Pennsylvania regulators on Thursday approved the $235 million sale of a public wastewater system in York County to Pennsylvania American Water, the largest privatization so far under a 2016 law that encourages the consolidation of public water and wastewater systems under private owners.
The Pennsylvania Public Utility Commission voted 3-0 to allow Pennsylvania American to absorb the York City Sewer Authority, which serves 13,747 direct customers in York and about 30,000 customers indirectly through service agreements with surrounding townships. The sale will provide an influx of cash to York’s municipal coffers, helping the city to avoid what it called “doomsday” budget cuts.
York customers will pay more in the long run. The current monthly rate of $32.60 for a York city customer who uses 3,458 gallons will remain unchanged for three years, but then will go up by no more than 47% in the following year.
Eventually, York customers can expect their current monthly rates to more than double to match Pennsylvania American’s current $78.41 monthly residential charge for the wastewater customers who use 3,458 gallons in their main area. PUC policy is to eventually unify the rates, so York customers can expect their rates to go up in future rate proceedings.
The sale was approved after Pennsylvania American came to a settlement with various consumer advocates and surrounding towns that had filed protests with the PUC to the privatization. The PUC on Thursday approved the settlement without comment.
The York sale is the largest approved thus far under Act 12, a 2016 state law that allows investor-owned utilities to pay a higher “fair-market” value for municipal water and wastewater systems and to recover the sale price from customers through higher rates. Previously, buyers could only recover the lower depreciated cost for the systems.
Act 12 has made it very attractive for municipal officials to sell their water and wastewater systems to private buyers to generate a big influx of revenue, though critics argue that newly acquired customers and existing customers will end up paying higher rates as a consequence.
The York wastewater system has about $30 million in debt, according to PUC filings, so the city should clear a significant amount of the $235 million sale price for municipal coffers.
York in 2020 sought proposals from potential buyers of its wastewater system as a means to generate revenue and to close a $13.5 million municipal budget shortfall, according to Mayor Michael Helfrich’s prepared testimony. He said that Pennsylvania American will provide “critical operational efficiencies” and relieve the city of the burden of maintaining the 70-year-old system.
City officials told residents they needed to sell the system to avoid an “unsustainable financial situation” that would require tax and fee increases and painful cuts to essential services, including the police department. “Such a plan would be catastrophic to city residents and businesses and would likely reverse the recent economic gains that have been made in the City of York,” the city said on its website.
Under the settlement, Pennsylvania American will be allowed to put $231.5 million of investments into its rate base, the amount upon which future rates will be determined. That’s $3.5 million less than the actual sale price. Two appraisers, one working for the buyer and one for the seller, set the value of the system at an average of $255 million.
The York system consists of a 26-million-gallon-per-day treatment plant, about 12 miles of large interceptor pipes and 93 miles of collection sewers. It also treats sewage under contract for Manchester Township, West Manchester Township, York Township, North York Borough, West York Borough and Spring Garden Township. Those towns now become wholesale customers to Pennsylvania American.
The largest previous sale approved by the PUC under ACT 12 was Pennsylvania American’s $156 million takeover of the McKeesport wastewater system near Pittsburgh.
Aqua Pennsylvania, which is the dominate private water in the Philadelphia suburbs, has agreed to pay $276 million for the Delaware County Regional Water Quality Control Authority, though the sale is tied up in court.
Aqua has also offered to pay $410 million for the Chester Water Authority, a regional water system. The Pennsylvania Supreme Court on Monday agreed to hear a case challenging Chester City’s right to sell the CWA.