After its initial offer in the Chester Water Authority and its potential merger with DELCORA, Aqua America has come to town and with it are raised accolades and thrown stones.

Proponents point to a streamlining of utilities across the United States, the utility of scale and a heightened level of regulations. Opponents say private entities are beholden to their stakeholders, not their customers, and have higher costs than their municipally owned counterparts.

Robert Powelson, president and chief executive officer of the National Association of Water Companies, spoke about the dynamics he saw from 2008 through 2015, when he served as a board member and chairman of the Pennsylvania Public Commission. The former state regulator is also a customer of the Chester Water Authority.

“I found Pennsylvania, back in 2008, had a large proportion of small, distressed water systems,” he said, adding that the state Department of Environmental Protection listed more than 2,000 systems at the time. 

Powelson said through the work of the state Legislature, as well as Govs. Tom Corbett, Ed Rendell and Tom Wolf, there was a movement to consolidate those systems and the gap has narrowed to less than 500 systems.

“We’ve done a good job,” Powelson said. “You’re seeing this across the country post-Flint, Michigan,” where the municipal water supply was tainted.

He explained that municipal-owned systems plagued with problems and unable to make investments, including responses to natural events like hurricanes and flooding and then security needs to protect from cyber incidents, have been moving to private ownership.

“We agree water infrastructure should be a national priority,” he said, adding that included Pennsylvania. “(We) wanted to make sure that we have water providers that are meeting benchmark standards.”

Locally, the issue of private vs. public ownership is being played out in two arenas: DELCORA and the Chester Water Authority.

On Tuesday, the board of the Delaware County Regional Water Quality Control Authority unanimously approved entering into a six-week non-binding negotiation period with Aqua America to consider a potential merger. The 500,000-customer authority had been looking at solutions to comply with a 2000 U.S. Environmental Protection Agency mandate that wold require combined storm water and sewage water lines that experience problems, especially during heavy rains to be fixed.

DELCORA officials have said a price on these improvements is difficult to determine, although they’ve placed these numbers at between $300-$600 million.

The intent for the merger is that all of the authority’s 130 employees would keep their jobs and that rates for customers would remain at the level they would have been had DELCORA been in place.

“DELCORA’s priority is our ratepayers and our highest priority is keeping rates stable over time in the face of large capital costs, mandated by the Environmental Protection Agency and the City of Philadelphia,” DELCORA spokesman Jay Devine said.

DELCORA was established in 1972 and serves customers in 42 municipalities in Delaware and Chester counties. Based on an average residential retail bill with 70,000 gallons of use, DELCORA’s average annual bill is $372.

On Wednesday, board members of the Oxford Area Sewer Authority in Chester County unanimously rescinded an asset purchase agreement it reached with DELCORA, two years in the making, after DELCORA’s board chose to pursue the merger with Aqua.

“The authority was interested in transferring the system to DELCORA because they were a public entity,” said David Busch, executive director of the Oxford Area Sewer Authority. “Now, suddenly, if DELCORA is going to be part of a private entity, that is not the desire of the Oxford Area Sewer Authority.”

The Oxford Area authority serves 3,000 customers in the borough of Oxford and the townships of East Nottingham, Lower Oxford and West Nottingham, close to the border with Maryland.

That doesn’t mean that the deal with DELCORA is done, he explained. It’s simply suspended indefinitely.

Busch said one concern the Oxford Area board had was that its process may be placed on hold for a minimum six weeks, if not more, as DELCORA moves forward in a deal with Aqua.

He explained that the Oxford Area Sewer Authority approved the asset purchase agreement with DELCORA about a month ago and that it had not yet been approved by DELCORA.

Busch said the sewer authority is set up for growth and the area is growing; however OASA has yet to realize all of its potential.

“We came on to right the ship and look for a possible transfer of the system to another entity,” he said.

And even though the deal with DELCORA was nixed Wednesday night, there’s still room for potential.

