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Board Members of the Chester Water Authority push for access to affordable water for all Pennsylvanians

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Board Members of the Chester Water Authority push for access to affordable water for all Pennsylvanians

September 13, 2022

Fax 1-717-705-4980

Ramez Ziadeh, Acting Secretary
Pennsylvania Department of Environmental Protection
Rachel Carson State Office Building
400 Market Street
Harrisburg, PA 17101

PA DEP Environmental Justice Advisory Board
C/O Justin Dula Director jdula@pa.gov
Office of Environmental Justice
Rachel Carson State Office Building
400 Market Street
Harrisburg, PA 17101

RE: Access to Affordable Water for all Pennsylvanians

Dear Secretary Ziadeh and Advisory Board Members:

We are the Board Members of the Chester Water Authority (“CWA”), a Pennsylvania municipal authority that provides fresh drinking water every day to over 200,000 Pennsylvania residents and businesses in Western Delaware County, Southern Chester County and the City of Chester. The CWA’s board members are appointed by the City of Chester Council, Delaware County Council, and the Chester County Commissioners. Since 2017, CWA has been fighting off a hostile take-over attempt from a for-profit Pennsylvania business corporation, which if successful would cause CWA customer’s water rates to double and triple from their current levels.

While CWA’s resistance to hostile take-over attempts continue, other public water and wastewater municipal authorities in Pennsylvania are selling their operations and customers to for profit businesses. We write to call attention to the potential increases facing CWA customers as well as the thousands and thousands of Pennsylvania residents who are being denied affordable drinking water because of extortionate rate increases by private for-profit companies that are buying up these public utilities at an alarming rate. The significant rate increases resulting from these transactions adversely affect low-income residents and have disproportionate impacts on communities of color. To add insult to injury, those tasked with approving or disapproving the sale of these systems and the subsequent and inevitable rate increases do not even take into consideration the impact these increases will have on our vulnerable residents.

This was seen recently when Pennsylvania’s Public Utility Commission (“PUC”) reviewed a request by Aqua Pennsylvania Wastewater, Inc., a private for-profit company, to increase the rate it charges its customers. In a Recommended Decision that was later approved by the PUC, Administrative Law Judge Mary D. Long recognized that water affordability is not a factor that is (or apparently can be) considered when deciding on an investor-owned utility rate increase:

While I recognize that the Public Utility Code permits consideration of a broad array of issues in base rate proceedings, I do not believe this is the best format to consider the complex social and economic issues related to affordability as it impacts CAP design. [The Office of Consumer Advocate] subsequently admits that the [PUC] has not established what water and wastewater burden should be deemed affordable, and concedes that the “policy decision of the appropriate water and wastewater burdens is best addressed in a statewide proceeding ‘involving all water/wastewater utilities and related stakeholders or would involve additional analysis that would require more time and date than is available in this proceeding.’”

Feb. 18, 2022 Recommended Decision, 29 Estates LLC, et al. v. Aqua Penn. Wastewater, Inc., at 113. These comments make it clear that the PUC’s failure to establish a water affordability threshold makes it impossible to address water affordability during the PUC rate-setting process. This should not be. Let us immediately take up the OCA’s suggestion of a statewide proceeding to set a standard for water and wastewater rate affordability.

Therefore, we implore the Environment Justice Advisory Board (“EJAB”) to take action to make water affordability a significant consideration – if not the paramount consideration – in the PUC rate-setting process. To do so, we recommend that the EJAB conduct state-wide hearings to examine the impact that private purchases of public water systems have had on low-income residents and communities of color. Furthermore, we ask that this recommendation be placed on the agenda for the next EJAB meeting and that we be given the opportunity to be heard and to present data on the issue of water affordability. We have copied many stakeholders to this letter. These organizations have a long history of caring for overlooked communities and have demonstrated a willingness to fight for affordable water for all. As such, we invite them and the public to join in our effort to shed light on this topic and commence a public discussion at the next EJAB meeting.

The mission of the Pennsylvania Department of Environmental Protection Office of Environmental Justice is to ensure that members of the Commonwealth “most at risk from pollution and other environmental impacts have a voice in the decision-making process.” Allowing water affordability to play a role in the decision-making process surrounding rate increases helps to fulfill that mission. As you will see below, the recent purchases and desired purchases of public utility systems make this request extremely necessary. Furthermore, combating the problem of water affordability is directly aligned with the objectives of the EJAB.

The Privatization of Public Utilities

It is first necessary to provide some background on how public utilities went from servicing the public to being a tool for private entities to turn profits at the expense of the public. The Pennsylvania Legislature first created Municipal Authorities in 1935. These Authorities were created primarily to facilitate the financing and public ownership of public utilities such as water and sewer systems, airports, etc., which are essential to provide necessary public services. The Authorities operate as not-for-profit entities focused solely on providing essential services to the public. The structure and nature of the Authorities have allowed them to operate without influences from corporate entities for decades and decades.

