‘Corporate vultures’: how Americans fearing higher water bills are fighting takeovers

The Octoraro reservoir is a lake in south-east Pennsylvania where locals fish, kayak and marvel at bald eagles and owls. It’s a picturesque scene but in the neighbourhoods nearby there are placards that carry warnings.

“No to Big Water”, the signs say, and “Save CWA”.

The signs show the local opposition to a hostile takeover effort by Aqua Water, one of the country’s biggest private water companies, against the public utility Chester Water Authority (CWA), which owns the reservoir and bordering woodland.

The CWA relies on the watershed to provide drinking water to about 200,000 people in Delaware and Chester counties. It’s an award-winning public utility that is financially robust and delivers safe, clean and affordable water. It does not need a bailout.

Campaigners say the battle here, which started in 2017, should be a wake-up call for residents around the US, as privatization often means higher bills.

“This takeover is about putting money over people’s needs – it’s corporate greed,” said Delaware county resident Santo Mazzeo, 42, a high school maths teacher with three children working two jobs to make ends meet.

“Water is the stuff of life, it’s a fundamental human right which should be run by the people for the people, not for profits,” added Mazzeo, who in his spare time delivers the anti-takeover signs to neighbours.

But CWA is vulnerable because the sale could help rescue one small city in Delaware county on the brink of bankruptcy.

Private companies mostly target financially distressed local governments and utilities looking for cash injections to clear debts, upgrade infrastructure or fund popular public services without raising taxes. Industry friendly laws means this often comes at a cost for residents: nationwide, one in 10 people currently depend on private water companies, whose bills are on average almost 60% higher than those supplied by public utilities.

In Pennsylvania, Aqua already owns numerous utilities and its most recent rates proposal would, if approved by the state regulator, lead to almost half a million households paying on average 17% more for their drinking water than they currently pay. Wastewater bills would rise by 33%.

CWA warns that the Aqua deal could cost its customers more than $1bn in higher bills over the next 20 years – and threatens public access to the reservoir and its landholdings, 2,000 acres that protects the watershed and wildlife.

“We pride ourselves on providing quality water that our residents can afford. We’re not in any trouble, and we’re the best custodians of this precious natural resource because we don’t have to worry about shareholders or dividends,” said Cindy Leitzell, chair of the CWA board.

Nationwide, dozens of new privatisation deals are under consideration, according to Global Water Intelligence, with 14 major acquisitions (each worth at least $10m) pending across five states, with a combined value of almost $800m, according to S&P Global Market Intelligence.

“For more than a decade, these corporations have waged a successful lobbying campaign to support state laws that facilitate privatisation and ensuing water rate hikes…. the public must be on the guard to protect their essential water services from the corporate vultures trying to exploit fiscal distress,” said Mary Grant, the right to water campaign director at Food and Water Watch (FWW).

Analysis by FWW of four of Aqua’s largest Pennsylvania acquisitions found rates increased by an average of 280% – the equivalent of 8% per year – after adjusting for inflation.

“Water corporations have become increasingly aggressive and even the best-run water systems like CWA are under attack, which should sound the alarms for communities nationwide,” Grant said.

‘First class operation’

Federal funding for water systems peaked in 1977, and since then municipal utilities have mostly depended on rate hikes and credit to fund infrastructure upgrades, water safety mandates and climate adaptation. As a result, the cost of water and sewage has risen sharply over the past decade or so, making this basic service an increasing burden for many Americans, a Guardian investigation found.

Still, the funding shortfall remains gob smacking, which has been further exacerbated by billions of dollars in unpaid bills during the pandemic.

According to the Environmental Protection Agency, drinking water, wastewater and stormwater systems need at least $744bn over the next 20 years just to comply with existing federal law. An additional $1tn is required by 2050 to protect water infrastructure from extreme weather events and sea level rise linked to global heating, according to the National Association of Clean Water Agencies.

But CWA is not struggling. Its well-planned upgrades – such as building a new pump station on higher ground to avoid flooding and a multimillion dollar state of the art leak detection system – have helped avoid unexpected costs and catastrophes. CWA recently increased its rates for the first time since 2010.

“This is a first class operation which is not financially stressed in any shape or form because we’ve always looked ahead and don’t answer to shareholders. Quality and quantity are problems in this industry, but we have both, which makes us a prize that Aqua wants,” said Paul Andriole, CWA’s vice-chair.

At its water treatment plant, where a dozen or more awards are displayed in the lobby, 60m gallons of water drawn from the reservoir and Susquehanna river are processed every day. It’s a 24/7 operation with an in-house laboratory to aid compliance with environmental standards.

“We meet or exceed EPA standards, we do not have quality or safety violations that could justify our sale. It’s a struggle but we can handle it,” said Anita Martin, chief lab technician.

Should CWA save Chester from bankruptcy?

CWA was created by the city of Chester – Pennsylvania’s oldest city and a former industrial powerhouse which has experienced significant economic and population decline since the mid 20th century.

The majority Black city is an environmental justice hotspot: its 32,000 or so residents are burdened with poor air quality caused by heavy industries including the country’s largest trash incinerator, and have limited access to green spaces and healthy affordable groceries.

