Public or private? Allentown mulls water deal

In Allentown, Pennsylvania's third-largest city after Philly and Pittsburgh, today is the deadline for would-be buyers to sweeten their financial offers to run the city's water system for the next 50 years. "We expect offers in the $175 to $200 million range," writes utility analyst Ryan M. Connors, in a report to clients of Janney Montgomery Scott.

Six bidders went "deep in the process," Conners tells us. Three are for-profit: Voorhees-based American Water Works; Bryn Mawr-based Aqua America; and United Water, an arm of France's GDF Suez. Three are non-profit: the  local Allentown Forward group; the National Development Council, which runs utilities around the U.S.; and the local, governmental Lehigh County Authority.

Connors says his sources tap American Water and Aqua America "as the finalists" with the highest initial bids from last week and the most likely to offer the final, topping bid, to which "the loser will surely say that the winner overpaid."

But the county authority enjoys "grassroots support" among local politicians who hope the lack of investor profit "could hold rates down," he added.

City Council has the final say. So politics could still end up preventing a private-sector sale, which happened in Trenton three years back when American Water's $100 million bid for the municipal system was thumpingly rejected by voters.

Allentown says it will use the proceeds to erase its public-worker pension deficit, much as Mayor Nutter has talked about selling the Philadelphia Gas Works, for up to half a billion dollars, and maybe some proceeds to stanch the city's (much larger) $5 billion gap between what it owes pensioners, long-term, and what it owns, in investments, to pay those pensions.

Will an Allentown water sale make a Philadelphia gas sale any more likely? "Certainly, in my view, if the Allentown deal goes through, it sets a precedent, and makes it more likely that a sale/lease of PGW could happen," Connors told me. On the other hand, he notes, "the politics and union issues in Philly are orders of magnitude more complex." Overall there is roughly just as much movement around the country toward "municipalization" of private water systems, as there is torward selling public systems.