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American Water views W.Va. lawsuits as 'risk factor'

CHARLESTON, W.Va. -- American Water Works, the $7.8 billion parent company of West Virginia American Water Co., considers lawsuits resulting from the Elk River chemical leak one of several "risk factors" that the company faces, according to the company's annual report.In the report, filed Thursday with the federal Securities and Exchange Commission, the water utility says it will "vigorously contest" the 50 lawsuits that have been filed against the company and its affiliates."WVAWC and other company-affiliated entities named in any of the lawsuits have valid, meritorious defenses," the report says. "Nevertheless, an adverse outcome in one or more of the lawsuits could have a material adverse effect on the company's financial condition, results of operations, cash flows, liquidity and reputation."The company also says that it can't predict how ongoing investigations and pending legislation may impact it.The annual report does not say if any money has been set aside for the lawsuits, but says that the company will have "substantial defense costs."The report lists 26 risk factors that "should be considered in evaluating our business and future prospects."The risk factor related to the West Virginia leak says that the company's water sources could be contaminated, resulting in service interruption and human exposure to hazardous substances. This could subject the company to civil or criminal penalties, private litigation and cleanup obligations.Most of the 50 lawsuits filed against the water company also name Freedom Industries, the company responsible for the leak, as a defendant. But Freedom filed for bankruptcy soon after the leak and has said it will shut down entirely once it wraps up its affairs and finishes cleaning up its tank farm on the Elk River. So several lawyers have dropped Freedom as a defendant, predicting that the lawsuits will never come to fruition. Those lawsuits now charge only the water company.As of Wednesday, West Virginia American Water had spent about $4.5 million on its response to the water crisis, including testing, flushing pipes, providing bottled water and bulk water, among other items, said spokeswoman Laura Jordan.American Water Works is the largest for-profit water company in the country.It brought in more than $2.9 billion in revenue in 2013, according to the annual report. It had net profits of more than $369 million. It has total assets; most of which are property, treatment plants and equipment; worth more than $15 billion.
The company's stock price has gone up $2.15 per share, about 5 percent, since the Jan. 9 leak.In another filing made with the SEC, American Water said that its CEO, Jeffry Sterba, made about $3.7 million in 2012.The company provides water to more than 11 million people in 16 states. It provides water to about 600,000 people in West Virginia -- about a third of the state's population. About half of those people were affected by the chemical leak that contaminated the region's tap water with the toxic coal-cleaning chemical Crude MCHM.
Another risk factor that the company lists is an idea that was floated at protests and meetings in the wake of the water crisis: The possibility that cities could take back water systems through the use of eminent domain.About 16 percent of the country's water systems are owned by private companies, like American Water, according to the National Association of Water Companies, a group which represents private water companies.In its annual report, American Water lists several communities that are trying to make their water systems public, buying them from the company.Mooresville, Ind., where American Water has about 3,700 customers, filed a lawsuit in 2012 to condemn and acquire the water system there.The town offered the company $6.5 million. The company declined and said the system was worth $24.1 million. A court appointed appraiser valued the system at $14.5 million and a jury trial is scheduled for April to settle the case.Monterey, Calif., and Homer Glen and Bolingbrook, Ill., have also taken steps in the last few years toward taking their water systems back from American Water.
The company can contest eminent domain, but it warns that it may not be successful, that it might not get sufficient payment, that there can be costly legal fees and that the process can distract management from regular operations.Reach David Gutman at or 304-348-5119.  
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