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‘A Robbery in Progress:’ Chester Water Cries Foul Over Receiver’s Bankruptcy Move

When Receiver Michael T. Doweary filed for Chapter 9 bankruptcy last Thursday for the City of Chester, he said it was the only way to resolve the city’s ongoing fiscal crisis.

“Chester’s financial and operational problems are far worse than my team of professionals has ever encountered. The status quo has not worked, is not working, and will not work. The residents of Chester deserve better,” Doweary said in a press release. He pointed to a projected $46.5 million deficit in 2023, including $39.8 million in past-due pension payments.

But representatives for the Chester Water Authority (CWA), locked in a struggle against the city’s bid to sell the CWA to Aqua PA, it was just the latest misstep by the city’s state-appointed overseer. And it leaves far too many unanswered questions.

“The Receiver has had two and half years to turn Chester around,” said CWA attorney Frank Catania, pointing to several high-profile fiascos like the city losing $400,000 through an internet phishing scam on the Receiver’s watch.

And, Catania added, Doweary did not tell the Commonwealth Court that Chester stands to gain $70 million through the sale of DELCORA (Delaware County Regional Water Quality Control Authority) to Aqua or, alternatively, get its sewer systems back so it could sell them itself.

“It’s a robbery in progress,” said Catania of Doweary’s revised Receivership document. Doweary is “trying to shift the burden (of paying for water and sewer) from government to citizens,” both in Chester and in parts of Delaware and Chester counties. Some 80 percent of CWA customers are suburban and if Doweary has his way, those customers will subsidize the city.”

“The Receiver uses bank robber’s logic: I need money. You have money. I’m taking it.”

Doweary declined to respond to repeated requests for comment. In a press release, he said he avoided bankruptcy as long as possible, and he pointed fingers at city officials.

“Since my appointment over two-and-a-half years ago, I have worked to avoid this day,” Doweary said. “However, Chester has a severe structural deficit that cannot be addressed by one-time fixes, has unaffordable retiree benefit liabilities, and cannot reliably provide vital and necessary services to its residents.”

According to Doweary, Chester’s elected officials and employees are not cooperating with his stewardship. For example, Councilman William Morgan lost the money to the phishing scam — involving a fake request for payment — in June, but he was not notified until three months later. He also pointed to a $750,000 IRS penalty against Chester for incorrect payroll taxes and to a salary being paid to an incarcerated former employee.

Doweary acknowledges he is seeking more control over city operations and also wants the court to award him control over the CWA. He also asked the court to tell employees and elected officials that they must not interfere with the directives of the chief operating officer or the Receiver.

What the Receiver won’t discuss, however, is the city’s outstanding debt for the high-powered law firm, Greenberg Traurig, for a $1 million contingency fee. How could Chester, struggling to pay its bills, afford to pay $1 million?

DVJournal has requested the underlying documents related to retaining Greenburg Traurig, but the Receiver has declined to provide them or explain what work the firm was supposed to provide to the taxpayers of Chester.

CWA is in litigation with the Receiver. Oral arguments in that case are scheduled before the state Supreme Court on Nov. 30.  However, a bankruptcy filing stays other court cases. Lawyers are meeting with a bankruptcy court on Tuesday.  Also, at 1 p.m. on Tuesday, the Municipal Financial Recover Advisory Committee will meet. That meeting will be streamed. 

“[Doweary] is court shopping,” said Catania. “He wants to avoid the Supreme Court and go to Commonwealth Court.”

“He’s going to try to convince (the Commonwealth Court) judge that he should be in charge of CWA,” added Catania.  “He couldn’t even make sure the city that Chester had proper insurance coverage and he wants to sell the water authority and serve 200,000 customers fresh drinking water? It’s outrageous. He’s got to be stopped. He did not tell the court the whole story that Chester stands to get $70 million from the sale of DELCORA.”

Instead of a Receiver, the state should step up for Chester, like it previously did Philadelphia, Pittsburgh, and Harrisburg, said Catania.

