NextEra Energy, the Florida electric utility company that wanted to dip its toes into the wastewater business, has backed out of the deal to purchase the Towamencin Township sanitary sewer system, treatment plant, and all assets for $115 million, instead assigning their contractual rights and obligations to Pennsylvania American Water, who is offering to purchase the sewer assets for $104 million, supervisors Chairman Chuck Wilson revealed in a surprise announcement at Wednesday night’s board meeting.
Furthermore, as consideration for the ownership change and associated costs, NextEra is paying Towamencin $600,000, which includes the initial $100,000 deposit and an additional $500,000.
Thus, Pennsylvania American Water is now expected to go through the PUC approval process, and it remains to be seen if it will schedule a presentation in the future to update ratepayers on the new plan.
Supervisors voted 4-1, with Democrat Joyce F. Snyder dissenting, to authorize township Solicitor Robert Iannozzi Jr. and special counsel to take needed steps to prepare the Asset Purchase Agreement amendment, assignment agreement, and sewer sale ordinance ahead of a vote at the March 22 meeting.
Under the new assignment, the sale price has been revised from $115 million to $104 million, which, Wilson said, was the average of the two-utility valuation expert appraisals. There is also no longer a two-year rate freeze, and any deposits and escrow monies will go back to NextEra, he said.
“Recently, NextEra made the township aware of its business decision to redirect efforts away from water and wastewater acquisitions and focus more on renewable energy projects. This decision, which was mainly due to the passage of the Inflation Reduction Act, affects all NextEra’s water and wastewater assets, including its Asset Purchase Agreement with the township,” said Wilson. “Toward this end, NextEra intends to assign its contractual rights and obligations under the township’s APA to Pennsylvania American Water. Given the results of the township’s competitive bid process, PA American, as Next Era’s successor, makes the most sense.”
Wilson said PA American Water, the largest water and wastewater utility in the Commonwealth, was named by Newsweek Magazine last year as one of the 200 most trusted companies in America, and the only water or wastewater utility named in the report.
“With nearby operations in Norristown, Royersford, Yardley, Coatesville, and Upper Pottsgrove, PA American can create efficiencies and synergies in its operations and create savings for residents,” Wilson said. “They also have the ability to allocate costs across approximately 760,000 customers, thereby stabilizing the impact of the considerable capital investments made in their systems. In addition, PA American provides substantive financial assistance and hardship grants.”
Wilson said PA American in 2021 supplied customers $4.5 million in bill discounts and $770,000 in hardship grants.
According to Wilson, the Asset Purchase Agreement will include the $104 million revised sale price, the removal of the rate freeze, and a change to the “outside date” definition to accommodate for unforeseen hurdles.
“The Assignment Agreement will assign NextEra’s interests in the APA to PA American. The Sewer Sale Ordinance Amendment will include replacing Next Era with PA American as the Successful Bidder,” Wilson said. “PA American will file with the PA PUC. The PUC approval process will then commence with PA American as the successor.”
Although there is not a two-year rate freeze in the contract, Wilson said that since PA American Water just came off of a rate increase, the earliest it could get approved for another increase in Towamencin is mid-2025.
Wilson said NextEra told the township that if it did not agree to the deal, then NextEra would close the sale and then flip the system to PA American Water anyway.
“I think we’re better off doing this knowing who the system was sold to,” he said. “We are putting ourselves at the mercy of NextEra. This wasn’t a question whether they would close or not.”
Supervisor Rich Marino said NextEra would face a $10 million penalty if it did not complete the deal.
“They expressed in no uncertain terms they were not going to be on the hook for $10 million,” he said.
The move by NextEra was the topic of a supervisors’ executive session on Tuesday night, Wilson said.
The news did not sit well with Supervisor Snyder, who suggested a rebidding process.
“Our neighbors have spoken incredibly clearly this is not what they want,” Snyder said. “In this particular instance, I feel this choice is a wrong one. At the bare minimum, we should reopen it for bids again. Other bidders may want the opportunity to rebid. If we don’t allow it, it may open us up for litigation.”
Prior to the vote to authorize the solicitor to draft documents, Snyder suggested waiting it out to avoid potential litigation.
