Released: November 14, 2022
In recent months, there has been a significant amount of discussion about whether the Delaware County Regional Water Quality Control Authority (DELCORA) should be sold to Aqua Pennsylvania, and if it is, what the price and terms should be. With the Public Utilities Commission’s (PUC) Administrative Law Judge, November 17, 2022, 1 p.m. and 6 p.m. hearing on the deal approaching, the County is providing background information for residents interested in the issue or those who would like to make comments at the PUC’s hearing.
Residents who would like to watch the hearing and/or testify can register here: https://delcopa.gov/pdf/PublicInputHearingNotice(A9065078).pdf
What is DELCORA and what does it do?
DELCORA owns, operates, and maintains wastewater facilities that serve approximately half a million people, including 46 municipalities in Delaware and Chester Counties.
Who controls DELCORA?
DELCORA is an independent government authority, with a nine-person Board of Directors and led by professional staff. The Board members are appointed by County Council to staggered five-year terms.
Why does Aqua Pennsylvania want to buy DELCORA?
Aqua Pennsylvania (Aqua) may believe it can make a profit by owning DELCORA. Shareholder-owned utilities are regulated by the PUC and, subject to PUC approval, charge customers rates equal to their invested capital plus a return on investment. Aqua is part of the publicly traded Essential Utilities, one of the largest publicly traded water, wastewater, and natural gas providers in the country. In its most recent rate case, the PUC allowed it to earn a 10% return. It has, in recent years, prioritized the purchase of utilities across the region, including the $1.1 billion purchase of the Bucks County Water and Sewer Authority (BCWSA) which was opposed by the Bucks County Board of Commissioners in a bi-partisan, unanimous vote in September 2022. After Bucks Commissioners opposed the sale, it was canceled. Aqua would have been able to charge the Bucks County wastewater customers a rate that would have provided a return on its $1.1 billion investment.
What did Aqua offer to buy DELCORA?
Aqua offered $276 million for DELOCRA in a no-bid deal. That represents roughly 25% of the $1.1 billion Aqua offered to purchase the Bucks County system although DELCORA serves more customers than the BCWSA. BCWSA services 75,000 customers while DELCORA provides service to approximately 165,000. The sale of DELCORA would be Pennsylvania’s largest privatization ever of a public water or wastewater system. While the purchase price would not have provided as high a return as Aqua might have gotten on the Bucks County purchase, the DELCORA system will have to invest between $500 and $700 million to make system improvements required by the federal and state environmental regulators, all of which are documented in the system’s “long term control plan”. If Aqua makes the investment, it will be entitled to earn its 10% return. If the sale does not go through, the investment will still need to be made but ratepayers will not be paying the 10%.
What’s the difference between the sale of BCWSA and DELCORA?
There are a number of specific differences, but the largest one besides the overall price is how the payment from Aqua would be used. In the BCWSA deal, Bucks County taxpayers were expected to receive a $700 million payment under the proposed deal while putting only a small part of the proceeds towards rate stabilization. Aqua’s deal for DELCORA requires all of the sale proceeds to be used to offset its expected rate increases.
In a campaign-style website and mailer it recently sent out, Aqua wrote that it “is committed to using $200 million from the sale [of DELCORA] to keep customer bill increases at no more than 3% annually for 10 years.” In other words, the money that Aqua is paying for DELCORA’s assets is money Aqua expects to be used to offset its rate increases that occur from the sale. Under Aqua’s plan, taxpayers will give up control over a public asset and subsidize a private company’s rates at the same time.
What is the process by which DELCORA sale can be made?
It is unclear what an appropriate sale process would be, as no public asset like DELCORA has been sold before. The approval of the DELCORA sale was made possible by a last-minute change enacted by three departing members of Delaware County Council to DELCORA’s charter in 2019. After these last-minute changes were made, and without a public bidding process and only a meager public process, the DELCORA board agreed to sell DELCORA and put the proceeds in a special trust to be used to subsidize the higher rates DELCORA will be charging under Aqua’s ownership.
The proposed sale was never brought to Council or approved by Council and, in the ongoing legal case, Aqua has argued that County Council should have no voice in the sale of the public asset.
