A Closer Look: Veolia

Fact Sheet

A Closer Look: Veolia

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ased in Paris, France, Veolia is the largest water and wastewater corporation in the world, raking in $48 billion in revenue and $3.6 billion in income in 2007. Veolia operates in 67 countries worldwide and is the parent company of Veolia Water North America, the largest contract operator in North America, serving more than 14 million people throughout the United States, the Virgin Islands, New Brunswick and Ontario.

Veolia has been in the water business since 1853 albeit under a variety of names, including General-Des-Eaux, Connex and Onyx Environmental. The company adopted the name Veolia Environnement in 2003 when it was sold by former parent company and media conglomerate Vivendi Universal. The name was shortened to Veolia in 2005.1 Veolia’s track record in the United States since the 1990s includes privatization failures in communities large and small. After several of Veolia’s largest contracts — including those in New Orleans, Indianapolis and Puerto Rico — ran into serious snags, the company was forced to reconsider its strategy for turning water provision into a private profit-making venture. Since then, Veolia has set its sights on smaller U.S. contracts that bring fewer lawyers and consultants, said former CEO Joseph Burgess.2 Perhaps the corporation hopes community opposition will be less pronounced and local political leadership more easily influenced in small and midsized communities. The following case

After several of their largest contracts ran into serious snags, Veolia has set its sights on smaller U.S. contracts that bring fewer lawyers and consultants.

studies highlight the challenges Veolia has faced in the United States.

New Orleans: Anything But Easy Veolia’s involvement in New Orleans began in 1999 when it purchased USFilter, the company the city contracted to operate its sewer system. A major stain on Veolia’s record occurred here in 2001, when an electrical fire at the USFilter plant caused operators to divert raw sewage into the Mississippi River for two hours. The following year, the Black and Veatch consulting and engineering firm conducted an independent

• Non-union employees have seen their pension, health care and other benefits cut, costing them $50 million over the 20-year contract.8 • Local residents took Veolia to court a second time, claiming the company overcharged more than 250,000 customers.9 In October 2005, a federal grand jury subpoenaed four Veolia employees as part of an investigation into allegations that they falsified water quality reports. The probe began amid accusations by Indianapolis City-County Council members that Veolia’s local subsidiary had cut back on employees, water testing, purification chemicals and maintenance.10 Although the investigation resulted in no charges, the probe is just one of the many embarrassments marring Veolia’s tenure.

audit of the wastewater system, cataloging numerous environmental violations, including 29 discharge violations in 2001 alone.3 In 2002 Veolia’s bid for a combined water/wastewater contract in New Orleans was snubbed because of public outrage over the proposal. The New Orleans Sewerage and Water Board rejected the bid after a coalition of more than 90 faith, labor, community and environmental groups voiced concerns over the loss of accountability and transparency that would have accompanied the contract. In April 2004, New Orleans announced that it would no longer entertain private bids for the water/ wastewater system.4

Indianapolis: A Black Eye Veolia typically points to Indianapolis as a privatization success story, and in 2007 it even decided to move its North American headquarters to the city. But Americans, and the public employees that we trust to deliver safe and clean water, do not need a success like Indianapolis. In 2002, Veolia signed a 20-year, $1.1 billion contract to provide water service to more than 1 million people. Since then, problems ensued: • Local residents took Veolia to court, claiming the contract violated state law.5 • An employee error caused a boil-water alert for more than a million people, closing local businesses and canceling school for 40,000 students. Resulting supply shortages forced customers to cut their water usage during peak hours.6,7

The corporation has had to question its own performance, having sustained multimillion-dollar losses every year since the takeover. “We did lose money, more than we anticipated,” Veolia President Tim Hewitt said in a public statement. “We’ll get through this but have a black eye.”11 And Indianapolis consumers could be paying the price for Veolia’s financial woes. Indianapolis drinking water is the second worst in the nation — ranking 99th out of 100 large cities and receiving a failing grade for quality, according to a 2007 assessment by Men’s Health magazine.12

Indianapolis drinking water is the second worst in the nation — ranking 99th out of 100 large cities and receiving a failing grade for quality. Lee, MA: Veolia Targets the Little Guy Veolia has faced some of its most vigorous opposition in America’s smaller communities, such as the quiet western Massachusetts marble town of Lee – the “Gateway to the Berkshires.” After initially favoring the deal, in September 2004 town representatives voted overwhelmingly against turning over its water and sewer system to Veolia – the only company to respond to the town’s advertisement for a private operator. Veolia said it could save the city $6 million over 20 years, but residents grew uneasy with the arrangement