“This is an orchestrated crisis,” said Catania. “And whenever it’s convenient, Doweary brings the city retirees out for public relations purposes.

“He treated Chester retirees as hostages,” he said.

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Lawrence, Cutler File Amicus Brief Opposing City of Chester’s Bid to Sell Chester Water Authority

Two Republican state representatives filed an amicus brief to oppose the city of Chester’s bid to sell Chester Water Authority to Aqua PA.

The case is expected to be heard by the state Supreme Court on Nov. 30.

“Act 73 of 2012 abolished Chester city’s control over the CWA board. It is outrageous to suggest that years later, the city can override the clear intent of the Legislature, take control of CWA and sell it to the highest bidder.  I am grateful that the Supreme Court has agreed to review this matter, and I will continue to fight to prevent any takeover of Chester Water Authority,” said Rep. John Lawrence (R-West Grove).

Lawrence, whose constituents in Chester and Delaware counties are served by CWA filed the brief with House Speaker Bryan Cutler (R-Lancaster).

“The CWA board has steadfastly and responsibly served the hundreds of thousands of customers who rely on this municipally provided service,” Cutler said. “The Commonwealth Court’s ruling undermines the board’s rightful position to continue to recognize the best interest of its customers and sets a dangerous precedent for all water consumers in the Commonwealth. We strongly urge the Pennsylvania Supreme Court to take a closer look at this case.”

Previously, CWA rejected an unsolicited $320 million takeover offer in 2017. Subsequent lawsuits focused on whether the CWA Board or the city of Chester has the ultimate authority to approve a sale of the water authority. A Delaware County court decided in favor of CWA, but on appeal t the Commonwealth Court reversed the lower court’s ruling.

Founded in 1939, Chester Water Authority serves over 200,000 customers in Chester and Delaware counties. In addition to water treatment facilities, the authority owns and operates the Octoraro Reservoir, and water pipelines connecting the reservoir with the Susquehanna River and facilities in the city of Chester.

A spokesperson for Aqua, which made a $410 million bid for the system, declined to comment since the matter is in litigation.

Aqua and other privately owned corporations have been buying area water and sewer systems after a law signed in 2016 permitted them to pay “fair market value” for those public utilities.  However, residents have been organizing to fight back against these acquisitions, fearing higher rates. They have had some success, notably garnering public support to pressure the Bucks County Commissioners to oppose a planned deal for Aqua to buy the Bucks County Water & Sewer Authority for $1.1 billion.

In the brief, the lawmakers noted that the takeover jeopardizes the reservoir, which Cutler’s constituents enjoy.

The representatives argue in their brief that the City of Chester does not have the right to decide on the sale without the consent of Delaware and Chester counties, which are also represented on the CWA board.

Frank Catania, a lawyer for CWA, said the CWA board members terms are up in November. The Chester County commissioners reappointed two board members on Wednesday, Noel Brandon and Leonard Rivera, along with Erik Walschburger, deputy county administrator as a new board member.

On Thursday, the CWA board will hold a special meeting to discuss whether to join the U.S. Water Alliance and its One Water Program. That group promotes sustainable fresh water and holistic water management, according to its website.

 

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POWELSON: Sale of CWA Good for Consumers, City of Chester

America is facing serious and growing water infrastructure challenges, meaning communities across the country are having important conversations about how to ensure safe, reliable water. One of those conversations is happening right now in Chester where the city, which owns the Chester Water Authority (CWA), is looking to get out of the water business and put it in the hands of other local experts.

As both a CWA customer and president of the National Association of Water Companies (NAWC), which represents America’s water companies, I am invested in this ongoing conversation about the future of Chester’s water system and am concerned about misinformation concerning the potential sale.

A wide sampling of that misinformation was part of a recent editorial written by local activists.

