On April 14, 2016, Governor Tom Wolf signed Act 12 of 2016 (Act 12) into law. At the time, Act 12 was touted as a way for municipalities with water systems “urgently in need of repair or replacement” to sell the systems and thereby obtain “system improvements and ensure the continued provision of safe, reliable service to customers at reasonable rates,” a result which would be made possible through relieving the concern that the “purchasing utility may not be able to recover its investment.”1
However, contrary to its stated purpose, Act 12 is now being used as a means for targeting healthy, well-run water systems to provide a short-term cash infusion to municipalities deemed “distressed” by the state government, ensuring massive profits for the purchasing company, in perpetuity, at the expense of ratepayers and the general public.2 The CWA—a fiscally sound, award-winning water authority—has been one such target, a fact that has received considerable coverage in the news media. What has not been widely reported, however, is the apparent effort on the part of state officials to implement a “program” to monetize water authorities throughout the Commonwealth regardless of whether or not they actually need to be fixed.
Emails recently obtained by the CWA through Pennsylvania’s Right to Know Law, although highly redacted, shed some light on this effort. In one such email dated September 16, 2020, Elena Cross, then Deputy Chief of Staff for the Governor, reached out to various high-ranking state officials serving in General Counsel’s Office, the Department of Community and Economic Development (DCED), the Office of the Budget, and the Office of Policy and Planning. Other than a “thanks” at the end, the entire email—including its subject line—has been redacted. Despite the effort to completely hide the content of the email, the responses to the email reveal its purpose—to target water authorities throughout the Commonwealth owned by financially “distressed” municipalities.
Neil Weaver, Acting Secretary for the DCED as of February of this year,3 was the first to respond to Cross. Revealing the existence of an ongoing effort by the DCED in this regard (during the height of the COVID-19 pandemic), Weaver offered to ask Rick Vilello (DCED’s Deputy Secretary for Community Affairs and Development) and Kim Bracey (DCED’s Executive Director) “where we are” and deferred to counsel for “the legal side of things.” With Cross’ approval, Weaver then forwarded her email to Vilello, Bracey, legal counsel, and the Receiver for the City of Chester, Michael Doweary.
In a partially redacted email, Erin Smith, Deputy Secretary of Policy and Planning, also responded to Cross and forwarded an undisclosed memo Smith’s office prepared in 2019 in which it was “determined that the ongoing litigation specifically related to who owns the water authority didn’t make it a good fit for a pilot program.” (Emphasis added). The “water authority” involved in “ongoing litigation specifically related to who owns [it]” is an apparent reference to the CWA.
The email chain continues with a back and forth between Bracey and DCED Local Government Policy Manager, Andrew Sheaf. While Bracey’s email to Sheaf is largely redacted, Sheaf responded by attaching an analysis he conducted, which remains undisclosed, but which he summarized by noting:
All of these municipalities:
1. Showed signs of distress in their pension (below 73% funded)
2. Showed signs of distress in one of their debt indicators (liquidity, debt over revenue)
3. Reported Wastewater / Sewage revenues on their Annual Financial Report (our best guess if [sic] they owned water / sewer)
Bracey suggested calling the municipalities “or perhaps DEP,” explaining she “just got off a call with Elena and others from the Governor’s office who are still trying to make this work.” In response, Sheaf agreed that their office should “call these municipalities and ask if they solely own their water and sewer systems and if they are the sole user on that system.” Bracey then asked Sheaf to proceed with this plan, noting that Vilello “is also trying through his connections too.” Then, forwarding an undisclosed attachment in follow up, Sheaf concludes: “Lower Frederick Township and Penn Hills Township seem to fit. Penn Hills Township owns two plants, and is the sole user at one of them.” (Emphasis added). Sheaf notes that while “[b]oth of those municipalities saw improvement in their pensions since we last ran the numbers . . . [b]oth municipalities are still showing signs of distress in their debt load.”Redacted-Emails-9.20-10.20
These emails raise a slew of questions regarding what the Wolf Administration and its agencies are seeking to accomplish by targeting municipal water systems and what their motives are. For example, are the attempts to monetize water systems part of a plan to cover up the state government’s inability and/or unwillingness to offer assistance to the municipalities it deems “distressed” by their pensions and/or debt? And what exactly are the incentives for officials like Elena Cross, Neil Weaver and others in the Wolf Administration to push for monetization of municipal water authorities?
