Consumer advocate questions public benefit of Aqua's $75M sewer system acquisition

The Pennsylvania Public Utility Commission is set to approve Aqua Pennsylvania’s $75.1 million acquisition of the Limerick Township sewer system in Montgomery County, which will substantially boost consumer bills in the rapidly growing area after a three-year rate freeze expires.

In a series of binding votes Wednesday, the PUC voted to accept a hearing examiner’s recommendation to approve the sale with some conditions. The state Office of Consumer Advocate opposes the sale, saying that the acquisition will double monthly rates for Limerick’s customers in three years, and that Aqua’s 20,000 existing wastewater customers would save only three cents a month on their bills — in 15 years.

Camera icon Aqua America Inc.
An Aqua water tower.

That binding poll provides guidance for the PUC’s legal staff to draft an order approving the sale, which will be voted on at a later date.

The commission’s tentative approval is an early application of a 2016 state law that allows investor-owned utilities to recover the cost of buying municipal water and wastewater utilities at their fair-market value, rather than their book value. Under the old law, the buyer could charge only rates sufficient to pay for the municipal utility’s depreciated construction costs, which created a disincentive for the sale of older municipal systems.

Aqua’s purchase price was less than the system’s appraised value, but is still 63 percent greater than the system’s net book value. Aqua estimated that the monthly bill for a Limerick customer will increase to $70 from $38 after the three-year rate freeze expires.

PUC Administrative Law Judge Steven K. Haas, who conducted hearings on the sale in the summer, recommended setting the value of the acquired assets at $64.4 million, which would become the amount on which rates are based. The commission’s vote Wednesday accepted his finding.

Vice Chairman Andrew G. Place, a lone dissenter in the binding poll, said the record “clearly demonstrates” that Aqua failed to prove the acquisition was in the public interest.

Camera icon Joaquin Sapien
A wastewater treatment plant in western Pa.

The Office of Consumer Advocate argued that Aqua’s existing wastewater customers would subsidize the purchase for more than a decade, and then would see only an initial savings of three cents per month. “The potential for three cents per month savings some 15 years into the future does not establish affirmative benefits,” the office said in its filing.

Aqua Pennsylvania provides wastewater services to 20,000 customers in 15 counties, including Bucks, Delaware, Chester, and Montgomery Counties.

Aqua said it will operate Limerick as a standalone system and retain the township’s seven employees. It plans $8.3 million in improvements to the system in the next 10 years, including upgrades to its two plants, the Possum Hollow wastewater treatment plant and the King Road wastewater treatment plant.

The sale would benefit Limerick Township, which sought out bids for its wastewater system in 2015, saying it wanted to reinvest the proceeds into its core mission of providing police and fire protection and public works without raising taxes. The township’s studies indicated the sewer system would require $20 million to $30 million in upgrades in the next 15 years.

The 2016 change to Section 1329 of Pennsylvania’s Public Utility Code making the sale of public systems more attractive to investors is expected to trigger an increase in privatizations of municipal water and wastewater systems.

Aqua America Inc. of Bryn Mawr, parent company of Aqua Pennsylvania, and American Water Works Inc. of Voorhees, owner of Pennsylvania American Water, are among the most active bidders for Pennsylvania water systems.

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