a similar way. In Bolivia, this stipulation led to massive revolt in the streets after San Francisco-based Bechtel Corporation raised water rates to levels that would impoverish many Bolivians. Street-level resistance eventually obliged power brokers to cancel the selling of the nation’s water.

At the turn of the century, Fortune Magazine declared that water “will be to the 21st century what oil was to the 20th.” In some cases, the comparison is directly evident. The Village Voice reports noises coming out of the Bush Administration of converting the existing oil-pipeline infrastructure in Canada’s Northern Provinces to pump water to the American Midwest. Under the North American Free Trade Agreement (NAFTA), Canada would have little recourse to prevent this expropriation, as attemts to do so would likely be considered “barriers to trade”.

As more of the world’s water is taken out of the public commons to be drilled, piped, bottled and delivered as corporate property, the environment will become degraded (as RWE/Thames has shown us in Britain), conservation will be deprioritized (when companies’ revenues are tied to the amount of water sold, why conserve?), rates will be raised to pay shareholders’ dividends and control over one of our most vital natural resources will be taken farther and farther from the source and from us. As decision-makers at all levels of government compete to deprive themselves and each other of recourse to thwart the profiteering of corporate entities, it falls upon the rest of us to develop viable alternatives and effective movements that will ensure that power flows from all of us and water flows to all of us.