Since NW Natural announced its expansion into the water utility sector this past December, the company has begun buying small water companies in Oregon, Idaho and Washington through a holding company it’s created.
Unlike NW Natural, which is investor-owned, the majority of Oregon’s water systems are government-run utilities, serving more than 95 percent of Oregonians. The largest private water company in Oregon serves just 13,000 customers in Bend.
The absence of big water in the region means there’s not much competition as NW Natural moves into the sector – although it’s not the only large company to do so recently. Last year, California’s SouthWest Water Company, which operates in six states, purchased Oregon’s Cline Butte utility near Redmond and Mountain Lakes water company near Klamath Falls.
“This is the third case I’ve heard of, so far this year, of a gas company seeking to expand into the water sector,” said Food and Water Watch’s Mary Grant. She oversees the advocacy group’s national Public Water for All campaign.
While the utilities NW Natural is attempting to acquire are already private, Grant said the gas company could be positioning itself to purchase municipal water systems as it continues to expand.
That’s what a Northeast gas company, Eversource, did after it moved into the water sector last year with the purchase of Aquarion Water Co., a private company that operates in Connecticut, Massachusetts and New Hampshire.
“Now that they have this private utility,” said Grant, “they’re also looking to buy up municipal systems.”
When cities are strapped for cash, or when their water infrastructure is in need of major repairs, an offer from a private company looking to buy their water utility can look very attractive. But most often, said Grant, companies will target cities that have budget deficits unrelated to their water systems and offer them large sums of upfront money to entice them into selling.
“We see that most sales of water systems aren’t related to the actual system,” she said, “but related to the financial condition of the city itself.”
NW Natural told Street Roots it’s not ready to discuss its water utility plans, but called its acquisition of Salmon Valley Water Company in Welches, Ore., and Falls Water Company in Idaho Falls, Idaho, “the first step in a broader strategy,” when it announced the move in December.
“The water utility sector has a risk profile and business model that is similar to our core gas utility,” read the company’s statement at that time. “There are also substantial investment opportunities over the long term, as water infrastructure needs to be replaced and upgraded to serve growing communities with safe, clean drinking water.”
Because the water utilities NW Natural is purchasing at this stage are already private, local ratepayer watchdog group, Oregon Citizens Utility Board, or CUB, isn’t waving any red flags.
There’s a need to phase out natural gas, so companies such as NW Natural will be looking for ways to diversify, said Bob Jenks, CUB’s executive director.
Moving into water makes sense for gas companies, which already have established relationships with the state regulatory agencies that oversee utilities, and already know the business of delivering those types of services.
“If they were buying public utilities, we’d view it differently,” Jenks said.
His colleague, CUB Advocacy Director Janice Thompson agrees. Thompson said if private companies were buying-up municipal-run water utilities, that would be a “more problematic trend” because major public assets would be lost to the private sector.
“Subsequent private company management doesn’t always deliver on promised cost savings because the financing of frequently-needed infrastructure improvements can be more expensive for private compared to public utilities,” Thompson said in an email.
Private companies have costs that public companies do not, such as income taxes and property taxes, and they don’t have access to municipal bonds and federal grants. All those extra costs are passed along to ratepayers.
A key finding of a 2016 Food and Water Watch report, “The State of Public Water in the United States,” found that on average, private companies charged 59 percent more than local governments for drinking water.
In Pennsylvania, where water company lobbyists have spent more than $1 million at the state level over the past decade, private water systems charge 84 percent more than public systems.
But even as privatized water expands in states such as Illinois and New Jersey, it decreased nationwide between 2007 and 2014. But privatization trends have become more difficult to track since 2015, said Grant, when the U.S. Environmental Protection Agency stopped making that data available. In 2014, 87 percent of the nation’s ratepayers got their water from publicly owned utilities.
On Monday, Aug. 6, Baltimore City Council voted unanimously to ban water privatization. The amendment to the city’s charter will go before voters this November, positioning Baltimore to become the first large city in the nation to prohibit the sale or lease of its water and sewer systems. This move came after multiple water companies expressed interest in purchasing the city’s system.
When mass water shutoffs in Flint and Detroit, Mich., made national headlines, the public knew the number of people who’d lost access to water because the utility was public. Grant said it’s unknown how many people lose access to water because of non-payment when the company shutting off their services is private.
“We’ve requested information from them, we’ve filed information act requests but they’re not subject to the information act requests,” Grant said. “They’re not talking to us, they’re not telling us how many people they shut off. And they’re an investor-owned utility – they don’t have to.”
One of Food and Water Watch’s biggest concerns, Grant said, is the revolving door between regulators and the private water industry. For example, before becoming the head of the National Association of Water Companies, the industry’s trade association, Robert Powelson was the head of the National Association of Regulatory Utility Commissioners – the industry’s regulators.
“These big companies, they have relationships with regulators, and they often seek to change state regulations that make it easier to increase rates on consumers,” she said. And that’s happened in states like New Jersey – where 40 percent of residents live in districts where the water utility has been privatized, and private water companies charge 79 percent more than public water utilities.
Grant said one piece of legislation making its way through state legislatures removes regulator oversight of water company purchase prices. In Oregon, this hasn’t happened, and the state’s Public Utility Commission is overseeing that detail of NW Natural’s acquisition of Salmon Valley Water.
But in states where this law has been passed, such as Indiana and California, Grant said, “a private water company can offer an inflated purchase price to a local government, which entices the government to sell, but then they also can automatically add that to their rate base.”
Grant said that in some cases, lawmakers might not realize what they’re signing off on when they pass legislation introduced on behalf of private water companies. “There is some really wonky legislation,” she said.
In Oregon, investor-owned utilities can’t raise rates without going through a public process overseen by the state’s Public Utility Commission. It will step in and regulate a water utility if it serves more than 500 customers or if its rates exceed certain thresholds.
“They can’t charge more than it costs them to provide service,” said Bruce Hellebuyck, a water program manager at the commission.
An investor-owned company has to make a return on its investments, and those returns are also calculated into the rates customers pay, he said. The percentage of the return is determined on a case-by-case basis.
The state commission regulates the rates and services of 32 Oregon water companies, and regulates the service but not the rates of about 40 more. Its system is complaint driven, and customers can file grievances through its Consumer Services Division.
Combined, Oregon’s regulated private water companies serve just 32,000 customers, Hellebuyck said.
When a regulated water company wants to raise its rates or change ownership, the commission investigates and its three governor-appointed commissioners either approve or deny the request. If it’s a sale, commissioners will approve it if it will not make services worse, or otherwise harm customers, and if it’s a rate increase that’s been requested, commissioners will approve it if it can be justified.
A vote on NW Natural’s acquisition of Salmon Valley Water Company has not yet been scheduled.
Email Senior Staff Reporter Emily Green at emily@streetroots.org. Follow her on Twitter @greenwrites.
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This article appears in 2018-08-10.