During his sewer sale analysis presentation Wednesday night, Towamencin Government Study Commission Chairman Kofi Osei lambasted and condemned the accountability and transparency of Florida-based utility corporation NextEra Energy, the potential new owner of the township sewer system, as well as township sewer sale analysis consultant PFM, in relation to the sewer appraisal and acquisition process.
Aside from the remonstrations at the semimonthly meeting, the analysis showed the agreement of sale could be terminated without penalty and foretold what could happen in the event the sewer sale goes through with NextEra Energy.
Osei continued to make the case that the sale would cost ratepayers $9 million a year, every year, for perpetuity, and repeatedly stressed a legal challenge is unlikely to happen.
Osei established priors about the state of the township, reporting that the sewer system is well-maintained and Towamencin does not urgently need money.
“The board of supervisors stated this fact, employees at the sewer plant stated this fact, and the recently updated Act 537 Plan stated this fact. Any maintenance needs are routine,” he said. “The supervisors that voted to sell stated (the township does not need money) to be true. We have a bit of a high debt ratio, but we are serving it.”
Osei said he calculated rate impacts by taking the cumulative impact divided by $5.6 million, multiplied by the $450 sewer rate. Calculate it in reverse, he said, to get the cumulative rate.
“The sewer system is currently budgeted to receive $5.6 million a year in revenue. The township benefit from receiving $115.3 million adds up to $3.5 million a year,” Osei said, adding the figures came from information provided by PFM. “Any for-profit bidder will break even on the purchase, and all scenarios result in ratepayers paying the same price for upgrades.”
Osei said publicly traded companies have a fiduciary responsibility to shareholders.
“You would have to provide an overwhelming amount of evidence to convince me NextEra doesn’t expect to break even on this transaction,” he said. “All the talk of market penetration has not come out of a NextEra representative’s mouth. It’s not in our utility law, not in the asset purchase agreement. That idea can safely be thrown in the garbage.”
Osei said the PUC is making sure utility companies have enough money to operate and maintain sewer systems.
The problems with PFM, he said, include its huge $805,000 incentive to recommend NextEra.
“Seven-tenths of a percent of the sales price at closing is pretty common in PFM contracts,” Osei said. “I’ve never seen them get to stage two of this process without recommending a sale.”
Osei said PFM failed to check rate projections for realism. Of the eight projections collected in the process, six were reasonable and two “looked off.” It was those two, he said, that PFM developed in its analysis.
“PFM developed a Towamencin Municipal Authority projection and a NextEra-submitted projection were the only ones we received analysis on. Even if we disagree with PFM’s rate development, if they were the ones to develop the rates for every model, we would have an apples-to-apples comparison.”
Osei said PFM’s rate projections came from multiple sources with unknown assumptions, and it erroneously calculated per household costs.
“This was seen in the homestead exemption reporting, where only half the township takes that exemption and businesses and hundreds of households outside the township aren’t eligible,” he said. “That benefit was overstated.”
In discussing problems with investor-owned wastewater, Osei said utility companies are allowed to recover the lower of the purchase price and system evaluation in rates, are allowed to subsidize poorly maintained systems with well-maintained systems, and are allowed to profit off of standard service and maintenance.
“Those points are how our utility laws are written and administered,” he said.
Wastewater utilities, he said, are different than electric utilities, namely the 1,000-connection threshold for greater economics of scale, limited opportunities for redundancies, and a lack of acquisition costs in electric.
“Wastewater treatment is very localized, and you cannot pipe water across state lines like you would with electric utilities,” Osei said. “A lot of those companies are well over 100 years old now and they built everything they own currently.”
Lansdale Borough, for example, owns their electric grid, and charges about the same as PECO, but do better during bad weather events, he said. Nebraska runs entirely on public-owned electric systems and Hawaii is toying with the idea of going away from investor-owned electricity.
“NextEra is primarily an electric utility company. I think a good question to ask regulators is why they have so much cash lying around to try and break into a different utility service,” he said.
NextEra, he continued, can recover more on its investment, while Towamencin wants a higher price so it can fund all its projects, as ratepayers are left with the bag without any input.
“The PUC fully expects rates to rise after the acquisition, and there’s no way to afford accountability,” he said.
Osei’s admonishment with NextEra focused on its inexperience with Pennsylvania regulators. He said he and commission member Marty Cohen, as individual residents, are official protestors to NextEra’s application.
“NextEra has been dragging its feet on the acquisition application,” Osei said. “Aqua and American Water would have been wrapping up their PUC portion of the process around now. NextEra’s last action was in November, and they still haven’t submitted an application. We have quite some time before NextEra possibly closes on this sale.”
Osei also accused NextEra’s subsidiary Florida Power and Light of being “under scandal” for dark money campaigns to influence utility laws.
“They allegedly paid a candidate to specifically run to avoid certain types of regulation,” he said. “Perhaps it was above board lobbying, but the reason the laws changed to allow these acquisitions in Pennsylvania in the first place is because of lobbying from American Water and Aqua.”
