Sale could lead to rate hike

$75.1M sale of town­ship sewer sys­tem could re­sult in 84 per­cent in­crease

The Phoenix - - FRONT PAGE - By Evan Brandt ebrandt@21st-cen­tu­ry­media.com @PottstownNews on Twit­ter

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.”

DIG­I­TAL FIRST ME­DIA FILE PHOTO

Lim­er­ick’s waste­water treat­ment plant on King Road is one of two that has been sold to Aqua PA.

EVAN BRANDT — DIG­I­TAL FIRST ME­DIA

The town­ship sent out one fi­nal sewer bill to cover town­ship own­er­ship through the end of July. Aqua PA is ex­pected to be­gin monthly billing for Au­gust and be­yond if it has not done so al­ready.

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