American Water Works Company, Inc.

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American Water Works Company, Inc., known as American Water, is a publicly traded (NYSE: AWK) water utilities and sewage treatment company headquartered in Voorhees, New Jersey. It is the largest for-profit provider of water and wastewater services in the United States, where 86 percent of consumers receive their water services from publicly owned water systems.[1] American Water supplies "drinking water, wastewater and other water-related services"[2] to approximately 15 million people in 47 U.S. states and some parts of Canada, and had about 6,400 employees, around 50 percent of whom were unionized as of 2014.[3]

American Water has been a major force behind the privatization of water services and has come under fire from communities across the country for charging high rates and providing poor services.[4] In 2013, American Water generated $2.9 billion in total operating revenue.[5] Former CEO Jeffrey Sterba, who retired in 2014, made over $12 million in just four years as head of the company.[6]

In 2011, Citigroup economist Willem Buiter predicted that "water as an asset class will, in my view, become eventually the single most important physical-commodity based asset class, dwarfing oil, copper, agricultural commodities and precious metals."[7] But some American cities are fighting this commodification of precious water resources and have engaged in successful campaigns to take back or "municipalize" public water utilities. See below for details.

Contents

American water revenue.jpg

Ties to the American Legislative Exchange Council

American Water was a "Trustee's" level funder of ALEC's 2016 Annual Conference, which in 2010 equated to $5,000.[8]

About ALEC
ALEC is a corporate bill mill. It is not just a lobby or a front group; it is much more powerful than that. Through ALEC, corporations hand state legislators their wishlists to benefit their bottom line. Corporations fund almost all of ALEC's operations. They pay for a seat on ALEC task forces where corporate lobbyists and special interest reps vote with elected officials to approve “model” bills. Learn more at the Center for Media and Democracy's ALECexposed.org, and check out breaking news on our PRWatch.org site.

Revenue and Profits

In 2014, American Water generated just over $3 billion in total operating revenue, of which $2.67 billion came from its regulated business segment (utilities subject to price regulation by public utility commissions). It had net income of $423.1 million.[3] The remainder of the company's revenues came from its market-based segment, which included revenues from its contracts with the U.S. Department of Defense and its growing business in providing services to the shale gas industry.

In 2013, American Water generated $2.88 billion in total operating revenue and net income of $369.26 million.[3]

In 2012, American Water generated $2.9 billion in total operating revenue and had a net income of $358.1 million in 2012.[2]

Corporate Structure and Business Strategy

American Water Co. currently operates as a holding company that conducts most of its business through subsidiaries incorporated in various states.[9] [2] The company has a total of 15 state-based subsidiaries that own and/or operate water utilities in California, Hawaii, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Missouri, New Jersey, New York, Pennsylvania, Tennessee, Virginia, and West Virginia.[10] In addition to these state-level divisions, American Water has 47 other subsidiaries throughout the United States and Canada, according to the Securities and Exchange Commission (SEC) data.[9]

American Water's growth strategy includes a focus on "tuck ins":

Generally, we add customers through tuck-ins of small and medium water and/or wastewater systems, in close geographic proximity to areas where we operate our Regulated Businesses, which we refer to as "tuck-ins"... Historically, pursuing tuck-ins has been a fundamental part

of our growth strategy.[3]

Public water advocate George Riley describes this strategy as "intended to establish water supply ownership/control/dominance in smaller communities as a prelude to serving the growth potential of that community."[11]

"Risk Factors" include Elections, Climate Change, and California Drought

In its U.S. Securities and Exchange Commission (SEC) filings, publicly traded companies are required to highlight for shareholders any "risk factors" in their sector that could affect their business and future prospects. These risk factors, which are listed in the annual report (Form 10-K) often show the incentives the company has to influence public policy and the direction their advocacy would take.

American Water cites several market and regulatory aspects of the water utilities sector as “risk factors” that may affect its business and future prospects, including changes in environmental laws and economic regulation that could "materially and adversely affect our business, financial position, results of operations or cash flows and liquidity,"[2] specifically, water quality and health and safety laws. The company stated in its 2012 annual report:

Environmental, health and safety and water quality regulations are complex and change frequently. The overall trend has been that they have become more stringent over time. As newer or stricter standards are introduced, our capital and operating costs could increase.[2]

American Water also claims that labor relations, economic regulation and decisions by state PUCs (Public Utilities Commissions) and other regulatory agencies can significantly affect their business. American Water's annual report states, "Failure of the PUCs to recognize reasonable and prudent operating and capital costs can result in the inability of the utility to earn the allowed return and can have a significant impact on the operations and earnings of our Regulated Businesses."[2] In other words, if the local utilities commissions are not on board with price increases and utility workers fight wage decreases after privatization, it's bad for business.

In its 2014 annual report, American Water highlighted drought restrictions as a risk fact, specifically naming California's regulations. While costs to implement water conservation measures can generally be recovered, the company notes that conservation itself could hurt profits.

"Government restrictions on water use may also result in decreased use of water services, even if our water supplies are sufficient to serve our customers, which may adversely affect our financial condition and results of operations... reductions in water consumption, including those resulting from installation of equipment or changed consumer behavior, may persist even after drought restrictions are repealed and the drought has ended, which could adversely affect our business, financial condition, results of operations and cash flows."[3]

American Water recognized climate change more generally as a factor that may significantly affect water resources:

Some scientific experts are predicting a worsening of weather volatility in the future. Changing severe weather patterns could require additional expenditures to reduce the risk associated with any increasing storm, flood and drought occurrences. The issue of climate change is receiving increased attention worldwide. Many climate change predictions, if true, present several potential challenges to water and wastewater utilities, such as: increased frequency and duration of droughts, increased precipitation and flooding, potential degradation of water quality, and changes in demand for services.[3]

American Water also noted that it has a business interest in the outcome of elections and political appointments: "New legislation, regulations, government policies or court decisions can materially affect our operations. The individuals who serve as regulators are elected or are political appointees. Therefore, elections which result in a change of political administration or new appointments may also result in changes in the individuals who serve as regulators and the policies of the regulatory agencies that they serve."[3]