Other Notable Failures Puerto Rico – In 2001, Puerto Rico’s newly elected government decided against renewing a $145 million annual contract with Veolia, which had operated the water and sewer systems since 1995. A government commission found the company had racked up $695 million in operational losses, $6.2 million in fines and more than 3,000 operational, maintenance and administrative deficiencies.16 Rockland, MA – In 2004, this town of 18,000 people canceled a contract with Veolia to operate the city’s sewage plant after state officials found the agreement may have illegally tailored the contract to Veolia.17,18 That same year, a Veolia employee was convicted of stealing more than $300,000 from the city by submitting phony invoices and intercepting reimbursement checks.19,20 In 2007, a U.S. District Court found that the Veolia subsidiary acted “acted unfairly and deceptively” to win the contract, and fined the corporation more than $230,000, doubling the amount of actual damages because of its “willful misconduct.”21 Angleton, TX – In 2004, Angleton terminated its contract with Veolia and took the company to court, charging it breached its contract by failing to maintain adequate staffing levels, not submitting capital project reports, and charging improper expenses to the maintenance and repair tab picked up by the city.22 Lynn, MA – In 2004, the city ended a wastewater overflow plant contract with Veolia because the company failed to stay adequately bonded for the project.

when they read the fine print. Made public only days before the vote, the contract allowed the town only limited access to documents and lacked a credible cost estimate against which promised savings could be measured.13 The Berkshire Eagle newspaper published letters to the editor by the score. Opponents packed special town meetings at the local high school. And the city’s public works staff staged a protest in front of City Hall. “They may tell you that you’ll save money, but you won’t,” one town employee said. “I think we should do this ourselves.”14 Endnotes 1 “About Veolia.” Veolia Environnement. Accessed on April 22, 2008 at www.veoliaenvironnement.com/en/group. 2 “PWF’s 12th annual water outsourcing report.” Public Works Financing. 225:1. March 2008. 3 “Report on Operations for 2001,” Sewerage and Water Board of New Orleans, Black and Veatch Corp., July 16, 2002, p. 63. 4 Carr, Martha and Russell, Gordon. “Company bails out of N.O. sewer bid.” New Orleans Times-Picayune, May 5, 2006. 5 Kelly, Fred. “Utility’s management not legal, suit claims.” Indianapolis Star, Aug. 3, 2004. 6 Fritze, John. “Inquiry: Typo led to boil advisory.” Indianapolis Star, Jan. 19, 2005. 7 Hupp, Staci. “No fines likely for water company,” Indianapolis Star, Jan. 8, 2005. 8 Miller, Jack. “More troubled water: Problems plague Indy’s water company,” Nuvo, April 7, 2004. 9 Russell, John. “Water utility overbills users, lawsuit says.” Indianapolis Star, April 24, 2008. 10 O’Shaugnessy, Brendan. “Water company awash in controversy.” Indianapolis Star, Oct. 7, 2005. 11 Ibid. 12 “Drinking problem? How clean is your drinking water?” Men’s Health magazine, 22(2):80, March 2007. 13 Draft service agreement between Town of Lee and Veolia, August 2004. 14 Gentile, Derek. “Opponents of Lee water system plan pack auditorium.” Berkshire Eagle, Sept. 3, 2004. 15 Gentile, Derek. “Lee protesters decry privatization.” Berkshire Eagle, Sept. 2, 2004. 16 Ruiz-Marrero, Carmelo. “Water company near collapse.” Rios Vivos, May 26, 2001.

Three weeks before the vote, one of Veolia’s vice presidents, Christopher Hodgkins, prematurely announced, “Yeah, we wrapped it up.”15 Not only did Veolia lose the contract, Hodgkins lost his position as town moderator in the following spring elections.

17 2003 Annual Report. Office of the Inspector General, Commonwealth of Massachusetts, June 2004. 18 Stockton, Paysha. “$1.63M sought from exoperator of sewer plant.” Quincy Patriot Ledger, May 22, 2004. 19 Stockton, Paysha. “Ex-official admits stealing thousands from Rockland.” Boston Globe, Sept. 30, 2004. 20 Stockton, Paysha. “Manager pleads guilty in sewer case.” Boston Globe, Nov. 11, 2004. 21 “Professional Services Group, Inc. v. Town of Rockland, et al.” op. cit. 22 “Court date set for USFilter dispute.” The Brazoria County Facts (Texas), April 11, 2004. 23 “Initial vote slated in Lee on privatizing water system.” Berkshire Eagle, July 2004.

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