Call it an October surprise.
Aqua Pennsylvania, long interested in taking over the Chester Water Authority (CWA), filed a brief with a federal bankruptcy judge last week objecting to Chester’s bankruptcy plan.
“This initial objection is meant merely to identify some of the fatal flaws in the Debtor’s plan that preclude confirmation,” wrote Aqua attorneys on Oct. 3.
The for-profit utility submitted a laundry list of criticisms regarding the plan presented by Chester Receiver Michael Doweary in late August.
Aqua accused Doweary of using Chapter 9 bankruptcy to avoid paying any debts that arise. The utility suggested Doweary wanted to “manipulate federal law” to force CWA into a sale that benefited Chester.
Opponents of a CWA sale have long argued that, even if the City of Chester was legally allowed to sell it and keep all the proceeds (a premise they strongly dispute), the one-time revenue would do nothing to solve the city’s longstanding economic woes.
Aqua appears to agree.
Court documents said Aqua found Chester’s plan to exit bankruptcy was lacking financial information, ability to pay debts, or how it will pay for water operations while it tries to sell CWA.
Aqua castigated Doweary’s plan – or lack thereof – to the bankruptcy judge. It said the receiver’s proposal hung on various “hopes and speculation” that CWA would be sold but failed to bring up a price. Aqua suggested Doweary’s proposal would destroy CWA’s value at the expense of the city, taxpayers, and users. It said the plan wasn’t feasible and wasn’t in the best interest of anyone.
Chester’s desire to sell CWA is well known. The financially-distressed city has a total of $369 million in unfunded pension benefits and retiree healthcare.
It lost $400,000 in 2022 after now-former Councilman William Morgan was caught up in a phishing scam. Another $100,000 was lost last year in a ghost employee scheme. Doweary, who was appointed by then-Gov. Tom Wolfe in 2020, clashed with the city’s former mayor on city council pay and a parking contract.
CWA has argued it’s not a city-owned entity. Attorneys told the bankruptcy court it has complete autonomy on its affairs including finances and facilities. CWA accused Chester of trying to sell it under the cover of darkness and away from the prying eyes of state regulators.
“In order to effectuate the Plan it proposes, the City would be asking this Court to sanction an entire re-write of Pennsylvania state law under the Municipal Authorities Act,” said CWA attorneys last month.
The most damning argument against Doweary’s bankruptcy plan was Aqua’s claim that Chester was looking to avoid scrutiny from the Public Utilities Commission. Aqua lawyers charged Doweary and Chester with blatant violations of due process and interference with state law. They believe it’s proof that the plan wasn’t made in good faith.
“The Debtor has purposely and continuously refused to engage in negotiations with Aqua, despite Aqua being a party to proceedings to acquire the water assets and an APA to purchase the sewer assets,” wrote Aqua’s legal representatives.
Aqua said Chester had yet to prove it owned CWA. Chester agreed to sell CWA to Aqua in 2022 for $410 million – shortly after the Pennsylvania Commonwealth Court said Chester alone could terminate the CWA and did not need the approval of Delaware and Chester Counties to do so. CWA appealed to the state Supreme Court, but a decision is on hold because Doweary put Chester into bankruptcy court, nullifying the deal.
Aqua attorneys believe there’s no reason for the bankruptcy court to approve Doweary’s proposal.
“At a minimum, it is not feasible, is not in the best interests of creditors and is conditioned upon provisions that are contrary to applicable law,” they wrote.
CWA attorney Frank Catania was shocked by the filing.
“Both Aqua and CWA are arguing that this plan is not sufficiently complete, and it wasn’t procedurally filed in such a way that allows the court to give it meaningful consideration,” he told DVJournal.
As for digging the city of Chester out of its fiscal hole, Catania rejected that idea.
“The plan doesn’t solve Chester’s financial problems. It just transfers them from the city government to the CWA ratepayers and Chester residents.”
Catania suggested Doweary’s plan was just a public relations stunt meant to get some positive press for the embattled state appointee.
Neither Aqua nor Doweary responded to DVJournal’s request for comment.
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