A federal grand jury, meanwhile, is investigating allegations that Veolia's Indianapolis unit falsified water-quality data.
Peter Gleick, president of the Pacific Institute, an Oakland think tank that studies water issues, said the rhetoric of privatization "has run into the brick wall of reality."
"I'm not opposed to privatization. I'm opposed to bad privatization," Gleick said. "If privatization is going to work, there really needs to be clear protection of the public good and clear standards for performance."
The water companies say the vast majority of cities are satisfied with their performance. In recent years, they say, more than 90% of municipalities with private water or sewer operators extended their contracts when they came up for renewal.
"We've had some jobs where we haven't done a fantastic job," said Scott Edwards, a vice president of Veolia Water North America. "But we have largely done a fabulous job.... We believe in what we do. We believe our story and we believe in the day-to-day results."
Veolia and Suez, the world's two largest water companies, moved aggressively into the American market in 1999.
Veolia spent $6 billion to acquire the nation's largest water company, USFilter. Suez, which already owned a third of United Water, a private firm based in Harrington Park, N.J., spent $1 billion to buy the entire company.
In 2003, Germany's RWE AG purchased American Water Works Co., based in Vorhees, N.J.
The European companies touted their size, financial wherewithal and expertise and they cultivated friends in city halls, state legislatures and Congress. They promised to provide solutions for cities struggling with aging pipes, tight budgets and tough environmental regulations. Over the last decade, major water firms have made more than $4 million in federal campaign contributions, according to the nonpartisan Center for Responsive Politics. The industry also has given generously to the U.S. Conference of Mayors.
The mayors' conference helped spark the industry's growth by lobbying the Clinton administration to strike an Internal Revenue Service rule that limited municipal utility management contracts to five years. The 1997 rule change cleared the way for 20-year deals.
The water companies say long-term contracts allow them to spread capital improvement and operating expenses over decades and provide lower-cost service. With the IRS change, the number of "public-private" water partnerships in the United States rose from about 400 in 1997 to 1,100 in 2003.