Founding

American Water Co. was founded in New Jersey as American Water Works & Guarantee Company in 1886 by a small group of businessmen involved in local water utilities during the post-civil war era, eventually evolving into American Water Works Company, Inc.[12] In 2003, German energy and water service provider RWE purchased American Water only to sell it a few years later and completely divest in 2009.[4] According to the non-profit organization, Food & Water Watch's website, "Leaked minutes from a RWE board meeting revealed that American Water had failed to meet any of its targets and that 'considerable political resistance to privatization of the water sector' was a major factor in its failure to thrive."[4] Based on an analysis of Environmental Protection Agency data in 2012, Food & Water Watch reported that privately owned water systems fell by 16% between 2007 and 2011 while public water services rose by 8%.[13]

Source:Food & Water Watch

Controversies

Municipalities, Unhappy with American Water Subsidiaries, Attempt to Take Back Control of Their Water

As reported by the non-profit organization, Food & Water Watch, when cities sell or contract out their water and/or sewer systems to private companies, they have often experienced problems such as increased costs, a decline in service, increased environmental impact, lost jobs and a reduction in pay and/or benefits for workers. [14] [15] [16] Many U.S. cities have attempted to regain control of their municipal water systems, a process called "municipalizations." If the private water company refuses to sell back the utility, some cities have used eminent domain powers, which require compensation at fair market value, to secure public ownership of the public's water.

  • Ongoing Fight for Public Water in Monterey, CA - Aggravated by inadequate service and high rates, community members in the Monterey Peninsula have been fighting for local public control of their water system from California American Water for over a decade.[17][18] In the early 2000s, Monterey FLOW (Friends of Locally Owned Water) and Citizens for Public Water formed to mobilize behind a public buyout and "Measure W", which appeared on the ballot in November 2005. "Measure W" would have allowed for funding of a study to assess the process for a community buy-out of the water utility.[17]
To defeat the measure, California American Water outspent the community groups 10-1. The company spent $300,000, making the campaign the most expensive in Monterey history. BNA Communications partnered with California American Water to develop a strategy aimed at defeating the measure by studying other failed bids at public takeovers of privately run utilities across the country. BNA Communications then used targeted direct mail, field communications, and television, radio, and newspaper advertisements to defeat Measure W.[19] The Monterey County Herald reported on November 20, 2006 that a judge allowed California American to pass the costs of its “public outreach” — $1,353,831 — on to its customers through new surcharges beginning in January 2007.[17] Measure W was defeated with 62.63% (19,296 voters) voting no and 37.37% (11,514 voters) voting yes.
In 2010, amid ongoing controversy about a proposed desalination plan, a group named WaterPlus formed to advocate on behalf of California American ratepayers and support a public purchase of the water system. WaterPlus members are also involved in the newly formed Public Water Now, which residents formed in May 2013 to continue the fight for public water. The organization launched a campaign to put the question of a public buyout on the June 2014 ballot.[17]
In 2011, WaterPlus led an effort to convince the Monterey Peninsula Water Management District Board of Directors to vote in favor of creating an ad-hoc committee to investigate the feasibility of a public takeover. The effort was opposed by California American Water, the California Water Association (a consortium of private water companies) and their lawyers at Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. The Board of Directors voted against creating the ad hoc committee.[20]
Formed in 2013, Public Water Now, a non-profit run by former businessman Ron Cohen, was leading the fight for a public takeover of California American Water assets in Monterey. Cohen united several like-minded groups, secured non-profit status, and created an initiative petition to require the Monterey Peninsula Water Management District to pursue a public purchase of Cal Am's local assets. The Monterey Herald called the project “arguably the most progress any public ownership effort has made.”[21] Among Public Water Now's complaints was that California American Water had failed to find a new source of water since they had been ordered to do so in 1995, subsequently driving up rates.[22]
In a petition submitted in January 2014, Public Water Now collected more than 8,700 signatures to create a ballot initiative to allow Monterey voters to decide on a public takeover, "easily surpassing" the required number of signatures.[23] California American Water representative Catherine Bowie stated that any public takeover would result in an eminent domain proceeding because California American Water's assets are "not for sale." She warned that any eminent domain proceeding would be lengthy, contentious and costly.[24]
In 2014, California American Water spent $2.4 million fighting the local ballot initiative, which would have required "the water management district to establish a policy that all water systems in the district's boundaries be publicly owned," according to the Monterey Herald. Outspending its opponents 24 to 1, California American was "essentially the lone financial backer for the anti-Measure O campaign," which included mailers, print ads, and television ads.[25] The measure was defeated on June 3, with 56 percent of voters opposing it.[26]
  • Town of Mooresville Sues Indiana-American Water Co., Inc. to Reacquire Water Utility - In December, 2012, the town of Mooresville, Indiana sued Indiana American Water Company to take back control of their municipal water utility, which, according to the legal complaint the town owned and operated until 2002. The complaint also stated that the town attempted to negotiate the purchase of the utility at the independently appraised value of $6.2 million but the company refused to sell. Significant rate increases were reported as the reason for the city's decision to attempt a takeover.[27] After a jury set the value of the utility at $20.3 million in June 2014, Mooresville dropped its attempt.[28]
A PR campaign was launched on the company’s behalf which included billboards, a Facebook page, lawn signs, and a website, mooresvillewaterfacts.com (archived), which called the city's attempts to reacquire its water resources a "hostile government takeover." It also included graphs from what it said was a "survey conducted by a professional research firm" which demonstrated opposition to the takeover and displeasure with the Mooresville City Council. [29] The domain's ownership was cloaked by a proxy service,[30] which allows people (or organizations) to set up websites while keeping their identities secret,[31] but many suspected American Water Co. to be behind the spin.
Mooresville Water Facebook.PNG
  • Southwest Chicago Suburbs Sue for Control of the Lake Michigan Water Pipeline - The suburbs of Bolingbrook, Romeoville, Woodridge, Lemont, and Homer Glen, Illinois joined together in suing American Water subsidiary, American Lake Water Co., to seize control of the Lake Michigan water pipeline in 2013.[32] Significant rate increases and additional costs were cited as the reason the cities wanted to regain control of their water utilities and the Lake Michigan pipeline.[33][34]
The website Chicagometrowaterfacts.com PR campaign was run by American Water and was registered to an American Water technical contact, according to a website domain search.[35][36]
  • Bolingbrook Sues Illinois American Water for Breach of Contract, Excessive Rate Hikes - On November 2, 2010, the Village of Bolingbrook filed a lawsuit against Illinois American Water for breach of contract. Bolingbrook sought contractual damages from the company for improperly overcharging customers from 2003 to 2008 as well as court-ordered relief to properly enforce the contract.[37] The Village also alleged that the company charged Bolingbrook residents higher rates than the neighboring Village of Plainfield and also breached its contract when it failed to consult with the Village before increasing rates.[38][39]
  • Ongoing Fight for Public Water in Urbana, IL - Food & Water Watch reported on the various problems experienced by Urbana, Illinois residents after their water system was sold to American Water in 2003. The problems included “boil-water notices, instructing customers to boil their water before use because the treatment system had temporarily failed. Customers complained of declining service when American Water centralized its customer service call center. Fire hydrants malfunctioned; a fire destroyed a maintenance building after two hydrants failed.”[40] In addition to poor service, Urbana residents saw their rates jump significantly. A household using 5,000 gallons a month paid $421, while a household using 5,000 gallons a month in an average municipality with public water administration only paid $241.[41]
Urbana Mayor Laurel Prussing traveled to Germany to speak to shareholders of American Water Co.'s parent company, RWE, in 2006. Prussing was met with applause from the shareholders, but little action from corporate executives, who continued to insist that individual systems were not for sale to communities interested in making a fair offer. Two years later, however, RWE sold American Water Co. citing controversy and push-back.[40]