Is it correct that DELCORA needs substantial investment and Aqua can fund it at a lesser cost?
It is true that DELCORA needs substantial investment, just as every other public utility does on an ongoing basis. It is not true, however, that Aqua alone has the capacity to make the necessary investments. As a municipal government, the County’s borrowing costs are lower than Aqua Pennsylvania’s, so the required investment in upgrades and expansion at DELCORA would cost less if the County oversees these. If DELCORA remains the owner of the assets, it also can utilize the lower cost municipal bond rates to borrow the money for the work.
It is worth noting that at the same time Aqua is promoting its ability to manage DELCORA in a more cost-effective manner, it is opposing DELCORA’s efforts to issue new debt at a lower tax-free rate than could otherwise be obtained in the private market.
Why is some portion of DELCORA’s wastewater treated in Philadelphia and what does it mean that the utility must pay a fee to “separate” from the city’s wastewater treatment facility?
DELCORA has always sent its wastewater from the eastern part of Delaware County to the Philadelphia Water Department treatment plan with wastewater from the central and western part of the County going to the treatment facility DELCORA owns in Chester. Philadelphia, like DELCORA, has a long-term control plan that has to be approved by the state and federal regulators. Philadelphia decided it would be cheaper to take back the capacity it is currently using for Delaware County wastewater than to build additional capacity to treat the wastewater and storm water that flows into its aged system. Accordingly, DELCORA or the party that owns DELCORA’s system will have divert the flows currently going to Philadelphia to Chester by 2028. The cost of rerouting the flows is included in DELCORA’s long term control plan and involves the construction of a tunnel that will move the flows and provide capacity to prevent overflows at the Chester facility. The long-term control plan and the costs associated with it are the same whether DELCORA is owned by Aqua or remains a municipal asset.
Why does Delaware County oppose the sale?
In 2019 the DELCORA board of directors decided to sell the County’s sewer assets to Aqua but never brought the sale before County Council for approval. The new County Council that took office in 2020 opposed the sale of DELCORA to Aqua because it is a bad deal for taxpayers. Study after study has shown that the purchase of public utilities does not benefit ratepayers over the long-term, despite the sometimes-substantial upfront purchase price. In fact, the sale that the DELCORA board agreed to did not include any money going to benefit the County or the municipalities that use the system.
Has there been any review of the DELCORA sale?
Yes. Last year, a panel of administrative law judges at PUC recommended the sale of DELCORA to Aqua Pennsylvania be rejected, stating that it found no evidence that the sale would be in the public’s interest. At Aqua’s request, the PUC then voided that recommendation and reopened the record. A new administrative law judge has been assigned to the case and will hold a public input hearing on the DELCORA sale on November 17, 2022.
What is Delaware County doing to oppose the sale of DELCORA to Aqua?
In June 2021, the Delaware County Council voted to terminate DELCORA so that the County could assume responsibility for its operations. The legal challenge to the dissolution of DECORA continues to be debated in the courts. The dissolution cannot take effect before certain conditions are met, including the retirement of DELCORA’s debt. There continues to legal challenges to whether the County, as the operator of the system, would be required to go through with the sale to Aqua.
The County believes that the PUC gets the final word on whether the sale to Aqua can close and that Aqua has failed the make the case that the sale would provide any benefit to the rate payers. In fact, the County believes that the sale will raise rates without providing any benefits to ratepayers. DELCORA is a well-run system with a broad base of customers that can easily support the borrowing needed to make the changes required by the long term control plan and that DELCORA, if it remains a municipal authority, can run the system at the lowest cost.
Is Delaware County just looking to make more money on the sale?
County Council opposes the sale because it would cause sewer rates to increase across the county faster than they would under municipal ownership and will only provide a benefit to the shareholders of Aqua. The challenges require the County to pay legal fees, but those fees are pennies in comparison to the return shareholders of a privately owned utility will earn in the form of a 10% return on the required investment to buy the utility. Because the matter is in litigation, the County has explored some settlement options with DELCORA, but always with the goal of making sure that any settlement would minimize costs for ratepayers. Money alone is not going to prompt a settlement. Delaware County Council believes the PUC should not approve the deal and that the board of DELCORA should not be able to close the deal without County approval.