American Water Works Company

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American Water Works Company

1025 Laurel Oak Road
Voorhees, New Jersey 08043
U.S.A.
(609) 346-8200
Fax: (609) 346-8360

Public Company
Incorporated: 1936 in Delaware
Employees: 4,000
Revenues: $632,958,000 (1991)
Stock Exchange: New York

American Water Works Company, the largest investor-owned water supply company in the United States with 21 operating subsidiary companies serviced by 4,000 employees in 20 states that provide drinking water to 1.5 million customers, was an aging vestige of a divested holding company when it was purchased in 1947 by John H. Ware, Jr., an eighth-grade dropout and self-made millionaire who was interested in acquiring small water companies. Ware, who later took engineering courses from Drexel University in Philadelphia, used the money he made to buy water companies in a series of successful smaller ventures that included several electrical contracting companies and, by 1947, he was able to raise $13 million in capital.

That year, Ware learned that another company—the American Water Works and Guarantee Company—was coming up for sale as the result of the Public Utility Holding Act of 1935, a law that the company fought bitterly in the United States Supreme Court. The 1935 law, adopted as part of the New Deal legislation fostered by the administration of President Franklin D. Roosevelt, proscribed the organization of multiple-layered, public utility holding companies. Further, it required that such multi-layered holding companies that owned gas and electric utility operating companies and other utility operating companies, such as water companies, in a variety of geographic locations be broken up into smaller, independent companies.

American Water Works and Guarantee Company was a prime example of the type of multi-layered holding company that the 1935 law was intended to abolish. The holding company owned several electric utility operating companies in western Pennsylvania, West Virginia, Maryland and Virginia, and about 80 local water companies in the eastern, southern, and midwestern United States. American Water Works and Guarantee Company unsuccessfully lobbied the Roosevelt administration to fight the law and, after it was passed by Congress and signed into law by President Roosevelt, the company joined the North American Company, another huge public utility holding company, in an action before the U.S. Supreme Court to have the law declared unconstitutional. That suit was not settled until 1946, when the Supreme Court found that the 11-year-old law was, indeed, constitutional.

That suit notwithstanding, American Water Works and Guarantee Company became, in 1937, the first utility holding company to file a plan of reorganization with the federal government, as the law required. As it was approved in 1937, the plan called for a simple reorganization of the holding company to reduce its layers, and it required the company to divest itself of real estate holdings—development properties—in California. The reorganization of the company was to cost about $60 million and was seen as a milestone when it was approved by the United State Securities and Exchange Commission because it demonstrated that the federal regulatory agency could act benevolently when utility holding companies cooperated.

The company revised that reorganization plan in 1946, when it realized that its inability to pay stock dividends for the previous eight years would make the investment community reluctant to put its money into the company. The reorganization plan had the company selling its cash cow, its water works business, to finance the restructuring. The company’s management thought that the company’s existing shareholders would bid on the company’s stock through sealed bids, and that nothing would change in the company’s management or way of doing business. Management also expected its stock to be sold at $10 a share or more in the sealed bidding process. Ware, who was an unknown entity to the managers, submitted the only bid for the company, at $8 per share. He invested the entire $13 million that he had available—and won a company with assets of $183 million that included what executives who worked with Ware in the early years described as broken down and decrepit water works facilities and pipelines.

The previous managers left with Ware’s purchase of the company, and he brought in his own management team that included Lawrence T. (Bill) Reinicker and John J. (Jack) Barr. Reinicker was skilled as an operations manager, while Barr was Ware’s financial expert. Both joined Ware in his earlier ventures in the late 1930s, and both were named vice-presidents of American Water Works Company. The company Ware, Reinicker and Barr took over included electrical utilities, but Ware primarily was interested in only the water utility operating units. He bid on the entire company to gain a 51 percent ownership share when his financial advisers told him the $13 million in cash that he was able to scrape together would not be enough to buy the company or its water works assets outright, and he consolidated his ownership in the ensuing years.

Within a few years Ware spun off the electrical power business, and the water company became American Water Works Company Inc. John Ware moved his companies six times in the eight years between 1942 and 1950, to various office buildings in New York City, Camden, New Jersey, and back to New York City, before he finally moved the company to new headquarters at Three Penn Center in Philadelphia in 1955, and where it remained until 1976.

Ware bought and sold smaller water companies at a fast pace during his first few years of owning American Water Works Company. Where cities wanted to own and operate their own water systems, he divested, sometimes after bitter feuds; where municipal utility operations were too small to grow or to remain afloat on their own, he acquired them and, where new projects were needed, Ware stepped in with his company’s deep financial pockets to establish viable water systems. American Water Works, with its economy of scale and the drive Ware supplied, was able to afford the costly improvements to water systems and the maintenance of water systems that were being taxed by the demands of development in the United States during the boom years of the 1950s and 1960s, and the improvements required by increasing environmental legislation in the 1970s.

