The small township of Towamencin in Montgomery County is receiving national attention as a result of the impending privatization of its municipal wastewater system.
The reason? According to Bloomberg.com, NextEra Energy Inc.’s bid to purchase the sewer system is 21 times the system’s revenue, “a higher multiple than all but two US deals announced this year, both of which were in biotech.”
Why is it that “one of the highest valuations offered in any US acquisition is for the sewer system of a tiny township in Pennsylvania”?
As Bloomberg columnist Liam Denning, a former investment banker, explains: “The answers blend strategy, state privatization laws and small-town politics — and the profits to be made in water.” Denning notes that “Towamencin’s wastewater system is in relatively good shape” and the Township “hardly needs saving,” but the $115 million purchase price was too good for its board of supervisors to turn down.
However, the article points out that there’s “no such thing as free money”—something many Pennsylvania residents are now finding out as their municipalities sell off their water systems to for-profit companies: “Doubling water rates within five years may not involve the word ‘tax’, but that is how it would work, and regressively so given the flat fee structure. In addition, the initial rate freezes baked into the bids look like teaser mortgage rates. While any rate-hikes require approval by state regulators, the latter have already agreed to big increases by private operators who bought wastewater systems in neighboring townships.”
Denning also points out why water is different from every other asset a for-profit company can acquire: “For places like Towamencin, it seems good on paper to take an asset folks barely think about and use it to fund a whole set of public goods. Unlike a private company, however, where taking an offer like NextEra’s is a no brainer, these assets make the township possible and are held in trust for both current and future generations.”
Towamencin is a cautionary tale for CWA ratepayers. To be clear, corporations expect to profit on their investments and they “overpay” to acquire water systems for a reason—one that will become clearer as water customers realize the true financial impact of laws like Pennsylvania’s Act 12.
Read the Bloomberg article here.