However, in 2016, the Pennsylvania Legislature passed a bill known as Act 12 (66 Pa.C.S.A. § 1329) that allows private, investor-owned utilities to purchase public municipal water and wastewater systems at an inflated “fair market” price and then recoup the sale price and a profit from the public by raising rates. Although Act 12 requires that the sought-after water and wastewater systems be appraised to determine a baseline for the value of the systems, the appraisals are done in accordance with a non-traditional inflated valuation method known as “fair market value.” The supposed “fair market value” appraisal approach yields inflated appraised values far above the traditional metric of valuing a system based on its original cost less depreciation. The investor-owned utilities then offer this inflated “fair market value” price to local government officials, hoping the promise of even larger sums will entice them into selling water and wastewater systems that are in strong operational and financial shape. To sweeten the deal, investor-owned utilities often falsely promise to “freeze” any rate increases for a few years, meaning that the real rate pain will only hit once the government officials who vote to sell are no longer in office. Government officials, blinded by the promise of enormous short-term cash infusions and the false promise of no short-term rate increases, are now increasingly agreeing to sell the operationally and financially healthy water and wastewater systems they oversee. Investor-owned utilities are glad to offer more money for the systems they acquire since they get it back in permanently increased rates, plus a very lucrative year over year profit. Specifically, following a sale Act 12 requires that the PUC authorize the acquiring investor-owned utility to raise its rates to recoup the inflated “fair market value” acquisition price plus a profit margin. In the case of Aqua, the PUC recently authorized a rate of return on equity to Aqua of 10%, a cost rate that is multiples greater than typical municipal debt. Thus, as soon as they are able following an acquisition, the investor-owned utilities raise rates sharply. Act 12 has thus created a no-lose situation for the investor-owned utilities and distorted traditional market dynamics so profoundly that these for-profit businesses are racing each other to actually pay more.

The losers in these acquisitions are the ratepayers, of course. There is often a public outcry when the investor-owned utilities quickly move to raise rates following acquisitions, with the newly acquired customers feeling duped by the false “rate freeze” promises.1 Indeed, the local governments quickly regret their short-sighted decision to sell healthy public water and wastewater systems.2 But it is too late. The furious local customers are now saddled with enormous and unnecessary rate increase forever.

Recognizing that Act 12 has created a no-lose situation for them, investor-owned utilities have gone on a buying spree in Pennsylvania over the last six years. Indeed, as an editorial in The Philadelphia Inquirer recently stated, “residents saddled with hefty water and sewer bill increases can thank lawmakers in Harrisburg for unleashing the frenzy of for-profit water companies buying up local systems.”3

Purchase of Public Utilities are to the Detriment of the Public

The effects of Act 12 on the public can be seen across Pennsylvania. Aqua recently purchased municipal water and wastewater systems in Limerick Township, New Garden, East Norriton, Cheltenham and East Bradford. Ratepayers in all five towns have seen dramatic increases in their bills: Limerick Township – up 98%, New Garden – up 90%, East Norriton – up 73%, Cheltenham – up 69% and East Bradford – up 47%.4 Further, significant rate increases are inevitable as companies like Aqua will need to gouge ratepayers to generate the profits needed to service their acquisition debt and provide shareholder value. Sometimes, the negative effects on the public are often masked behind discount programs or deferred rate increases. For example, York County’s public wastewater system was recently sold to Pennsylvania American Water.

The deal prohibits American Water from raising rates for three years, but after that, rates can go up by almost 50%.5

Additionally, the overvaluing of the public systems can be seen in the recent bidding war for the purchase of Towamencin Township’s municipal sewer system. Aqua offered to pay $54.1 million for the system but was out-bid by Pennsylvania American Water’s $92.4 million offer. However, both companies were beaten back by NextEra Water’s offer of $115.3. million. NextEra is a Florida company attempting to purchase its first Pennsylvania water utility. Residents have voiced their opposition to this sale fearing the dramatic increases in their sewer rates that will follow to cover NextEra’s inflated purchase price under Act 12.6

A worthwhile example of the harm that can be caused by rate increases can found in the ongoing attempted sale of a public utility. Currently, the City of Chester is engaging in discussions to sell the Chester Water Authority (“CWA”) to Aqua. If Aqua purchases CWA, the rates that customers must pay for water will increase dramatically. Importantly, this increase will disproportionately impact current Black CWA customers.

