Pennsylvania has become a “battleground” for residents grappling with an important question: Should they sell their municipal water and wastewater systems to a private, for-profit company?
Some municipalities have already taken the plunge, while others are struggling. Earlier this month, Bucks County canceled a proposed $1.1 billion sale of the county’s sewer system to Aqua Pennsylvania following strong opposition. The deal, if completed, would have been the largest privatization of a public wastewater system in the country.
We asked two local residents to weigh in: Is water privatization a good idea in Pennsylvania?
By Bill Ferguson
The citizens of Pennsylvania are victims of the big water companies. These profit-driven companies are driving a statewide acquisition spree to privatize municipal sewer and water operations. These companies make big profits from new customers by dramatically increasing their rates. They pour hundreds of millions of dollars into the acquisition trough. Unfortunately, many city politicians flock to the trough for what they consider to be “free” money. Except this money is not “free”.
There is no benefit to the customer, only higher rates. Municipalities are non-profit and you only pay the cost of the service. Investor-owned companies collect all of these same costs and then add up their big profits.
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Here are some of the deceptions these companies use to lure city politicians:
First, the local government receives a big check – a candy jar of “free” money for pet projects. No tax increase required. But then his water and sewer customers experience rate increases that can nearly double the cost of their service. It is in fact a tax increase in disguise. Alternatively, the local government could fund this jar of pet candy by issuing a bond, which will be cheaper than the rate increases its customers will be stuck with forever. It is totally irresponsible to overcharge voters when lower cost options are available.
There will most likely be allegations that the water or sewage system is collapsing and requires large investments to repair. It’s a scare tactic. Take Aqua’s purchase of the New Garden sewer system. Prior to the sale, Aqua promised to spend $7 million on upgrades. Two years later, in a legal proceeding, suddenly only $2.5 million was needed. Vague claims about improvements should not be trusted.
As part of the disintegration tactic, Big Water will claim that they can do the repairs cheaply. It is also a deception. When Big Water makes improvements, what the customer pays is significantly higher because the company has to charge more to make a profit. If repairs are really needed, the local government can do it cheaper for their customers.
As an incentive, water companies can promise to freeze tariffs, usually for one or two years. It’s just another decoy. Big Water cannot raise rates until it has justified its next rate case before the Pennsylvania Public Utility Commission. Typically, this is every two or three years, hence a short term “freeze”.
A related tactic is a “rate stabilization fund”. It sounds good but is probably wrong. The scheme is that a portion of sales proceeds will be used to offset rate increases for five to 10 years. If you’re promised it, make sure it’s ironclad and adequately funded. Expect funding estimates to be woefully inadequate.
“Big Water is probably competent but offers no advantage.”
Big Water claims to be a competent professional and can produce documents suggesting that municipalities are putting the public at risk. There are literally thousands of municipal water and sewer systems that provide safe, reliable service at a reasonable cost. All systems, public or private, must meet the same standards. The technology to do this is well understood and readily available. Big Water is probably competent but offers no advantage.
If your municipal system is a target of privatization, assume the sales pitch is rubbish, because it is. There will be no change in service and your electricity bill will increase significantly. Ask tough questions and don’t accept evasive answers. The sale should not take place until the supposed benefits are proven and all promises are irrevocably guaranteed.
A client approval vote should be required. If privatization is so wonderful, prove it to customers and let them decide. The customer has been the pawn in this Big Water acquisition frenzy for far too long.
Bill Ferguson is a Landenberg resident and co-founder of KWA – Keep Water Affordable. [email protected]
By J. Andrew Sharkey
As local government officials, we are responsible for determining what is in the best interests of our community, including how to manage existing assets and limited resources.
In Cheltenham, we had to deal with aging critical infrastructure with estimated repair and replacement costs that ran into millions of dollars and included a need for widespread replacement of lateral mains, which connect the sewer from a house to the main pipes. Lateral line replacements are expensive and often the responsibility of the owner.
Meanwhile, water quality and environmental standards were becoming more stringent and costly. As the price of owning and maintaining water and wastewater systems continued to rise, we recognized that our local community would eventually have to absorb these costs.
Evaluating the options, the township decided to sell our sewer system to Aqua in 2019 for over $50 million.
This decision has provided our families and neighbors with safe and reliable service while spreading the costs of maintaining the system over a wider customer base.
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I know the idea of selling public services to private companies makes people nervous. But critics who use scaremongering tactics to portray water companies as faceless entities roaming the streets of Pennsylvania to suck the blood out of our cities are dishonest at best. In fact, our experience was quite the opposite.
These water company professionals are hard-working men and women who have dedicated their lives to ensuring their communities have safe and reliable water.
Data from the United States Environmental Protection Agency shows that water supplied by water companies is less likely to have Safe Drinking Water Act violations than water supplied by systems. managed by the government. An analysis by the National Association of Water Companies found that Pennsylvania water companies are more than 37% less likely to have a health-based violation than their municipal counterparts.
According to Aqua, after investing $2.2 million in the first two years of the system’s operation, the company has reduced sanitary sewer overflows in Cheltenham by almost 50%.
Anti-privatization critiques often focus on how tariffs can rise after a company takes over, but wise investment leads to safer water. Once community leaders come to the hard conclusion that it is no longer financially feasible to make the necessary infrastructure investments in a system that has suffered from years of underinvestment and neglect, selling it becomes a viable alternative.
“Wise investment leads to safer water.”
Yes, when a private water company begins necessary updates and improvements, water rates may increase. The alternative is to continue to pay artificially low tariffs for water that may become undrinkable, or for a system that discharges waste water into our environment.
Proponents who oppose the sale of government-run systems ignore that municipalities choose to sell their water systems for very real and compelling reasons, such as ensuring necessary upgrades are made or to freeing up funds for other budgetary priorities such as pensions and roads.
Hasty generalizations to try to argue against privatization of the water system may be ill-founded on examples outside of the state. Often these examples have unique circumstances and in no way provide a representative sample of the overwhelmingly positive experience communities like ours have when our water and wastewater systems are professionally operated.
The list of benefits of working with a water company goes on and on including safer workplaces for employees based on injury and illness rates, above average customer service records , according to consumer research firm JD Power, and increased transparency and customer protection as a result of oversight by independent state regulators.
Privatizing our water supply is not as scary as it is made out to be. As Cheltenham shows, privatizing public services can create a better, safer system and free up a township to tackle other priorities.
J. Andrew Sharkey was Commissioner of the Township of Cheltenham from 2008 to 2019.