Chester needs “a significant influx of money” to achieve financial viability and this can be done by monetizing its water supply system, the receiver concluded, although the Chester Water Authority says 60% of residents of the city could not afford water if this were to happen.
Receiver Michael T. Doweary issued a statement on Thursday in conjunction with the Commonwealth Court ruling on September 16. In it, Commonwealth Court Judge Patricia A. McCullough wrote the majority opinion that the Municipal Authorities Act allows Chester to obtain the assets of the water authority that she owned. created. In this case, it is the Chester Water Authority.
In 2017, Aqua made an unsolicited offer to buy CWA for $ 320 million, which CWA rejected. On January 24, 2019, CWA signed a declaration of trust, appointing the Authority as settler and three of its board members as directors with the aim of transferring the assets of the water supply system. in this trust. Aqua and Chester challenged this in court with motions leading up to the McCullough decision.
On Thursday, Doweary said Chester could not sell his water authority without his consent. Following Governor Tom Wolf’s April 2020 tax emergency declaration for the city of Chester, Doweary was appointed receiver to create a stimulus package and lift the city out of financial distress.
This can only be done with an injection of cash, Doweary speculated, writing: “Chester needs a significant influx of money to regain his financial stability and to ensure that the city government can provide support. vital and needed services on a recurring basis. The only way to do this is to resolve the pension funding crisis. “
At the end of August, the police pension plan had just under $ 2 million in cash, the equivalent of four months of benefits, he said.
He noted the three bids for the water supply system: $ 410 million from Aqua America; $ 425 million from American Water; and $ 60 million from the CWA. Aqua offered an advance of $ 11.8 million regardless of the outcome of the litigation, but Doweary said the law was unclear on how it could be spent.
“Since the City does not have any other asset that would approach generating the level of
product that the City needs, it must monetize the water system, ”declared the receiver. “However, this does not
necessarily means that the water system must be privatized. I have no problem with the water
system remaining in the hands of the state if the City can receive a fair price for the system.
Anticipating that the litigation will continue, Doweary said, “I asked my team to do our duty.
diligence to see if the City could receive a fair price for the water system while it
at the same time keep it in the hands of the public. I haven’t made a decision yet and will continue to
keep all options on the table.
Chris Franklin, President and CEO of Essential Utilities, as Aqua America is now known, was grateful that the receiver 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 leaders, they are developing a plan to restore the city’s financial balance. The challenges of debt and pensions are enormous and will require hundreds of millions of dollars to resolve the issue. “
That said, Franklin spoke of the need for another corporate presence in the city.
“The City of Chester needs another anchor business to support the local economy and civic and charitable organizations, create jobs and partner with the city administration,” Franklin said. “As an example, last year, as some people in town struggled to get food on the table during the pandemic, Aqua quietly contributed $ 100,000 to support Chester’s food banks while CWA spent his clients’ money on huge legal and public relations fees. fighting with the city… (Why has there been no support offered by CWA since 2012 to local charities in his hometown, which has so many needs?
Franklin said the Commonwealth Court ruling puts the authority of the sale in the hands of the city and the receiver.
“(We) hope the receiver will work quickly with his analysis,” he said. “It is time for all parties to spend less time and money on legal maneuvers and more time and resources on serving city residents and CWA clients. “
The Chester Water Authority disagrees that this would be the best way forward, as Paul Andriole, vice chairman of the CWA board of directors, wrote to Mayor Thaddeus Kirkland on Friday.
“Our data shows that if the Receiver and Aqua / Essential force a sale of the CWA to the benefit of Aqua / Essential’s second largest shareholder, the Canada Pension Investment Board, many residents of Chester will no longer be able to pay. their water bill, ”said Andriole. wrote.
On March 16, 2020, the Canada Pension Plan Investment Board purchased more than 21 million common shares of Essential Utilities for $ 750 million. Andriole noted that the cost was $ 34.62 per share and that by September 7, the value had risen to $ 48.99 per share.
Andriole also wrote that rates would be doubled if Aqua bought the system and “water service would become unaffordable for over 61% of city residents.”
He wrote that CWA’s average residential water bill is $ 366.48 per year and assumed it would be $ 809.76 under Aqua’s pricing structure.
“These problems for the City and its residents can be avoided by keeping Aqua outside and keeping the CWA in the hands of the public. The focus should not be on increasing dividends to large Aqua shareholders like the Canada Pension Plan Investment Board, ”said Andriole.
Franklin refuted Andriole’s claims.
“The letter is absurd and loaded with conspiracy theory and just not helpful,” said the CEO, explaining that the Canada Pension Plan Investment Board is like any member of the public who is entitled to buy shares in a company. “We pay dividends like all companies do… Vanguard is our number one holder of our shares. Are we funding Vanguard’s Malvern campus? Of course not.”
Regarding the impact of tariffs on Chester taxpayers in the event of a sale of Aqua / Essential Utilities, Franklin said his business has been consistent from the start of this process.
“Our plan would be to set up a trust that would take part of the proceeds and offset the rates for 10 years,” he said. “(CWA Lawyer) Frank Catania never said what his tariffs would do in 10 years.”
And even in the 10th or 11th year, Franklin said the rates wouldn’t automatically change to the full Aqua rate.
Additionally, Franklin noted that the CWA said it would fund a $ 60 million offer to the City of Chester for the assets through a 10% increase.
As for low-income taxpayers, Franklin said that Essential is in the process of creating a universal service fund, a water utility equivalent to the Home Energy Assistance Program for Low-Income People provided. by public services 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 people can pay their water bills.”
Franklin has expressed concern over a right to know request his company has made to the CWA for over a year to determine what the legal fees for Catania and her team are.
“They laid off employees,” Franklin said of the CWA. “Are they spending that much on legal fees? I am preoccupied. I am very worried about what is going on there.
He said the courts have established that the City of Chester is the rightful owner of CWA’s assets.
“I understand that Mr. Catania is probably desperate at this point,” he said. “Sir. Catania thought he could steal it from them.
Now he said it was time to focus on good operations and the transparency of a public service.
“The city really needs another anchor business like ours to provide jobs and services,” Franklin said, noting the millions that Aqua and Essential provide to community organizations each year. “They just need another business like us.”