Municipalities Succeed in Taking Back Control of Their Water

  • O'Fallon, MO - In 2007 the city of O'Fallon was considering selling its public water system to American Water but delayed after hearing community members' testimony at a city council meeting. The city formed a task force to further study the issue, and it found several disadvantages to a sale: “loss of control and representation,” “possible loss of jobs,” and “loss of future revenues.” After the task force’s presentation, the city council decided not to pursue a sale of the water system in the upcoming election. In 2009, after more than two decades of contracting with private companies to run the systems, the city opted for complete public provision of water. It saved 15 percent by operating the systems with public workers instead of private contractors.[42]
  • Cave Creek, AZ - Unsatisfied with the private management of their local water utility, citizens in the town of Cave Creek, AZ took control of their water system in 2008, which had always been privately owned and operated. [43] With facilities falling apart, the water utility was performing so badly that Cave Creek experienced three system-wide water outages during the summer of 2007.[43]
In 2008 Cave Creek was able to purchase the water utility with financial assistance from the Water Infrastructure Financing Authority (State agency responsible for distributing federal SRF loans) in the form of a low-interest loan to pay for necessary improvement. While the town initially retained Arizona American Water as a private operator for half of the operation for a year, it opted not to renew its contract with the subsidiary, citing its desire to regain local control.[43] Residents had been unsatisfied with customer service they received via an 800 number outside the state, as remote personnel often did not know what was happening in Cave Creek.[43]
  • Felton, CA - In 2001, American Water purchased Felton’s water system, which had been privately owned since the late 1800s.[44] According to a Food & Water Watch report, in November 2002, California American Water greatly angered the Felton community with a 74 percent rate hike. In response, residents formed an action group, Friends of Locally Owned Water (FLOW), which advocated against the steep rate hike and petitioned Santa Cruz County to establish a public agency to exercise control over the water system. FLOW also opposed the company’s plan to merge the Felton and Monterey water districts.[44]
In 2004, the German utility company RWE -- then the owner of American Water -- "enlisted a public-relations firm to send letters and make telephone calls against" the public takeover ballot initiative in Felton, California. The American Water subsidiary also "acknowledges giving tens of thousands of dollars to a local property owners' association that filed a legal challenge against the referendum."[45]
Despite California American Water's deep-pocketed opposition, the push for public water in Felton had its first success with the passage of Measure W in July 2005. Felton residents voted 3-to-1 in favor of an issuing of $11 million in bonds and raising taxes in order to allow the SLV Water District to buy their water system.[44]
The district offered California American Water $7.6 million, its appraised value, but the company refused. Company officials stated that the system was not for sale at any price and said they would oppose all public acquisition efforts. The community's only recourse was an eminent domain proceeding. California American responded by "doing all it could to make the system seem more expensive," according to Food & Water Watch.[44] California American's appraisal totaled approximately $25 million, leaving a large discrepancy with the independent appraisal.[46]
Further legal tactics by California American in the eminent domain proceedings caused delays and increased expenses for the SLV Water District. Less than a week before trial was scheduled to start, the company settled the case and turned over the water system for $10.5 million.[46] In total it took six years for the people of Felton to gain public control of their water utility from American Water.[44]
  • Montara, CA - According to a study from Food & Water Watch, Montara, a small town near San Francisco, succeeded in regaining public control of their water system after suffering for years from high rates, poor service, and neglect under private ownership.[47] The 1999 sale of the water system to American Water served as a catalyst mobilizing residents to bring the system under local public control.
After a campaign which involved community meetings, a door-to-door operation, and a televised debate, residents voted in 2001 by a 4-to-1 margin in favor of a public takeover. The community borrowed $19 million to buy the system from California American Water. At first, the company refused to sell, but the California Public Utilities Commission and Montara Water & Sanitary jointly purchased the system from California American Water in August 2003. A local voter-elected board has been given control over the water system's administration and has succeeded in improving the system and saving public money. [47]

Complaints of Excessive Rates, Poor Customer Service, and Failure to Properly Maintain Infrastructure