“I can’t imagine why you wouldn’t want to put this off for a couple months to avoid litigation,” she said.
During the public comment period at the start of the meeting, resident Pauline Bracchio, asked supervisors if the township has a contract with NextEra to buy the plant, why not add a clause to it to force them to speed up the process.
“From what I understood is that you are waiting for NextEra to make their mind up,” Bracchio said.
Wilson said the township has a signed contract with NextEra and it was not waiting on them.
“We are waiting for it to go through PUC approval,” Wilson said. “It has to be approved by them before settlement and we are still in the process of that. Once the approval goes through, and other municipalities that use our system sign off on the Act 537 Plan, we go to settlement.”
“Can the Home Rule stop that?” asked Bracchio.
“In our opinion, no, and we’ll end the discussion there,” Wilson said.
The news did not sit well with Government Study Commission Chairman Kofi Osei and Vice Chair Jenn Foster.
In a twist of irony, the commission has been criticized by opponents of the home rule charter for rushing the process and taking a little more than nine weeks of a state-allotted 18 months to study the government and send a proposed charter to appear on the May ballot, and now Osei and Foster took the podium and asked supervisors to take its time in voting on the change.
In addition, during its commission meetings in February, Osei stated that the problem with NextEra was it had little experience with Pennsylvania regulators, and it owned no sewer or water systems in the state. He also stated at prior meetings that PA American Water’s yearly rates were around $1,272, up from $725 in 2020. The current sewer rental rate in Towamencin is $450 annually.
He also stated in the past that PA American’s initial offering was not an overbid “by much” at $92.5 million.
“PA American Water is very good at getting through the PUC process,” Osei said. “There is no rate freeze, but American Water has rates at $1,270 a year, which means PFM’s analysis is wrong. We are going to lose money.”
“This is frustrating,” he continued, “because I’m probably not going to change any minds tonight. Please vote no and send it out to bid.”
Foster said she wanted supervisors to wait until after the Primary to make a decision and wanted clarification on the purchase price.
“The negotiation has taken place (between NextEra and PA American Water) and the commitment letter we received in the last two days, which is why we have this special add-on on the agenda,” Wilson said. “The price is higher than their bid.”
Resident Rich Costlow felt it was wrong for the commission members to ask the township to wait.
“The process for the Government Study Commission and proposing home rule was supposed to take a lot longer than it did. There were a number of people who said they were rushing and jamming a nine-month process into nine weeks,” he said. “They did not do what the GSC was elected to do. I find it really disingenuous for people who have done that to stand here and criticize the township for not waiting.”
Resident Shannon Main said the commission should reconsider putting the home rule on the ballot.
“A lot of residents are concerned about home rule,” she said. “If they are asking you to table this and think about it, then we should ask the same for them for home rule.”
Resident Christian Fusco, spouse of elected township Auditor Melissa Fusco and sitting North Penn School Board vice president, asked what evidence does the township have that NextEra is going to pull out if Towamencin does not go along with their plan.
Fusco called the situation “bunk” and “crap.”
“We are disenfranchised, and the sale is not complete and we are already having a meeting about the way in which we’re getting disenfranchised,” Fusco said. “We’ve now already lost $11 million in this deal.”
Wilson said that situation would have Towamencin “playing a pretty expensive game of chicken.”
Iannozzi Jr. told Fusco that the assignment provision is a legal common provision in the contract.
Resident Kris Kazmar said, if the township does nothing, it still gets $115 million.
“The penalty is $10 million, so, if we do nothing,” Kazmar said, “we could continue and receive $115 million, and after the deal is complete, they can flip it. We don’t have any choice over that. If we agree to the modification, then we’re getting $104 million. We get to be certain it will be PA American Water, that’s what we get out of it.”
Marino said that was a chance the township did not want to take with NextEra, adding that it could have faced litigation if it did not accept the highest responsible bid.
“We felt PA American was the next best buyer. When the bids were received, had they been close, within several million, we would have taken PA American at the lower bid,” Marino said. “The disparity is so large that they were trying to operate on a good faith bid.”
See also:
Towamencin Home Rule Charter Headed to Ballot in May Primary
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
