In Philly suburbs, sewer systems are for sale, and citizens push back, fearing rate hikes

“I think the average resident felt they were getting the wool pulled over their eyes,” said Councilman Hakim Jones, one of two council members who voted against the sale. He said the NOPE activists “did more education on the matter in a small period of time than we were able to do as a municipality in a full year and a half.”

NOPE’s success inspired it to broaden its horizons. Renamed Neighbors Opposing Privatization Efforts, NOPE helped organize the Conshohocken campaign, and is now advising residents in Towamencin, a Montgomery County township that is studying a potential sewer sale, said David McMahon, a founder. It’s also advising a citizens group in Carteret County, N.C., which in February agreed to sell its system to Aqua.

McMahon said local officials considering a sewer system sale may comply with laws requiring such transactions to be advertised, but they often couch the deal in language not understood by the public, and downplay the negative long-term rate impact. “Residents in an area don’t know what’s happening until it’s over basically,” said McMahon, a scenery builder for films and television.

Anti-privatization advocacy groups, such as Food and Water Watch, which assists local activist groups, say that public opposition to utility sales is not unusual, or new.

“We’ve seen this in Democratic cities, or rural conservative towns,” said Mary Grant, the director of Food and Water Watch’s campaign against water privatizations. “It’s pretty common when these companies are aggressively trying to take over the water system or sewer system that people react negatively.”

Officials from Aqua, the second-largest private water and wastewater operator in the state after Pennsylvania American Water, said the number of towns where organized opposition has developed has increased only in proportion to the growing number of acquisitions underway.

“What you’re seeing is the volume of municipal transactions has really started to gallop,” said Chris Franklin, chief executive of Essential Utilities, the Bryn Mawr parent company of Aqua. In many towns where Aqua is active, he said there is no opposition to a sale. In others, he said, “people are saying their piece and in some cases, it’s more active than others.”

The frenzy of acquisitions in Pennsylvania is driven by a 2016 state law that encourages the consolidation of smaller water and wastewater systems under private ownership. The law, called Act 12, allows investor-owned utilities to pay an appraised fair-market value for an acquired system, rather than its lower depreciated cost or “book value,” and then to recoup the costs through higher rates.

Fair-value laws, enacted in about a dozen states, have triggered a land rush by private buyers to pay top dollar for systems. Some acquisitive public authorities have also increased their offering prices to compete with private companies — Conshohocken’s preferred bidder was the Bucks County Water and Sewer Authority, which has acquired systems in Montgomery and Chester Counties. Under either public or private ownership, the higher price is passed on to customers through higher rates.

New Jersey also approved a fair-value law, but bidders are only allowed to recoup the higher market value they pay for municipal systems that can show they are in financial distress, so there are fewer acquisitions. In Pennsylvania, there is no such restriction.

Officials from five states told the U.S. General Accountability Office that one potential disadvantage of fair-market value laws is their potential to increase a utility’s rates, according to a GAO report released Monday.

Five studies examined by the GAO found that average water rates charged by private for-profit utilities are about $15 to $21 higher per month than the rates charged by public water utilities. Private utilities have an incentive to generate a return for investors, the GAO said, while public utilities may need to respond to political pressures to keep rates low for all residents.

Every municipality has a different reason for approving or rejecting a privatization, and different circumstances — they may require significant infrastructure investments that would be better managed by a larger private entity, or already have high rates. Some towns just want to get out of the sewer business and focus on core public services.

“Some places have really bad sewer systems that are becoming very expensive to fix and they don’t have the revenue to fix them,” said Chris Manero, president of Plymouth Township Council in Montgomery County. “And some places have seen the chance to get a lot of cash.”

Plymouth Township explored a sale in 2019 but opted out after holding four town-hall meetings because projected increases were too high, said Manero. The township will find some other way to pay for $15 million in needed renovations to municipal buildings, he said.

But having gone through the exercise of examining and rejecting a sale two years ago, Plymouth officials were worried this year when neighboring Conshohocken was considering selling its system. Conshohocken treats sewage from part of Plymouth, which would have realized higher rates if Conshohocken sold its system, while reaping none of the benefits.

Plymouth Township’s anxiety over the sale of a neighboring town’s system highlights another challenge of privatization that potentially pits town vs. town: Municipal sewer systems are often interconnected with neighboring towns, since sewer mains mostly flow downhill. One town’s decision to sell may impact customers in another municipality.

Such is the case in York, Pa., where Pennsylvania American Water, a subsidiary of Camden-based American Water Works Co. Inc., last month announced it will buy the York City Sewer Authority for $235 million. The sale will bail out the financially distressed city. But several surrounding towns whose customers pay York to treat their sewage will see higher rates. Those towns say they are examining their legal options.