  • West Virginia American Water Requests 28 Percent Rate Increase--and More to Come for Chemical Spill Costs (2015) - West Virginia American Water Company asked the state Public Service Commission for a 28 percent rate increase for water and 22 percent increase for wastewater. According to a company statement, that request did not include costs related to the 2014 Freedom Industries chemical spill; instead the company stated that it would "seek to recover the spill related costs in a separate future proceeding." Kanawha County Commissioner Kent Carper told the West Virginia Gazette, "From time to time, every utility has to have a rate increase. But 28 percent? They previously said we would see a rate increase to pay for the chemical spill. Now they say the 28 percent increase does not include that. What does this mean?"[48]
  • Pennsylvania American Water Attempts to Charge "Unjust" and "Unreasonable" Rates (2013) - On May 8, 2013, the Pennsylvania Office of Consumer Advocate filed a Formal Complaint with the Pennsylvania Public Utility Commission against Pennsylvania American Water alleging that the company's proposed rate changes were “unjust, unreasonable and in violation of law... [and] will allow the Company to recover an excessive rate of return...”[49]
  • West Virginia American Water Sends Customer $5,000 Bill Due to the Company's Malfunctioning Meter, Demands Payment (2013) - A West Virginia man filed a lawsuit against West Virginia American Water Co. after he allegedly received a $5,136.91 water bill which was much higher than his typical $20-30 water bills. The issue allegedly stemmed from a faulty meter, which the company owned and was responsible for. However, even though this faulty meter was American Water's responsibility, the customer alleges that the company still demanded payment of the more than $5,000 bill, and when he did not pay the full amount demanded, they added late fees/penalties onto his account.[50]
  • New Jersey American Water Failed to Properly Maintain Bridge Prior to Collapse, Resulting in Countywide Water Emergency (2013) - After Hurricane Irene in 2011, New Jersey American Water (NJAW) failed to respond adequately to prevent the subsequent collapse on June 29, 2012 of a bridge over the Swimming River in Lincroft, New Jersey adjacent to a NJAW water treatment facility, according to a report by another large privatization company, CH2M Hill. The bridge had been flooded over during Hurricane Irene, causing damage to the infrastructure. The company identified the damages, but didn't address them quickly enough, according to the report. As a result of the bridge collapse, nearly 285,000 people in the county were subject to water usage restrictions and a boil water advisory during a mid-summer heat wave.[51]
  • NJAW Shuts Off Water on New Jersey Family Short 84 Cents on Bill (2012) - The Pezzano family in Middletown, New Jersey had their water shut off in July 2012 -- without any warning or notification -- because there was a balance of 84 cents on their bill. "They don't come to the door. They just shut it off and walk away," Joe Pezzano told the local Asbury Park Press.[52]
  • California Consumers See Unexpectedly High Bills, Some Caused by California American Water Accounting Error (2012) - In 2012, California American Water asked California's Public Utilities Commission (PUC) to allow it to make Monterey Peninsula customers pay for $6 million in discounted bills it said were due to water leaks between 2007 and 2011. PUC denied the request,[53] and California American eventually dropped its request, although it said "it is still interested in recouping any future losses it incurs when voluntarily reducing customers' large water bills on a one-time basis."[54] But in May 2013, the company admitted that it was at fault in at least some of the cases of high water bills, due to accounting and meter register errors. And some of the causes for the inordinately high bills were never discovered. For example, according to The Herald News, "Toni Ray, whose Cal Am bill of nearly $10,000 was eventually reduced to about $2,300, said she has paid the final amount in full but the cause of her sudden spike was never determined, even though a plumber checked her house for leaks and found none. Her bills since the spike have been about $40 a month, she said."[55]
  • Kentucky Public Service Commission Steps in to Prevent Excessive Rate Hikes (2010) - The KYPSC squarely rejected the company's proposed rate increase and said that it would have to refund the amount it had over-collected, plus interest, to customers. According to its news release, the PSC also ordered Kentucky-American to immediately cease its practice of "disconnecting customers who fail to pay storm water or garbage fees, which the water company collects, along with sewer fees, on behalf of LFUCG [Lexington-Fayette Urban County Government]. State law permits disconnection of water service for failure to pay sewer fees, but not for other services unrelated to water service."[56]
  • Pennsylvania Public Utility Commission Fines Pennsylvania American Water for Multiple Service Issues (2010) - Pennsylvania American was fined for failing to maintain and repair its facilities and properly discontinue service to a vacant rental building. The excess water caused damage to the unit. The company also allegedly knew about the extraordinary water flows but failed to investigate this extraordinary loss of water from its reserves.[57]

Lawsuits

  • Anthem, Arizona Homeowners File Class Action Lawsuit for Hiding Costs of Water Infrastructure then Raising Water Rates to Pay for It - In 2008, homeowners filed a class action lawsuit alleging that the homebuilders and water company failed to disclose that the cost of the water and wastewater infrastructure needed to serve the community was not included in their home’s purchase price in order to keep prices artificially low. Then, after the homes were sold, Arizona American wanted to significantly increase their rates in order to pay for the infrastructure. [58] [59] The Court held in its order on August 30, 2010, that the home developer did have “a duty under the Subdivision Reporting Act to disclose that homebuyers would bear the costs of improvements and facilities through future rate increases.”[60] Arizona American Water was bought out in 2011 by EPCOR[61]
  • Chesterton, Indiana Sues Over Collapsed Sanitary Sewer Main - In November 2012, the town of Chesterton, Indiana filed a lawsuit seeking more than $25,000 from Indiana-American Water Company (IAWC). The Chesterton Tribune reported that according to the suit, "IAWC crews, in the course of working on a water line in 2011, damaged a sanitary sewer main, resulting not only in the expense of repairing the sewer main but of compensating a homeowner for damage done when the main backed up into his basement."[62]
  • Kentucky Public Service Commission Fines Kentucky American Water $10,000 for Violating Restrictions on Dividend Payments to Its Parent Company - The Kentucky PSC fined Kentucky American Water for violating a previous order issued in 2002 in which Kentucky American Water was required to obtain prior approval before paying dividends to its parent entities during any calendar year if the payments exceeded five percent of the company’s retained earnings from the previous year. According to the order from May 2010, which rejected the company's offer to settle and pay a small penalty of between $25 and $2,500, the purpose of the 2002 order was “to guard against any drain on KAWC’s financial resources through excessive dividend payments.” The final order issued in August 2010 accepted the company's revised offer, stating, "Given the seriousness of the violations and KAWC’s prior history of non-compliance with the Commission’s Order of December 20, 2002, a penalty payment of $10,000 is appropriate."[63]

