PUC approves $29.5M privatization of Chesco sewer system

Pennsylvania regulators on Wednesday approved Aqua Pennsylvania’s $29.5 million acquisition of the sewer system in New Garden Township, Chester County, dismissing a recommendation the deal should be rejected because Aqua failed to prove that it is in the public interest or that it creates sufficient public benefits.

The Pennsylvania Public Utility Commission voted, 4-1, to approve the acquisition of the wastewater-system assets of New Garden Township and the New Garden Township Sewer Authority by Aqua Pennsylvania, a subsidiary of Aqua America Inc. of Bryn Mawr. The system serves 2,106 customers in New Garden and Kennett Square.

The acquisition is the first transaction conducted under a Pennsylvania law approved last year, Act 12, that allows private companies to pay market prices for utilities and then add that cost to their rate base. Previously, utility rates were based on the depreciated book value of the assets, or the original cost. The law was designed to encourage the consolidation of smaller utilities.

The negotiated price Aqua will pay for the system came in below the appraised value of the assets, but it is $10.9 million above the township’s original cost.

Aqua, which has four wastewater-treatment plants within 10 miles of New Garden, argued that the acquisition will spread the benefits of the regional consolidation of sewage treatment and would have no adverse impact on the quality of service provided to existing customers. Aqua promised to freeze New Garden’s rates for two years, and to limit annual rate increases to 4 percent for 10 years.

Vice Chairman Andrew Place, the dissenter, said he agreed with the April 21 recommended denial by Administrative Law Judge Steven K. Haas, who determined that the average value of the New Garden system is about four times higher per customer than the value of Aqua’s existing Pennsylvania wastewater assets. That will likely shift the cost of the acquisition to Aqua’s existing 20,000 wastewater customers, Haas said.

“While this may be a benefit to New Garden’s current customers, it certainly does not constitute an affirmative benefit to Aqua’s existing customers,” Haas said in his recommendation.

But Commissioner Robert F. Powelson’s motion, approved by the PUC, included some protection for existing Aqua customers. The PUC allowed the deal to go ahead on the condition that Aqua design a separate rate zone for New Garden customers, and that “Aqua and its shareholders shall bear all risk” of any shortfall between its acquisition costs and the amount it collects from new customers.