Aqua 2024 Rate Increase

Introduction

On May 23, 2024 Aqua Pennsylvania filed for a state wide rate increase. They proposed to increase their revenues by $127 million/yr or 19%. This started an extensive legal process run by the Public Utility Commission (PUC) that will culminate on February 6, 2025. At that time the PUC will announce what Aqua will be allowed to do. Then expect the increased rates to go into effect on February 22, 2025.

A summary of the rate setting process can be found here: (LINK).

What follows is key information about the rate case.

Rate Case Docket

As noted above, rate cases involve extensive legal proceedings. Some of the documents filed in the case are available to the public. Links to those documents are posted in what is termed the "Case Docket". For Aqua's 2024 filing the docket number is R-2024-3047822. Here is a direct link to it (LINK).

As of 1/27/2025 there are 400 entries on this docket. Many of these are not useful to the general public. Here is a link to a page summarizing the more important filings: (LINK)

Major Issues

Size Of The Rate Increase

Essentially Aqua wanted to increase water rates by 15% and sewer rates by 50%. However, via Act 11, they proposed to move 60% of the sewer increase to their water customers. 60%! That would be burdening their water customers with a large part of the cost of their Act 12 acquisitions.

A frequent result of these rate cases is that both the amount of the increase and the amount of the Act 11 shift is reduced. That is the most likely result in this case - see the following section with the title "Settlement".

East Whiteland Rate Increase

Aqua acquired the East Whiteland sewer system for $54 million in August-2022. The PUC approved the deal on 7/29/2022 and issued Aqua a license to own and operate the system. Shortly thereafter Aqua executed the deal. Importantly, Aqua closed the deal before the 30 day window to appeal the decision had closed. Unfortunately for Aqua, the OCA filed an appeal with the Commonwealth Court. The basis of the appeal was that the sale did not provide substantial public benefit. On 7/31/2023 the Commonwealth Court issued an opinion REVERSING the PUC approval of the deal.

Oops, Aqua had spent $54 million on the acquisition, but suddenly did not have the necessary approval and license to own and operate it. Aqua promptly asked the PA Supreme Court to accept an appeal of the Commonwealth Court decision. The Supreme Court agreed to hear the case but has not yet issued a ruling.

When Aqua filed its rate case, they treated East Whiteland like any other Act 12 acquisition. They proposed to almost triple the revenue being collected for East Whiteland. Aqua argued that they were entitled to a return on their considerable investment. The OCA and I&E strongly objected to this. Their position was that without the approval and license the PUC does not have jurisdiction. If the Supreme Court upholds the Commonwealth Court, then Aqua will have to divest of East Whiteland's sewer facility. It would be unfair to East Whiteland's customers to increase rates unless the Commonwealth Court verdict is thrown out. Aqua took a business risk to close the deal before the appeal window closed. Not raising rates is just a result of that risk.

The Settlement Agreement (noted below) set East Whiteland aside as a special case. Since the major parties strongly disagreed, they excluded East Whiteland from the settlement. They left it up to the PUC to make the decision. However, they did agree to an either/or outcome. The two options they presented to the PUC was either a $6.4 million/year increase or no rate increase. That probably would be accepted by the PUC Commissioners but is not binding on them.

The Administrative Law Judges running the rate case agreed with the OCA and I&E in their Recommended Decision - no increase for East Whiteland. In the subsequent filings Aqua strongly objected to this result. And, of course, both the OCA and I&E refuted Aqua's arguments. The PUC Commissioners have now issued their decision and denied Aqua an increase for East Whiteland. See below for more information on the PUC Opinion and Order.

Settlement

For this rate case, the major parties came to agreement on most of the significant issues. This is something the PUC encourages. This is what is termed a "Black Box" agreement. That means that most of the details of the outcome are kept secret. The amount of the rate increase is announced, but how they got to that result is concealed from public view. Here is a summary of the settlement increases:

These numbers indicate that the total increase was reduced by 42%. The Act 11 shift was cut by a little more than half. However, the text of the settlement does not provide any basis to determine percentage increases.

