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Pa. approves Aqua’s contentious $75M sewer system acquisition

The settlement delays the timetable for Aqua to boost consumer bills to pay for the deal. The Pa. Office of Consumer Advocate agrees to drop a court challenge.

Concrete sewer lines.
Concrete sewer lines.Read moreMARK C PSORAS

State regulators on Thursday approved Aqua Pennsylvania's contentious $75.1 million acquisition of the Limerick Township sewer system in Montgomery County, which delays the timetable for Aqua to boost consumer bills to pay for the deal.

The Pennsylvania Public Utility Commission, by a 4-1 vote, approved a settlement between Aqua and the Pennsylvania Office of Consumer Advocate, which had challenged the PUC's initial approval of the sale. The consumer advocate agreed to drop a court challenge as its part of the settlement.

The Bryn Mawr company had originally sought to recover from ratepayers the full $75.1 million it paid for the utility, but agreed to accept the PUC's figure of $64.4 million. Aqua also agreed not to include the costs in a rate increase request it plans to file this summer.

When it does file for a rate hike after June 2020, it agreed to limit the increase to no more than double the rate for Limerick customers, who currently pay $38.00 per month based on 4,000 gallons of monthly usage.

The agreement is important because it sets a pattern for how the commission will evaluate future acquisitions of municipal utilities by investor-owned companies.

A 2016 state law known as Act 12 allows investor-owned utilities to recover the cost of buying municipal water and wastewater utilities at their fair-market value, rather than their book value. Under the old law, the buyer could charge only rates sufficient to pay for the municipal utility's depreciated construction costs. The new law increased the incentive for municipalities to off-load old utility systems at elevated prices.

Aqua's agreement included "surprising concessions" that include adverse provisions that "will encumber Aqua's financial returns on the acquisition," Ryan M. Connors, an analyst with Boenning & Scattergood, the West Conshohocken-based brokerage, said in a report to clients on Thursday.

Despite Aqua's concessions, PUC vice chairman Andrew G. Place voted against the agreement, saying the deal only postpones the day Aqua's customers will pay for the acquisition "without realizing any corresponding affirmative net benefits from this transaction."