“NextEra will find Harrisburg very comfortable,” he said.
In the sale analysis, the commission explored an empirical sewer rate survey of nearby municipal systems and investor-owned utilities. The survey included TMA ($450/year), Hatfield Municipal Authority ($396/year), Lansdale ($492/year), Upper Gwynedd Township ($569/year in 2024), Franconia Sewer Authority ($660/year), Aqua Pennsylvania ($1,125/year), PA American Water subsidized ($1,272/year), and PA American Water unsubsidized ($1,462/year).
“Perhaps we’re undercharging a bit, but we seem to fit in with other municipal rates. Lansdale charges by volume so I used the PFM usage assumption to get that rate,” Osei said. “The difference between the highest municipal rate and the lowest investor-owned rate is $465 a year. Rates would go from $450 a year to $915 to $1,462 a year without considering capital improvements.”
Osei said it was equivalent to $5.8 million to $12.6 million a year in excess rates.
“That is above that $3.5 million number, so we would be losing money in that scenario,” he said, adding the figure includes acquisition costs.
In regards to rate progression from the current year to two prior, American Water, he said, went through two sewer rate increases since Act 12 in 1996, from $725 a year to $1,272 a year. Meanwhile, TMA went from $375 to $450 in the same period.
“One thing to note about the Towamencin rate, we did lose all the Upper Gwynedd customers, so that last rate hike was primarily driven by that loss of revenue,” Osei said. “PA American water had a 75% rate increase from 2020 to 2023, and TMA only had a 20% increase during the same timeframe. If Towamencin sold to PA American Water before 2018, our rates would be 3.4 times what our 2018 rate was.”
Osei said ratepayers should treat the sales price as a loan. He assumed NextEra would break even in 20 years, and said the township stated a 20-year $115-million loan would result in a $8.6 million a year debt service. It was equivalent to a $691 rate hike, and rates would go from $450 a year to $1,141 a year.
Under the PUC formula, he said, utility companies are entitled to recoup 10% of the system value every year. Assuming the system is valued at $90 million, it would mean NextEra is entitled to $9 million a year forever, equivalent to a $723 rate hike, Osei said.
“So, if the system is valued at $90 million, Towamencin residents, businesses, will be paying $9 million a year every year, to eternity?” asked Cohen.
“Yes, unless the laws change,” Osei said.
Osei said the sewer sale is likely to cost ratepayers $5 million to $14 million a year in excess rates.
“Privatizing an asset that taxpayers are required to use is not a good way to fund the township,” Osei said. “Towamencin dollars are going to Florida and Wall Street, and it’s billions of dollars over the township’s lifetime.”
As far as termination language, Osei said the Asset Purchase Agreement Section 14 “Events of Termination” states the agreement may be terminated and abandoned at any time before completion of closing if a government authority issues an order or ruling permanently prohibiting transactions. Furthermore, “no party will be released from liability hereunder if this Agreement is terminated and transactions abandoned because of any willful breach of this Agreement.”
“The Asset Purchase Agreement allows for termination without penalty if the sale is prohibited,” Osei said.
He said the Pennsylvania Constitution gives people the right to control their government, prohibits municipalities from violating their home rule charter, and gives home rule provisions preference in court proceedings.
“It is the commission’s opinion that it is unlikely there will be a lengthy legal battle that ends with Towamencin being ordered to sell the sewer system,” he said.
Under the worst-case analysis, Osei said the township will spend $600,000 a year, or $3 million over five years, for legal expertise at $30 an hour for 2,000 hours a year. Then, it would sell the system and receive $115 million a year. Osei said since the fund is used in perpetuity, it equates to $11 a year per household, less interest.
“I do want to stress that this commission thinks this is unlikely,” he said. “All the township supervisors have taken an oath of office to obey and defend our State Constitution. Whether they knew it at the time or not, that does include the requirement to follow the home rule charter if adopted.”
Osei said NextEra could very well decide that challenging this is not worth it to them and gracefully exit the contract.
“The PUC is within their rights to toss this application if they think this is legitimate,” he said.
He continued that there could be a handful of public interest lawyers that would take the case pro bono.
“If they are interested in stopping the sewer sale, I don’t think the lawsuit threats are a compelling reason not to try,” Osei said.
In the end, Osei said, if after all the electoral contests to enact or deny the charter result in the sale not being the “democratic will of Towamencin,” there is no way to prove what neighbors want.
“If, in spite of that, the Florida monopoly company is still allowed to acquire our sewer system because they convinced four people to agree to sign a contract, that would mean we live in an oligarchy, not a democracy,” Osei said. “I think knowing that fact is worth $11 a year. I will quit going to public meetings, I will cancel my newspaper subscriptions, I will never knock on a neighbor’s door, if that realization means it’s pointless to engage in civic life.”
During commissioner comments, Cohen repeatedly brought up the $9 million figure.
