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The Curious 2018 New Garden Sewer Rate Increase

New Garden Township raised its sewer rates 30% beginning in 2019.  This came in the middle of the process to sell the system to Aqua Pennsylvania.  The circumstances surrounding the increase call into question the need and justification for the increase.  Read on to find out why.

Background

New Garden Township signed a contract to sell its sewer system to Aqua Pennsylvania in August‑2016.  That contract included a rate cap provision that limited rate increases for a period of ten years.  Because of litigation, the deal did not close until December‑2020, over four years later. 

 

In the middle of the sale period New Garden moved to increase sewer rates by 30%.  The circumstances surrounding this increase are unusual:

Key Events

The following are excerpts from New Garden Board of Supervisors Meeting Minutes during their 2019 budget planning:

2018 rate Increase #1 8-Dec-2018.png

This page used to have links to the New Garden meeting minutes for the above meetings.  However, New Garden has since removed all meeting minutes prior to 2021.  We still have copies of the relevant sections and they can be found here: (LINK).

What Happened #1

Indeed, what happened?  The status of the litigation on the approval of the sale is important.  Eleven days before the October 22, 2018 budget meeting the Pennsylvania Commonwealth Court handed down its decision for the appeal.  That decision overturned the PUC's sale approval, but for relatively minor issues – things that could be easily fixed.  This was a bright light at the end of the tunnel.  Some stuff had to be done, but the sale could proceed.  Aqua delayed the process by appealing to the PA Supreme Court – which was denied.  It was only two more years before the sale was actually executed. 

What Happened #2

The “official” story was that increase was necessary to cover increased costs.  However, we do not think the following financial records support that position. 

In 2018 expenses exceeded income by a little over $200,000.  However, the sewer operation still had a cash reserve over $3 million at year end.  Another couple of years of negative cash flow was not going to seriously deplete that cash reserve.  And, it was not to fund capital costs – as the table shows, capital expenses were negligible. 

 

Consider the much greater negative cash flow of the two previous years shown in the following table.  Nobody was claiming a rate increase was needed then.  The 2016 deficit was largely driven by a $1.0 million cost for sewer sale expenses.  Likewise, sewer sale expenses were almost $350,000 in 2017.  Evidently, depleting cash reserves was not a problem when big money was being spent on selling the system. 

2018 rate Increase #3 8-Dec-2018.jpg

So, Why Raise Rates?

That is a question we would really like to know the truth about.  But, truth is hard to come by.  Increased cost does not appear to be a valid reason for raising rates.  In situations like these, the principle of “follow the money” can be most revealing.  The following is our SPECULATION about what happened: 

 

#1 - The contractual rate cap was based on rates in effect at the time sale was executed.  Starting that cap at a 30% higher base would be worth an extra $5.7 million to Aqua over the 10 year period. 

#2 - The 30% rate increase was only worth about $680,000 to New Garden Township.  It is pretty obvious who benefited the most. 

#3 - Why would New Garden burden its ratepayers with $5.7 million extra cost for a relatively small benefit?  That is a question for which we do not have an answer and probably never will. 

#4 - Should Aqua have had a say in the rate increase?  Definitely not – that was a New Garden issue.  Did they?  We would really like to know, but never will. 

Conclusions

Was the New Garden sewer system in financial need of a rate increase? 

 

The notes from the budget meetings started out with a flat statement that no increase was needed.  And, the financial reports support that position.

 

The second budget meeting waffled a bit. 

 

Then at the third budget meeting, WHAM, there is a full fledged ordinance for a 30% rate increase.  That seems like a strange sequence to us. 

Following the money brings into question whether the buyer had a role in requesting or demanding a rate increase.  It would explain a lot.  But, this is a conjecture that will never see the light of day.

Epilogue

A year after the rate increase, and before the sale closed, the rate cap was removed from the sales contract.  That story is told here (LINK). 

 

As a result we have seen rate increases over 100%.  Here is a picture of what we were originally promised versus actual: (LINK). 

 

No surprise, sewer customers in New Garden Township have not been very happy. 

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