The fight over a suburban Philly town’s proposed sewer sale is now in court

Over the past year, residents in a Montgomery County town have rallied political opposition against a proposed $115 million sale of their public sewer system to a private company.

Activists in Towamencin Township employed a novel legal strategy to try to stop the sale — by asking voters to prohibit such a deal through a change to the municipality’s governing structure. That effort appeared to score a big win in May, when voters narrowly approved new governance, known as a home rule charter, that says it specifically prohibits such a sale.

But that wasn’t the end of the story. The township’s five-member Board of Supervisors is moving ahead with the proposal, albeit to a new buyer, saying that canceling the contract would violate state law and the state constitution.

That prompted a lawsuit last week from two residents who want a court order compelling the supervisors to terminate the contract.

“There can be no question regarding the duties of the board of supervisors in this action, as the charter is explicit, unambiguous and does not give the board of supervisors or the township any discretion in complying with its terms,” says the lawsuit, filed by Towamencin residents Jennifer Foster and Kofi Osei.

Sales of publicly owned utilities have ramped up since the passage of a 2016 state law, Act 12, which encouraged such consolidation under private ownership. Local elected officials say the cash windfall generated by those sales can fund projects and reduce debt. But some critics have raised concerns that privatization can lead to higher rates for customers. In some towns, rates have increased more than 90% following private acquisitions.

Towamencin officials were shocked last year when Florida-based NextEra Water offered $115.3 million for the sewer system. Officials said they would use the proceeds to retire the town’s debt and fund some projects immediately. They also planned to set aside tens of millions of dollars in reserves, which would earn interest that could finance future capital projects.

But residents opposed to the idea organized a ballot initiative asking voters to create a commission to determine whether the town should rewrite its governing charter in an effort to block the sale. In November, the initiative was approved with 61% of the vote. Voters elected seven members to the panel, each of whom was aligned with a slate called Neighbors Opposing Privatization Efforts.

This past spring, the panel drafted a home rule charter prohibiting “the sale or long-term lease of potable water, wastewater, and stormwater systems to nongovernmental entities.” In the May primary election, voters approved a ballot question formalizing the charter.

But the township didn’t give up on the sale. NextEra withdrew from the agreement in March but assigned its contractual rights to Pennsylvania American Water Inc. The supervisors approved the new deal, now for $104 million.

Pennsylvania American, the state’s largest water company, is seeking approval of its acquisition from the state Public Utility Commission, a five-member board that regulates Pennsylvania’s water, gas, electricity, and other utilities. PUC would have to approve any rate increase following a public process designed to balance the needs of consumers and companies.

Laura Martin, senior director for government and external affairs at Pennsylvania American, said the company plans “to continue proceeding through the regulatory review and approval process.”

Martin said customers would benefit from the company’s “industry-leading wastewater expertise and capacity to finance necessary capital improvement projects.” Pennsylvania American also has “the ability to address the environmental compliance challenges of the system” and offers “improved cybersecurity, customer service, and emergency response on evenings and weekends.”

Pennsylvania American, based in Mechanicsburg, serves 760,000 customers in about 400 communities across the state, including in towns such as Norristown, Coatesville, and Yardley.

The board of supervisors has said the relevant legal issue “is whether a prospective law can upend a contract.”

“[T]he township legal team does not believe the passage of the Home Rule Charter negates the sewer sale under current Pennsylvania law and the Pennsylvania Constitution,” the board said in a May statement. “There is strong legal precedent against overturning preexisting contracts based on the passage of new laws.”

H. Charles Wilson III, the board chairman, said late Monday that the allegations in the lawsuit “are without merit and factually incorrect and we intend to vigorously defend against the lawsuit.”

He added that the township is confident the Public Utility Commission “will find the transaction in the public interest” due to mounting capital expenditures for the sewer system, environmental challenges, and Pennsylvania American’s “proven record of environmental stewardship.”