DV Journal

The Towamencin Board of Supervisors will continue with its planned sale of the municipal sewer system even after residents voted to pass a charter that scrapped the sale and gave citizens more control over municipal water ownership.

Residents were successful in last month’s primary election in passing a “home rule charter” that effectively negated the proposed sale of the sewer system. The charter passage resulted from efforts by a local chapter of the group Neighbors Opposing Privatization Efforts (NOPE) to halt the utility sale to the controller Pennsylvania-American Water Company (PAWC).

In a statement after the primary results, the Board of Supervisors said it “acknowledge[d] that the Charter will be the law of the Township as of July 1,” but the relevant issue “is whether a prospective law can upend a contract.”

“[T]he Township legal team does not believe the passage of the Home Rule Charter negates the sewer sale under current Pennsylvania law and the Pennsylvania Constitution,” the board said.

“There is strong legal precedent against overturning pre-existing contracts based on the passage of new laws. As such, we do not intend to seek to terminate the contract.”

Towamencin officials could not be reached for comment on the proposed sale. Town resident Kofi Osei, who helped lead the local NOPE chapter to victory in the primary vote, said a lawsuit might be in the works if the town fails to back down.

“The charter is effective July 1, so if neither party attempts to terminate the contract, we will pursue legal action,” he said.

“We haven’t really started that process yet, so there is quite some time before the sale possibly closes,” he added.

“If this goes to court, I believe it will be a landmark case about the extent home rule charters can restrict local governments.”

May’s successful charter vote came after the Towamencin Board of Supervisors voted to sell the town’s sewer system to NextEra Energy in May 2022, with the proposed sale eventually being shifted to PAWC.

Residents revolted against the proposal, leading to a citizen’s commission and the home rule proposal that effectively revokes the town’s utility sale.

The town had moved to sell the utility under Pennsylvania’s Act 12. Passed in 2016, the rule modified the state’s regulations for the valuation and purchase of municipal water systems, allowing private concerns to buy more of them.

Residents around the Delaware Valley and the state have united against proposed utility sales in recent years, with NOPE chapters springing up in Bucks County and other parts of Montgomery County.

In April, persistent resident protests led the supervisors of Chester County’s Willistown to drop a proposed utility sale to Aqua PA, invoking a kill clause in the contract after several years of debate.

Aqua has also moved to take over utilities such as the Delaware County Regional Water Authority, though a judge earlier this year ordered a stay on that deal due to contract disputes.

State Rep. John Lawrence (R-West Grove) has proposed repealing Act 12, claiming the rule had resulted in significantly higher utility fees for ratepayers around the state.

Osei said he expects any lawsuit brought by residents to ensnare the deal in a web of protracted legal proceedings.

“I personally think it would take years to fall in the Township/PAWC’s favor.”

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After the passage of Act 12 in 2016, there has been a flurry of private-company purchases of publicly-owned water and wastewater systems. And there has been an accompanying flurry of higher rates for customers. Now a Chester County Republican says he has had enough.

State Rep. John Lawrence (R-West Grove) wants ratepayers to be able to vote on whether their water or sewer provider is sold and also have  “unbiased information to make informed decisions.”

Lawrence said he planned to introduce four bills that would repeal Act 12 and is circulating a memorandum to garner co-sponsors.

Act 12 permits private companies to purchase public water systems and charge residents higher fees based on the network’s appraised fair market value. In his memorandum, Lawrence said the result has been greatly increased costs for ratepayers throughout the state.

At issue, Lawrence wrote, is the way utility systems are appraised before their sale—and how the appraisers themselves are compensated.

“In a direct conflict of interest, these appraisers can get paid more if they provide a higher appraisal value to their clients,” Lawrence wrote. “Note that the law allows the Public Utility Commission to approve a different (perhaps higher) rate.

“These fees are then eventually passed along to – ratepayers.”

Lawrence told DVJournal he has “heard from many who are very concerned about municipal water and wastewater systems being sold to the highest bidder under the provisions of Act 12.”

“In particular, the proposed takeover of Chester Water Authority has galvanized folks across Chester and Delaware Counties in opposition,” he said. “I am fighting the sale of CWA both in the legislature and the courts, and these bills are the latest effort in that fight.”

CWA’s attorney Frank Catania praised Lawrence and Rep. Christine Sappey (D-Kennett Square) and Sen. John Kane (D-Chester) for their help with the issue.

“We’re in favor of his efforts because he’s letting the decisions stay with the ratepayers,” said Catania. “He’s letting them decide the issue. It’s really a bipartisan effort.”

“We’re 100 percent supportive,” said Catania.

Lawrence’s proposal would repeal Act 12 and “remove the ability of the PUC to approve a rate higher than 5 percent for these ‘utility valuation experts.'”

The legislation would also ensure that ratepayers are notified directly of any payments to estimators, requiring “that these fees be disclosed to ratepayers in a special mailing/notification.”

