Willistown Sewer Privatization

Concerned Willistown Sewer Customer Blog Post:

Willistown Township has signed a contract with Aqua to privatize the sewer currently serving 2,300 households, approximately one-half of the township’s population. Aqua will pay $17.5 million and has indicated that they will petition the PA Utility Commission for a one-time rate increase, which they estimate at 45%, in order to recover their investment in this property. As Aqua makes capital improvements to the system and as costs of operations increase, there will be additional rate increases.

If the sewer continued under Willistown management, rate increases for new capital improvements and cost increases would also require sewer rate increases to sewer properties, but under Willistown management the one time increase of 45% (which Aqua says could be more or less, but experience would dictate caution with the “less” part of that statement) would not be necessary. Willistown already owns the sewer and it doesn’t need to invest $17.5 million to acquire it.

Originally, in October of 2020, the township proposed to sell the sewer and take the net proceeds of $16.2 million into the general fund for the benefit of the entire township and leave the sewer properties to pay the increased sewer rate that allows Aqua to recover their investment. In a way, Aqua would be getting paid the $17.5 million back by one half of the residents while the entire town enjoys the benefit of the funds inflow from the sale.

A group of concerned sewer customers pushed back on this proposition. The sewer has been built over the past 50+ years by using funds from assessments levied on properties located where the sewer was built, from tap in fees paid by residents when they connect a property to the sewer, and from bonds issued by the township (repaid solely from quarterly sewer fees, not from the general fund of the township representing tax collections from all). The maintenance and capital improvements over the years were also paid from sewer fees. The end result is that this sewer was built from funds collected from only half of the residents of Willistown and the asset would not even exist were it not for these payments. If the money received from Aqua is taken into the general fund, sewer users will be left with increased costs approximating $17.5 million as Aqua recovers their investment while the township is spending the proceeds on unrelated “projects” for the benefit of all residents, including those who never paid for the sewer in the first place and who are not suffering the financial harm of increased sewer rates as a direct result of the privatization.

Another way to think of the transaction is that the amount of money taken into the township coffers for general spending will be fully offset by an outlay from the sewer users, in the form of higher sewer rates. It is not a win-win proposition as claimed by the administration. The general fund’s inflow is “paid” by the sewer customers.

This constitutes a great inequity. The representatives of the township, accepting the proposition that sewer customers will be harmed by the sale, agreed to earmark 20% of the proceeds to subsidize the higher sewer rates. The group of concerned sewer customers, however, believe that the percentage of proceeds destined for subsidizing increased rates should be closer to 100% of the net $16.2 million because Aqua will seek and likely get approval to recover 100% of the $17.5 million they are paying (and probably some profit on top), not 20% of the $17.5 million.

When approving the Ordinance for the privatization in early December 2020, the Board of Supervisors committed to set up a commission to mediate these disputes early in 2021. The first quarter is nearly over, daylight savings time is even back, and nothing has been done to set up this commission. Are we trying to run out the clock? These are complex issues, the differences between the parties are very large, and the transaction is supposed to close by the end of the year. Time ought to be of the essence, and it does not appear to be.

Other sewer privatization transactions in our area completed in recent years support setting aside all the proceeds of the privatization for rate subsidization. The pending Delcora transaction, a $276 million purchase of systems in Delaware and southern PA, also by Aqua, set aside all the proceeds to stabilize their rates once the takeover took place, according to reporting by the Philadelphia Inquirer. Residents are opposing the transaction for different reasons.

The sewer customer group does not necessarily oppose letting the private sector operate our sewer (although some individuals within the group would prefer continued Willistown ownership and operation of the sewer, in particular some 15% who connect to the sewer using a sewer pump system that has historically been maintained by the township but will not be acquired by Aqua). We do understand that Aqua would likely deliver some scale efficiencies in their core competence, but a lot of the efficiencies delivered would be offset by the fact that Aqua makes a profit, and a very handsome one, and that profit finds its way into the sewer rate. We hope that scale efficiencies are sufficient to offset the profit margin. Scale efficiencies will not return to Aqua the $17.5 million they are paying for this asset; this will come from the higher sewer rates imposed on sewer users of Willistown Township in about three years time.

The township has advanced the argument that sewer customers would not suffer greater cost increases under Aqua. It has presented financial models to his effect, models that the sewer group believes are demonstrably misleading and lead to false conclusions. We are thus anxious for a forum to advance what we believe to be irrefutable arguments against these presentations. So far the township administration has not created the forum.

The township frequently uses the argument that the sewer is aging and that it requires some investment and that rates will go up even more if the sewer is not sold because Aqua has better access to funding. The sewer group doubts that this is the case, although we have said repeatedly that we are willing to be convinced, with numbers, not assertions. We have not seen numbers, only assertions. Aqua’s bonds are rated BBB and they are taxable bonds. Willistown’s bonds are rated AA+ and are tax exempt to the holder (which makes the interest required to be lower). Just because Aqua is bigger than Willistown does not mean that their cost of capital is lower.

Another argument often made is that sewer fees are paid to remove sewage and not for construction and investment in the sewer. This is false. Numerous assessments have taken place over the years for construction and the portion of construction financed by bonds has been serviced by sewer fees, not from general public funds. Sewer fees are used to process sewage, but also to pay bonds used for construction and to pay for maintenance and improvements.

All sewer users of Willistown should join us in this fight.

First, add your name to our group by emailing us at neighborsewerinfo@yahoo.com.

Second, write your Board of Supervisors and ask them to form the committee that they promised and set aside all the proceeds of the sale to subsidize the rate increases. Please send a copy of communications with the Supervisors to our group email above so we can keep track.

William Shoemaker ( wshoemaker@willistown.pa.us )

Bob Lange ( rlange@willistown,pa.us )

Barbara Handelin ( bhandelin@willistown.pa.us )

Third, spread the word. There is strength in numbers.