Chester is looking to sell its system for good reasons. First, Chester faces significant financial challenges and is only the second Pennsylvania town to be placed into receivership. The sale of CWA is a solution that will bring in much-needed revenues while also placing the system in the hands of professionals.

By selling to a professional water company, Chester will gain the operational expertise that is the hallmark of the private water industry, which currently serves over 4.4 million Pennsylvanians. Despite activist attempts to paint a rosy picture about CWA, the reality is the system has been plagued by operational inefficiencies for decades. A water company will be able to address those inefficiencies, offer a strategic investment plan that removes local politics from decisions about infrastructure, and ensures residents have safe and reliable water for generations to come.

Instead of providing a factual assessment of CWA’s situation, the editorial’s writers resort to the very thing they accuse water companies of doing–scaremongering. For many years, activists on the fringes have tried to demonize particular industries by putting “big” before it. Big Oil. Big Pharma. Big Ag.

But this is a new, absurd one. Big Water?

I assume they are referring to the water companies that:

  • Serve 73 million Americans, partnering with local communities to ensure the highest level of water quality and reliability at affordable rates. These very companies have been proven in study after study to provide the highest quality water–higher than that provided by government-run systems. In fact, EPA data show systems run by Pennsylvania water companies are 34.7 percent less likely to have Safe Drinking Water Act violations compared to government-run systems.
  • Invest billions of dollars annually into community water systems so that when you turn on your tap, you know your water is safe to give to your family.
  • Provide affordability programs to assist those who may struggle to pay their water bills, unlike the government-run systems.
  • That employs tens of thousands of local residents who live in the communities they serve every day–people who are a part of the fabric of the community’s life and you see at the gym or the grocery store or on the sidelines at youth sporting events.

Putting aside the writers’ obvious red herring, it is incredible how many basic facts about water system operations their editorial got wrong.

For example, their claims about how water companies generate profit are laughably inaccurate and expose just how little they actually know about water utilities. They claim water companies want inflated prices for water systems because higher purchase prices result in bigger profits.

That isn’t at all how it works.

The price a water company pays for a system has absolutely nothing to do with how much of a return it can earn. A water company can only earn a return on the dollars they invest in necessary infrastructure repairs and upgrades on systems it already owns.

The writers are right about one thing – water companies are “regulated utilities.” Unlike government-run systems, water companies have strict oversight from independent state regulators. In Pennsylvania, that’s the Public Utility Commission (PUC).

I had the pleasure of serving as PUC chair and know how these protections benefit customers. The PUC provides rate regulation–meaning those expert regulators systematically review company expenditures and assess system needs as part of a transparent, months-long rate-setting process. That’s right: decision-making on customer rates rests in the hands of expert independent regulators, not water companies or local politicians who want to be re-elected.

City leaders and residents should not be misguided by those who are only interested in blocking proven water company solutions, not fostering a productive discussion about what is best for Chester’s residents. The expertise, strategic investment, and singular focus on water system operations that comes from working with a water company will ensure that current CWA customers like my neighbors and my family have safe drinking water and reliable service.

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CA Author Speaks to ‘Save CWA’ Org About Protecting Public Institutions

Who better than a Californian to speak to the Chester Water Authority about winning a water war?  Disputes over water rights are rife in the southwest. California once fought with Arizona over the rights to the Colorado River water, and Arizona called out its National Guard to stop dam construction.

The CWA, which serves 200,000 people in Delaware and Chester counties, has been trying to fend off a takeover by Aqua PA since 2017. The issue is now pending before the state Supreme Court.

CWA contends that rates for consumers and businesses will rise if Aqua acquires the water company, and also, residents will lose access to Octoraro Reservoir.

Donald Cohen, co-author of “The Privatization of Everything: How the Plunder of Public Goods Transformed America and How We Can Fight Back,” spoke to Save CWA last week. He’s also the founder and executive director of In the Public Interest, a research and policy center.

Cohen talked in broad strokes about why publically owned entities like schools, libraries, or parks are generally good, but people can lose out when for-profit corporations buy those institutions.