Aqua has denied knowledge of the statewide program to target water authorities of “distressed” municipalities as revealed through this email chain. However, Chester’s Receiver, Doweary, was included in this September 2020 email chain (having received Cross’ email from Weaver) and, during this time, Doweary was in the midst of ongoing discussions with Chris Franklin (CEO of Aqua’s parent company, Essential Utilities Inc.) regarding Aqua’s offer to purchase the CWA. We know this because of other emails obtained through the Right to Know Law. Note how Doweary’s tone changes in October 2020 when he tells Franklin that “it would probably be best for us to limit our interactions outside of the prescribed channels” to “protect both of us”:
- July 21, 2020: Franklin to Doweary: “Thank you for taking the time to meet with us last week. I felt it was a great discussion and we look forward to taking the next steps with the City of Chester regarding the Chester Water Authority.”4
- July 22, 2020: Doweary to Franklin: “It was a pleasure to meet you and Joel [Frank] as well. We look forward to continued discussions and resolving the myriad of open matters as soon as possible. . . . We’ll need a little time to digest the information provided in addition to getting up to speed on the terms in the latest offer.”5
- July 23, 2020: Joel Frank, Aqua’s counsel, to Doweary: “In an effort to keep this process moving along, we thought it prudent to provide you with Aqua’s suggested draft of the Asset Purchase Agreement. . . . Aqua’s next board meeting is on August 5th so if we could use these next two weeks to hammer out the final details of the deal, any additional ‘asks’ by the City/Receiver could be presented to the board for its’ [sic] consideration and approval at that time, so we could then promptly execute the APA.”6
- July 29, 2020: Weaver forwards a copy of the draft Asset Purchase Agreement to Vilello who, in turn, forwards it to Doweary and states (in a partially redacted email): “Aqua has increased their proposal to acquire the water assets of the City of Chester. This is the subject of litigation between the City and Chester Water Authority. Aqua’s offer has increased to $420 million with a $12 million upfront payment.”7
- October 26, 2020: Doweary to Franklin: “Thank you for reaching out last week. . . . With all that is going on, it would probably be best for us to limit our interactions outside of the prescribed channels. . . . . [I]f needed, I can introduce our legal counsel as well but I would hate to involve lawyers on every communication. I hope this is not offensive in any way. In the end, my intention is to protect both of us.” (Emphasis added).8
Clearly, whatever the state government is doing to facilitate the privatization of water systems is working. Just earlier this month, the Philadelphia Inquirer reported that Aqua Pennsylvania received state approval to purchase the Lower Makefield Township wastewater system in Bucks County for $53 million.9 Referring to the Township’s decision to approve the sale to Aqua, Township Supervisor John Lewis was quoted as stating: “This is a horrible decision, a wretched decision, and I am profoundly disappointed that the township would make this decision.”10
Are the residents of municipalities mentioned in these emails (like Lower Frederick Township in Montgomery County and Penn Hills in Allegheny County) aware that high-ranking state government officials are targeting their water systems? Or will these residents simply wake up one day to find that Aqua owns their water too?
Aqua is clearly “gobbling up public utilities,” as the Inquirer noted11. The question is—will yours be next?
1 See Rep. Robert W. Godshall, “Valuation of an acquired water or wastewater system” (May 26, 2015) (memorandum of bill sponsor), available at https://www.legis.state.pa.us//cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=H&SPick=20150&cosponId=18409
2 For more information regarding the negative impacts of privatization on ratepayers and the general public, see http://chesterwaterfacts.com/wp-content/uploads/2021/10/Chester-Water-Facts.pdf
3 See https://www.governor.pa.gov/newsroom/gov-wolf-announces-department-of-community-and-economic-development-secretary-dennis-davin-to-depart-wolf-administration-names-neil-weaver-as-acting-secretary/
9 See Maykuth, Andrew, “Aqua Pennsylvania adds a Bucks County sewer system to its portfolio for $53 million,” The Philadelphia Inquirer (Jan. 13, 2022), available at https://www.inquirer.com/business/pennsylvania-sewer-system-privatizations-aqua-makefield-bucks-approved-20220113.html