German utilities giant RWE AG recently announced it wants to sell off its American and United Kingdom water operations, American Water and Thames Water respectively. RWE says it only wants to sell the units as two packages and is not interested in selling off the many subsidiaries of American Water and Thames Water separately.
The stock markets have praised RWE’s move. Financial analysts have noted for the last year that the water division is a drag on RWE’s bottom line and growth potential, so the stock price has suffered. Upon the announcement of the proposed sale, RWE’s stock price rose 2 per cent.
However, when private water companies decide they want out, it can create massive instability for the public. Municipalities go into high gear and mobilize precious resources to acquire water works or find other private operators to take over the service. All sorts of questions come up: Will rates change? Will service levels change? Will water safety get better or worse?
For example, look at the situation in Lexington, KY. Despite RWE stating it will only sell American Water as a whole entity, the city of Lexington – whose water services are provided by RWE/American Water subsidiary Kentucky American Water – is already dedicating ample city resources to the issue. The official RWE announcement to sell American Water came on Nov. 4, 2005. By Nov. 15, Lexington was presenting initial readings of resolutions and starting legal research on the issue.
Lexington city council introduced a resolution asking that Kentucky American Water be sold back to the city or a local group of private investors. However, American Water has said that Kentucky American is not for sale, only the entity known as American Water, representing 83 subsidiaries.
If Lexington’s water had stayed in public hands in the first place, all this would have been avoided. The bottom line is that water services and profits don’t mix.