Authority claims role in sale of Upper Pottsgrove sewers

POTTSTOWN >> The Borough Authority may have decided it has no interest in being a bidders for the sewer system Upper Pottsgrove Township is considering selling, but that doesn’t mean they won’t have a say in the matter.

During discussion at Tuesday’s authority meeting, board members briefly considered the idea of being bidders for the Upper Pottsgrove system, but quickly dismissed it.

“The authority could certainly qualify to buy it, but I doubt you would be top bidder,” said Josh Fox with the authority’s engineering firm, Herbert Rowland and Grubic.

Because the township is looking to the sale of the system to pay down debt; make its pension system whole and possible use the funding for new township facilities, it would be looking for the top bidder.

As a “non-profit” government agency, the authority would be unlikely to bring the kind of capital to the table as can be mustered by Aqua PA and Pennsylvania American Water, the two private companies that have approached Upper Pottsgrove about selling its system.

The township has issued a “request for qualifications,” which is the first step in determining what entities, both public and private, are qualified to bid for the system. The decision to sell the system has not been made and will depend on the price.

In May, Upper Pottsgrove has hired a public financing specialist called PFM, which is working on a share of the sale price, and $50,000, to undertake the investigation and solicit and qualify the bids.

Beyond the unlikelihood of the authority not likely being the high bidder, “I don’t think we could handle it,” said board member Tom Carroll, referring to all the responsibilities the authority already has, running both the water and sewer treatment plants.

Ever since the passage of Act 12 in 2016, private utility companies like Aqua and PA American Water have been on a buying spree.

The act changes the way the systems are valued and allows municipalities to charge much more to sell the system than they previously did. This makes overtures from private companies much more attractive because the sale prices are much higher.

Just last summer, Limerick Township sold its system for more than $75 million to Aqua PA, in a move that allowed the township to eliminate debt and fund several capital projects, but may also mean a rate hike for Limerick customers of as much as 84 percent.

To be fair, Limerick’s annual average sewer rate of about $384 will be frozen for three years under the law. Upper Pottsgrove’s annual bill is about $860, one of the highest in the area.

That may be because the system has about 1,600 “equivalent dwelling units,” which is how sewer charges are calculated, that together have to shoulder the nearly $9 million in debt it cost to expand the system to homes with failing septic fields and failing systems, like the Regal Oaks subdivision off Gilbertsville Road.

Upper Pottsgrove Sewer Committee Chairman John Bearler said about 35 percent of the quarterly sewer bill goes to debt service on the system extension.

If the Upper Pottsgrove system is purchased, the debt would still be owed by the township, he said, so that would likely be the first place the money from the sale would be spent.

Bealer said because rates are often frozen for three years under the tenants of the law, as was the case in Limerick, the Upper Pottsgrove system might be attractive to private buyers because of the profit margin of higher rates to pay off a debt that no longer exists.

The impact of selling the system on rates Upper Pottsgrove customers pay will be one of the considerations when township commissioners make their decision.

But unlike other municipal systems that have lately been getting bought up by private companies, Upper Pottsgrove does not control the treatment plant where its sewage is treated.

That honor belongs to the Pottstown Borough Authority.

There is a “sewer services agreement” under which the authority agrees to accept and treat the township’s outflow.

The authority would have to approve the re-assignment of that agreement to a new owner, or the new owner could negotiate a new agreement with the authority, explained Authority Solicitor Vincent Pompo.

Additionally, moving that agreement from a government body to a for-profit company would also require approval by the Pennsylvania Public Utility Commission, said Pompo.

“This is going to be a sticky wicket,” said authority member David Renn.

Finance Director Janice Lee also pointed out that currently, the borough does Upper Pottsgrove’s billing for water and sewer. If the sewer system has a new owner, it would complicate the usual remedy for nonpayment, shutting off the water.

“I see this as a major issue,” said Lee, who suggested the new owners would have to take on the task of billing as well.

She also noted that Upper Pottsgrove “owes the authority $400,000” for a sewer upgrade called a “siphon,” which has not yet been paid and could cut into their profits from selling the system.

None of those considerations were raised Monday night, when Upper Pottsgrove Commissioners Chairman Trace Slinkerd told the board that things were moving ahead smoothly with the investigation of selling the system.

He said the Upper Pottsgrove has set a target for September or October to review bids on the sewer system.

“This is going to be a sticky wicket.” _David Renn, Pottstown Borough Authority member