Privatization on tap.

In 1961, when James Barr joined American Water Works (AWW), where his father John Barr Jr. was chairman and CEO (1955-1984), he started as a radio dispatcher, bunching keys from customers' homes hanging in the company's storage box for the meter-readers' routes. Today, Barr, as the president and CEO, holds the keys to the largest and most geographically diverse of the nation's 16 publicly owned water utilities at a time when there are many different doors to open.

"Folks used to talk about the water company as being a little building under the bridge along the side of the riverbank as you came into town," Barr muses. That "little building" now houses the dominant player in the country's last regulated monopoly. Supplying more than 7 million people in 22 states with more than 256 billion gallons of water annually, AWW is, well, gushing.

Some 60,000 companies supply clean water - and remove wastewater - from homes and businesses nationwide. Most small municipal utilities are hard-pressed to comply with the federal Safe Water Acts of 1974 and 1996 and individual state referenda requiring filtration. Many face staggering upgrade costs. And the 85 percent who now receive government subsidies soon won't, says Barr. Many of these beleaguered companies are considering selling out or contracting their services; their ranks should swell next year when the federal government requires water suppliers to issue report cards to their users, with many smaller ones revealing inferior products.

But even as opportunity overflows, interlopers are angling to tap into this market. Enron is purchasing a water system in Wessex, England. NIPSCO Industries, parent of gas and electric companies in Indiana, bought water company IWC Resources Corp. Foreign investors have also been drawn by the water pressure. France's Lyonnaise has bought American's largest competitor, United Water Resources, which recently won the right to manage Atlanta's water system for an annual fee of $21.4 million. And Vivendi has bought a stake in Philadelphia Suburban Corp.

Still more than twice as large as its nearest competitor, AWW maintains a staff focused on compliance. With easy access to debt and equity markets, it can pay for infrastructure upgrades. And because it maintains good relationships with the Environmental Protection Agency, AWW management is often called upon to provide input on proposed regulations, and thus prepare well in advance of any new developments. "Circumstances have forced smaller systems into our arms," says Barr.

Those arms have been busy. In 1997, AWW acquired 25 utilities. Last year it completed another 22 acquisitions and signed agreements - which await regulatory approvals - to buy 23 more. The coup was snagging National Enterprises, in February for $700 million in a tax-free stock swap. The largest water utility acquisition in the U.S., NEI owns companies serving parts of Missouri, Indiana, Illinois, and New York's Long Island, and has investments in the telecommunications industry. Barr's goal is to keep adding companies in dispersed geographic areas to spread the risk. Weather, after all, has a lot to do with water usage - hot weather translating to greater usage.

And water usage has a lot to do with AWW's profits - which have been flowing. Although net income in the first quarter of 1999 slipped to $18.7 million from $20.6 million a year ago, it exceeded by at least 10 percent any other first quarter in the company's history. Even though Americans are using less water overall - 180 to 200 gallons a day for about $1 day vs. 225 in the 1960s in the heyday of the flight to suburbia - partly due to conservation consciousness, revenues rose 5 percent from $226 million in 1998 to $237 million. That was driven primarily by an increase in customers as well as a return to normalcy after El Nino reduced sales in California in 1998. Over the past 50 years, AWW has also won virtually every rate hike it has proposed, even as each of the 23 separate utility subsidiaries is regulated independently by state regulatory commissions.

The company has increased dividends for each of the past 23 years at an annual rate of 11 percent while its common stock returned an average of 20.6 percent a year to investors. While competition soared but consumption didn't, AWW doubled in size and quadrupled in value. "We may not be as sexy as the high-flying world of the Internet, but our stockholders find AWW quite appealing," says Marilyn Ware, chairman of the company her grandfather, John H. Ware, acquired in the 1940s when the Public Utility Holding Co. Act forced American Light and Water to divest its water holdings.

Although AWW is no longer private, its legacy as a family business is very much in evidence. First publicly traded in 1947, the company is still only 28 percent publicly owned - and that largely by individual "widows and orphans" and not institutions.