“We’re somewhat on hold,” Busch said. “(We’re) in the process of considering all of our options but we expect to have further conversations with DELCORA.”

Devine said DELCORA welcomes more talks.

“DELCORA signed a non-binding letter of intent with Aqua Pennsylvania Wastewater,” he said. “We look forward to continuing our discussions with the Oxford Area Sewer Authority.”

Then, there’s the situation with Aqua and the Chester Water Authority.

This past week, a group of Chester Water Authority ratepayers filed a petition to intervene in a lawsuit filed by Aqua Pennsylvania Inc. against the water authority and the city of Chester over a 10 percent rate increase. On Friday, CWA announced that board member Christopher D. Burkett of Chester County resigned, stating he wanted to avoid the appearance of a conflict of interest as his engineering firm works with Aqua.

The legal controversy goes back to May 2017 when Aqua America made an unsolicited offer to buy the financially viable Chester Water Authority for $320 million. Authority board members, made up equally of representatives from Delaware and Chester counties and Chester City, rejected the offer.

Simultaneously, Chester City officials were facing pressure to exit its financially distressed status with the state and their receivership consultant, Econsult Solutions, recommended a water authority sale as an avenue to do so.

To prevent that, the CWA and the city entered into a $60.2 million settlement in March 2018 and the CWA board unanimously approved a 10 percent rate hike to pay for the deal. In conjunction with that, city officials agreed not to raise a claim to terminate or acquire any project of CWA’s for 40 years and that the authority’s assets would be placed into a trust during that same time.

In April, Aqua filed a suit in Delaware County Common Pleas Court, saying the hike would result in $75,000 being passed to their customers for no benefit.

On June 12, Chester City Council approved a motion to issue a request for proposal to value the CWA assets. As a result, the CWA filed its own lawsuit seeking an injunction against a sale of the authority to Aqua or any other buyer.

Aqua America CEO Chris Franklin said the company’s ties to Delaware County are strong and long-standing.

“The company was born in Delaware County in 1886 by Swarthmore professors,” Franklin said. “We have a long, long track record in Delaware County and Philadelphia.”

Franklin stressed the firm’s strong service to its customers and its commitment to community investment.

For example, Franklin said Aqua is one of the largest, if not the largest, pipe replacement companies in the nation, replacing the equivalent of 150 miles of water mains in Pennsylvania every year. “That’s like running a pipe down to Ocean City and back,” he said. “That’s what we do every year.”

In an Aqua study evaluating main break averages between 2000 and 2017, Aqua Southeastern Pennsylvania’s average was about 10 breaks per 100 miles. The American Water Works Association acceptable main breakage range is 25 to 30 breaks per 100 miles.

In those same 17 years, the company saw a decrease in taste, odor and discoloration complaints from 2,000 to 1,000, according to Franklin.

“The investment, the capital investment that a company like Aqua makes compared to most (municipally-owned systems) is just drastically, drastically different,” he said. “Thirty cents of our revenue goes to operating expenses. The rest of it all goes to capital investments ... I would put that up against any municipal system in this country.”

Aqua does have its critics.

In a 2018 Pennsylvania Municipal Authorities Association study called “Proud History, Bright Future,” the association said privatization leads to a loss of control over a vital public resource, public input is lost and services are cherry-picked.

“Multinational water corporations are primarily accountable to their stockholders, not to the people they serve,” the report stated.

In addition, it also said investor-owned utilities typically charge 59 percent more for water service and 63 percent more for sewer service than local government utilities.

In a June 2011 Food & Water Watch report, water rates of customers under private ownership grew at an average of about three times the rate of inflation, averaging about 18 percent every other year.

That report noted increases in Bensalem and Bristol, in Bucks County, Pa. after Aqua America bought their systems. Bensalem, it said went from $104.76 in 1999 to $578.05 in 2011 and Bristol went from $119.52 in 1997 to $661.43 in 2011. 

