Pennsylvania approves Aqua water and sewer rate hike, but details are scarce

Pennsylvania regulators on Thursday approved a scaled-back request from Aqua Pennsylvania to raise water and wastewater rates, which will likely result in big increases for customers in five towns in suburban Philadelphia where Aqua recently acquired sewage networks. But the details of the rate impact are still under wraps.

The Pennsylvania Public Utility Commission voted 3-0 on Thursday to approve a rate increase for the Bryn Mawr company, including a last-minute sweetener in the metric used to calculate rates that kept the precise impact on its half-million from customers from Pennsylvania wrapped up for a few more days.

The PUC’s decision in this case is significant because it is Aqua’s first rate increase that includes municipal systems it purchased under a 2016 state law that allows purchasers to pay the higher “fair market value” for utilities, rather than the lower book value. The law was enacted to encourage the consolidation of local municipal systems under private ownership. Critics say this leads to higher rates for existing and new customers to fund big payments to cities selling their systems.

In August, Aqua asked the PUC to increase water customers’ water bills by 17% and sewer bills by nearly double. In February, Administrative Law Judge Mary D. Long recommended that the PUC approve only a $32 million revenue increase, or one-third of Aqua’s $97 million request.

What the PUC approved on Thursday apparently falls somewhere between Aqua’s initial request and Long’s recommendation. The difference depends on the return on equity, or how much the PUC allows utilities to mark up their rates to generate profits and attract private investment to utilities.

Aqua, a subsidiary of Essential Utilities Inc., had requested a return on equity (ROE) of 10.75%. Long, the administrative judge, had recommended 8.9%. Long based his recommendation on the lower end of a range suggested by the PUC’s Office of Investigation and Enforcement over nine months of contentious rate proceedings, which included complaints filed by 112 water customers. and sewers and the testimonies of 58 witnesses at six public hearings.

The PUC agreed on Thursday to give Aqua a 10% return on equity, including a last-minute decision to add 0.25 percentage points suggested by commissioner Ralph Yanora as a management performance bonus for Aqua comes to the rescue of three small failing private water systems that it agreed to take over at the request of the PUC.

Each one-tenth of a percentage point increase in ROE adds about $2.9 million in revenue for Aqua, according to commission chair Gladys Brown Dutrieuille, who said she disagrees with the statement. size of the management performance bonus, but nevertheless voted in favor of the overall rate. increase.

Aqua had argued that if the PUC adopted the return on equity of 8.9% recommended by the judge, it “would represent a watershed moment for the end of the commission’s long-standing commitment to supporting infrastructure investment. , twice aggravated in a period of rising capital costs”.

The last-minute ROE change apparently forced PUC staff to recalculate the impact of rates and rewrite its legal order, which takes up to a week, according to a PUC spokesperson.

Beyond the overall rate of return, the PUC did not publicly explain Thursday how it had resolved several other disputed details of Aqua’s rate package, including how the request for increased rates would be distributed among customers. water and wastewater from Aqua Pennsylvania, which is concentrated in Philadelphia. suburb.

“Given the complex nature of this case, combined with the need to write an order and notice that addresses today’s motion as well as all other details of the case, the commission will withhold comment. until the full order has been finalized and released on the public record,” PUC spokesperson Nils Hagen-Frederiksen said in an email.

READ MORE: Judge recommends denial of $17.5 million bid from Aqua to buy City of Chesco sewer system

Aqua’s initial rate application would have increased a typical residential water bill for its 445,000 customers using 4,000 gallons of water per month from $69.35 to $81.32, an increase of $11.97. $ per month, or 17%. Residential bills for Aqua’s 45,000 customers would have gone from $55.51 to $73.95, an increase of $18.44, or 33%.

Aqua had offered to transfer certain costs associated with its sewage systems to its much larger pool of water customers, even though most Aqua Water customers do not also benefit from Aqua’s sewage service. . A state law allows utilities to pass on certain costs to water customers to avoid the “rate shock” experienced by customers of low-flow public systems integrated into private water systems.

But Long recommended reducing the cross-subsidy, and his recommendation would have only increased water rates by about 3% and hit wastewater customers with larger increases, especially in cities whose Aqua Systems has acquired in recent years: Under its recommendation, Limerick Township rates would increase by 75%; East Bradford, 60%; Cheltenham, 56%; East Norriton, 52%; and New Garden, 48%.

Long said some form of price shock is inevitable in these cities, and communities that have chosen to sell their systems to Aqua to generate revenue “can no longer escape the consequences of this decision.”

Pennsylvania’s Office of Consumer Advocate argued that the 2016 law, known as Bill 12, encouraged inflated prices, fueling a recent pace of faster water and utility rate increases. wastewater than other Pennsylvania utilities.

Since 2016, Aqua has agreed to purchase eight systems in suburban Philadelphia for a total of $295 million—-New Garden Township, Limerick, East Bradford, Cheltenham, East Norriton, Lower Makefield, Willistown, and East Whiteland. He struck a deal to buy the huge DELCORA sewage system in Delaware and Chester counties for $277 million, and offered to buy the Chester Water Authority for $410 million. These two agreements are linked to a dispute.

Last month, the Bucks County Water and Sewer Authority said it was considering getting $600 million from Aqua for its system, although the BCWSA says its network is worth at least double that price.

Two of Aqua’s Chester County acquisition projects recently received negative recommendations from administrative judges.

Last month, a judge recommended that the PUC reject the company’s proposed $17.5 million acquisition of the Willistown Township sewer system. And another hearing examiner, Marta Guhl, on Tuesday recommended that the PUC reject Aqua’s $54.9 million deal to buy East Whiteland’s sewage system.

“The company has provided no evidence of the cost reductions or efficiencies that will be produced by acquiring the East Whiteland customers,” Guhl wrote.

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