Aqua Pennsylvania Inc. announced Monday that it will acquire the East Norriton Township sewage system for $21 million. It's the latest municipal utility to sell out to private owners under a 2016 law encouraging the privatization of water systems.
The Montgomery County township has been exploring a sale of its aging sewer system since 2016, according to a presentation posted Monday on East Norriton's website. Consultants estimated the system needs as much as $20 million in new investment, and its 4,952 customers will face less severe rate increases in the near term under private ownership.
East Norriton is the latest town to take advantage of a 2016 state law that encourages private buyers to acquire smaller municipal water systems. The law, called Act 12, allows new owners to charge ratepayers for the appraised fair-market value of an acquired system, rather than its lower depreciated cost.
"Act 12 has enabled water utilities like Aqua and municipal systems like East Norriton to enter into agreements that benefit customers by ensuring professionally run, reliable service into the future," Christopher Franklin, chairman and chief executive parent company Aqua America Inc., said in a statement.
The Bryn Mawr water utility recently closed the purchase of the Limerick Township sewer system in Montgomery County, and is awaiting regulatory approval of sewer system acquisitions in Cheltenham, Montgomery County, and in New Garden and East Bradford Townships in Chester County.
Aqua has more than 450,000 customers in 32 Pennsylvania counties, heavily concentrated in the Philadelphia suburbs, where the company was previously known as Philadelphia Suburban Water.
Current rates for East Norriton's customers, who pay about $462 a year, will remain frozen until Aqua's next expected rate filing and then increase to as much as $652 in 2022, according to the township's announcement.
But the township said that if it borrowed $17 million to make its own upgrades, annual sewer bills would go up to $671 in 2020 under continued public ownership.
The East Norriton system is virtually debt-free, so nearly all of the proceeds from the $21 million sale can be invested into township functions, such as property tax stabilization, improvements to streets, recreational facilities or municipal buildings, or to other programs. The sale is expected to close next September.
Aqua outbid the Bucks County Water and Sewer Authority and rival Pennsylvania American Water Co., which provides water service to the township outside Norristown. The three utilities have been consolidating territory in recent years, absorbing smaller municipal water and wastewater systems.
The purchase does not include East Norriton's share of a sewer authority that operates a wastewater treatment plant serving East Norriton, Plymouth, and Whitpain Townships, which would remain under public ownership. Aqua would pay the authority a fee to treat East Norriton's wastewater.
Aqua's $21 million purchase price breaks down to about $4,241 per East Norriton customer, above the $3,704 it has invested in each of its existing customers, according to a 2015 regulatory filing. The price invested per connection is factored into future Aqua rate increases, as regulators typically allow utilities to recover their investments over many years, along with a set profit margin.
Aqua is paying about $4,786 for each new Cheltenham customer, and about $4,006 for each new connection in East Bradford.
The company is paying a much higher price for new connections in New Garden and Limerick Townships — in excess of $12,000 per customer — because those systems also include wastewater treatment plants. Consumer advocates opposed the sales, saying the high price would increase costs for all Aqua customers without any immediate benefit to existing customers.
Aqua filed for a 15.4 percent water rate increase on Aug. 17, which is currently before the Pennsylvania Public Utility Commission.