Sale could lead to rate hike
$75.1M sale of township sewer system could result in 84 percent increase
LIMERICK » Thanks to the $75.1 million sale of the township’s sewer system to Aqua PA, Supervisor Ken Sperring bragged Tuesday he could see no reason for another township tax hike for 30 years.
But there is no free lunch and someone will have to cover the cost of the purchase of that system.
The answer is Aqua PA customers, both those within Limerick and without.
That is one of several reasons the sale was opposed by both the Pennsylvania Office of Consumer Protection and the state’s Bureau of Investigation and Enforcement.
Rate freeze for three years
The deal to sell the system includes a rate freeze for the next three years. But after the threeyear rate freeze expires, a hike of as much as 84 percent in the base rate of Limerick sewer bills is possible public records indicate.
The current base rate of $38 could jump to $70 when the rate freeze enacted as a condition of the sale expires, according to documents filed as the sale was being considered by the Public Utility Commission.
That would push the annual base rate for sewer service up by $384 — from $456 per year to $840, according to figures contained in the public documents related to the sale examined by Digital First Media.
The township has not increased the sewer base rate since 2010, Township Supervisor Dan Kerr confirmed. “The supervisors decided to increase taxes rather than the sewer rate in an effort to spare seniors who generally don’t use much more water than the base rate covers,” he said.
The “base rate” is the amount charged customers no matter how much water they use. The remainder of the bill is dependent on how much water a customer uses.
Non-Limerick customers will pay more first
Despite the sticker shock this may present to Limerick sewer customers, the 20,000 other Pennsylvania customers of Aqua wastewater systems could be paying higher rates even sooner to help cover the cost of the $75.1 million purchase.
Base rates for non-Limerick customers of Aqua could increase by as much as 27 percent, according to objections to the Limerick sale filed by the Office of Consumer Advocate on June 26.
Further, the office argued, local Aqua customers in Montgomery, Chester, Delaware and Bucks counties — as well as those as far away as Clarion, Clearfield and Lackawanna counties — “have not received direct notice or even newspaper notice of the proposed transaction and impact on those customers has not been determined.”
It would take 15 years for Aqua customers to see savings on their bill from this sale — a savings of 3 cents per month — according to the Office of Consumer Advocate.
Limerick sale among the first
The sale of Limerick’s sewer system was completed on July 25, but only after a protracted procedure through the Public Utility Commission that required a hearing examiner to oversee a settlement which was ultimately accepted by Limerick, Aqua PA and with a split vote by the PUC.
The sale itself, among the first to occur under new state rules adopted in 2016 changing how the value of water and sewer plants are calculated, was opposed by the Office of Consumer Advocate, the Pennsylvania Bureau of Investigation and Enforcement and even Andrew Place, the Vice Chairman of the Public Utilities Commission, who wrote a dissent of the PUC’s affirmative vote to approve for the sale.
The new rules were designed to encourage the consolidation of small, poorly capitalized sewer systems with economic troubles and a record of environmental regulations into larger systems operated by experienced utilities, a point by Aqua PA in legal brief supporting the sale.
“Through consolidation/ regionalization, the utility industry has a better chance to realize the benefits of better management practices, economies of scale and the resulting greater environmental and economic benefits,” wrote Thomas Niesen, an attorney representing Aqua PA in the matter before the PUC.
But none of the problems the new law was meant to address were present in the Limerick sale argued the Office of Consumer Advocate and the Pennsylvania Bureau of Investigation and Enforcement. And compliance with part a general policy statement does not constitute the “public benefit” the law also requires, they argued.
“This is not a system that needs to be acquired by a larger utility,” wrote Carrie B. Wright, prosecutor for the Bureau of Investigation and Enforcement. “It appears the system is well-run and financially stable. There appear to be no Department of Environmental Protection violations that need to be addressed. As such it is imprudent to allow Aqua to acquire this system at the expense of its existing ratepayers, especially given that Limerick appears to have the means to operate successfully without Aqua’s intervention,” Write wrote. “Moreover, Aqua is projecting to double Limerick customers’ rates in the future.”
Rates will rise regardless
Not that rates would not have gone up soon anyway, said Kerr.
