UPDATE: Water board turns off $250M offer

Chester County, Delaware County and Chester City delegates on the Chester Water Authority board have unanimously voted down an unsolicited proposal to sell the system to for-profit-Aqua America for $250 million.

Aqua's offer, reviewed today at a public meeting at Neumann College, followed Harrisburg's passage of a law last year making it easier for private buyers to pay premium prices for public utilities. The offer provoked an inquiry from rival America Water, of Voorhees, whose representatives asked to make a bid, too.

But the board has shown no interest in selling, said Frank Catania, solicitor for the authority, which collected $43 million last year piping water to around 44,000 homes and businesses in the Aston, Chester City and Glen Mills areas, the Kennett-Oxford corridor and other communities. The utility employs 165 in Delaware, Chester and Lancaster Counties.

The board voted to set up a process for reviewing possible future sale offers, but gave little hope it would sell.

"Our obligation is to act in the best interest of the ratepayers," Catania said after the meeting. As a financially healthy authority, he said members saw little advantage for ratepayers in turning the system over to private ownership. As a municipal borrower, Chester Water enjoys cheap financing for its $65 million debt.

According to data posted on Chester Water's Web site, area for-profit water systems tend to charge customers more than the public authority:

- Aqua Pennsylvania affiliates charge around $65 per 5,000 gallons delivered by standard 5/8 inch mains;
- Pennsylvania-American Water, an affiliate of Voorhees-based American Water Works, charges around $71;
- Artesian Water Co., in northern Delaware, charges around $59.

- By contrast, Chester Water charges just $35 for 5,000 gallons, to customers downhill from its tanks in Aston; and $42, to customer in uphill markets served with pumps.

Aqua runs water systems in each of Philadelphia's suburban Pennsylvania counties, in northern and wester Pennsylvania and in other states, noted spokeswoman Donna Alston.

While Scranton recently agreed to sell its wastewater system to an American Water affiliate for $195 million, attempts by Aqua to buy the Allentown water system and by American Water to buy Trenton's water system failed in recent years. Philadelphia City Council has so far resisted proposals to explore the sale of the city's water, wastewater and gas utilities.

But Aqua can now offer higher prices than it used to, and recover the money from customers, under terms of last year's Act 12 of the Pennsylvania General Assemblysays Ryan Connors, utilities analyst at Boenning & Scattergood in West Conshohocken.

Previously, Pennsylvania regulators tied utility sales values to past capital costs and depreciation. Buyers that tried to pay more had a tough time approval to charge ratepayers for the extra expense.

But under Act 12, backed by state regulators, passed by the Republican legislature and signed by Democratic Gov. Tom Wolf, private companies like Aqua can pay market prices and add them to their rate base, after approval by state-approved price experts.

"It's a pretty ingenious piece of legislation," said attorney Thomas S. Wyatt, partner at Dilworth Paxson LLP, whose clients include municipal utilities.

In one of the first transactions under the new law, New Garden Township, Chester County, is weighing a $30 million bid from Aqua, a price that would likely have been difficult to reach under the old system, Wyatt said. He added that municipalities "should proceed with caution."

Catania, the Chester Water solicitor, noted another bill that passed the state House and is advancing through the Senate would force municipal authorities that sell to private operators to hold public hearings and to justify sales by showing they were best for customers.