Pa. overrides judge’s recommendation, approves Aqua Pa. takeover of Chesco town’s sewer system

Pennsylvania regulators on Friday approved Aqua Pennsylvania’s $17.5 million takeover of a Chester County town’s sewer system, overriding an administrative law judge’s recommendation to reject the sale as harmful to new and existing Aqua customers.

The Pennsylvania Public Utility Commission approved Aqua’s acquisition of the Willistown Township sewer system, which serves about 2,294 customers mostly outside Malvern Borough. The privatization of Willistown’s system is the latest successful effort to acquire public water and wastewater systems under a 2016 law that encourages the private ownership of municipal water utilities.

Administrative Law Judge Jeffrey A. Watson on April 21 recommended denying approval for the transaction, which he said would cause higher rates for Willistown’s customers as well as Aqua’s existing water and wastewater customers. Watson said that increased consumer costs outweighed any public benefits derived from the sale.

The PUC, in its order posted Friday, reviewed the same evidence that Watson considered and said it found “that Aqua has proven that it is technically, legally, and financially fit to acquire the township’s system, and has demonstrated that the acquisition has substantial affirmative public benefits that outweigh the purported harms asserted by the parties.”

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

The sale could have implications on neighboring public sewer systems that interconnect with the Willistown’s system, including Aqua’s $54.9 million agreement to buy the East Whiteland sewer system. A different hearing examiner, Marta Guhl, in May recommended that the PUC reject the East Whiteland transaction, saying that Aqua had not demonstrated any cost reductions or efficiencies from the East Whiteland transaction.

Aqua Pennsylvania is a subsidiary of Essential Utilities Inc., based in Bryn Mawr.

The PUC approved the Willistown decision privately in a 3-0 vote on Friday in order to beat a six-month statutory deadline that required it make a decision before its next public meeting, on Thursday, Nils Hagen-Fredericksen, the PUC spokesperson, said in an email. “If action by the commission is required before the next scheduled public meeting, the commissioners can take a notational vote on the matter — which is then announced on-the-record at the next public meeting,” he wrote.

Opponents to the sale, including a residents group and the Pennsylvania Office of Consumer Advocate, can appeal a PUC decision to Commonwealth Court.

The sale could become a test of the underlying rationale in the state’s decision in 2016 to encourage the consolidation of smaller public water and wastewater systems under private ownership. Some critics say the law was intended to encourage private water companies to take over financially troubled public systems. But Watson found that Willistown’s relatively new system is well-run and adequately financed, and the affluent township is “financially fit to complete any necessary improvements and upgrades.”

The 2016 law, called Act 12, made it easier for private utilities to offer premium “fair market” prices to towns for their utility assets, where the buyers previously had been limited to recovering from customers no more than the book value of the assets. The law has sometimes led to increasingly lofty prices for public utilities, which critics say is pushing up utility rates.

The PUC in May approved an Aqua Pennsylvania rate increase that will boost monthly residential water bills for most customers by 12% from $69.35 to $77.51, an $8.16 increase. An average Aqua residential wastewater bill will go up 59%, from $55.51 to $88.18, according to Aqua. The water and wastewater bills are based upon households that use 4,000 gallons a month.

Willistown customers currently pay about $63.63 a month. Those rates would be frozen for two years, shifting some of the cost for paying for the new system on Aqua’s existing customers.

Aqua, in urging the PUC to accept the Willistown sale, cited the PUC’s record of support for consolidation and regionalization of water and wastewater systems, quoting a 2006 commission decision that found that “acquisitions of smaller systems by larger more viable systems will likely improve the overall long-term viability of the water and wastewater industry.”

Aqua Pennsylvania is a subsidiary of Essential Utilities Inc., based in Bryn Mawr.