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Update On Aqua's May 23, 2024 Filing For A Rate Increase Aqua filed a rate increase request for its water and wastewater customers in Pennsylvania on May 23,2024. This is less than three years after its last rate request. We can expect rate requests from Aqua at this regular interval. We now have the final PUC action on this case and Aqua has filed its final tariffs. A summary of the result can be found here: (LINK ) Read More Updated 03/02/2025 CWA And The Chester City Bankruptcy The State of Pennsylvania wants to use Chester Water Authority (CWA) to bail Chester City out of bankruptcy. This is the culmination of nearly 30 years of financial problems for the city. This would put most of the financial burden on CWA customers outside of Chester City. One of the Co-Founders of this website has written an open letter to Governor Shapiro about this. Click on the "Read More" link below to read the letter. Posted 09/19/2024 8:15 PM Read More Water Wars In Pennsylvania This non-profit organization has recently published a study on privatization in Pennsylvania. It is very good. Check it out. There is also a link to a webinar on the same subject. Posted 08/21/2024 10:02 AM Updated 09/19/2024 Read More Scams, big bills and bargains: Why Pa.’s public water officials won’t stop talking Facing the rising prospect of privatization, the remaining public water officials in Philadelphia’s suburbs take pride in holding out and keeping water bills low. Posted 07/15/2024 10:02 AM Read entire story by Kenny Cooper, WHYY News Read More Posted 05/08/2024 10:03 AM Learn About the Real Impact of Privatization More Perfect Union, an advocacy journalism organization, has been following the developments in the fight against water and wastewater privatization in Pennsylvania. One of their goals is to tell the stories of working Americans fighting for policy change and corporate accountability. Follow this link to a recent story featuring Chester Water Authority and New Garden Township. https://youtu.be/277QrCqi9GU?si=X-14cEmm2I1EDANJ Posted 02/18/2024 3:16 PM Chester Water Authority Status In the past two years residents of New Garden Township have seen their sewer bills increase by over 85% and their property taxes increase by 61%, with a second comparable tax increase expected next year. In addition, our water supplier Chester Water Authority is the target of a hostile takeover attempt by Aqua PA. If this sale goes through, our water rates will double. Read More Posted 01/30/2024 5:38 PM PA Democratic Senate Policy Committee Holds Public Meeting On January 22, 2024, State Senator Katie Muth (D-Chester/Montgomery/Berks), chair of the Pennsylvania Senate Democratic Policy Committee, hosted a public hearing focused on water privatization and the unintended consequences of Act 12 of 2016. Read More

Introduction My name is Bill Ferguson. I am one of the co-founders of this website. This part of the website is about my personal experience filing two formal complaints with the Public Utility Commission (PUC) against Aqua Pennsylvania. Summary This has been a long and difficult journey. It started with the belief that the first priority of a Public Utility Commission (PUC) should be to protect customers from monopoly company misbehavior resulting in excessive rates and undeserved company profit. My faith in that belief has been substantially diminished. Filing Formal Complaints with the PUC is a lengthy, challenging and intricate legal process. I have learned a lot, but not much that is encouraging. On 9/18/2023 I filed two formal complaints with the Public Utility Commission (PUC) regarding Aqua Pennsylvania’s 2021 rate case. Both alleged that Aqua used incorrect data to set tariff rates for New Garden Township customers. They asked the PUC to investigate and, if appropriate, require Aqua to refund all overcharges to New Garden customers. One complaint is about the volume data Aqua used to set rates for New Garden sewer customers. The whole principle of this complaint is that you cannot set fair and just rates using volume data that substantially understates actual use and does not reflect actual use patterns. The other complaint is about charging those same New Garden customers for a $1.2 million/yr trucking expense that ceased to be incurred while Aqua still had the obligation to remove it from the rate case. It is now May 2026. Almost four years have gone by and the trucking complaint is still not resolved. Details follow on both complaints. Complaint #1 - Consumption Volumes The first complaint involved two aspects of the customer consumption volumes Aqua used to calculate the increased billing rates for New Garden customers: First, Aqua forecast a consumption volume of 104 million gallons/year. That is substantially less than the 125 million gallons New Garden reported during the last year they owned the