Environmental and Water Quality Issues

  • California PUC Judge Proposes $870,000 for Failure to Disclose Unfinished Projects (2015) - California Public Utilities Commission judge W. Anthony Colbert found that California American Water Company had failed to include 58 unfinished projects worth approximately $80 million from a report filed in a pending rate case. According to the Monterey Herald, "The judge wrote the proposed fine was warranted because 'the scope of the discrepancy' between what Cal Am originally reported and what the company later disclosed 'is so severe.'" A company spokesperson called it a "misunderstanding" and said, "We don’t feel it’s a violation. We certainly never had the intention to mislead. We’re shocked by the amount of the fine. It’s not like it was a safety issue or an environmental hazard."[64]
  • California American Water Fined $390,000 for Improper Dumping of Arsenic Sludge (2014) - From 2008 to 2014, after filtering arsenic from drinking water at its Monterey County facility, California American Water Company had been shipping the waste to a landfill not equipped to handle the hazardous material. The company agreed to a $390,000 fine for the violations, and "director of operations Eric Sabolsice confirmed the company has taken responsibility for improper disposal of the hazardous waste," according to the Monterey Herald.
  • EPA Finds Uranium Exceeds Maximum Contaminant Level (MCL) at Texas-American Water Company's Greenwood Village Water System (2013) - Pursuant to the Safe Drinking Water Act, the EPA's Administrative Order and letter requires Texas-American Water Company to submit a detailed plan to meet the uranium MCL, a cost analysis of the proposed plan, and a construction schedule to the EPA.[65]
  • Involvement in the Toxic Sludge Industry and Fines From Ontario Ministry of the Environment (2012) - According to American Water’s 2012 SEC filings, part of the company’s operations also includes a “biosolids management group,” called Terratec, which is located in Canada.[2] Terratec “provides environmentally sustainable management and disposal of biosolids and wastewater byproducts."[2]Biosolids” is an Orwellian PR euphemism for toxic sewage sludge, which can contain contaminants such as endocrine disruptors, pharmaceutical residues, phthalates, industrial solvents, resistant pathogens, and perfluorinated compounds. The company’s website states that Terratec’s “Beneficial Reuse programs” include agriculture and nursery programs.[66] "Beneficial reuse" is another misleading PR phrase often used by the sewage sludge industry for spreading sewage sludge on soil used to grow food, and other activities.[67]
Terratec transports treated sewage sludge from wastewater treatment plants throughout Ontario and distributes it onto farm fields.[68] This violates clauses in the company’s operating permit requires it to inject biosolids beneath the soil to help control odors and potential runoff. During an inspection at a site in Southwest Middlesex on May 7, 2008, however, Ontario Ministry of the Environment staff “found that the company had continued to spread, even though the equipment was not placing the biosolids beneath the soil surface."[68] On March 29, 2010, Terratec pleaded guilty in a Canadian court for improperly spreading “biosolids” and was fined CDN $10,000 plus a “victim fine surcharge.”[68]
Terratec also has a checkered past in the transportation of biosolids. According to American Water Alert, "in November and December 2008, the company was fined a total of CDN $300,000, plus a 25% victim fine surcharge in three different court decisions involving biosolid spills on Ontario roads during 2006." In two of the three cases, the spill was approximately 500 to 1,000 pounds of biosolids and in the other it was one to three tons.[68]
  • Kentucky American Water Agrees to $10,000 Fine for Damaging Creek (2010) - The company reached an agreement with state environmental officials to pay a $10,000 fine and spend $20,000 on environmental programs after allegedly damaging 1,000 feet of Buck Run Creek in Franklin County while laying a pipeline. The company did not confirm or deny the allegations in the agreement.[69]
  • Arsenic and Trichloroethylene Contamination in Arizona (2009) - The Arizona Department of Environmental Quality (ADEQ) found that Arizona American Water distributed drinking water contaminated with excessive levels of arsenic at its Tubac Valley public water system in Santa Cruz County during February 2009.[70] Test results submitted by Arizona American to ADEQ from February 9, 2009 showed arsenic up to three times the "maximum contaminant level" under state and federal regulations. In July 2009, the company signed a consent order with ADEQ agreeing to install a treatment system for Tubac Valley to reduce arsenic levels below the permissible limit.[70]
The previous year, ADEQ found that Arizona American distributed drinking water contaminated with trichloroethylene (TCE) to customers in Scottsdale and Paradise Valley. Tests showed that TCE levels were up to four times the legal limit, due to an equipment malfunction at a treatment plant operated by the company, which had allowed groundwater contaminated with TCE to be pumped into the drinking water system for up to 16 hours on January 15-16, 2008.[70]
The contamination resulted in Arizona American warning its nearly 5,000 customers in Scottsdale and Paradise Valley not to drink or cook with the tap water for three days, until TCE levels were reduced to below the permissible limit. This, in addition to the previous incident in 2007 where "incomplete remediation" of TCE-contaminated groundwater occurred, led ADEQ to impose a $69,000 fine against the American Water. ADEQ's director strongly criticized Arizona American's conduct in the case: "The company delivered contaminated drinking water to its customers, failed to maintain and operate its facilities to deliver safe drinking water, and failed to implement an adequate emergency plan. This is simply unacceptable."[70]
  • Pennsylvania Department of Environmental Protection Fines Pennsylvania American Water Co. $25,000 for Fluoride Spill (2006) - An operator at a Pennsylvania American Water plant "intentionally propped open a valve that led to the release of more than 300 gallons of fluoride inside the treatment building," according to a Pennsylvania Department of Environmental Protection press release. Also, the "Do Not Consume" warnings were not issued in a timely manner or issued adequately and frequently enough to properly warn residents of the danger. The company was required to pay the $25,000 and take corrective actions.[71]

Growing Financial Interest in Fracking

File:American Water shareholder slide marcellus shale.png
Slide from shareholder meeting presentation, 2013.

The increasing exploitation of shale gas through hydraulic fracturing, or fracking, has created an additional market for water. Food and Water Watch has written that American Water is "at the forefront of the private water utility industry’s push to exploit fracking’s water needs."[72] Speaking to shareholders in 2011, then-CEO Jeff Sterba said the company had "strategic positioning" in the Marcellus Shale region in Pennsylvania, adding "We’re continuing to expand service in the Marcellus Shale region where we have 29 points of interconnection, serving 12 different drilling companies."[72]

In addition to supplying water for fracking processes, American Water was planning to expand its treatment and recycling services for fracking companies, Bloomberg Business reported in October 2014. CEO Susan Story said, "We’re in talks [with energy executives] to see if we can treat water, to see if more can be reused, so there’s less of it that they have to deal with."[73]

According to The American Independent:

