Environment & Energy Report

Price Gouging Alleged of Makers of Water Treatment Chemical

Nov. 2, 2017, 5:57 PM

Many municipally owned utilities find themselves in a tough spot as they sue major chemical manufacturers for allegedly fixing the price of an ingredient used for treating drinking water and wastewater.

Yet they can’t do without that ingredient.

The Washington Suburban Sanitary Commission (WSSC), which serves areas in Maryland just outside Washington, D.C., in October became the latest to file an antitrust lawsuit against at least half a dozen chemical manufacturers and their subsidiaries. The utility says it continues to use aluminum sulfate, or “alum” as it is commonly known, because the chemical is “essential” to its treatment operations, spokesman Charles Brown told Bloomberg Environment Oct. 31.

Many publicly owned wastewater utilities and local governments, including Richmond and Baltimore, have either filed lawsuits individually or joined a larger class action case alleging the companies have taken advantage of their need for alum by increasing and fixing prices almost four-fold over a decade (Washington Suburban Sanitary Comm’n v. Reich, D. Md., No. 17-cv-03060, 10/19/17).

Utilities add alum to make particles stick together as they process drinking water and wastewater, which then can be more easily filtered out during the treatment process. The utilities and local governments say higher prices for alum have led to a spike in their operational costs.

At least 68 lawsuits name General Chemical Corp. and its affiliates and subsidiaries; Chemtrade Logistics Income Fund and its many subsidiaries and affiliates; GEO Specialty Chemicals Inc. and its many subsidiaries; C & S Chemicals Inc.; RGM of Georgia, Ltd.; Kemira Chemicals, Inc.; Southern Ionics, Inc.; and USALCO, LLC. None of the companies returned calls from Bloomberg Environment seeking comment.

The lawsuits, which stem from a long-running federal criminal investigation of price fixing in the alum industry, allege the companies—and about five named executives—conspired between 1997 and 2011, and possibly longer, to fix, stabilize, and maintain the price of alum.

The complaints also allege the companies conspired to suppress and eliminate competition in the sale and marketing of the chemical. WSSC’s lawsuit, like others, alleges that the companies rigged bids for utility contracts by knowingly submitting losing bids favoring a certain company or withdrawing winning bids, and unlawfully discussing prices, for example.

“The Defendants’ actions caused municipalities and governmental subdivisions across the United States to overpay by many millions of dollars for the Alum they needed,” the WSSC wrote in its Oct. 19 complaint to the U.S. District Court for the District of Maryland.

Honoring Contracts

The alleged price hikes affected WSSC operational costs into 2016 due to the duration of some of the contracts with the chemical companies, the WSSC lawsuit claims.

“Because of the alleged bid rigging, our price for Alum nearly quadrupled between 2000 and 2010, from $82 per ton to more than $300 per ton, while the cost to produce Alum remained relatively stable,” Chuck Brown, WSSC spokesman, told Bloomberg Environment Oct. 31. Cities and municipalities award sales contracts for commodities and chemicals to firms based on a bidding process.

Nevertheless, Brown said, they are still involved in a contract with at least one of the companies—USALCO—named in the lawsuit, though the utility also has branched out to other suppliers of the chemical not named in the lawsuits.

Likewise, Baltimore hasn’t changed its supplier of alum since the city sued the chemical companies in June, Jeffrey Raymond, the city spokesman, told Bloomberg Environment Nov. 1.

Antitrust law allows a successful plaintiff to recover three times its damages. The Washington suburban utility has asked for at least $5 million in compensatory damages.

Pleads Guilty

GEO Specialty Chemicals pled guilty in June 2016 in a separate criminal case brought by the Justice Department to one count of price fixing of alum in violation of the Sherman Act. The company agreed to pay $5 million for its alleged role in a plea agreement reached in U.S. v. GEO Specialty Chem. Inc.

Frank A. Reichl, a co-defendant in the WSSC case and a former senior executive at General Chemical, and GEO Specialty Chemicals, also pleaded guilty in February 2016 to participating in the conspiracy, according to the WSSC complaint.

Also named in the suburban utility’s lawsuit are two other executives from these companies—Vincent J. Opalewski and Brian C. Steppig—who were indicted by the Justice Department in February 2016. These indictments and pleas are part of its long-running investigation into what government attorneys allege is a cartel of price fixing of alum.

The law firm of Ballard Spahr LLP is representing WSSC, which provides both drinking water and wastewater services to about 1.8 million residents living in Prince George’s and Montgomery counties in Maryland.

Ballard Spahr attorneys also are representing Richmond and Baltimore in separate, but similar lawsuits in federal courts of Virginia and Maryland, respectively. All cases are now being transferred to a federal district court in New Jersey, which also is considering the class action lawsuit.

To contact the reporter on this story: Amena H. Saiyid in Washington at asaiyid@bna.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com

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