Water and sewer bills for thousands of Pennsylvania consumers have soared by triple digits since a 2016 law changed the way municipal utilities are valued when for-profit companies buy them, a state House panel heard Tuesday.
The law allows municipal water and sewer utilities to negotiate with for-profit utilities for the fair market value rather than the actual value of the system. The higher purchase prices, in turn, give new owners a basis to seek approval to charge higher rates, which they usually receive, consumer advocates testified.
The result, state Consumer Advocate Patrick Cicero said, is that customers of public water and sewer utilities acquired by for-profit companies since the law took effect pay about $85 million more annually for service that they otherwise would.
Investor-owned companies, such as Aqua PA and Pennsylvania American Water, have purchased 22 municipal utilities under the new valuation method and won rate increases ranging from 44% to 166%, according to the Pennsylvania Public Utilities Commission.
"They’re not buying the pumps and the pipes and the treatment plants. What they’re buying is the customers, which is a long-time forever revenue stream,” Cicero said.
A package of bills now before the House Consumer Protection, Technology and Utilities Committee would require utility companies to use lower values for newly purchased water and sewer systems when seeking rate increases, spread the impact over a longer period and improve transparency of the process.
But Cicero called for lawmakers to go further and repeal the law.
Gov. Tom Wolf signed Act 12 to amend Pennsylvania’s public utility law in April 2016. It added Section 1329, which created new options for valuing municipal utilities that were acquired by investor-owned utilities. The prior law discouraged such sales because the value of the government-owned utilities was based on the original construction cost minus depreciation.
Valuing newly acquired water or sewer systems at the fair market reduced the risk that companies would not be able to recover their investments, PUC Chairman Stephen DeFrank said in his testimony.
DeFrank said rates for customers of utilities that are acquired under Section 1329 are likely to increase for a number of reasons such as the need to pay for deferred maintenance and capital improvements. The for-profit companies must also provide a return on investment, DeFrank said, which further increases rates.
Aqua Pennsylvania President Marc Lucca said that when the directors of government-owned utilities vote to sell to a for-profit utility company, they are often dealing with deferred maintenance as a result of rates that are too low and challenges in meeting environmental standards for lead and other substances.
Lucca said one example of a utility that Aqua Pennsylvania purchased that faced dire problems was the water authority in Shenandoah, Schuylkill County. When Aqua took over, it found that 60% of the water the system drew from its sources was unaccounted for, lost through leaks or meters that weren’t working.
A quarter of the utility’s 195 fire hydrants did not work, Lucca said.
"This authority was allowed to operate without any meaningful oversight for years, these conditions did not happen overnight. This is something that was progressively worse and worse simply because they chose not to invest in fixing that system,” Lucca said.
Anthony Bellitto, executive director of the North Penn Water Authority, dismissed claims by for-profit water companies that they rescue public utilities that are in disrepair and put customers at risk of poor service.
"They are going after the large well managed and financially stable municipal systems, which have a track record of excellent high quality reliable servants,” Bellito said.
Bellito said claims that the investor-owned utilities are more reliable are also not supported by evidence.
The higher rates that customers pay go toward dividends for shareholders, executive salaries, bonuses and stock options, he said.
"I would say that people should see privatization for what it really is, a scam,” Bellitto said. "It is a loan, disguised as a gift, wrapped up with empty promises that must be paid back with interest through exorbitant rate increases resulting in no better service to the customers.”