American Water (through its Pennsylvania subsidiary, Pennsylvania American Water) and another private water utilities corporation, Aqua America, are the leading suppliers of drinking water in Pennsylvania where drilling is a booming business. Both companies sell water to gas companies and are members of the gas industry's Marcellus Shale Coalition, which is led by major gas producers. The coalitions seek to bolster the region's economy through the "responsible development of natural gas."[74] At the same time, American Water and Aqua America have "expressed interest in treating drilling wastewater, a potentially lucrative opportunity."[74]
Shale gas drillers use a combination of horizontal drilling and hydraulic fracturing, or “fracking,” to extract natural gas from shale rock like the Marcellus formation in Pennsylvania. This heavy industrial activity forces millions of gallons of water mixed with sand and chemicals into the ground to crack the shale rock and release gas, a process that has the potential to put drinking water resources at risk as it produces large amounts of toxic wastewater that can be difficult to dispose of safely.[74]

Watchdog Groups Cite Conflict of Interest:

American Water had engaged in a "massive lobbying effort to expand controversial shale gas drilling," in what many watchdog groups see as a major conflict of interest, The American Independent reported in 2012.[74]

American Water generates substantial revenues from providing water to drillers ($702,000 in the first half of 2011, when the industry was just developing). There is also a growing market for treating contaminated wastewater, with one analyst predicting a total market exceeding $100 billion in the next four to five decades.[72]

American Water representatives have downplayed the risks of groundwater contamination from fracking, according to Food and Water Watch, which also notes that contamination may have a silver lining for water utilities.

When fracking pollutes water sources, households and small water systems that cannot afford to treat their water have to find another water supply. Their only alternative may be to connect to a water system owned by a private utility. For example, after natural gas drilling contaminated groundwater wells in Dimock, Pa., the state funded a $12 million project to connect 18 homes in the community to Pennsylvania American Water’s water system.[72]

Acquisition of Keystone Clearwater Solutions, Water Provider for Shale Gas Industry (2015)

American Water announced an agreement to acquire Keystone Clearwater Solutions (Keystone) from Rex Energy Corporation in June 2015. Keystone, which provides "a range of water related services to the oil and gas industry primarily in the Appalachian region of Pennsylvania, Ohio and West Virginia," was valued at $130 million, according to a press release.[75]

Partnering with XTO Energy in PA

In 2014 Pennsylvania American Water announced "two new agreements with Rex Energy and XTO Energy for improvement projects including main replacement and the installation of new booster and pumping stations," according to a press release.[76]

In 2012 Pennsylvania American Water entered into two agreements with XTO Energy, a subsidiary of ExxonMobil, "to construct pipelines for supplying water to support shale gas drilling operations, as well as provide public water service to adjacent residential areas" in Butler County.[77]

Corporate Subsidies

American Water and its subsidiaries received subsidies worth at least $4,508,868 from state, local, and federal governments from 2000-2013 (the most recent year tracked), according to data compiled by Good Jobs First. These subsidies include:[78]

  • Federal: $3,327,414 grant for a solar electricity project in New Jersey (2013); $109,016 grant
  • Florida: $660,000 tax credit/rebate (2004); $200,000 grant/low-cost loan (2005) for a solar electricity project in Illinois (2012); $30,375 for a solar electricity project in Missouri (2012)
  • California: $131,508 training reimbursement (2006); $34,592 training reimbursement (2011)
  • Pennsylvania: $9,677 tax credit/rebate for research and development (2013); $6,286 tax credit/rebate for research and development (2011)

Demanding $164 Million in Tax Credits to Move Headquarters Across New Jersey

American Water Works applied for $164 million in tax credits as incentive to move its headquarters from Voorhees, New Jersey, to Camden, New Jersey. The New Jersey Economic Development Authority voted in favor of the offer in June 2015.[79] According to a spokesperson for American Water, the company was also considering a move to Pennsylvania.[79]

The Grow New Jersey program, which operates through the New Jersey Economic Development Authority, was intended to attract new employers to economically struggling cities in the state, but critics argue that "the multimillion-dollar deals usually involve the relocation of high-paying jobs from elsewhere in South Jersey," according to the Philadelphia Inquirer.[80]

Federal Contracts

With Billions at Stake, Expanding U.S. Department of Defense Contracts

As of 2014, American Water had eleven 50-year contracts with the U.S. Department of Defense (DoD) to operate water and wastewater systems on eleven military bases in the U.S.[81] These contracts may be terminated early "for convenience of the U.S. government or as a result of default or non-performance by the subsidiary performing the contract," as described in American Water's 2014 annual report. In the event of early termination, the company "would be entitled to recover allowable costs that we may have incurred under the contract, plus the contract profit margin on incurred costs."[3]

The most recent contract was a "$297 million, 50-year contract to own, operate and maintain water and wastewater systems at the Picatinny Arsenal military research facility in New Jersey," Bloomberg Business reported in October 2014. At that time, the DoD had requested proposals for water projects worth approximately $11 billion. American Water CEO Susan Story stated that the company planned to bid on any projects in the $250-500 million range.[73]

Political Activity

Political Contributions

American Water has spent nearly $1.3 million in political contributions to individuals, PACs, and third parties from 2000 to 2012, according to the Center for Responsive Politics.[82] Direct spending on elections between 1990 and 2014 (as of April 2014) totaled $876,254, with 81 percent of contributions going to Republicans and 18 percent to Democrats.[82]

  • California American Water Spent $2.4 Million Opposing a Local Initiative in Monterey, California in 2014 that would have required "the water management district to establish a policy that all water systems in the district's boundaries be publicly owned," according to the Monterey Herald. Outspending its opponents 24 to 1, California American was "is essentially the lone financial backer for the anti-Measure O campaign," which included mailers, print ads, and television ads.[83] The measure was defeated on June 3, with 56 percent of voters opposing it.[84]
  • California American Water Spent $300,000 on a Local Ballot Initiative in Monterey, California that would have authorized a study on the public takeover of the corporately owned utility, outspending opposition ten to one.[85] A judge then allowed the company to pass the costs of its "public outreach" -- $1,353,831 -- on to its customers through new surcharges beginning in January 2007 (see "Ongoing Fight for Public Water in Monterey, CA" under "Municipalities, Unhappy with American Water Subsidiaries, Attempt to Take Back Control of their Water" for more).[86]
  • New Jersey American Water Spent More Than $1 Million on Its Failed Effort to Take over Part of Trenton’s Water System.[87] [88] That was 34 times as much as spent by the local Stop the Sale campaign.[89]

Federal Lobbying

American Water reported $120,000 in federal lobbying expenses in 2014. As of April 20, the company had reported $30,000 in federal lobbying expenses for 2015.[90] The lobbying firm Bryan Cave LLP works on behalf of American Water, and its registered lobbyists were Matt Jessee and David Russell.