“Things can be public,” Cohen said. “There are ways to keep them public. And there are ways to make them public. And most importantly, they need to be public.”

“The problem comes when their interests conflict with a public use,” said Cohen. “That’s the issue.”

In 2008, Chicago was in dire financial straits when it was offered a deal to sell its parking spaces to a private consortium led by Morgan Stanley, a parking company, and a sovereign wealth fund from the Middle East for $1.1 billion cash he said. The private group would control the city’s 36,000 parking meters for 75 years. Chicago took the deal and has lived to regret it when, for example, it needs to close a street for a parade or wants to add bicycle or bus lanes. It must pay the group for what was formerly its property.

“They just didn’t negotiate right,” he said. “They got taken.”

Donald Cohen

Often, local governments are not as sophisticated as the private companies who come in and want to buy something the public owns. And the officials see a PowerPoint with a bunch of “pretty pictures” and sign on the dotted line, ending up with a raw deal for their residents.

“This is an assault on our democracy,” Cohen said. And contracts, once signed, can be hard and expensive to break. “A deal’s a deal. Rigid contracts take away our ability to make decisions.”

Cohen also cited private companies that run prisons as another example.  Governments typically guarantee a certain number of beds that will be filled. So what happens when crime decreases? Is there an incentive to arrest more people?

In Arizona, the private contracts were for 100 percent bed utilization, but now the prison populations are going down because of the legalization of marijuana, he said.  And the state does not have the money for training and rehabilitation “because it’s locked into these contracts.”

“These are publicly-traded companies,” he said. “They spend lots of money in politics. They spend lots of money on lobbying…They have a fiduciary obligation to their investors.”

CWA Board member Joe McGinn said CWA has “bipartisan support working for us in Harrisburg.”

He asked Rep. Leanne Krueger (D-Folsom) and Sen. John Kane (D-Delaware/Chester) to ask the Delaware County council to get involved. And he thanked the two legislators for “fighting on our behalf.”

“None of them that are on the council now actually live in this district,” said McGinn, a former Delaware County sheriff.

“This is not a company that had issues. This was not a company that is in distress. This is not a company that had problems such as lead in the water. This is a company that is very well run. And sure, you can tweak it, whatever you want to do,” he said about CWA,

“Honestly, I’m really proud to be a member of the Chester Water Authority board,” said McGinn. “I’m going to do whatever I can to keep fighting for this. And I hope that the Supreme Court is going to do the right thing and we can keep Chester Water Authority as Chester Water Authority.”

Kane has received a lot of phone calls about CWA. He understands why the City of Chester wants to sell CWA because of being in state receivership and needing to sell the asset to escape that situation.

Having Aqua buy CWA “wasn’t the right thing to do,” said Kane, who introduced a bill to support ratepayers’ rights if an acquisition occurs.

However, another bill, SB 597, “written by big water companies” that would make it easier for Aqua and other companies to acquire community-owned utilities, was tabled this past week, he said. But he believes it will be brought up again.

“I’ve always believed in public utilities,” he said. “Over the last 18 months, I’ve gotten a crash course in what private water looks like, and I’m sorry to report, it’s not good.”

However, several bills to stop the sale of CWA remain stalled in committee, Krueger said.

An audience member suggested demonstrations outside the Supreme Court to sway the justices.

Cohen said people going to city and county council meetings would be more effective.

“People in motion,” he said. “That’s the only way it happens.”

CWA solicitor Frank Catania said that for-profit water companies are lobbying the state legislature hard.

“That’s their business,” Catania said. “That’s what they do. Constituents don’t understand the pressure the legislators are under.”

“Aqua has a list of every water system in the state,” said Cohen. “We should create that list and get ahead. Their strategy is to surround the cities…They’re playing a long game.”

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PA Supreme Court Agrees to Hear Chester Water Appeal in Aqua Case

The Pennsylvania Supreme Court Monday granted the Chester Water Authority’s request to file an appeal of a Commonwealth Court’s ruling in its ongoing dispute over Aqua America’s plan to purchase the municipal water system.

