Case studies

Water Solutions

Case 19: The Fight for Public Water in Felton, California

Introduction

In 2001, Cal-Am purchased Felton’s water system, which had been privately owned since the late 1800s, as part of its larger acquisition of Citizen’s Utilities. Shortly after that, RWE purchased American Water. The trouble started in November 2002 when Cal-Am ignited anger in the Felton community with a 74 percent rate hike. In response, the Friends of Locally Owned Water (FLOW) was born. FLOW fought to reduce the rate hike, urged the county government to create a public agency to control the water system and opposed the company’s plan to merge two water districts. *********** On Friday, May 30, 2008,1 the people of Felton, California prevailed in wrestling control of their water from a corporate giant. For nearly six years, many of the 3,000 residents of the Felton Water District had been organizing to buy back the community’s water system from California American Water (Cal-Am). Cal-Am is a subsidiary of American Water, which had been owned by the German multinational energy and water titan, RWE. Flow parade. Photo credit: FLOWLess than one week before an eminent trial against Cal-Am was to take place to determine the value of Felton’s water system, the San Lorenzo Valley (SLV) Water District (where Felton is located) announced that it would pay Cal-Am $10.5 million in cash to buy back the system.2 Cal-Am agreed to do the deal to avoid a jury trial, said Jim Mosher, who heads up the legal committee for Felton Friends of Locally Owned Water (FLOW).3 “This is a great victory for the citizens of Felton and should inspire other communities to challenge private water utilities that are extorting huge, unjustified rate increases and failing to protect sensitive watershed properties,” Mosher said. “The SLV Water District has done an excellent job representing us and we look forward to having them manage the Felton water system.”4 The agreement stated that Cal-Am would donate 250 acres of forested watershed land in return for a tax break. Mosher questioned, however, whether the land transfer is a donation, since the appraisal shows it to be an integral part of the deal and the price.5 The push for public water in Felton won its first success in July 2005 when FLOW spearheaded passage of “Measure W,” despite Cal-Am’s deep-pocketed opposition. The measure authorized an $11 million bond to buy the water system. The bond would be financed through higher taxes. The SLV Water District offered Cal-Am $7.6 million for Felton’s water system, but Cal-Am refused. Its leadership stated that the system was not for sale at any price and expressed its determination to oppose all public acquisition efforts. Apparently, Cal-Am wished to stem a domino effect of citizens taking control of their water resources.6 Felton’s petition to the California Public Utilities Commission to approve the proposed public buyout failed after the commission succumbed to heavy Cal-Am lobbying.7 Four months later, RWE announced it would sell its stake in American Water, including the Cal-Am division. The reason given was to focus on European energy investments. However, leaked minutes from an RWE board meeting reveal that “the German company was taken aback at the difficulties of turning a profit in the American water market, and that its initial estimates of efficiencies and rate increases were overly optimistic.”8 It also cited “considerable political resistance to privatization of the water sector” as a reason to exit the U.S. water market. When RWE offered up Cal-Am in an April 2008 initial public stock offering, the results were disappointing. RWE planned to offer shares for $24-$26, but at the last minute dropped the offering price to $22-$23. That still wasn’t enough and on opening day shares sold at $21.50 and the company only sold 36 percent of its shares. As stock analyst Bill Simpson summed it up: “... this IPO is nothing more than an exit strategy for parent company RWE.”9 Meanwhile, Felton residents did not back down. Its purchase offer brushed off, the community used eminent domain proceedings to force a buyout. Cal-Am responded by doing all it could to make the system seem more expensive. Its own appraisal valued the system at $25 million, far more than Felton’s $7.6 million offer. This appraisal was based in large part on Cal-Am’s assertion that the 250 acres of watershed land should be valued based on future revenues the acreage would generate through timber sales and commercial development, an appraisal method that the community hotly disputed.10 Eminent domain proceedings in California have two parts – the “right to take” hearing before a judge to determine whether the purchase serves the public interest, and a “valuation” trial in which a jury decides how much the property is worth. In both cases, Cal-Am’s tactics caused delays and increased expenses for the SLV Water District. In the end, the company conceded the public’s right to take the water system and settled the acquisition price without a trial.11 “We fought off every one of Cal-Am’s tactics to derail the process,” Mosher said. “But in the end, our position was completely vindicated.” In their successful six-year crusade for public water, the people of Felton have helped lead the way for numerous other U.S. communities fighting corporate control of water.

Questions

  • What lessons does the Felton case offer to other communities trying to return their water to public ownership and management?
  • How might a federal trust fund help struggling municipalities keep and improve their drinking water and waste water systems? How could such a fund help communities buy back systems from private operators?
  • What additional laws might help communities like Felton? How can we pass such legislation, both in the U.S. and around the world?

Notes and Links

Notes
  1. “Felton prevails in six-year fight to acquire water system from California-American Water and German multinational corporation RWE.” Felton FLOW news release, May 30, 2008.
  2. Ibid.
  3. Mosher, Jim. Personal interview. Legal counsel for Felton FLOW, June 2, 2008.
  4. Ibid.
  5. Ibid.
  6. Ibid.
  7. Ibid.
  8. Magyar, Chris J. “Crooked Pipes: FLOW prepares for the final battle against RWE for control of Felton’s water utility.” Good Times, March 19, 2008.
  9. “Wall Street unimpressed by IPO.” Felton FLOW news update, May 5, 2008.
  10. Mosher, Jim. Personal interview. Legal counsel for Felton FLOW, June 2, 2008.
  11. Ibid.
Links