Prior years:

  • 2013: $210,000
  • 2012: $180,000
  • 2011: $60,000

Issues listed in the first quarter 2015 lobbying report were:[91]

  • Chemical safety legislation (not introduced, was S.1961/H.R. 4024 in 113th Cong.)
  • Funding for Water Infrastructure Finance Innovation Act (WIFIA) programs

American Water's lobbying issues for 2014 included:[92]

  • S.1961 Chemical Safety and Drinking Water Protection Act
  • HR 4024 Ensuring Access to Clean Water Act
  • Proposed water storage fee on Missouri River
  • Proposed water infrastructure financing innovations authority WiFiA
  • Defeasance of municipal bonds

State Lobbying and Political Spending

The company lobbies extensively at the state level. In 2012 it had 26 lobbyists in 4 states, according to the National Institute for Money in State Politics.[93]

American Water also runs political action committees in many states in various election years, and individuals affiliated with American Water have contributed hundreds of thousands of dollars to state elections. For example, PACs and individuals affiliated with American water spent $177,246 on elections in Pennsylvania between 1997 and 2014.[94]

Ballot Referenda Expand Customer Base for "Solid Third Quarter" (2014)

2014 ballot referenda in Russiaville, Indiana; Arnold, Missouri; and Haddonfield, New Jersey were set to expand American Water's customer base by approximately 19,000, the company announced in a press release touting a "solid third quarter."[95] While the systems themselves were relatively small, such acquisitions are part of American Water's "tuck in" strategy.[3] Russiaville, for example, has a population of just over 1,000; the referendum, which approved a plan for American Water to pay a lump sum of $1.8 million to the town in return for ownership of the utility, passed 228 to 65; the company already provided water services for neighboring Kokomo, Indiana.[96]

Despite the small size of the acquisitions, American Water highlighted the success of these ballot referenda on the first page of its 2014 annual report under the heading "Our people are critical to our company and customer success." It did not specify what role its employees played in the election results.

In 2014, our tremendously talented and dedicated team of 6,400 water professionals dealt with many unique challenges: the winter’s polar vortex and associated freeze/thaw conditions which resulted in significantly higher main breaks; dealing with the Freedom Industries chemical spill in West Virginia, with additional employees lending aid from our other states; and the successful results in four different election day referenda in California, New Jersey, Missouri and Indiana. We are honored and proud to be able to work with these incredible people every day.

History

Brief Ownership By Germany's RWE

American Water was founded in 1886 as the American Water Works & Guarantee Company, and in 1947 was reorganized and renamed the American Water Works Company. In January 2003, the German utility company RWE acquired the company for $8.6 billion and renamed it American Water.[97]

In November 2005, RWE announced plans to sell American Water and its water services division, RWE Thames Water. The sale was part of RWE's plan to focus on "selling electricity, natural gas and water in European markets," reported the Philadelphia Inquirer.[98]

The Associated Press reported that RWE never saw the "heady profits" it anticipated from its "international water empire that cost more than $10 billion to assemble and spanned more than 40 countries at its height.... Water turns out to be less like electricity than RWE hoped. It's heavy and hard to transport, making it difficult for a big company to build economies of scale. Regulation is never predictable. In the US, RWE found itself fighting in town referendums and state legislatures across the country, winning many battles but losing the war.... 'People are just kind of weird with water,' says Catherine Bowie, a community-relations manager for RWE's subsidiary in California."[45]

In April 2008, American Water shares began trading on the New York Stock Exchange at $21.50 per share, in its initial public offering of 58 million shares of common stock. The "selling stockholder" was RWE, with net proceeds from the offering going to RWE. "After the initial public offering, and assuming no exercise of the underwriters' option, the selling stockholder is expected to own approximately 64 percent of American Water's shares," according to an April 2008 American Water press release.[99]

In December 2008, American Water announced its intention for a "follow-on public offering" of the company's common stock. "The proposed offering would include a $300 million (and up to an additional $90 million in connection with the underwriters' option to purchase additional shares) secondary offering by the selling stockholder, a subsidiary of RWE AG, with proceeds going to RWE and concurrently, a $300 million primary offering by American Water Works Company, Inc will occur with proceeds used to redeem short-term debt," according to a company press release.[100]

Public Relations Push (2009)

Marketing and advertising director, MaryBeth Vrees, and senior vice-president of corporate communications, Laura Monica, started "working on a rebranding and repositioning of American Water, which includes environmental stewardship, and innovative use of technology," reported PR Week in April 2009. Part of those efforts was the company's first "interactive online annual report," launched in March 2009, meant as both a cost-savings measure (relative to traditional, printed annual reports) and a "brand awareness push." The online report also allowed American Water "to learn what has caught visitors' interest and to determine what to expand upon in the future." [101]

In January 2009, American Water retained the public relations firm MWW Group.[101]

Personnel

Chief Executive Officer

American Water CEO, Susan N. Story
(Source:American Water)

Susan N. Story became president and CEO of American Water Works Company, Inc. in May 2014. [102] Story was formerly Chief Financial Officer at American Water, where she began working in April 2013.[103] Prior to joining American Water, Story had worked at the electricity generator Southern Company, serving as executive vice president, and had held various positions within the company and its subsidiaries: president and CEO of Southern Company Services; president and CEO of Gulf Power Company; and executive vice president of Engineering and Construction Services of Southern Company.[104]

Story has been affiliated with the Bipartisan Policy Center Board of Directors, the Moffitt Cancer Center Board of Advisors, the Center for Energy Workforce Development, the National Renewable Energy Laboratory, the Alliance to Save Energy, the Florida Board of Education, the Federal Judicial Nominating Commission, chair of Florida's economic development public-private partnership, and a member of Florida's Tax and Budget Reform Commission. She is also on the board of directors of Raymond James Financial[102]

Story's total compensation as CEO was $2,565,847, including a base salary of $637,174, incentive compensation of $587,243, stocks and options worth $1,190,910, and additional compensation such as life insurance and 401(k) matching worth $150,520.[105]

