A California Town Beats Back the Water Cartel

by Rachel Aronowitz, Terrain, Berkeley, CA

After a nearly six-year fight to acquire its water system from the German-owned corporate energy behemoth, RWE (Rheinisch-Westfälisches Elektrizitätswerk AG), residents of Felton, Calif., prevailed in regaining local control of their water.

Since the 1800’s, the small town of Felton, nestled along the coastal redwoods outside Santa Cruz, had no real problems with the private ownership of their water. This all changed in 2001 when then-owner, privately held Citizen Utilities, sold the water system to Cal-Am or California-American whose parent company is American Water. Though these names sound very local, the subsidiaries ultimately answer to Germany’s RWE, which is the third largest private water company in the world. RWE is also one of the world’s largest energy giants, with more than 640 subsidiaries worldwide and annual revenues of more than $50 billion. It is one of the world’s top suppliers of electricity and natural gas, with operations across Europe, Asia, North and South America, Africa and Australia. It provides water and wastewater services to 18 million customers in 29 states in the US.

Immediately after the acquisition was finalized, Cal-Am asked the California Public Utilities Commission (PUC) for a 78% rate hike. Cal-Am’s justification was that the system was old and they incurred many expenses through the sale. According to Felton activist Jim Mosher, they used the argument that “people don’t understand the true cost of water,” and hoped they would get what they asked for.

When Felton residents heard about the rate hike, they immediately mobilized, gathering in the local firehouse. At this initial gathering, they formed a citizens group called FLOW, or Friends of Local Water, and vowed to buy back their water system. The county supported FLOW’s plan, quickly agreeing to contribute $127,000 in legal fees, and the fight began. Despite the public outcry, the PUC allowed Cal-Am a still exorbitant 44% rate hike. Soon after this was finalized, Cal-Am came back with yet another request for a rate hike of 60%.

FLOW met to plan their strategy, but after the PUC decision, the county said it couldn’t contribute to the legal fees. This didn’t stop the determined members of FLOW who relied on old-fashioned community dances, bake sales and garage sales to raise money. Luckily, the lawyers took on the job and trusted they would be compensated later.

Finances started to look up when FLOW eventually realized they could qualify for “intervener compensation” to pay for their expenses to fight the second rate hike and received another $60,000 in lawyers fees from the county. The Intervener Compensation Program is intended to ensure that individuals and groups that represent residential or small commercial utility customers have the financial resources to bring their concerns and interests to the PUC during formal proceedings.

Founding FLOW member and PR director Jim Graham explains that with about 70 committed volunteers, FLOW’s strategy consisted of contacting over 1,000 local households at least three times to create “one-on-one contact.” Members went door to door in their neighborhoods. They believed it was important for residents to see the faces of everyone who was involved in the fight. Volunteers even gave out their personal cell phone numbers to be available for any questions they could answer from their neighbors. Graham recalls that the overriding concern of local residents was whether or not their bills would go up. “What is this going to cost me?” they asked. FLOW members explained that even if local property taxes increased it would still be in the best financial interests of Felton residents to go ahead with the buyout.

In order to go forward with the plan to purchase the system, residents had to put a measure on the city of Felton’s ballot that would raise a sufficient pot of money. Measure W was created, which would raise $11 million in property taxes—hopefully a large enough amount to purchase the water system. According to Graham, Cal-Am reacted to the creation of Measure W with a “campaign of misinformation”—including leaflets that tried to convince residents they would get the raw end of the deal if the measure passed.

Graham tells the story of how FLOW “got a lucky break when an anonymous party sent a copy of Cal-Am’s strategy book to the FLOW office, which included dirty tricks such as what is referred to as “push polling”—an the hiring of consultants to cold-call residents and elicit angry reactions on hot-button issues, and then forward the manipulated calls to a local officials. In this way, the official receives hundreds of messages from residents saying exactly what the company wants them to say. Cal-Am tried this tactic in Monterey, Calif., where residents are currently trying to buy back their water system.

On July 31, 2005, Measure W passed by a whopping 74.8%. With the support of Felton tax payers, Santa Cruz County was now prepared to approach Cal-Am with a bid. The San Lorenzo Valley Water District offered California-American $7.6 million, but Cal-Am refused to sell. Its leadership stated, flatly, that the system was not for sale at any price and expressed its determination to oppose all public acquisition efforts so that Felton did not start a domino effect of citizens taking control of their water resources.

Without the cooperation of Cal-Am, the county and Felton residents continued full-speed ahead and entered into the eminent domain process. Graham says this turn of events was completely expected and “is a common tactic when water companies refuse offers from the public.”

The eminent domain process required that the county hire an appraiser to calculate the value of the water system in preparation for a new purchase price. This included the watershed lands and associated infrastructure.

Graham noticed that while the government looked at the actual revenue or income of the company, which was about $100,000 a year, Cal-Am looked at the “fair market value.” Therefore, the two parties came up with wildly different amounts. While the county’s valuation was around $10 million, Cal-Am’s was closer to $25 million.

However, just before an eminent domain trial could move forward, a mediator was brought in and the two parties quickly settled on a price of $10.4 million. Graham believes that “Am-Water wanted to avoid a trial because it would bring them bad press, and show that their high-risk valuation was a fallacy which would end up on public record.”

With the water now in local hands, residents found that their biggest worry—that they wouldn’t actually end up with affordable monthly water bills to the new owner, the San Lorenzo Valley Water District—was mostly unfounded. While a small percentage of Felton residents are paying more because their property taxes exceed $600 a year, in a few years this discrepancy will even out and bills will become increasingly more affordable. Graham admits “Yes, we paid a little more than we would have liked, but we won!”

With all their hard-gained knowledge and experience after the long six year battle, FLOW continues to fight the good fight by educating other communities around the country that are interested in taking back local water rights form corporate control. Inspired by this unlikely victory, citizens and their elected officials are hopeful that they can restore local, democratic controlof their water systems.

Jim Graham and others are now preparing to head to Speckles, Calif., which lies just outside the town of Salinas. Local residents are looking at a 100% increase from Cal-Am and are in the initial stages of organizing. He plans to talk with locals about their own battle plans, discuss their options and give them the hope and skills necessary to inspire residents to fight back.

More and more, communities are realizing that they don’t want their water to be owned by corporations who put their profits ahead of affordability. Residents in Illinois, Kentucky, Indiana, West Virginia, Ontario, Canada and throughout California are turning to local officials and to their neighbors to take back control of local utilities. Seeing the writing on the wall, RWE recently announced that due to the growing opposition to rate increases and water privitization at the local level, it is getting out of the water business altogether and plans to sell American Water.

In addition, RWE announced on their web page to concerned stockholders that “the benefits anticipated from creating a global water business did not materialize. Water is a local business and although economies of scale can be realized locally and regionally, this has not proved possible on a global scale.”


A version of this story will appear in an upcoming issue of Terrain Magazine of Berkeley, Calif.


Felton FLOW


Reprinted by World War 4 Report, Dec. 1, 2008
Reprinting permissible with attribution