The township’s projections indicate that the system needs $20 million in upgrades and repairs in the next 15 years no matter who owns it, he said. “The township was going to have to raise rates to pay for that,” said Kerr.
(Aqua’s application cited a capital improvement cost of $8.3 million over the next 10 years.)
However, the base rate hike being eyed by the township was more in the neighborhood of $50 to $55 per month — an increase between 31.5 percent and 45 percent, less than the 84 percent possible under Aqua’s ownership.
The smaller township rate hike would have been largely due to the fact that had the township continued to own the system, it would not have to recover the $75 million cost of purchasing it.
Aqua’s rate increase, it should be noted, is far from assured however.
It is not entirely clear how many, if any, of the rate hikes associated with the Limerick system must be approved by the Public Utility Commission. As a municipally owned system, the township could have raised sewer rates without seeking approval from the PUC, Kerr confirmed.
Aqua has already applied for a rate hike
Last month, Aqua PA filed for a rate hike with the Public Utility Commission that, if approved, would increase rates for the average customer by 14 percent, according to information released by the company.
A typical commercial customer with a 5/8 inch meter using 37,800 gallons a month would see their bill increase from $380 per month to $440 per month — or about 13.6 percent, the company said.
In justifying the rate hike request, Aqua pointed to the $2.2 billion the company has invested in infrastructure, including upgrades to its distribution and treatment systems to improve drinking water quality and service reliability throughout its water and wastewater operations.
It made no mention of the purchase of the Limerick sewer system and under the terms of that sale, this rate hike, if approved, would not apply to Limerick customers.
Will growth reduce the impact?
But rates hikes to Limerick customers may eventually exceed those to nonLimerick customers.
In his dissent, PUC ViceChairman Andrew Place cited testimony from William Packer, Vice President and Controller for Aqua PA, that “in order to shift less cost to existing Aqua customers, Limerick customer rates could be increased to an even greater amount” than those being imposed on other Aqua customers.
Packer also testified that one of the reasons Aqua wants to make the purchase is growth. He testified an anticipated 15 percent growth in customers “will further spread the cost of services across even more customers,” a sentiment Kerr shares. “There is tremendous growth going on in this region,” said Kerr.
According to figures from the Montgomery County Planning Commission, Limerick added 411 housing units from 2010 to 2017 — an increase of nearly 6 percent.
Just last month, township supervisors granted preliminary site plan approval to a mixed use development on 30 acres at the intersection of Ridge and Swamp pikes which will add 450 new customers to the Limerick system.
“As the population increases, the cost per customer drops,” Kerr argued.
In addition to existing Aqua customers shouldering the cost for the purchase, so too do Aqua investors, the Consumer Advocate’s office argued.
If Aqua’s current rate request is approved, and Limerick is not included, “company shareholders would bear the cost of any rate differential accordingly,” wrote Christine Maloni Hoover, senior assistant consumer advocate with the PA Office of Consumer Advocate.
“Aqua PA investors are taking a $10 million hit,” Kerr agreed.
Too good a deal to pass up
But that is not the township’s responsibility.
The deal, Kerr said, was just too good for the township to pass up.
It allows Limerick to pay off all its debts and to invest as much as $55 million to help pay for future capital needs and offset any tax hikes that might otherwise have come down the pike.
Ultimately, Limerick taxpayers benefit with taxes held in check and improvements like the new highway garage, township building and upgraded fire station facilities being paid for with no tax hike.
Yes, Kerr acknowledged, those residents who are not hooked into the system will benefit the most, seeing taxes held in check and no increase in their sewer bills.
But that number is not high and concentrated in the lesser-populated northwest section of the township. Limerick, Kerr said, has about 6,500 parcels and about 5,800 sewer accounts, although he noted multiunit dwellings would generated multiple accounts on a single parcel.
Before the law change, Limerick had been approached about selling the system, but the price was always too low. He said several years ago, Pennsylvania American Water, an Aqua competitor, offered $20 million.
That was a non-starter, said Kerr. but when the $75.1 million bid came in, “the supervisors realized they could make the township debt free, offset tax increases for a long time. Even if the sewer rates went up, keeping tax rates steady is a win for the whole township. They couldn’t really say no.”