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After The Rate Cap

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Does the proposed sale of your water or sewer system to Big Water include some form of a rate freeze or rate cap?  If so, read on.  There are some important questions you need to be asking. 

New Garden Experience

In August of 2016 New Garden Township signed a contract to sell its sewer system to Aqua Pennsylvania (Aqua).  A key provision was a ten year cap on sewer rate increases.  That was positioned as a very good deal for rate payers. 

 

But what happens in year eleven?  That was never talked about.  After all, eleven years from now is like forever: far, far away.  Big mistake.  Here is an estimate of what would have happened in year eleven:

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Year eleven = one big OUCH.

A major case of RATE SHOCK!

What You Need To Know

It is not likely that future deals will include any ten year rate caps in Pennsylvania.  The industry regulator made it economically unattractive.  In fact, the New Garden rate cap was scuttled before the deal was completed. As a result, rates for a 4,000 gallons/month user went up 90% in May 2022.  Based on rates before the acquisition, the increase was 106%.  And, based on the original contractual rate guarantee, it was a 147% increase. 

However, most deals have some form of a limited rate freeze.  Generally it is a one or two year freeze.  This is pitched as a good deal for ratepayers.  Actually, it reflects the Big Water buyer's schedule for general rate increases.  These seem to happen every two or three years and are a big regulatory deal.  It is in Big Water's best interest to wait and lump the acquisition in its next general increase rather than file for a separate increase. 

The key fact you should be informed about is how much will your bill go up assuming current ratepayers pay for the full cost of the acquisition.  Do not let Big Water or your local officials pass this off with deflections about a rate freeze or other vague responses.  It is not difficult to make a very good estimate the revenue increase the buyer will collect if the acquisition is completed (future LINK).  Assume you are going to pay it all.  It probably will not happen all at once, but somebody is going to pay - see Beggar Thy Neighbor (LINK). Others may initially pay some of your increase, but you will pay for the increase of other acquisitions in the future.  What goes around comes around.  There is no free lunch. 

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Your Local Officials. 

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