Chester needs “a significant influx of money” to reach financially viability and that may be through monetizing its water system, the city’s Receiver concluded — although the Chester Water Authority claims that 60 percent of city residents wouldn’t be able to afford water if that were to occur.
On Thursday, the Receiver, Michael T. Doweary, released a statement in conjunction with the Sept. 16 Commonwealth Court decision. In it, Commonwealth Court Judge Patricia A. McCullough wrote the majority opinion the Municipalities Authorities Act allows Chester to obtain the assets of the water authority it created. In this case, that’s the Chester Water Authority.
In 2017, Aqua made an unsolicited bid to buy CWA for $320 million, which CWA rejected. On Jan. 24, 2019, CWA executed a declaration of trust, naming the Authority as the settler and three of its board members as trustees with the intent to transfer the water system assets into this trust. Aqua and Chester challenged that in court with motions leading to the McCullough decision.
On Thursday, Doweary said Chester may not sell its water authority without his consent. Following Gov. Tom Wolf’s April 2020 declaration of fiscal emergency for the city of Chester, Doweary was appointed as Receiver to create a Recovery Plan and to chart the city out of financial distress.
That can only be done with an infusion of cash, Doweary surmised, writing, “Chester needs a significant influx of money to regain financial stability and ensure that the City government can provide vital and necessary services on a recurring basis. The only way that can occur is if we address the pension funding crisis.”
At the end of August, the Police Pension Plan had a little less than $2 million in cash available, or the equivalent of four months’ worth of benefits, he said.
He noted the three bids for the water system: $410 million from Aqua America; $425 million from American Water; and $60 million from the CWA. Aqua has offered an $11.8 million advance, irrespective of litigation outcome but Doweary said the law is not clear on how that can be spent.
“Since the City does not have any other asset that would come close to generating the level ofproceeds the City needs, it must monetize the water system,” the Receiver stated. “However, that does notnecessarily mean that the water system needs to be privatized. I have no issue with the watersystem remaining in public hands if the City can receive a fair price for the system.”
Anticipating that the litigation will continue, Doweary said, “I have directed my team to do our duediligence to see whether the City could receive a fair price for the water system while at thesame time keeping it in public hands. I have not made a decision yet and I will continue tokeep all options on the table.”
Chris Franklin, Chairman and CEO of Essential Utilities, as Aqua America is now known, was grateful that the Receiver has recognized the need to monetize the system.
“Aqua recognizes that the Receiver and his team have a tough job to do,” he said. “Together with city leadership, they are developing a plan to bring the city back into financial balance. The debt and pension challenges are enormous and will require hundreds of millions of dollars to solve the problem.”
That said, Franklin spoke to the need for another corporate presence in the city.
“The City of Chester needs another corporate anchor to support the local economy and civic and charitable organizations, create jobs and partner with the city’s administration,” Franklin said. “As one example, last year as some people in the city struggled to put food on the table during the pandemic, Aqua without fanfare contributed $100,000 to support food banks in Chester while CWA was spending its customers’ money on huge legal and public relations fees to fight with the city … (W)hy has there been no support offered by CWA since 2012 for local charities in its home city, which has so many needs?
Franklin said the Commonwealth Court decision puts the authority of the sale in the city’s and the Receiver’s hands.
“(W)e are hopeful that the Receiver will work expeditiously through his analysis,” he said. “It is time for all parties to spend less time and money on legal maneuvering and more time and resources on serving residents of the city and customers of CWA.”
The Chester Water Authority disagrees that would be the best pathway forward as Paul Andriole, CWA board vice chair, wrote to Mayor Thaddeus Kirkland Friday.
“Our data shows that if the Receiver and Aqua/Essential force a sale of the CWA to benefit Aqua/Essential’s second largest shareholder, the Canadian Public Pension Investment Board, many Chester residents will no longer be able to afford their water bill,” Andriole wrote.
On March, 16, 2020, the Canadian Pension Plan Investment Board purchased more than 21 million shares of common stock of Essential Utilities for $750 million. Andriole noted that the cost was $34.62 per share and that on Sept. 7, the value had increased to $48.99 per share.
Andriole also wrote that rates will be doubled should Aqua purchase the system and that “water service will become unaffordable for over 61% of the City’s residents.”
He wrote that the average residential CWA water bill is $366.48 per year and surmised that it would be $809.76 under Aqua’s rate structure.
“These problems for the City and its residents can be avoided by keeping Aqua out and keeping the CWA in public hands. The focus should not be on increasing dividends to large Aqua shareholders like the Canada Pension Plan Investment Board,” Andriole said.
Franklin refuted Andriole’s statements.
“The letter is absurd and laden with conspiracy theory and just not helpful,” the CEO said, explaining that Canadian Pension Plan Investment Board is similar to any member of the public who has the right to buy stock in a company. “We pay dividends like every company does … Vanguard is our Number One holder of our stock. Are we funding the Malvern campus of Vanguard? Of course not.”
Regarding how rates would impact Chester ratepayers in the event of an Aqua/Essential Utilities sale, Franklin said his company has been consistent from the start of this process.
“Our plan would be to put a trust in place that would take some of the proceeds and offset the rates for 10 years,” he said. “(CWA solicitor) Frank Catania has never said what his rates would do in 10 years.”
And even in the 10th or 11th year, Franklin said the rates wouldn’t automatically jump to the full Aqua rate.
In addition, Franklin noted that the CWA said they would fund a $60 million offer to the city of Chester for the assets through a 10 percent increase.
Regarding lower income ratepayers, Franklin said Essential is in the process of establishing a Universal Service Fund, a water utility equivalent to the Low Income Home Energy Assistance Program provided by utilities like PECO.
“We will be the first water utility in Pennsylvania to have a Universal Service Fund,” Franklin said. “We will have a safety net to make sure that people can pay their water bill.”
Franklin expressed concern regarding a Right to Know request that his company has had to the CWA for over a year to determine what the legal fees are to Catania and his team.
“They’ve been laying off employees,” Franklin said of the CWA. “Are they spending so much on legal? I’m concerned. I’m very concerned on what’s happening over there.”
He said the courts have established that the city of Chester is the rightful owner of the CWA assets.
“I understand that Mr. Catania is probably desperate at this point,” he said. “Mr. Catania thought he could steal it from them.”
Now, he said it’s time to focus on good operations and transparency of a utility.
“The city really needs another corporate anchor like us to provide jobs and service,” Franklin said, noting the millions that Aqua and Essential provide to community organizations each year. “They just need another company like us.”
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