Pennsylvania American also has signed agreements with Valley Township in Chester County and Royersford borough and Upper Pottsgrove Township in Montgomery County.

Aqua has six acquisitions underway, at a cost of $438 million, the largest of which is a contentious $276 million acquisition of Delaware County’s sewer system, DELCORA. That deal is tied up in court, but Franklin, the Aqua CEO, talks about it as though a successful conclusion is inevitable.

“Based on the approximate rate base of $438 million, these signed agreements are expected to generate about $22 million of incremental annual income when they’re fully earning, and these are great examples of our acquisition strategy at work,” Franklin told investment analysts in February during an Essential Utilities quarterly earnings teleconference.

Franklin lives in Willistown Township, an affluent Chester County community around Malvern that agreed in January to sell its sewer system for $17.5 million to Aqua. The Willistown sale pits the town’s sewer customers vs. homeowners with septic systems.

Sewer customers, who paid for the Willistown system with past fees and make up about half of the township’s residences, say they will now face higher rates under Aqua ownership. For them, it’s a question of equity — half of the town will pay more after the transaction, but the whole town, including septic customers, will benefit from the proceeds of the sale.

“Basically, public officials love to get their hands on free money, right?” said Henry Yordan, a sewer customer who helped organize an opposition group, Concerned Willistown Sewer Customers. “They have all this free money, and they didn’t have to go to the whole town to say, `Hey, we’re increasing your tax for all these wonderful things we’re doing.’”

Franklin’s view is that Willistown is having an internal disagreement about how to deploy the sale proceeds — sewer customers say the net earnings from the sale should be used to lower sewer rates, or get refunded to sewer customers. After a series of online town-hall meetings, Willistown’s leadership appears to be leaning toward apportioning at least some of the proceeds to rate relief. (Franklin is a Willistown sewer customer, but obviously he supports the sale.)

Another large transaction involving Aqua Pennsylvania is its uninvited $320 million takeover bid of the Chester Water Authority (CWA), a public water system headquartered in Chester city but whose customers are mostly in suburban Delaware and Chester Counties. The sale would bail out financially distressed Chester city, which created the authority, at the expense of suburban water customers who would pay more.

The Chester Water Authority countered with a proposed $60 million takeover that would bail out the City of Chester and thwart Aqua’s bid. Aqua has sued, and the transaction is tied up in court.

In response to public outcry, two state legislators from suburban CWA counties, State Reps. John A. Lawrence (R., Chester) and Christina D. Sappey (D., Chester), have introduced bills that would require the sale of public water systems to get voter approval.

“Innocent people living on fixed incomes in my district shouldn’t pay for the fact that the City of Chester needs to be bailed out,” said Sappey, who reintroduced her Water Payers Bill of Rights this year after it failed to get any traction last year. “We’ve got to find another solution to that problem.”

In Conshohocken, the exploration of a sewer sale was initiated two years ago as part of a review of borough assets. Like many towns, the borough has a long list of needs — police, streets, aging municipal buildings, storm-water management — and limited sources of funds. A sewer system sale presented an opportunity to pay for all of the borough’s $28 million wish list in one transaction.

In February, the borough council approved an ordinance transferring the sewer assets from the Borough of Conshohocken Authority, which oversees the sewer system, to the borough itself. Opponents interpreted that as a signal that the council was moving to sell.

“The borough was not transparent,” said Carol Smith, a pharmaceutical-industry retiree who serves on the Borough of Conshohocken Authority and the creator of the cartoon toilet that became the mascot of the opposition.

“We were told things were going to take months, they were just doing an inquiry, but the goalposts kept shifting,” Smith said. “We thought, `We gotta alert people to this.’ ”

Borough Manager Stephanie Cecco said the borough council was not being sneaky, but careful and deliberate about considering differing views.

“There’s a group of people that have a loud voice and an initiative that they want to accomplish, but that’s not the only dynamic that we’re dealing with,” said Cecco. “There’s a whole other part of the population of Conshohocken that doesn’t understand why you turned down $52 million.”

Conshohocken will now consider other ways to finance needed improvements. One option is to get sewer users to pay higher fees and to take over the costs of managing and upgrading Conshohocken’s storm sewers, now paid out of the borough’s budget.

Cecco said there’s no hard feelings — it’s a small borough, and residents are neighborly. For elected officials, the exercise of getting bids for the sewer system was also useful, she said.

It gives them options.

“Now they have data in hand on the value of one of its major assets,” Cecco said, “which they could use in the future if they need it.”

The Philadelphia Inquirer is one of more than 20 news organizations producing Broke in Philly, a collaborative reporting project on solutions to poverty and the city’s push toward economic justice. See all of our reporting at brokeinphilly.org.