The Chester Water Authority Provides High-Quality, Low-Cost Water To Its Customers

CWA was incorporated on July 6, 1939. Today, CWA serves approximately 200,000 people and businesses across 37 municipalities throughout Chester and Delaware Counties. CWA is governed by a nine-member board, three of whom are appointed each by the City of Chester, Delaware County and Chester County. CWA is an operationally and fiscally sound Authority that provides high-quality water to its users at some of the lowest rates in the area. Indeed, CWA’s rates are far below those of private investor-owned utilities such as Aqua.

Despite the soundness of CWA’s systems and its ability to offer water to customers at lower rates, Aqua made an unsolicited purchase offer to acquire CWA in May 2017. CWA’s board considered Aqua’s offer and, after deliberation and public discussion, rejected it unanimously as not in its users’ best interests. CWA knew that it was already providing its customers with high quality water at low rates, but if the proposed acquisition occurred, Aqua would raise rates substantially and in perpetuity, without the residents receiving any commensurate benefit. Due to the existing high quality of CWA’s water, infrastructure and operations, there was nothing for Aqua to “fix,” and the customers’ bills would double for the exact same water that they have been getting for decades while enjoying water rates that are among the lowest in the region.

The City disagreed with CWA’s decision to reject Aqua’s unsolicited bid and has since engaged in discussions with Aqua through its Receiver to sell CWA. The City is in receivership due to its fiscal crisis and hopes to use the money from a sale of CWA to fund City pensions to the benefit of specific City residents, despite the fact that CWA serves many customers outside of the City. However, if CWA is sold to Aqua, the sale will have a negative impact on CWA’s customers in general and a disparate and discriminatory impact on CWA’s Black customers specifically.

Many Black CWA Customers Will Not Be Able To Afford Water Under Aqua

A typical household in the CWA service area uses 4,000 gallons of water per month. For this amount, CWA charges $30.54 per month, or $366.48 per year. In August 2021, Aqua requested approval from the PUC to increase its rates. These rates will apply to CWA’s customers if the sale occurs. PUC granted Aqua’s request, thereby making the rate that CWA customers will be charged if a sale occurs a certainty rather than mere speculation. Specifically, if CWA is sold to Aqua, CWA’s current customers will be billed $69.35 per month or $832.20 per year for water. The price of water will more than double for exactly the same water service.

Aqua’s dramatic increase will prevent many CWA customers from being able to afford water. This dramatic increase can be easily seen when one considers the median household income needed to afford water. The U.S. Environmental Protection Agency has set a “water affordability threshold” which dictates that water rates in excess of 2.5% of a community’s median household income is considered “unaffordable”. This metric makes it possible to calculate the corresponding annual household income necessary for a water bill to reach the 2.5% affordability threshold.

For a CWA rate of $30.54 per month, a household would need an annual income of $14,659 to be able to afford water under the EPA’s 2.5% standard. However, if CWA is sold to Aqua, the same family would need an annual income of $38,113 to afford water under Aqua’s recently approved rates. Therefore, per the federal threshold, CWA customers would need to earn an additional $23,454 per year to afford water if the system is sold to Aqua. The Median Household Income in the City of Chester is $29,954 per year.

A Sale to Aqua Will Have A Disparate Impact on Black Families

An analysis of CWA’s current customer base makes it clear that a sale of CWA to Aqua will have a disparate impact on Black families. Census data attached hereto as Exhibit A provides valuable information about each municipality that CWA services. This information includes the total population of the municipality, the median household income and the race/ethnicity of each household as defined by the customer.

There are 70,675 households in Chester and Delaware counties that currently receive their water from CWA. Service area census data shows that of the total customer base, 70.5% are White households and 17.83% are Black households. An analysis of the households that will not be able to afford Aqua’s water rate under the 2.5% standard identified above shows that 56.65% of those households are White and 35.21% are Black. Therefore, even though Blacks make up only 17.83% of the current CWA customer base, they will make up twice as many (35.21%) of the customers who will not be able to afford water under Aqua’s increased rates.

To the contrary, Whites make up 70.5% of the current CWA customer base but make up a significantly less percentage (56.65%) of the customers who will not be able to afford water under Aqua’s increased rate. Moreover, of the 49,841 current CWA households that identify themselves as White, 20% will not be able to afford water under Aqua. Of the 12,602 current CWA households that identify themselves as Black, 49% will not be able to afford water under Aqua. These outcomes illustrate a disproportionate impact to the detriment of Black families that currently receive their water from CWA.

Disparities and Disproportionate Impacts on People of Color Should be Considered by PUC

As the above data makes clear, rate increases have a dramatic effect on low-income residents and disproportionately impact communities of color. Given this, the PUC should be forced to consider these factors when reviewing a for-profit company’s request for a rate increase. Ironically, the PUC requires the investor-owned utilities under its jurisdiction to have a diverse workforce and monitors that effort by requiring regular reporting on the utilities’ diversity programs. The PUC should have the same care and emphasis on diversity and consider the effect of rate increases on the communities of color under its jurisdiction.