In Alexandria, a building boom was spurred in the late 1940s by the U.S. government’s decision to build what was to be the largest office building in the world—the Pentagon—to house the staff offices of the U.S. armed forces. The prospects for growth helped to launch in 1948 the young company’s largest project, the building of a dam and reservoir on the Occoquan River, complete with pumping and treatment stations. However, a move by local government to acquire the Alexandria water company and operate it as a community-owned utility forced the company into a fierce court battle that ended with the American Water Works Company losing the Alexandria system in 1966.

In 1953, Bill Reinicker was named president of American Water Works Company, and he was named vice chairman in 1954 before he retired at the age of 61 in 1955. When Reinicker became vice-chairman in 1954, Jack Barr was named president of the company and effectively became its chief executive and chief operating officer, while Ware continued as chairman of the company until he retired in 1960. Barr served as president of the company until 1975 when he retired at the age of 61. Ware was succeeded as chairman of the company by his son, John H. Ware III, who served the company as chairman until 1984.

Barr oversaw the company’s growth through the 1960s, a period when American Water Works continued its acquisitions of smaller companies at the same time it spent huge amounts of money to renovate and build new water treatment, pumping, and storage facilities. One of the largest acquisitions the company made during this period was that of International Utilities, which was later known as UI International, another large owner of water utility operating companies. Barr also began the work of consolidating many of the small water utility operating companies that had been acquired over the years.

When Jack Barr retired from the company in 1975, John A. Gubanich, whose background, like Jack Barr’s, was in finance, was named president of the company. Gubanich was the former treasurer of the company, and he was given credit for greatly increasing the company’s profit in the late 1960s and early 1970s. During his eight-year term as president of the company, Gubanich continued the work of consolidating the many smaller water companies that American Water Works owned, installing a uniform and centralized management system in them, and merging many of the smaller companies into larger, regional operations. By the end of Gubanich’s term as president, American Water Works Company had only 33 operating units, a drastic reduction from the 151 companies that the company owned or acquired from its founding.

Gubanich also worked to broaden the American Water Works board to include outside directors, thereby bringing in directors whose business acumen could serve the company. One of the directors Gubanich brought in was Philadelphia banker Sam Ballam. Ballam became the first outside chief executive of the company in 1984 when he was named chairman of the board; and he served until 1987 when the daughter of John H. Ware III, Marilyn Ware Lewis, became chairman of the company. The stagnant growth and high inflation that marked the 1970s left the company strapped for money. To meet the challenge, Gubanich ushered in a series of cost-cutting moves that included merging several operating units and relocating, in 1976, the corporation’s headquarters from Philadelphia to Voorhees, New Jersey.

In 1984, Gubanich was succeeded as president of the company by James V. LaFrankie as president of the company. LaFrankie had been with American Water Works Company almost from the day that John Ware bought it, and rose through the ranks of various operating units. LaFrankie was the first president of the company from the operations side since Bill Reinicker retired in 1955, and he continued the consolidation of the company’s operating units so that by the early 1990s the company had 21 subsidiaries.

Marilyn Ware Lewis, who was named chairman of American Water Works Company Inc. in 1987, recalled in a 1989 interview with the Lancaster (Pennsylvania) New Era, that her grandfather told her when she was a little girl that the availability of water would be one of the most significant issues that her generation would face. Ms. Lewis told the newspaper that such suggestions from her grandfather, John H. Ware Jr., convinced her at an early age that water is the single most essential commodity in a household and that she, like her grandfather, had come to believe that a company that efficiently treats and supplies clean drinking water to its customers could be a very profitable enterprise.

As aquifers are being drained of their fresh water, as cities grow and demand more from their readily available sources of water, and as the demand for fresh water for irrigation continues, the cost of supplying fresh water is expected to rise and consumers are expected to continue to pay increasing rates for water delivery. Traditionally, increased utility rates have promulgated calls for the public takeover of private, investor-held utilities, but an increasing number of water utilities, including the American Water Works Company, hope to prevent customer dissatisfaction by improving the quality and increasing the regional nature of their services.

Principal Subsidiaries

New Jersey-American Water Company; New York-American Water Company; Illinois-American Water Company; Indiana-American Water Company; Iowa-American Water Company; Missouri-American Water Company; Ohio-American Water Company; Paradise Valley Water Company; California-American Water Company; New Mexico-American Water Company; Kentucky-American Water Company; Maryland-American Water Company; Tennessee-American Water Company; Virginia-American Water Company; West Virginia-American Water Company; Massachusetts-American Water Company; Salisbury Water Supply Company; Hampton Water-Works Company; American Commonwealth Company; Occoquan Land Corp.; Utility Services Associates Inc.; American Commonwealth Management Services Company; Pennsylvania-American Water Company.