Story's compensation as CFO in 2013 was $3,299,959.[106]

Former CEO Jeffry Sterba (Retired 2014)

Former CEO, Jeffry Sterba
(Source:American Water)

Jeffry Sterba was president and CEO of American Water Works Company, Inc. from August 2010 to May 2014.[107][102] In 2012, Sterba's annual salary was $732,695. He also received $1,874,990 in stock awards and options, as well as $1,180,030 in other compensation, resulting in total compensation of $3,787,715.[107]

Sterba made $12,008,064 in just four years as a top executive at the company.[6]

2010 $1,413,072
2011 $3,111,138
2012 $3,787,715
2013 $3,696,139
Total $12,008,064

Sterba received additional compensation totalling $3,177,162 in 2014.[105]

Previously, Sterba worked in senior executive positions at PNM Resources (March 2000-March 2010),[108][109] an energy holding company based in Albuquerque, New Mexico. Sterba's career at the company spanned over 30 years. He began as an intern in 1997.[110]

While Sterba was chairman, president, and CEO of PNM, the company was involved in litigation concerning the manipulation of energy prices during the 2001 energy crisis in California. California attorney general Bill Lockyer filed suit in 2005 against PNM and a Canadian company for alleged price fixing that cost Californians over $1 billion.[111] Lockyer alleged that "Enron-devised trading schemes used to inflate prices" constituted collusion.[112]

The case never went to trial in California courts because in 2006 federal courts ruled that the Federal Energy Regulatory Commission (FERC) held jurisdiction over electricity prices.[113] In 2005, PNM agreed to pay $1 million to end a federal investigation of its practices during the California energy crisis.[114]

In June 2006, Sterba was elected first vice chairman of the Edison Electric Institute, the energy industry's largest trade group.[115] Sterba also chaired EEI's CEO Climate Change Task Force.[115] The following year, EEI set up a website[116] for the "Water Advocacy Coalition" to oppose the Clean Water Restoration Act in 2007, which was introduced by Senator Russ Feingold to clarify which bodies of water are subject to federal regulation. In 2007, while Sterba was at the organization, EEI spent $10.2 million in federal lobbying[117] and opposed even the Bush administration's hesitant efforts to improve air quality standards.[118]

Sterba also served on the boards of the U.S. Chamber of Commerce and the Meridian Institute.[119]

In April 2011, when the West Virginia Public Service Commission refused to permit ratepayers to pay for any portion of incentive bonuses and stock awards for American Water executives, holding that "current economic conditions do not justify ratepayers bearing this expense," Sterba attacked the PSC's decision at American Water's annual meeting the following month, declaring that it was inappropriate for "shareholders to subsidize customers" and threatening to leave the state.[120]

Two weeks after the annual meeting, American Water announced it was laying off nearly 10 percent of the company's workforce in West Virginia. This prompted a Change.org petition campaign by the Utility Workers Union of America Local 537 demanding that Sterba stop the "union busting."[121] After a protest to the PSC, the commission blocked the layoffs in December.[122] That year (2011), Sterba pulled down $3,111,138 in compensation from American Water, more than doubling his compensation from the previous year.[123]

Under Sterba's leadership, American Water's labor relations sharply deteriorated. In January 2012, the National Labor Relations Board (NLRB) issued a complaint accusing American Water of illegally cutting healthcare, retiree health, and disability benefits for 3,500 workers in fifteen states across the United States.[124] In October 2012, an administrative law judge issued a decision holding American Water responsible for the cutbacks and ordering the company to pay back pay.[125] In June 2013, the NLRB found that Pennsylvania American Water, a subsidiary of American Water, violated the National Labor Relations Act by threatening employees in two bargaining units for their legitimate refusal to cross union picket lines at its facilities.[126][127]

Management

From 2008 to 2014, American Water's key executives received more than $55.6 million in total compensation. This surely casts some new light on their argument that they need rate hikes from PUCs to improve water infrastructure.[6][105]

2008 $4,342,485
2009 $2,769,443
2010 $6,713,501
2011 $8,719,013
2012 $9,688,225
2013 $11,069,329
2014 $12,328,640
Total $55,630,636

As of June 2015, American Water's executives include:[128]

  • Susan N. Story, President and Chief Executive Officer
  • Walter Lynch, President and Chief Operating Officer of Regulated Operations
  • Linda G. Sullivan, Senior Vice President and Chief Financial Officer
  • Michael A. Sgro, Senior Vice President, General Counsel and Secretary
  • Mark Strauss, Senior Vice President, Corporate Strategy and Business Development
  • Loyd “Aldie” Warnock, Senior Vice President of External Affairs, Communications and Public Policy
  • Sharon C. Cameron, President - American Water Enterprises
  • Brenda J. Holdnak, Vice President of Human Resources
  • Mark S. Smith, Vice President and Chief Information Officer
  • Edward D. Vallejo, Vice President, Investor Relations
  • Maureen Duffy, Vice President, Corporate Communications and External Affairs
  • Deb Degillio, Vice President and Treasurer
  • Kathy L. Pape, Senior Vice President - Mid-Atlantic Division and President - Pennsylvania American Water
  • Mark Chesla, Vice President and Controller
  • Bill Varley, President, New Jersey American Water and New York American Water Senior Vice President, Northeast Division
  • Nick O. Rowe, Senior Vice President - Central Division

Board of Directors

As of July 2014:[129]

  • George MacKenzie, Non-Executive Chairman of the Board
  • Richard R. Grigg
  • Julie A. Dobson
  • Julia L. Johnson
  • Paul J. Evanson
  • William J. Marrazzo
  • Martha Clark Goss
  • Susan N. Story
  • Karl F. Kurz

Contact Information

American Water Corporate Headquarters
1025 Laurel Oak Road
Voorhees, NJ 08043

Phone: 1-856-346-8200
Website: http://www.amwater.com

Facebook: http://www.facebook.com/weareamericanwater
http://www.facebook.com/NewJerseyAmericanWater
http://www.facebook.com/pennsylvaniaamwater

Twitter: @americanwater, @njamwater, @paamwater, @wvamwater

Resources and Articles

Related SourceWatch Articles

PRWatch Articles

External Articles & Reports

Online Resources

References

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