In an order of “allocatur” — a petition to an appellate court for permission to be allowed to file an appeal— the Supreme Court said it would let Chester Water appeal on two issues in its dispute with Aqua and the City of Chester. Specifically:

  • Does the city of Chester have the right to seize the Chester Water Authority’s (CWA) assets and sell them?
  • Did the Commonwealth Court err in allowing someone other than the CWA to control the transfer of its assets?

“We’re very grateful the court has agreed to address these questions,” said CWA solicitor Frank Catania. “It’s important to preserve the public’s control of their drinking water. It’s fundamental to human life.”

Aqua America has made a $410 million bid for the water system, which serves 49,000 customers in 33 towns in Delaware and Chester Counties. The company is pledging to keep the 200,000 current CWA customers’ rates flat for a decade. Make the deal, Essential Utilities Chairman and CEO Chris Franklin told Delaware Valley Journal in October, and “there will be no movement in what the customer pays.”

CWA and its allies call that pledge hollow and they point to communities like New Garden, Pa., where ratepayers say the sale of their wastewater system to Aqua led to soaring sewer bills. “Aqua is a lot of talk,” said Margo Woodacre, co-founder of KWA – Keep Water Affordable — in New Garden.

In September, the Commonwealth Court ruled 5-2 that the City of Chester controlled the CWA and its assets, despite a 2012 law that added additional governance of the CWA from Delaware and Chester Counties.

Now CWA can go to the Supreme Court and get a final ruling on the question of whether the authority is a stand-alone agency or a subset of the city. That is particularly important because the city is operating under state receivership due to its disastrous fiscal condition.

“We look forward to the opportunity to present our arguments to the court,” Catania said. “It’s very important that these issues be resolved.”

The organization Save CWA also released a statement:

“CWA appreciates that the PA Supreme Court acknowledges the significance of this issue. There is nothing more important than the public’s control over their Pennsylvania constitutionally-granted natural resources including their water. CWA also thanks their board, their employees, their ratepayers, the elected officials, and the public who keep this issue at the forefront.”

Aqua did not respond to a request for comment.

 

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Is Aqua’s ‘No Rate Hike’ Pledge a Hollow Promise?

As the complex legal and political battle over the future of the Chester Water Authority rages on, most CWA customers are focused on one simple question:

What about my rates?

Aqua America has made a $410 million bid for the water authority’s assets. They are pledging to keep the 200,000 current CWA customers’ rates flat for a decade. Make the deal, Essential Utilities Chairman and CEO Chris Franklin told Delaware Valley Journal, and “there will be no movement in what the customer pays.”

Not so fast, says the CWA’s attorney Frank Catania.

“Aqua can’t promise not to raise rates because Aqua doesn’t set the rates. The PUC [Public Utility Commission] does.”

And this is where the debate over the impact to ratepayers of the city of Chester’s attempt to sell the CWA gets complicated. The story also highlights the fact that, in the end, there is no certainty about future rates under the Aqua deal.

It all comes down to another simple question: Who can ratepayers trust?

Catania says it’s not Aqua. “If Chester sells to Aqua, it’s not a matter of ‘if’ there will be higher rates, but ‘when,” Catania told DVJournal.

“To my knowledge, we’re the only bidder who has said what rates will look like for the next decade – no other utility in the entire country has done that,” Franklin responds. “Has Chester Water made a similar pledge?”

But “no new rate hikes” is a much easier promise to make than it is to keep. Particularly in the case of Aqua and the CWA.

Aqua has been on a buying spree across Pennsylvania, snatching up sewer and water systems under a 2016 law known as Act 12. This law lets investor-owned utilities charge ratepayers for the appraised fair-market value of the assets. Aqua currently provides water service to nearly 450,000 customers in 32 Pennsylvania counties and wastewater service in 15 more.