There is substantial room for concern about the magnitude of the increases in the above table:

#1 - There is a table on pdf page 68 of the settlement agreement that shows the water increase at $68 million/year. However, that number excludes $1.4 million/year of increases for acquisitions. Revenue from those acquisitions is currently being collected and will increase with this rate case. There is no reason to exclude them. When everything gets counted, the total water increase is $69.4 million/year. That is $11 million/yr or 19% more than claimed by the headline number in the settlement.

#2 - For the sewer business, there is a table on pdf page 102 showing a $12.2 million/year rate increase. That is about $2 million/year less than what is shown in the above table. But this table also excludes two acquisitions - East Whiteland and Lower Makefield. It is reasonable to exclude East Whiteland from that table. As noted in the previous section, the major parties are disputing whether or not the PUC can legally let Aqua raise East Whiteland rates. For Lower Makefield there is no reason to exclude it. The Settlement increase for Lower Makefield is $3.8 million/year. So that would bring the total sewer increase to $16 million/year - almost 10% greater than the headline number in the Settlement text.

#3 - The ALJ's noted this issue on pdf page 125 of their Recommended Decision. They were very low key about it. They noted that the headline number was indeed the settlement result. They noted that once the PUC reaches a final decision, then the company has 20 days to file new rates that are in compliance with that decision.

#4 - Pages 68 - 135 of the Settlement Agreement provides detailed data on rates before and after the proposed increase. That data is tabulated in the following spreadsheet:

The following table summarizes the data:

The rate zone data clearly shows increases larger that the headline numbers. This is an unusual situation. Normally the numbers can be reconciled to the dollar.

See the section below on the Recommended Decision and Opinion & Order for more on this issue.

Is The Rate Increase Even Larger?

When Aqua reports the amount of the increase, it is based on current bills versus the new tariff rates. However, the current bills include something called a "DSIC Charge". DSIC = Distribution System Improvement Charge. This is a wrinkle utility companies have gotten added to the regulatory system. It essentially allows them to recover the cost of certain investments made between rate cases.

When a new rate case is initiated, the current DSIC charges are incorporated into the new rates. Therefore, when the new rates go into effect, the DSIC drops to zero. But it will gradually increase until the next rate case. However, there is never a forecast of how much that DSIC will add to our bills by the time of the next rate increase.

Conclusion: YES, the rate increase will be greater than advertised - by whatever amount of DSIC is added by the time of the next rate increase.

A more objective way to measure the rate increase is to exclude the DSIC charge. For this case the DSIC charge is currently $38.1 million/year. If that amount is excluded the total increase jumps from 12.7% to 19.5% - that is significant.

Excluding the DSIC charge is a good representation of the total increase from one rate case to the next. The spreadsheet in the link above includes the increase both with and without the DSIC cost.

The PUC's Decision

Recommended Decision

The Recommended Decision of the ALJ's was fairly simple for the major issues:

1 - They recommended against Aqua being allowed to raise rates for East Whiteland.

2 - They recommended that the Settlement be accepted.

3 - They did note the revenue discrepancy noted above.

4 - Several other minor issues were resolved.

The PUC's final Opinion and Order

The PUC Commissioners essentially accepted the Recommended Decision with only trivial changes. They did confirm the two major issues:

1 - The headline numbers for the rate increase - $58.4 million/yr for water and $14.6 million/yr for sewer.

2 - Aqua is denied permission to raise rates for East Whiteland.

How Much Will My Bill Increase

Until Aqua files its revised tariff schedule there is no firm answer to this question. When the tariffs are published, we will prepare a summary by rate zone and consumption. Until then, here are system wide averages:

Water - 10.4% excluding the DSIC charge. 9.7% including DSIC

Sewer - 20.2% excluding the DSIC charge. 20.0% including DSIC

Just remember, there will be significant zone to zone differences.