Grandfather Ware was an electric motor genius as a teen who bought a steam railroad and subsequently got interested in its water supply. Marilyn's father, John H. Ware III, was a Congressman; among her three siblings, her brother Paul is on the board, as are three cousins. She and James Barr have known each other since childhood - Barr's dad was a, drugstore clerk along Ware's route. The entrepreneur invited the clerk to join his company as a meter reader. In 1962, seven years after Barr rose to become AWW's head, Ware retired; today his family owns 27 percent of the stock.

As a low-risk, fast-growing, historically proven business, either cyclical nor seasonal, with no exposure to the Asian crisis or any economic flu, AWW seems promising. Working as a team, Ware and Barr hope to make it brighter still by acquiring water systems across the country - and possibly internationally - and adding services. Seven years ago, AWW began a joint venture, Environmental Technologies L.P., with British Anglian Water Plc, a wastewater treatment company, to completely manage systems that municipalities still own. "Many cities find it's a very emotional issue to sell their water systems," explains Barr. Birmingham, AL, for example, recently voted it down. AWW was a recent runner-up in bidding to contractually manage water systems in Australia.

Going forward, Barr says AWW is exploring offering water resource management, flood control, wetlands management, and environmental solutions, while Ware adds that they're also "looking at filtration system and lab opportunities." In fact, it was AWW's lab that diagnosed the water problem that killed several people in Milwaukee in 1993.

One big expense is energy - new developments on this front may help and hinder it. Energy accounts for 8.5 percent of AWW's operating expenses. Deregulation could well cut those costs, "although we need reliability as well as price," warns Barr.

Ware and Barr are keeping a close watch on energy development issues - as well as the competitive threat represent ed by companies looking to siphon off market share. "We're following the telecom and electricity industries," says Ware. "It's natural for a company like Enron to be intrigued by the potential of this industry," adds Barr, "but while they have access to capital and the ability to use it, they have no history in water." And water, he says, is really quite a different property. For one thing, a gallon weighs 8.1 pounds and unlike gas or electricity, needs to be stored.

But the company storing it is usually low profile. "We're taken for granted, invisible, which is really the ultimate compliment," says Ware. "It means we're supplying water in winter summer under peak demand in a seamless fashion."

JAMES BARR President and Chief Executive American Water Works

"Many cities find it's a very emotional issue to sell their water systems."

Age: 58

Family: Wife: Kathie Barr; three adult children.

Home: Voorhees, NJ; weekends in Avalon, NJ.

Education: University of Dayton 

Career Highlights: Elected president and CEO March 5, 1998. Had been treasurer and senior VP since 1984 and CFO since 1991.

Current Passions: Reading Tom Clancy and politics; computer flight simulation programs.

Past Passions: Tennis, piloting

Commute: One mile through one traffic light in a silver Lincoln towncar

Usual wake-up time: 3 s.m. to 4 a.m. Time for briefcase and thinking.

Key influences: Dad. "His dedication to the company and his ideals was the driving force in my life."

Key business goal: "It's thrilling to watch America's water become privatized, especially in our company's hands."

MARILYN WARE Chairman American Water Works

"You can't be marginal in life. We're not here a long, long time."

Age: 57

Family: Divorced; lives next door to her mom; Two sons and a daughter.

Home: Amish country, PA; Rittenhouse square Philadelphia apartment four nights a week.

Education: Attended American University in Washington, DC, and the University of Pennsylvania in Philadelphia.

Personal coups: Founded and presided over KLS Educational Systems, Inc., which owned and operated summer school programs for learning disabled students. Helped found The Janus School in 1991, a private day school for the learning disabled.

Addiction: Newspaper junkie, reads seven a day.

Books: Business as a Crisis by Michael Novak

Hobbies: Politics as a contact sport; Italian opera; gardening; "studying and collecting people."

Political coups: First woman to have chaired a gubernatorial race in Pennsylvania (for Tom Ridge); had been statewide chairman of Women For Bush, 1987-1988.

Drives: A flatbed truck and Mercedes.

Self-diagnosed shortfall: "I lack patience."

On being woman in water world: "You don't brand yourself by your miniskirt; you wear one."

Philosophy and style: "You can't be marginal in life. We're not here a long long time."