As Aqua raises rates to cover its costs, the rates of its previous customers come into play under a policy known as “single tariff pricing.” Its premise is that similar customers should pay similar prices for similar services — a situation that absolutely wouldn’t exist for other Aqua’s customers in the CWA service territory.

“Our rates are one-third to one-half those of Aqua,” Catania says. “The PUC isn’t going to let one set of Aqua customers pay rates half as high as others in the same territory.” The CWA is scheduled to raise rates in 2022 for the first time in 11 years.

It’s an issue at the heart of a complaint filed on September 13 by the Office of Consumer Advocate regarding Aqua’s current request for a rate increase.

“Aqua has base rate cases for both water and wastewater pending before the [PUC] right now, and the OCA filed a complaint and is an active party in those cases,” Interim Acting Consumer Advocate Christine Hoover told DVJournal.

“The goal is to move customers towards the cost of service, Hoover said. “If there are relatively lower rate customers, but their cost of service is much higher, then the goal is to move them towards that cost service in each case.”

And part of that cost is determined by what the company, in the case of Aqua, pays for the water system. “The revenue requirement is driven by the purchase price, the rate-making rate base in a fair market value acquisition,” Hoover said.

This means higher rates under Aqua, the CWA and its allies argue. “Aqua can say ‘we’re not going to raise your rates for ten years,’ but what that really means is we’re going to take 10 years to get you up to single tariff pricing,” said Catania. “And if the PUC says, ‘no, that’s not OK, you’ve got to do it in three years because it’s unfair to other customers,’ then Aqua can say, ‘well, we didn’t want to raise your rates yet, but there’s no choice and it’s not our fault.’ And everyone is stuck paying higher rates.”

Aqua says they have the answer:  “The city of Chester will take part of the $410 million [purchase price] and put it in a rate stabilization fund,” Franklin said. “There will be no movement in what the customer pays.”

Hoover said she is unaware of any similar workaround as part of a transaction approved by the PUC and declined to speculate about the viability of such an approach. But if rates are half those of similar Aqua customers and CWA is currently collecting $42 million in revenue, filling that gap would in theory be $420 million over the next decade — more than the entire offer Aqua has made.

There’s no reason to believe the PUC would immediately double anyone’s rates — indeed, it would violate their strategy of avoiding rate shock — but gradually raising rates over a decade would still mean tens of millions of dollars from the stabilization fund, and rising with every rate increase.

Meanwhile, current Aqua customers are looking at rate hike requests ranging from 20.49 percent in Bensalem to an 86 percent increase in Sun Valley. It’s part of Aqua’s systemwide 17.86 percent increase currently before the PUC.

Aqua points to its high level of customer service —  more than 300,000 water quality tests per year — and the fact that it’s a local company that’s been part of the community for more than a century.

“We’ve been around as community partners for 135 years,” Franklin said. “We can make necessary investments to make Chester Water a very strong, viable water system.” And, Franklin said, the company is pledging to keep all the Authority’s employees, with commensurate pay and benefits.

Good news for the workers, but it also adds to the costs.

Asked to provide an example of a similar rate stabilization fund that successfully met a “no rate hikes” pledge, an Aqua spokesperson said via email: “A similar rate stabilization fund was formed by DELCORA (the Delaware County Regional Water Quality Control Authority) as part of its asset purchase agreement with Aqua in 2019.”

How well that fund will work has yet to be tested.

“They’ve never been able to hold to a rate agreement in place,” Catania said. “Never. Not even once. They make these promises and then the PUC lets them get away with not honoring them.”

Catania says the fundamental problem is that the focus of this deal between Aqua, the city of Chester, and the Department of Community and Economic Development is the city’s ongoing fiscal crisis. Chester is desperate for cash and the DCED is desperate to keep the city from falling off a pension-fund financing cliff.

“The DCED is trying to help out the government of the city of Chester,” Catania said. ‘We’re trying to help out the ratepayers. They’re our priority.”