The city of Chester has been subject to state financial oversight since the mid-1990s due to mounting debts and inflated police pensions, but was pushed to the brink of bankruptcy in 2020 after a major revenue stream, the casino, was closed due to Covid.

A large cash injection – along with reducing retiree benefits – is crucial to making the city solvent, according to Michael Doweary, the court-appointed receiver. “This is a difficult situation but CWA is the city’s only asset large enough to generate enough money to meet its debt obligation and reinvest in the city, which for years has been on a shoestring budget.”

But, critics say the sale would hurt city residents, about a third of whom live in poverty.

Based on Aqua’s proposed statewide rate increase for its existing customers, Chester city residents could be saddled with bills more than double what they pay now, according to a comparison tool devised by CWA. The average water bill burden would be 3.3% of median household income, a level generally deemed unaffordable by the UN. (The mayor has said some of the sale money could be used to offset rate increases for a decade.)

Kearni Warren, 45, an energy justice organiser who lives in Chester, said: “We don’t have clean air, green spaces or healthy food options, but affordable clean water is the one healthy thing we do have, and the city wants to sell it off… It will harm residents and thousands of ratepayers outside the city.”

Chester city created CWA but the vast majority (81%) of its customers now live outside city boundaries – in the suburbs of Chester and Delaware counties which have separate local governments. Given this, the city’s right to sell CWA has been contested.

Last September an appeals court ruled that the fate of CWA rested in the hands of the city, as it created the utility. CWA lodged an appeal to the Pennsylvania supreme court.

In an amicus brief supporting the appeal, FWW argues that Aqua’s actions constitute a hostile takeover, and that CWA should be treated as a public trust responsible for managing water supplies for the benefit of the people, not as a commodity.

Why do private water customers pay more?

In 2016, Pennsylvania became the first state to pass legislation that allows private companies to buy public utilities for more than they are worth – relying on what’s known as fair market value rather than depreciated value. Companies can recoup the over-priced investments by passing on the cost to all their customers through statewide rate hikes, meaning residents pay while shareholders reap the rewards.

The law led to a merger frenzy in Pennsylvania and at least 11 states have since passed similar laws, driving up water and wastewater bills, according to the Government Accountability Office. In some states, healthy public utilities – not just those in financial trouble – are eligible for takeover.

In Pennsylvania, a third of residents are served by private water companies – triple the national average – and their bills are on average 84% more than those with public providers.

In 2017, a year after the fair market law (Act 12) was passed, Aqua made an unsolicited bid to CWA for $320m – which the nine-person board unanimously rejected after concluding there would be no benefit to its residents.

As Aqua persisted, in 2019 CWA made a counter offer worth $60m to help bail out the city in exchange for protection from future hostile bids. Aqua filed a lawsuit to stop the deal.

There are now three offers on the table, including $410m from Aqua – the second highest but city’s preferred bid, which includes a $12m advance irrespective of the litigation outcome. Michael Doweary, Chester city’s court appointed receiver, said his team is exploring ways to keep the water authority in public hands, but CWA’s $60m bid isn’t enough. (Aqua’s rival, Pennsylvania American Water, has bid $425m.)

With more than a dozen pending lawsuits, the case could be tied up in court for years. If sold, it would be up to the court to determine the city’s share of the proceeds.

Aqua is now a subsidiary of Essential Utilities, the second largest publicly traded US water and wastewater corporation, currently valued at $12.5bn.

It provides drinking water and wastewater to about 3.25 million people (1m households) in eight states, with over half in Pennsylvania, where the company is headquartered and has close ties to the state government.

Aqua has at least half a dozen new deals pending regulatory approval in the state. In addition, the Guardian understands that the company has approached Bucks county’s water and sewer authority (BCWSA), another robust public utility, about a possible $1bn offer, which would be among the biggest water privatisation deals in US history, affecting half a million residents. (Aqua said it has not made a bid; the county commissioner office and BCWSA declined to comment.)

In a statement, Aqua said its actions related to CWA did not amount to a hostile takeover and that it was committed to keeping the reservoir open to the public. It said that public utilities like CWA are unregulated and typically untransparent about rates and capital investments. “Aqua’s rates reflect its true cost of service, which includes investments necessary to provide high quality service, safe working conditions and protection of the environment. Lower rates often indicate deferred maintenance and old, outdated facilities, which can lead to service interruptions and water quality and wastewater discharge violations.”

New Garden Township is a scenic rural area in Chester county with well-to-do families, retirement villages and migrant communities concentrated around multiple mushroom farms.

Its wastewater system, which supplies about half the township’s residents, was Aqua’s first in the state after the fair market law changes – in a deal worth $29m. Some of the money was used to build a new police station and offset future tax increases.

If Aqua’s rate hike is approved by the regulator, residents will see average wastewater bills rise by approximately 37% later this year – much higher than the rate cap promised during initial negotiations. This has generated anger and mistrust among residents opposed to the takeover. Going forward, residents will probably share the cost of Aqua’s future acquisitions – including CWA, the community’s water provider.

Margo Woodacre, 72, a retired social worker and part-time English teacher, said: “It’s the dishonesty and unfairness that’s made me go door to door educating businesses and residents, so they know what’s coming if we lose CWA.”