Daily Local News (West Chester, PA)
Judges urge PUC to reject sale to Aqua
Two administrative law judges have recommended that the Pennsylvania Public Utility Commission reject the sale of the Delaware County Regional Water Quality Control Authority to Aqua Pennsylvania Wastewater Inc. in a proposed $276.5 million merger.
Judges Angela T. Jones and F. Joseph Brady found the company was seeking a “hypothetical recommendation” based on as-yet incomplete information, with several issues still to be resolved by court cases.
The recommendation is nonbinding, but Delaware County Solicitor Bill Martin said such decisions normally carry “significant weight” with the PUC and may prove instrumental in the commission’s determination of Aqua’s application.
“We think that it is a wellreasoned opinion and we think they got the case right, and it’s our expectation the PUC will confirm the recommendation to deny approval of the sale,” Martin said last Wednesday.
Aqua Pennsylvania President Marc Lucca said his company is aware of the recommendation and plans to file timely exceptions in the coming days.
“We remain confident that a combination with DELCORA is the best outcome for customers and are optimistic that the PUC will realize the merits of the transaction, particularly the benefits to customers,” he said in a statement. “We continue to look forward to serving DELCORA customers once the transaction is approved.”
“While DELCORA is disappointed by the administrative law judge’s recommendation, it is just that – a recommendation,” the authority said in its own statement. “DELCORA respectfully disagrees with its reasoning and conclusion, especially in light of the overwhelmingly positive public support expressed during the September 16 public input hearings. DELCORA will work to clear the concerns raised by the recommendation and file exceptions prior to the full Public Utility Commission consideration in March. We remain extremely confident that we will be able to clear the concerns prior to coming before the PUC and ensure an appropriate record is presented, leading to a positive PUC decision.”
The legal issue of whether the sale could continue was decided about two weeks ago by Common Pleas Court Judge Barry Dozor, who ruled that the asset purchase agreement entered into by Aqua and DELCORA was authorized by the Municipalities Authorities Act, subject to approval by the PUC. Martin said the county is still considering an appeal to that ruling.
DELCORA and Aqua agreed to the merger in September 2019, which would use sale proceeds to pay off outstanding debt and fund a trust to be used as a “rate stabilization plan” that keeps increases pegged at 3% annually until the fund is exhausted, estimated at about 10 years.
At the time that agreement was reached, county council was dominated by three Republican members and two Democrats. All five seats on council came under Democratic control in January 2020, however, and council moved to terminate the authority and reverse a December 2019 amendment of DELCORA’s articles that allowed for the creation of the trust.
Delaware County filed a complaint asserting the trustee, Univest Bank Co., had no authority to make any distributions without direction from DELCORA, rendering it essentially a conduit for the distribution of public money to Aqua. Council also passed an ordinance in June directing DELCORA to windup operations and transfer its assets, funds and liabilities to the county.
Dozor found that the existing sale contract was enforceable, however. He did not contest the county’s general authority to terminate DELCORA, but said such a move must come only after the sale was effectuated.
Meanwhile, the county and other entities had intervened in the application process with the PUC, including the Southwest Delaware County Municipal Authority, and the municipalities of Upland, Lower Chichester, Trainer and Edgmont.
The recommendation issued Tuesday had three major findings: That Aqua failed to establish a record by which the commission could determine whether the proposed acquisition “promotes the service, accommodation, convenience and safety of the public in some substantial way”; that outstanding issues regarding DELCORA’s legal ability to transfer its assets “significantly prevent” a reliable determination of the appropriate ratemaking rate base; and that Aqua had failed to attach its rate stabilization plan as part of its application.
The judges noted that utility valuation experts included assets as DELCORA inventory that Trainer, Upland and Edgmont have asserted ownership rights to and that at least three lawsuits brought by municipalities asserting breach of contract against DELCORA remain pending.
The recommendation explains that the PUC must issue a Certificate of Public Convenience as a prerequisite to offering service, but the judges found the pending lawsuits make it impossible to determine whether the sale would promote the “service, accommodation, convenience and safety of the public in some substantial way,” as required by the Public Utility Code.
The ongoing litigation likewise precluded the judges from establishing another prerequisite for service in regard to valuation. Should the municipalities triumph in court, valuations may be thrown off and the ratemaking rate base of the transaction may prove unreasonable or against the public interest, according to the recommendation. Because the market approach of the valuation was based on the number of connections to the system and the municipalities may obtain facilities used to provide service to customers, that could also change the rate base, the judges found.
Finally, the judges found that the proposed trust in combination with a memorandum of understanding acts as a de facto stabilization plan that seeks to bypass the commission’s ratemaking authority.
The code requires any application containing a rate stabilization plan to include that plan with the application. But Aqua here contends that DELCORA’s use of the sale proceeds is a purely private and non-jurisdictional matter, and that a discount applied to customer’s bills through the trust does not constitute a rate stabilization plan, according to the recommendation.
The county contended that because the rate at which that fund will be depleted rests with the rates set by the PUC – higher rates would deplete it faster and vice versa with lower rates – then it cannot be a purely private contractual matter.
The judges agreed with the county, finding the proposal constitutes a plan to phase rates over a period of time based on future base rate cases. The code unequivocally states that utilities cannot deviate from tariff rates directly or indirectly, according to the recommendation, and that this proposed arrangement would effectively do just that by indirectly reducing the rate received from DELCORA customers.
As such, the plan must be included as an attachment to the application and be included as a component of Aqua’s tariff, the judges found.
“In this case, Aqua would have the commission issue what is tantamount to a hypothetical recommendation, which we will not recommend,” the judges concluded. “Between the ongoing litigation and lack of a rate stabilization plan attachment, there are simply too many outstanding issues that need to be resolved in order for the commission to be able to analyze this application and make an informed recommendation as to whether it is in the public interest.”
County Council Chairman Brian Zidek said he was pleased with the recommendation, particularly the finding that Aqua failed to establish a record upon which the commission could determine the deal promotes the service, accommodation, convenience and safety of the public in a substantial way.
“Council has consistently maintained that Aqua’s efforts to purchase DELCORA through a rushed, no-bid process was a bad deal for the rate payers and taxpayers of Delaware County,” he said. “We look forward to the PUC accepting this recommendation and rejecting Aqua’s efforts to purchase DELCORA’s assets.”
Martin said that should the PUC reject the sale, the county would have to seek clarification on Judge Dozor’s order regarding dissolution of the authority.