“At our last meeting, there were some comments, and it kind of led me to believe that residents in the audience did not understand that that money that we’re being given, that we would be expected to pay 10% of the valuation of our system, each year, every year, forever,” Cohen said. “It would more than double our rates. This is without NextEra making any money, any profit, no capital expenditures. I find it appalling.”
Residents lauded Osei for the presentation, but some still took issue with the financial details in the presentation.
Supervisor Rich Marino, of Nash Avenue, said Osei’s presentation failed to touch on other data points supervisors considered in their decision to sell the system.
“Capital reserves, it would be $4 million going to $87 million. That wasn’t mentioned at all. The township debt, the $19 million goes to zero,” he said. “The debt service at over $2 million a year, that goes to zero.”
Marino said the township was once part of a regional authority that did not work.
“Upper Gwynedd pulled out, and if Upper Gwynedd didn’t pull out, I probably would not be standing here,” Marino said. “The grass isn’t always greener on the other side when you deal with that.”
Osei countered that the analysis did include all the other data points mentioned by Marino.
“That’s the $3.5 million, that comes from PFM,” Osei said. “$3.5 million is less than $9 million. We are going to lose money if we sell the sewer system!”
Resident Rich Costlow, of Parkview Drive, perhaps the most passionate dissenter of the sewer sale stoppage, told the commission it was its job to study the entire township.
“Now, I didn’t see any mention of the give-or-take $36 million upgrade that’s going to be necessary for this in your presentation,” Costlow said. “There were a number of areas of debt consolidation and reduction that were newer to the township because of the sewer sale. Where is the documentation of a financial analysis? What accounting firm put together the financial report with real numbers? Is there one?”
Osei said the commission did not employ an accounting firm, but the $3.5 million figure comes from PFM.
Costlow asked when the report would be provided to residents. Osei said the final report would be provided 60 days before the proposal goes to ballot.
Costlow said the DCED representative that appeared at the last meeting stated that the agency counsels people considering conversion to home rule to take nine months allotted to do a thorough evaluation of the township. He said the representative doubted that the home rule charter would actually go through.
“I think we as citizens deserve some sort of answer to his concern that not enough time is being taken and the likelihood of success in this matter he doubts is going to happen,” Costlow said.
Resident Shannon Main, of Old Morris Road, asked who wrote and prepared the presentation, and Osei said he did, with input from commissioners Jenn Foster and Tina Gallagher.
“I watched a bunch of supervisors’ meetings where Kofi spoke at, and Kofi does not trust the supervisors, he does not trust the PUC process, he does not trust the people in Harrisburg to make a decision and he does not trust the information from PFM,” Main said. “So, what makes Kofi the only person to evaluate this? Can we hire outside companies that are financial planners? PFM has over 45 years’ experience and they are bonded and insured. I don’t understand why we can’t see a second evaluation, not from Kofi who lives in Towamencin.”
Osei told Main he is an actuarial analyst and would not reveal the name of his employer.
Resident Vanessa Gaynor, of Woodlawn Drive, a member of the Commission’s Citizens’ Volunteer Committee and commission web designer, pointed out that PFM’s presentation last year indicated that it did not validate any of their numbers.
“I wish there was skepticism from all of our residents at that time, because this is the company you say is bonded and insured,” Gaynor said. “It makes me skeptical of some residents that I cannot address directly that come up and say you haven’t done your homework. We know you’ve done your homework for well over a year. It’s very frustrating to hold up PFM numbers that said they couldn’t even verify, but what NextEra said was correct.”
Gaynor said residents were refused analysis information on the various bidders, an analysis which was done in closed session in a committee that is not subject to Sunshine Laws.
“I appreciate this group is trying to bring light to that information, but I wish the skepticism would have been applied previously, but we’re here now,” she said. “Plymouth Township said they met with residents to talk about the needs of the township, and they together as a community decided what actions they should take on financial situations. I do not believe that occurred in this case; we did not receive a presentation on what this money would be spent on until the second town hall. Transparency could have gone a long way in this process and listening to residents could have gone a long way.”
Resident James Collins, of Weikel Road, perhaps the most outspoken supporter of the commission’s actions, said the PUC are not protectors and the solicitors are not guardians – they are regulatory bodies.
“If I put a fence up in my yard and neighbor doesn’t want me to put the fence up, if I meet all the criteria, whether the neighbor likes it or not, the fence going up,” he said. “Whether we like it or not, if they sell the sewer, that’s their sewer. We don’t have say what the rates are.”
Watch the meeting on YouTube here for more comments from the public and to watch the presentation.
See also:
Group of Residents Voice Issues with Towamencin Government Study Commission’s Speed and Processes
Submission: Towamencin Government Study Commission Update
Towamencin Government Study Commission Discusses Schedule and Spending, Fills 1 Vacancy
Towamencin Passes 2023 Budget with 24% Tax Increase
Towamencin Supervisors Approve Land Development Plan for Wawa at Sumneytown and Forty Foot