system. That difference could substantially impact rates paid by customers. Second, Aqua’s forecast consumption volumes in three different rate bands that bore no relationship to actual use by customers. How is it possible to set fair and just rates using data that does not reflect actual consumption? Here is an in-depth summary of this complaint: LINK Complaint #2 - Wastewater Trucking Aqua inherited an expensive wastewater trucking operation when it purchased New Garden’s sewer operation. About nine months after acquiring the New Garden system Aqua filed for a rate increase and included that $1.2 million/yr trucking cost for the full period of the forecast. Substantial evidence indicates that Aqua was activating an unused pipeline to eliminate the trucking and trucking stopped well before the rate increase was finalized. That evidence includes: A statement by Aqua's Operation Manager that the trucking ended 8 - 10 months after Aqua acquired the system. He concluded that statement by saying it was complete in the first year of operation. The President of Aqua PA sent New Garden customers a letter that included a statement that trucking ended after "several months". Aqua's 2021 annual report to the PUC included an item stating that its New Garden Dry Line Activation project was complete by 12/31/2021. If trucking did stop before the PUC closed the record for Aqua's 2021 rate case, then Aqua had a legal obligation to remove that cost – but did not. Consequently, New Garden customers paid a total of $3.3 million for that non-existent cost. Here is an in-depth summary of the trucking complaint: LINK Step By Step Complaint Experience False Start - There was a false start for my complaint filings. The first filing was on June 8, 2023. The PUC incorrectly told me it should have been filed as a “Formal Rate Complaint”. The net result was a delay of about three months. The full story is told here: Complaints Filed - Finally on 9/18/2023 the complaints are correctly filed and accepted by the PUC. Aqua Replies (three weeks after filing) - Aqua files formal replies that essentially denied everything and put forth reasons why the complaints should be thrown out. The word “denied” appeared 69 times. See this LINK for a detailed discussion. Hearing Scheduled (>1 month since filing) - On 11/3/2023 the PUC issues an order scheduling a hearing on 12/12/2023 for my complaints: LINK . Mediation (~2 months since filing) – Aqua proposes mediation for my complaints and I agree. After two sessions I decide that mediation is going nowhere and withdraw from the process. This has consumed about eight months. Here is a bit more detail: Hearing Re-scheduled (~9 months since filing) – After the mediation was cancelled, it takes the PUC about a month and a half to schedule my hearing for July 23, 2024: LINK . Aqua’s Consolidation Motion (~10 months since filing) – On 7/11/2024 Aqua files a motion to consolidate my two complaints with the rate case they filed during May-2024. The PUC immediately cancelled the scheduled hearing. I file an objection to Aqua's motion. Here are the full details: PUC Action (~13 months since filing) – It takes the PUC another three months, but on 10/21/2024 Aqua’s consolidation motion is denied and the complaint hearing is now scheduled for 11/25/2024: LINK . Aqua Files Another Motion (~14 months since filing) – Just 10 days before the scheduled hearing Aqua files a motion to convert the hearing to a pre-hearing conference call or to delay the hearing by another 30 days: LINK . I promptly file a reply asking the PUC to deny Aqua’s motion: LINK Five days before the hearing, the PUC denies Aqua’s motion: LINK The hearing will proceed. The 11/25/2024 Hearing (~14 months since filing) – This was a major event. It lasted about five hours. What follows are brief highlights. And, here is a page with extensive detail: LINK . There were four main participants: The Administrative Law Judge (ALJ) running the hearing, Aqua’s lawyer, Aqua’s Manager of Rates and myself. The ALJ starts by laying out the meeting procedures and expectations. I spent considerable time laying out both complaints in detail. Aqua objected 16 times during my presentations. When I finished, the ALJ asked me a couple of questions and then turned it over to Aqua’s lawyer to cross examine me. I feel that a large part of Aqua’s intent was discredit me and my testimony. Then it was Aqua’s turn to testify. Aqua’s Manager of Rates was offered as an “expert witness”. She explained how Aqua had owned the New Garden system for only a short time and used the best available data. I then had the opportunity to cross examine Aqua’s witness. I asked a number of questions but feel that all I got was non answers. The next order of business was admitting evidence into the official record. The last order of business was closing statements. I went first and was brief. I stated that I had