Pa. high court will review decision allowing Chester to sell regional water system to Aqua Pa.

The Chester Water Authority lives to see another day, and another courtroom.

The Pennsylvania Supreme Court on Monday agreed to hear CWA’s appeal of a lower-court ruling that would allow the financially strapped City of Chester to sell the sprawling water system that serves 49,000 customers in 33 towns in Delaware and Chester Counties. The sale would get the city out of hock.

The Commonwealth Court ruled in September that Chester, as the founder of the water system in 1939, was CWA’s sole owner and can entertain sale offers for the utility, despite objections from suburban interests that represent the vast majority of its customers.

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The court’s decision ultimately will determine whether Chester moves ahead on a proposed sale of the water system to Aqua Pennsylvania, which has offered $410 million to acquire the authority in one of the largest public water utility privatizations in the region. Aqua Pennsylvania is owned by Essential Utilities Inc. of Bryn Mawr.

CWA says the authority, where six of the nine members are appointed by Delaware and Chester Counties, controls the assets and does not want to sell. CWA says suburban customers’ water rates would rise significantly under private ownership, while the benefits of the system’s sale would flow mostly to the city.

The question before the state Supreme Court is whether the state’s Municipal Authorities Act allows Chester to sell the assets of an entity it created, as the Commonwealth Court ruled. CWA argues that a 2012 state law that specifically expanded the CWA’s board to include a majority representation from Delaware and Chester Counties prevails over Chester’s rights to control the assets. The Supreme Court’s decision will sort out whether an authority’s board, or the founding municipality, controls its assets.

Supreme Court Justice Kevin Brobson, who assumed a seat on the court in January, did not participate in the decision to hear the appeal. Brobson was a member of the 5-2 Commonwealth Court majority that ruled last year in favor of allowing the City of Chester to control the assets.

Chester, which has flirted with insolvency, is under pressure from a state receiver to reduce its debt and to resolve obligations for tens of millions in unpaid pensions and retiree health costs.

CWA, as a counterproposal, in 2019 offered to give the City of Chester $60.2 million to pay down the city’s obligations in exchange for a 40-year-agreement by the city to drop efforts to sell the water authority. CWA said the payment would result in a smaller rate increase than if the authority was sold to a private company. Aqua moved to block that agreement, and the matter is in litigation.

The CWA sale is among the largest proposed transactions in a frenzy of water and wastewater system privatizations in Pennsylvania. Those sales are being driven by a 2016 state law that encourages the consolidation of smaller 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,” resulting in very attractive revenue opportunities for municipalities looking to avoid tax increases. Critics worry that the high prices utilities are paying for the systems will boost water and sewer rates for existing and newly acquired customers for decades to come.