Skip to content
Link copied to clipboard

Pa. approves increase in Aqua water and sewer rates. How much, it won’t say.

The Pa. Public Utility Commission granted Aqua's rate hike request, apparently overriding a judge's recommendation for a lower increase. But the PUC will take several days to announce the details.

FaucetRead more

Pennsylvania regulators on Thursday approved a scaled-back request by Aqua Pennsylvania to increase water and wastewater rates, which will likely result in big increases for customers in five suburban Philadelphia towns where Aqua recently acquired sewer systems. But details of the rate impact are still under wraps.

The Pennsylvania Public Utility Commission voted 3-0 on Thursday to approve a rate increase for the Bryn Mawr company, including a last-minute sweetener in the metric used to calculate rates that will keep the precise impact on its half-million Pennsylvania customers shrouded for a few more days.

The PUC’s decision in the case is important because it is Aqua’s first rate increase that includes municipal systems it has bought under a 2016 state law that allows buyers to pay the higher “fair market value” for public utilities, rather than the lower book value. The law was enacted to encourage the consolidation of local municipal systems under private ownership. Critics say it is leading to higher rates for existing and new customers in order to finance the big payouts to towns that sell their systems.

Aqua in August asked the PUC to increase water bills for water customers by 17% and sewer bills by almost double that. In February, Administrative Law Judge Mary D. Long recommended the PUC approve only a $32 million revenue increase, a third of Aqua’s $97 million request.

What the PUC approved Thursday apparently falls somewhere between Aqua’s original request and Long’s recommendation. The difference hinges on the return on equity, or the amount the PUC allows utilities to mark up its rates to generate profits and attract private investment to public utilities.

Aqua, a subsidiary of Essential Utilities Inc., had asked for a 10.75% return on equity (ROE). Long had recommended 8.9%. The administrative law judge based her recommendation on the lower end of a range suggested by the PUC’s Bureau of Investigation and Enforcement during nine months of contentious rate proceedings, which included complaints filed by 112 water and sewer customers and testimony from 58 witnesses at six public hearings.

The PUC agreed on Thursday to grant Aqua a 10% return on equity, including a last-minute move to add 0.25 of a percentage point suggested by Commissioner Ralph Yanora as a management performance bonus for Aqua’s rescue of three small failing private water systems that it agreed to take over at the PUC’s request.

Each tenth of a percentage point boost in ROE adds about $2.9 million in revenue for Aqua, according to Gladys Brown Dutrieuille, the commission’s chair, who said she disagreed with the size of the management performance bonus, but nonetheless voted in favor of the overall rate increase.

Aqua had argued that if the PUC adopted the judge’s recommended 8.9% return on equity, it would “represent a watershed moment for the end of the commission’s longstanding commitment to supporting infrastructure investment, made doubly worse in a period of rising capital costs.”

The last-minute change in the ROE apparently forced the PUC staff to recalculate the rate impact and to rewrite its legal order, which takes up to a week, according to a PUC spokesman.

Beyond the overall rate of return, the PUC on Thursday did not publicly address how it resolved several other disputed details of Aqua’s rate package, including how the rate increase request would be apportioned among Aqua Pennsylvania’s water and wastewater customers, who are concentrated in the Philadelphia suburbs.

“Given the complex nature of this case, combined with the need to draft an order and opinion that addresses today’s motion along with all the other details of the case, the commission is going to defer any comment until the full order has been finalized and posted to the public docket,” Nils Hagen-Frederiksen, the PUC’s spokesman, said in an email.

» READ MORE: Judge recommends denial of Aqua’s $17.5 million bid to buy Chesco town’s sewer system

Aqua’s initial rate request would have boosted a typical residential water bill for its 445,000 water customers using 4,000 gallons a month from $69.35 to $81.32, an increase of $11.97 a month, or 17%. Residential bills for Aqua’s 45,000 wastewater customers would have increased from $55.51 to $73.95, a boost of $18.44, or 33%.

Aqua had proposed to shift some costs associated with its sewer systems to its far larger pool of water customers, even though most Aqua water customers do not also get Aqua wastewater service. A state law allows utilities to shift some costs of wastewater systems to water customer to avoid the “rate shock” experienced by sewer customers.

But Long recommended shrinking the cross-subsidy, and her recommendation would have boosted water rates by only about 3% but hit wastewater customers with bigger increases, particularly in those towns whose systems Aqua has acquired in recent years.

Under her recommendation, Limerick Township rates would increase 75%; East Bradford, 60%; Cheltenham, 56%; East Norriton, 52%; and New Garden, 48%.

Long said that some form of rate shock is inevitable in those towns, and that the communities that opted to sell their systems to Aqua to generate revenue “cannot now escape the consequences of that decision.”

Pennsylvania’s Office of Consumer Advocate has argued that the 2016 law, known as Act 12, has encouraged inflated prices, which has fueled a faster recent pace of water and wastewater rate increases than those of other Pennsylvania utilities.

Since 2016, Aqua has agreed to buy eight systems in the Philadelphia suburbs for a total of $295 million: New Garden Township, Limerick, East Bradford, Cheltenham, East Norriton, Lower Makefield, Willistown and East Whiteland.

It has a deal to buy the massive DELCORA wastewater system in Delaware and Chester Counties for $277 million, and has offered to buy the Chester Water Authority for $410 million. Both of those deals are tied up in litigation.

The Bucks County Water and Sewer Authority last month said it is considering a $600 million offer from Aqua for its system, though BCWSA says its network is worth at least double that price.

Two of Aqua’s proposed acquisitions in Chester County have recently received negative recommendations from administrative law judges.

Last month a judge recommended the PUC reject the company’s proposed $17.5 million acquisition of the Willistown Township wastewater system. And a different hearing examiner, Marta Guhl, on Tuesday recommended the PUC reject Aqua’s $54.9 million agreement to buy the East Whiteland sewer system.

“The company has not provided any showing of cost reductions or efficiencies that will be produced by the acquisition of the East Whiteland customers,” Guhl wrote.