The EJAB is well-suited to address the gaping hole in the PUC process used to consider the impact of sales under Act 12 and in the general rate setting process. The Executive Order that created the EJAB (Order 2021-07) notes the provision of the Environmental Rights Amendment of the Pennsylvania Constitution that holds that people have a right to clean air and pure water. The Executive Order also states that “meaningful public participation in the Commonwealth’s environmental decision-making is necessary to reduce adverse impacts on low-income residents, communities of color, and vulnerable residents.” Statewide hearings on this topic will achieve the goal of meaningful public participation in environmental decision-making.

Importantly, holding statewide hearings will achieve the Objectives of the EJAB on several fronts, including:

• Ensuring that the Department of Environmental Protection (DEP) maintains a proactive approach to Environmental Justice issues within Pennsylvania;

• Eliminating existing environmental disparities in minority and low-income communities;

• Increasing the level of environmental monitoring in minority and low-income communities;

• Identifying and promoting action against environmental inequities in Pennsylvania; and

• Determining whether DEP’s current decision-making process can adequately address environmental justice issues.

Regarding the last objective, we believe whole-heartedly that the current decision-making process for approving the sale of water systems and the general process of increasing the rates that customers pay for their water and sewer service does not adequately address the impact that the rate increases have on our low-income residents and communities of color. However, the statewide hearings can begin to repair the current disregard for Pennsylvania’s residents. Thank you for your time and consideration. We hope that you will allow us, and others interested in this topic to speak to the Board at your next meeting.

Chester Water Authority Board of Directors
/s/ Cynthia Leitzell
By: Cynthia Leitzell, Board Chair

Cc:
Office of Environmental Justice
Environmental Justice Interagency Council
NAACP
ACLU of Pennsylvania
Public Interest Law Center
Food and Water Watch
Pennsylvania Office of Consumer Advocate
Pennsylvania Utility Law Project
HELP: MLP
Housing Opportunities Program for Equity
Neighbors Opposing Privatization Efforts (NOPE)
Conservation Voters of Pennsylvania
Chester Residents Concerned for Quality Living (CRCQL)
Energy Justice Network
Sr. Nora Nash, Director of Corporate Social Responsibility, Sisters of St Francis of Philadelphia
Pittsburgh United: Our Water Campaign
Dr. Marcela González Rivas, Asst. Professor at University of Pittsburgh Graduate School of Public and International Affairs, and permanent member of the Pittsburgh Water and Sewer Authority’s (PWSA) Low Income Assistance Advisory Committee
Clean Water Action
Pennsylvania Municipal Authorities Association In the Public Interest
Corporate Accountability
SumOfUS
Alyson Shaw, LittleSis | Public Accountability Initiative, former member of PWSA Affordability Task Force
Association of Environmental Authorities

1 “Limerick residents oppose 90% sewer rate hike by Aqua PA,” by Evan Brandt, The Times Herald, September 16, 2021 (available at https://www.timesherald.com/2021/09/16/limerick-residents-oppose-90-sewer-rate-hike-by-aqua -pa/).

2 “Towns sell their public water systems — and come to regret it,” by Elizabeth Douglas, The Washington Post, July 8, 2017 (available at https://www.washingtonpost.com/national/health-science/towns-sell-their-public-water-systems- -and-come-to-regret-it/2017/07/07/6ec5b8d6-4bc6-11e7-bc1b-fddbd8359dee_story.html).

3 “As Pa. municipalities sell water systems to for-profit companies, consumers are left paying the price,” by The Editorial Board, The Philadelphia Inquirer, August 18, 2022 (available at https://www.inquirer.com/opinion/editorials/pennsylvania-municipalities-water-sewer-utility-sal es-20220818.html)

4 “Aqua Pa. details its steep rate increase and hits sewer users the hardest,” by Andrew Maykuth, The Philadelphia Inquirer, May 24, 2022 (available at https://www.inquirer.com/business/aqua-pennsylvania-rates-water-wastewater-20220525.html)

5 “As Pa. municipalities sell water systems to for-profit companies, consumers are left paying the price,” by The Editorial Board, The Philadelphia Inquirer, August 18, 2022 (available at https://www.inquirer.com/opinion/editorials/pennsylvania-municipalities-water-sewer-utility-sal es-20220818.html)

6 “A Florida company’s $115 million sewer bid stuns a suburban Philly town,” by Andrew Maykuth, The Philadelphia Inquirer, August 21, 2022 (available at https://www.inquirer.com/business/pennsylvania-water-privatization-nextera-aqua-towamencin- 20220821.html)

Download copy (link below)
http://chesterwaterfacts.com/wp-content/uploads/2022/09/Ltr-to-EJAB-Exh-final-9.13.22.pdf

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