Currently, Lawrence wrote in the memo, ratepayers “have no ability to speak directly into the decision to sell a municipal water or sewer system.” He said his legislation will ensure “greater transparency and disclosure for those most affected – utility ratepayers.”

Act 12 has been controversial since its passage. The Philadelphia Inquirer wrote in 2018 that Act 12 had set off “a feeding frenzy for public water systems” in the state.

Last year residents of Bucks County mobilized to oppose efforts by Aqua PA to purchase the county’s water and sewer systems for just over $1 billion. The county subsequently backed away from that sale, pledging instead to invest around $155 million in its aging sewer system.

A judge in February ordered a stay on the proposed sale of the Delaware County Regional Water Quality Control Authority to Aqua PA, citing the fact that “the terms of the contract [between the two authorities] remain unsettled.”

Lawrence told DVJournal his proposals “provide reform, accountability, and transparency.”

“Ratepayers should have the right to vote on any proposal to sell a municipal water or wastewater system and have reliable information about what it will cost in the short and long term,” he argued.

“Current law provides little or no opportunity for meaningful ratepayer input before the sale of municipal water and sewer systems, ” he added, “even though ratepayers are expected to pay the bill for decades to come.”

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Earlier this month, Peco’s parent Exelon Corp. completed its split into two companies, putting the Limerick nuclear power plant under its new Constellation brand while keeping Peco and its other utility companies part of Exelon.

Other than a new logo, which Peco rolled out a few weeks ago with a flashy video presentation, what will the changes mean to local ratepayers in the Delaware Valley?

Industry experts say to expect few changes.

“While Peco’s appearance will change over time, we want to ensure our customers know that we are committed to being the trusted energy partner they’ve known for years, and our dedication to the communities we serve will only grow stronger,” said president and CEO Mike Innocenzo. “Our purpose of powering a cleaner and brighter future for our customers and communities remains unchanged, and we’ll continue our efforts to enhance reliability and the customer experience and further our commitment to our communities and to a cleaner energy future.”

Founded in 1881, PECO is Pennsylvania’s largest electric and natural gas utility. With headquarters in Philadelphia, Peco delivers energy to more than 1.6 million electric customers and more than half a million natural gas customers in southeastern Pennsylvania.

According to Terrance J. Fitzpatrick, President and CEO of the Energy Association of Pennsylvania, Exelon’s move is part of a “trend in the industry for 20 years to separate the transmission and distribution business from the generation business into separate companies. In fact, Peco/Exelon is the last electric utility in Pennsylvania to do so.”

And what about rates?

“Separating our companies will not change rates for customers,” Peco said in a statement. Fitzpatrick agrees.

“It doesn’t seem to me that the corporate separation should raise concern for consumers,” Fitzpatrick said. “Customers can choose to purchase supplies of electricity or gas from competitive suppliers or they can choose the supply option of the utilities. The manner that electric and gas utilities buy supplies in wholesale markets for their customers who choose to buy from them is overseen by the Pennsylvania Public Utility Commission (PUC). The utilities do not make a profit on these sales—they simply pass along the cost to customers.”

David N. Taylor, President and CEO of the Pennsylvania Manufacturers’ Association, says it’s up to the PUC to ensure ratepayers are protected.

“One of the great accomplishments of the [Republican Gov. Tom] Ridge administration was transitioning Pennsylvania from being a regulated market for electricity to being a competitive market,” Taylor said. “As part of that, Pennsylvania went through a long and very expensive transition process. Part of that was you had nuclear power plants that were governed as utilities to say, ‘Look, our business model is predicated on the PUC approving future rate increases which made all these capital investments that we need to be able to recoup, that it’s not right for the commonwealth to go and pull the rug out from under us.'”

The people who were proposing the shift to competitive markets agreed, and during the transition, nuclear power generators were allowed to impose a surcharge on customers totaling $9 billion.

“That was a price that Pennsylvanians paid to get competitive markets,” says Taylor. “The nukes wanted competitive markets, they lobbied for it because they thought they were going to inherit the earth as the low-cost baseload provider, but this was before the Marcellus Shale was discovered and developed. And so the nuclear companies took all that money and apparently just pocketed it or gave it to the shareholders. They didn’t do anything to prepare for competition, and then market conditions changed.”

As a result, Exelon reversed its position, Taylor said.

“You had Exelon, which is the owner of several nuclear power plants, working against competitive markets, and by the way, they were going to keep the $9 billion.”

As someone representing the manufacturing sector and large industrial energy consumers, Taylor says they were “deeply displeased.”

Today, competitive markets will continue to protect consumers by applying downward pressure on prices.

“Any changes to Peco rates will follow the standard process for regulatory rate reviews, which follow PUC guidelines, and include comprehensive input from customers and stakeholders,” the company said.

“This is an important milestone in Exelon’s history,” Christopher M. Crane, president and CEO of Exelon, said in a statement. “With the successful completion of our separation, we step forward in a strong position to serve customer needs, drive growth and social equity in the communities we serve and deliver sustainable value as our industry continues to evolve.”

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