Aqua officials say part of that was due to the amount of lines placed in those towns. Bensalem had more than 224 miles of main and Bristol had almost 32 miles of main installed.

Another issue is the amount of regulations they face.

If Aqua wants to increase its rates, it must go through a PUC process, something municipally owned systems are not required to do.

“That’s a cost municipal authorities don’t have,” Franklin said, noting the CWA’s single vote to raise rates by 10 percent, to the tune of $60 million. “For us, that would be six months of work.”

Then, he explained, his company is also accountable to the state Department of Environmental Protection and the U.S. Environmental Protection Agency and the Securities and Exchange Commission.

On top of that, Franklin said Aqua’s customer service is among the top-rated, ranking third out of 18 utilities in the mid-Atlantic region as ranked by a 2019 JD Power customer satisfaction index.

He said the local water utility needs to be modernized like its counterparts. He said of the 50,000 water systems in the United States, 25,000 of them are in Pennsylvania. There are also about 17,000 wastewater systems in the country.

He said larger companies offer economies of scale.

“We buy pipe cheaper than any other company because we buy so much of it,” Franklin said, which is something his company wants to do with wastewater.

Currently, he said Aqua operates about 200 wastewater plants, each having about 50 customers - something that makes merging with DELCORA attractive as its plant is sizable.

“We can put a lot of wastewater customers together now,” he said.

The benefit to DELCORA is financing. With Philadelphia facing a $5 billion and rising cost to fix its system and DELCORA’s customers having to pay about 9 percent of that, Franklin said Aqua can stabilize that cost through its abilities to go to the bond market or acquire loans and grants from Pennvest.

“Combining Aqua and DECLORA can really avoid some of those costs for the customers in Delaware County,” he explained.

Powelson agreed about the need to modernize the water industry. 

Of the 52,000 water systems in the United States, he said about 80 percent are municipally run, compared to 3,200 electric distribution systems and 1,000 gas companies.

“In the water world, we have too many water systems,” Powelson said, adding that could be a liability if proper investments aren’t being made. “You can deteriorate people’s public health.”

Which, he said, can be a challenge as private entities treat their product in parts per trillion.

“We don’t know what municipalities are treating water at,” he said. “They’re self-regulated entities ... That’s why we’re looking at water accountability and requiring municipal systems to meet certain standards. If you can’t meet those standards, why should you be in that business?”

In addition, he said municipal authorities are regulated by a subdivision of political appointees.

“Not to be disrespectful,” Powelson said, “the Chester Water Authority board of directors has nobody on that board that is competent in water regulation.”

CWA Solicitor Francis Catania disagreed, saying they have their own set of regulations Aqua can eschew.

“We’re subject to the Right-to-Know Law,” he said. “They’re not. We’re subject to the State Ethics Act, they’re not. We have a lot more transparency than they do.”

Regarding Powelson’s municipal regulation comments, Catania said, “That’s an outrageously false comment. Rob Powelson has been an Aqua fanboy for his career ... Rob Powelson was hand-picked for his current job by Chris Franklin.”

The CWA solicitor said his board members were legitimate and aren’t prone to hiding.

“These are experienced, long-serving public officials who have been publicly accountable their entire careers,” he said. “They work in transparent institutions.”

As that battle wages in and out of court, Franklin said the situation is different with the CWA than with DELCORA.

“The combination of Aqua and DELCORA is somewhat unique,” he said, adding that DELCORA officials have told him that any proceeds from a sale should be turned into a rate reduction or stabilization for their customers. “That is really important. A lot of these systems, they want to maximize the price and it does impact rates. This group wants to keep rates down.”

He said Aqua is transparent, customer-centered and would appreciate and welcome customers from DELCORA, just as they did at their founding 133 years ago.

“We have a long track record of providing good service,” Franklin said. “That’s not going to change ... We’re not foreigners here by any stretch.”

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