At its March 8th Meeting, the Board advised of two recent developments:
- NextEra, the intended purchaser of Towamencin’s Sewer System, informed the Township of its business decision to redirect efforts away from water and wastewater acquisitions and focus more on renewable energy projects. This decision, which was mainly due to the passage of the Inflation Reduction Act, effects all NextEra’s water and wastewater assets, including its Asset Purchase Agreement (“APA”) with the Township; and
- Toward that end, NextEra intends to assign its contractual rights and obligations under the APA to Pennsylvania American Water (“PA American”).
Given this information, the March 8, 2023 Agenda was amended, by a Board majority vote, in accordance with PA Sunshine Law Section 712.1(c). The agenda amendment allowed the Board to consider authorizing the Township Solicitor and Special Counsel to take all needed actions to facilitate this ownership change including preparing: (1) an amendment to the existing APA; (2) an Assignment Agreement; and (3) an amendment to the Sewer Sale Ordinance. Thereafter, the Board, by majority vote, authorized these actions for consideration at their March 22nd Meeting.
At their March 22nd Meeting, the Board, by majority vote, approved the APA Amendment and Assignment, and adopted the Sewer Sale Ordinance Amendment.
The APA Amendment included the following modifications:
- Revising the sale price to $104 million—the average of the two utility valuation expert appraisals. While the revised sale price is $11 million less than the original sale price, it’s $11,600,000 more than PA American originally bid.
- Removing the 2-year rate freeze. The removal of the rate freeze is of little effect as the initial APA contemplated the first-rate increase in 2025, with PA American approved as the new buyer, the next increase under its ownership is not expected until at least 2025.
- Returning the additional deposit and escrow monies to Next Era.
- Changing the “Outside Date” definition to accommodate for any unforeseen hurdles that may arise.
The Assignment Agreement assigned NextEra’s interests in the APA to PA American. This assignment merely allows PA American to step into the shoes of NextEra under the APA, as amended. The result of this assignment does not change the outcome that was presented publicly last year. Moreover, changing ownership by way of the proposed assignment at this time is beneficial as it provides the Township certain control of the process and the successor buyer.
The Sewer Sale Ordinance Amendment replaces NextEra with PA American as Purchaser.
In consideration of this ownership change and its associated costs, NextEra will pay the Township $600,000—which includes the initial $100,000 deposit and additional $500,000.
Once the APA Amendment and Assignment are fully executed, PA American will file with the Pennsylvania Public Utility Commission (“PUC”). The PUC approval process will then commence with PA American as the successor purchaser.
Given the results of the Township’s competitive bid process, PA American, as Next Era’s successor, makes the most sense:
- Aside from being considered the 2nd best overall bid at the time, PA American is the largest water and wastewater utility in the Commonwealth.
- Given its significant market share, PA American is able to create efficiencies and synergies in its nearby operations and allocate costs across approximately 760,000 customers, thereby stabilizing the impact of considerable capital investments, resulting in resident savings.
- In addition, PA American provides substantive financial assistance and hardship grants. In 2021 alone, PA American provided customers $4.5 million in bill discounts and $770,000 in hardship grants.
Whether the Township keeps the system or sells it, sewer rates will likely increase. Moreover, when the entire picture is considered, the sale makes financial sense. In addition to PA American paying $11,600,000 more than its originally bid, there are substantial benefits to the Township and residents alike.
Supporting data and analysis, which have been previously provided at our townhalls and prior meetings, has been updated and is provided in the link below.
As to direct resident benefit, consider Township real estate taxes and sewer rates (based upon 2023 figures):
- Total real estate tax and sewer rates without the benefit of the sale will be $1,019 - $569 RE Tax (assuming a $150K assessed home value) and $450 sewer rates. Further, keep in mind: should the Township retain ownership of the system additional rate increases would be required to fund ongoing necessary capital projects. Currently, this increase is estimated to be approximately 30% for next year alone.
- Total real estate and sewer rates with the benefit of the sale will be $776 - $326 RE Tax (assuming RE Tax is lowered to the 2022 rate and an increased homestead exclusion by $130) and $450 sewer rates.
The Township has been very clear that sewer rates will rise under new ownership to account for important items such as the costs of cyber security, and the ability to meet or exceed state and federal environmental requirements. Such increases, however, are not unfettered; any such increase is required to pass PUC scrutiny and all of its intervening bodies. Moreover, based upon the Township’s financial analysis, the decrease in real estate taxes and the foregone additional borrowing costs to fund the Township’s various other initiatives discussed last April, offset the expected sewer rate increase.
In sum, when reviewing the total picture, there is a significant benefit. Resulting savings, over ten years, are expected to be more than $2,500 per resident/rate payer. Furthermore, ten years from now, without the benefit of the sale, Township debt will be approximately $46 million (plus future interest costs in the tens of millions of dollars); with the benefit of the sale, it will be zero. This is worth reading twice. This significant debt component is often overlooked in sale discourse.
Supporting data and analysis providing the entire picture and highlighting the benefits of the sale to both the Township and residents alike can be found here.
Updated Sewer Sale Analysis - same link in text
