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Government utility outspends private bidders

Lehigh County Authority wins Allentown water bidding; Pa. utility privatization outlook dim

    by Joseph N. DiStefano
    Published 
The government-run Lehigh County Authority has "rid[den] in at 11th hour with the high bid" to win a 50-year lease to operate Allentown's aging water system, writes analyst Ryan Connors in an update for clients of Janney Montgomery Scott. Allentown, advised by the Pennsylvania Economy League, had preferred to bring in Aqua America of Bryn Mawr, American Water Works of Voorhees, or some other private for-profit company, in an attempt to raise cash to fund its public-worker pensions.

But the Authority laid on the money, Connors notes: "At $220 million, LCA's bid exceeds the city's original goal of fetching up to $200 million on the lease." Connors called final approval at this point "a formality," with a resolution expected in Allentown City Council today and the Authority expected to be less controversial for water worker labor unions, activists among the 20,000 ratepayers, and other privatization critics.

What's this mean for Mayor Nutter's efforts to sell the Philadelphia Gas Works, and other Pa. municipal utility sales -- a movement dear to pro-private-business Republicans, anti-government libertarians and other factions? "The result once again confirms the hard reality that, aside from very small bolt-on acquisitions, municipal privatization remains elusive," Connors wrote.
"If ever the ingredients were in place a large privatization, it was in Allentown," including a "friendly" city council that tried to block the Authority's bid but was "legally outmaneuvered"; the fact it's in Pennsylvania, where "the private water industry has deep roots (and political connections) and which boasts the nation's most progressive [pro-private-owner] public utility commission" under pro-privatization Gov. Tom Corbett; Allentown's own desperate need for cash, with its pension deficit of $160 million; and the presence of able in-state private bidders.
"Despite all these conditions, the private sector once again failed to secure the business," Connors concluded. "The idea that municipal acquisitions represent a meaningful growth driver" for for-profit utilities "is off the mark, and the outcome in Allentown confirms this view."
    JN
    Joseph N. DiStefano