Aqua Pa. is fighting for a $276 million deal in Delco after Bucks deal went sideways

Fresh off the collapse of its proposed acquisition of the Bucks County sewer system, Aqua Pennsylvania is mounting pressure on Delaware County to finalize a disputed 2019 agreement to sell that county’s regional wastewater system, a contentious deal fraught with bare-knuckle Delco politics.

Aqua, the private water and wastewater utility based in Bryn Mawr, last week mailed campaign-like postcards to every Delco household asking residents to push the County Council to move forward on Aqua’s $276.5 million privatization of the Delaware County Regional Water Quality Control Authority. DELCORA, as the authority is known, serves more than 40 towns in Delaware and Chester Counties.

» READ MORE: Aqua Pennsylvania exits Bucks sewer talks after county officials snub sale

Aqua contends that the council’s efforts to hinder the deal has cost millions of dollars in legal fees and higher customer rates. “Tell Delaware County Council to stop flushing your money,” says the postcard’s headline, beside a photo of a hand dangling a fan of money over a toilet.

County Council called Aqua’s tactics “unethical and misleading to Delaware County residents.”

DELCORA agreed to the sale in 2019 just ahead of an election in which Republicans lost control of the County Council to Democrats, ending 150 years of unbroken Republican rule. The Democrats, calling the sale a “backroom deal” to politically connected Aqua, sued to block the deal after they took office.

Aqua says the timing of its mailing to Delaware County was coincidental to the sudden collapse last week of its $1.1 billion proposal to buy the wastewater system of the Bucks County Water and Sewer Authority (BCWSA). That deal fell apart after Bucks County Commission members, facing growing political opposition to the sale, snubbed the deal.

» READ MORE: Was Philly region’s largest water-utility sale a politically motivated sweetheart deal?

Essential Utilities Inc., Aqua’s parent company, has been under increasing pressure from investors to close one of the large Pennsylvania public utility acquisitions it has engineered under a 2016 state law encouraging public water and wastewater utilities to consolidate. After the gigantic Bucks proposal unraveled, one investment analyst questioned whether the law was the great growth driver the water industry had touted, and lowered his expectation for Essential’s stock price.

Delaware County officials acknowledged that Aqua had been privately threatening to issue the mailers for several weeks before the Bucks deal fell apart. Negotiations had stalled between Aqua and Delaware County to settle their litigation, and Aqua was increasingly buoyed by several recent wins in its legal battles with the county, including a Commonwealth Court ruling that the 2019 sale agreement was a valid contract.

“The mailing is just a way for us to tell our story,” said Christopher H. Franklin, the chairman and chief executive of Essential Utilities.

One sticking point in settlement talks for Delaware County officials is their belief that Aqua’s $276.5 million price for the DELCORA system was too low in light of the $1.1 billion it offered for the Bucks system, four times the price for DELCORA. The Bucks system serves fewer end users — about 100,000 customers, compared to 165,000 for DELCORA.

But Franklin said that the Bucks and DELCORA systems are fundamentally different and were valued appropriately.

DELCORA primarily owns the large trunk lines that feed sewage into its treatment plant, but it does not own the municipal collection systems under neighborhood streets that connect to individual customers. DELCORA bills bulk municipal customers for sewage services, and those costs are passed on to customers by towns through sewer fees or in tax bills. In comparison, the Bucks County system owns and maintains the collection systems in many towns, and it bills those retail customers directly.

» READ MORE: From 2018: A Pa. law sets off a feeding frenzy for public water systems. Will customers pay the cost?

The DELCORA system also faces about $700 million in infrastructure upgrades to separate itself from the Philadelphia sewer system by 2028, when Philadelphia’s fees to Delaware County for treatment are expected to increase dramatically to cover its share of the city’s mounting wastewater costs.

Franklin argues that those capital costs, added to the $276.5 million it agreed to pay for DELCORA, meant that the price it will pay for DELCORA is about $1 billion.

The County Council says that DELCORA will pay those $700 million in infrastructure costs whether it is privately or publicly owned. Under ownership of the nonprofit authority, they say, financing will cost less, DELCORA will not collect a profit, and the public will retain control.

Aqua argues that rates under public ownership are rising faster than they would under Aqua’s ownership, at least in the short run. DELCORA raised its fees to customers 8% in 2019, 10% in 2020, and 12% in 2021, while rates under Aqua would have been capped at 3% per year through 2029 under an agreement where net proceeds from the sale would go into a fund to pay back to Aqua to stabilize rates.

Part of the challenge facing Aqua in its campaign is that the individual rates for DELCORA customers are difficult to measure, since they are incorporated into township fees and may not be identified as DELCORA charges. “Most people have probably never heard of DELCORA,” Franklin said.

The County Council portrayed Aqua as desperate.

“As a public company that has recently endured several legal defeats and public condemnation, Aqua is undoubtedly feeling the pressure to meet its commitments,” the county said in a statement on Friday. “But the pressure the company feels doesn’t change the fact that the DELCORA deal is a bad one for Delco ratepayers and taxpayers.”

Christine A. Reuther, a member of the County Council, said Aqua’s campaign may backfire and create more resentment against the company than against council’s efforts to put up legal roadblocks to the deal.

The court cases and the Aqua campaign “show that we are still dealing with the same old machine that did this deal behind closed doors in 2019 right before a new majority took control of County Council,” Reuther said in a Facebook post. “If the post cards keep flying, this may as well be an early kick off to the 2023 County Council election campaign.”