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Rates going up? State aids corporate offer for public utility

Public-service Chester Water Authority supporters in the suburbs fear that for-profit Aqua America's unsolicited takeover bid will be aided by state officials who want to bail out Chester City

Joe Stafford of Upper Chichester (left), Bill Barber of Chester (center), and Ron Navin Upper Chichester protest outside Merenda Hall at Neumann College before a meeting of the Chester Water Authority board, which is split among members from Chester City, Delaware County, and Chester County on Nov. 21.
Joe Stafford of Upper Chichester (left), Bill Barber of Chester (center), and Ron Navin Upper Chichester protest outside Merenda Hall at Neumann College before a meeting of the Chester Water Authority board, which is split among members from Chester City, Delaware County, and Chester County on Nov. 21.Read moreJoseph N. DiStefano

Joe Stafford's T-shirt is emphatic: "No way, Aqua. No means No. What part of No don't you understand?"

The Upper Chichester resident and other customers of the Chester Water Authority have joined employees at the low-cost public utility's recent board meetings to protest for-profit, publicly-traded Aqua America of Bryn Mawr's persistent proposal to buy their utility. Aqua made an unsolicited $250 million offer (plus $70 million in debt assumption) in May, which the Chester Water board unanimously rejected. The board includes three members each from Chester City and Delaware and Chester Counties, where it serves 44,000 residential and business customers and 200,000 users.

Despite that initial rejection, "the deal, previously thought dead, has new life," utility analyst Ryan M. Connors wrote last week in a report to investor clients of Boenning & Scattergood in West Conshohocken after Aqua raised the offer anew at a meeting earlier this month. To sweeten its offer, Aqua has taken out full-page ads in local newspapers promising to keep water rates at today's levels for 10 years and to offer Chester Water workers jobs if it is able to privatize the authority.

"This company is a predator," water customer Joe DiMarco said at Tuesday's authority board meeting at Neumann University in Aston. He cited rate hikes and profit margins Aqua has requested  and gotten  from the Pennsylvania Public Utility Commission in other towns where it has taken over water systems.

Aqua typically charges more than 40 percent above what Chester Water charges customers in nearby towns, according to rate data collected by the authority.

Aqua could use profits from its three million water and sewer users on the Main Line and in upstate Pennsylvania towns to subsidize Chester City residents and customers in 39 other Delaware and Chester County towns Chester Water now serves — if Aqua can get the PUC to approve. "If Aqua can't raise rates" or cut jobs, its return to investors would decline, analyst Connors added in his report. That would likely drive down the company's stock price.

As a 130-year-old company, "Aqua views the financial aspects of this deal over the long term, not the next quarter," spokeswoman Stacey Hajdak told me.

Chester Water supporters fear that Aqua has friends in high places — specifically, in Harrisburg. Private-sector firms advising the city and the state Department of Community and Economic Development, which oversees finances for Chester and dozens of other fiscally strapped Pennsylvania cities, have been exchanging ideas with Aqua about how to take over Chester Water, according to correspondence the authority obtained under the state Right-to-Know law and made public at Monday's meeting.

Chester Water solicitor Francis Catania showed board members correspondence between economic advisers Econsult Solutions of Philadelphia, investment bank Fairmount Capital Advisors Inc. of Philadelphia, and law firm McNees, Wallace & Nurick LLC and Aqua on potential plans to take over the authority and use the money to pay the city's bills, including shoring up its chronically underfunded pension plans, even before the recent offer.

To be sure, "the [State of Pennsylvania] and its Pennsylvania Public Utility Commission have long promoted consolidation in the water industry over the long term," Aqua spokeswoman Hajdak told me.

Chester City has been in financial trouble and under state supervision since the 1990s, Catania noted. The city is supposed to file a detailed recovery plan in the near future. But, Catania told me, board members object to using the authority to fix Chester's books, given that many people outside the city as well as city residents are likely to pay more for water if a sale goes through.

In its direct appeal to Chester Water customers and the public, Aqua stressed its size and service capacity, and sought to raise doubt as to whether the board can legally resist a sale — especially if city officials can be made to support it in exchange for a promise of regaining control over their budget.

"There is a disagreement about who owns" Chester Water, the utility said in its ad. Noting that Chester owned and operated the authority in its early years, Aqua says suburban board members were "abruptly" added to its board under a state law passed in 2012. If Chester goes along, Aqua suggested it could force a sale despite suburban opposition: "Some have suggested that this issue could end up in a protracted legal dispute," it added in the ad.

The authority has already paid millions to Chester in recent years to help with its fiscal woes, noted Stafford, the Upper Chichester resident. He questioned why suburban ratepayers should in the future have to pay a for-profit company extra for water "because Chester screwed up."

(Previous versions of this article used an outdated name for Neumann University)