Privatizing Utilities is Bad

Today’s Inquirer has an article about resistance to privatization of sewer and water systems in the Philadelphia region. It mentions the DELCORA and CWA sale, both of which remain entangled in litigation for the foreseeable future. At this point the only people benefiting from these sales are the lawyers. After they were voted out of office in 2019, county Republicans sold off DELCORA to Aqua to keep it out of the hands of incoming Democrats. The City of Chester is attempting to sell off CWA to cover its debts, even though most of CWA’s customers lie outside the City of Chester (including Garden City).

The Inquirer article is of particular relevance because Nether Providence’s board of commissioners is continuing to evaluate a sale of the township’s sewer system to Aqua like many of the other townships in this article. I’ve been curious why there seems to be such a rush from Aqua to buy up all the public water and sewer, and the article answers it – because a state law passed in 2016 made it more profitable.

The frenzy of acquisitions in Pennsylvania is driven by a 2016 state law that encourages the consolidation of smaller water and wastewater systems under private ownership. The law, called Act 12, allows investor-owned utilities to pay an appraised fair-market value for an acquired system, rather than its lower depreciated cost or “book value,” and then to recoup the costs through higher rates.

Fair-value laws, enacted in about a dozen states, have triggered a land rush by private buyers to pay top dollar for systems. Some acquisitive public authorities have also increased their offering prices to compete with private companies — Conshohocken’s preferred bidder was the Bucks County Water and Sewer Authority, which has acquired systems in Montgomery and Chester Counties. Under either public or private ownership, the higher price is passed on to customers through higher rates.

The last line is key there, “Under either public or private ownership, the higher price is passed on to customers through higher rates”. Aqua will finance their purchase by making us pay higher rates to cover it. Unlike PA, a similar law in New Jersey does not allow for the raising of rates and therefore there are far fewer acquisitions there. Studies by the U.S. General Accountability Office are cited in the article to show that private utilities are a bad deal for residents.

Officials from five states told the U.S. General Accountability Office that one potential disadvantage of fair-market value laws is their potential to increase a utility’s rates, according to a GAO report released Monday.

Five studies examined by the GAO found that average water rates charged by private for-profit utilities are about $15 to $21 higher per month than the rates charged by public water utilities. Private utilities have an incentive to generate a return for investors, the GAO said, while public utilities may need to respond to political pressures to keep rates low for all residents.

As long as utilities are held publicly, we can exert pressure on our elected officials to keep rates down. Once the utilities are in the hands of Aqua, we have no choice to pay whatever they set rates to. Its not like we can shop around for a different water or sewage provider. This year Nether Providence budgeted to evaluate the sewer system for sale, money which probably would have been better spent in just about any other way.

Categories: Government