clearly made my case and requested the PUC to take appropriate action to investigate whether or not Aqua had fulfilled its responsibilities. Aqua’s key points were that I did not meet my burden of proof and retroactive ratemaking is prohibited. He ended with emphatic demands that the complaints be thrown out. The “Initial Decision” (~18 months since filing) – On 3/31/2025 the ALJ issued her “Initial Decision”. It essentially ratified everything Aqua presented and totally rejected my complaints. To me, it reads as if it had been written by Aqua. It accepted a number of statements Aqua’s witness made as fact without any consideration of the evidence I presented to the contrary. Here is a link with more detail: LINK Subsequent Filings (~20 months since filing) – On 4/21/2025 I file “Exceptions” alleging that the ALJ erred in several ways. This asks the Commissioners, reconsider the “Initial Decision” on the basis that I DID carry my burden of proof, Pennsylvania law provides for customer relief after a rate case is complete and the integrity of PUC rate making being at stake. During May-2025 there are a flurry of filings. I file a motion and petition. Aqua replies to all the filings refuting everything. Here is more detail on these filings: LINK It is now in the hands of the PUC Commissioners to make a decision. “Opinion And Order” (~21 months since filing) – On June 18, 2025 the Commissioners issue their decision. It is a total affirmation of the “Initial Decision”. The PUC has totally rejected my complaints. At this point the case is closed unless I file an appeal with the Pennsylvania Commonwealth Court within 30 days. Here is more detail: LINK Appeal Filing (~22 months since filing) – On July 17, 2025 my pro bono lawyer files notice of an appeal on my behalf. The appeal asks the court to remand the trucking complaint to the PUC to be considered on its merits. The basis for the appeal is similar to the issues noted in the “Exceptions” filing. Subsequent filings for this appeal include: November 10, 2025 - My brief is filed with the court. January 29, 2026 The PUC and Aqua file their counter briefs. April 27, 2026 we file our reply brief. May 21, 2026 the court issues a "per curiam" order indicating the case will be decided on the briefs without oral arguments. As it stands as of this writing, a decision could come this fall. Here is more detail: LINK Other Related Stuff An overview of the PUC complaint process: My reflections on filing as a utility customer without a lawyer: Epilogue – a parable illustrating my view of how the PUC adjudicates complaints: Detailed Events/Time Line For My Complaints The next section is a detailed chronological listing of all the events for my complaint filings. Probably not something to read or study carefully. However, a quick scan can illustrate the complexity and how time can drag on. September 2022 – New Garden residents get their first sewer bills reflecting the full rate increase. That prompts me to analyze Aqua’s rate filing documents, which led to my consumption volume complaint. November 21, 2022 – New Garden holds a Board of Supervisors public meeting to explain the rate increases. Aqua reveals it ended trucking by the end of 2021: LINK . That initiated my trucking complaint. June 6, 2023 - I filed a “Formal” complaint combining the two issues. June 8, 2023 – The PUC rejects my filing because it should have been filed as a “Formal Rate Complaint". June 8, 2023 – I refile as a “Formal Rate Complaint". The only difference is minor changes in the PUC forms that act as transmittal sheets for the complaint. The PUC accepts the filing. June 22, 2023 – The PUC notifies me that the filing should have been rejected. It was correct as first filed. The full story on this issue is a bit involved and is told here: June 30, 2023 – Aqua files an answer to my complaint. LINK July 10, 2023 – I file a request to withdraw the complaint, with the right to re-file. September 18, 2023 – I re-file. This time I break the two issues into separate “Formal Complaints” The PUC accepts both. Complaint summaries can be found here: LINK1 & LINK2 October 10, 2023 - Aqua filed an Answer and a “New Matter” for each complaint. Here is a summary of their replies: LINK October 25, 2023 - I filed replies to Aqua’s filings. This LINK also includes my replies October 27, 2023 - The PUC issues a hearing notice for 12/12/2023: LINK November 3, 2023 - PUC issued an order with details for the hearing on 12/12/2023: LINK November 7, 2023 - I file my trucking complaint documents for the 12/12/2023 hearing. November 10, 2023 - I file my documents for the compliance complaint. November 15, 2023 – Aqua files a motion for mediation. I accept. LINK November 21, 2023 - The PUC issues an order for mediation and consolidating the two complaints: LINK November 22, 2023 - The PUC cancels the hearing scheduled for 12/12/2023: LINK December 8, 2023 – The PUC schedules a mediation meeting for January 23, 2024: LINK February 1, 2024 – The PUC schedules a second mediation meeting for March 7, 2024: LINK April, 29, 2024 – I withdraw from the mediation process. June 12, 2024 – The PUC schedules a hearing for July 23, 2024: LINK July 11, 2024 – Aqua files a motion to combine my two complaints with the rate case that Aqua filed on May 23, 2024. LINK July 12, 2024 – The PUC cancels the hearing scheduled for July 23, 2024: LINK July 25, 2024 – I file an answer to Aqua’s motion to consolidate requesting the PUC to deny the motion. LINK October 21, 2024 – The PUC denies Aqua’s consolidation motion and schedules a hearing on the complaints for November 25, 2024. LINK October 24, 2024 - The PUC issues a pre-hearing order: LINK November 15, 2024 – Aqua files a motion to convert the November 25, 2024 hearing into a prehearing conference call or delay the hearing 30 days: LINK November 18, 2024 – I file a reply requesting the PUC deny Aqua’s motion: LINK November 20, 2024 – The PUC denies Aqua’s motion: LINK November 25, 2024 – The hearing is held. It lasts about five hours. LINK December 19, 2024 - The PUC posts the exhibit docket for the case: LINK March 31, 2025 – The ALJ issues her Initial Decision totally rejecting my complaints. LINK March 31, 2025 - The PUC secretary issues an "options" letter: LINK April 21, 2025 – I file “Exceptions” to the Initial Decision alleging that the ALJ made several legal errors in her decision. LINK May 1, 2025 – Aqua files a reply to my Exceptions. LINK May 9, 2025 – I submit two filings. The first is a motion to strike major parts of Aqua’s Exception Replies: LINK The second is a petition to reopen discovery for the complaints. LINK May 19, 2025 – Aqua files a response to the petition to reopen discovery. LINK May 29, 2025 – Aqua files a response to the motion to strike parts of their Exception Replies. LINK June 18, 2025 – The PUC issues its Order and Opinion for the complaints. It essentially totally affirmed the Initial Decision. LINK July 17, 2025 – My pro bono lawyer files an appeal with the Pennsylvania Commonwealth Court. LINK August 18, 2025 – This is the last day interested parties can file to be intervenors. Only Aqua signed up. August 29, 2025 – The PUC certified the list of documents relevant to the case. August 29, 2025 – The Commonwealth Court issued a briefing schedule for the case. September 18, 2025 - My attorney files for a 30 day extension for filing brief. September 22, 2025 - The Commonwealth Court grants the extension for filing briefs. November 10, 2025 – Our brief for the case was filed with the Commonwealth Court: ~November 25, 2025 - Both the PUC and Aqua file for a 45 day extension for filing their briefs that had been due 12/10/2025. December 1, 2025 - The court grants the request for the filing extension. December 10, 2025 – The briefs for the PUC and Aqua are due to be filed with the Commonwealth Court. January 29, 2026 - Both the PUC and Aqua file their briefs for the case. February 10, 2026 - We file a request with the court for allowance to exceed the normal word limit for a reply brief. February 10, 2026 - The court issues a schedule for replies to the word limit request. February 27, 2026 - Both Aqua and the PUC object to the word limit request. April 14, 2026 - The court denies the word limit request. April 27, 2026 - We file our reply brief with the court. It is now up to the court to either decide the case based on the briefs or schedule oral arguments. It could be a month or two before we know whether oral arguments will be needed. May 21, 2026 - The court issues a short "per curiam" order stating that the case will be decided based on the briefs that have been filed. There is a short window where participants can raise objections.

Keep Water Affordable provides information on the growing trend to privatization of water and wastewater systems, and its negative impact on the ratepayer and the local economy. It deals specifically with current events in Pennsylvania, but it has broad applicability. Discussions of Big Water tactics and key legislative issues, such as Fair Market Value legislation, are included, as well as advice to ratepayers on how to organize and oppose privatization efforts in their communities. STOP BIG WATER Pennsylvania water and wastewater ratepayers are seeing skyrocketing costs when their local water or sewer utility is sold to a large for-profit, investor-owned utility. i.e - Big Water . These sales are driven by MONEY . Profits for the purchasing utility and a large sum of money for local politicians. T he ratepayer is left to pay the bill. WE ARE HERE TO HELP Scroll Down To Learn More BIG WATER Large, for-profit, investor-owned water and sewer utilities = Big Water. They are gobbling up non-profit municipal systems to grow their profits. These sales are driven by purely by MONEY. The ratepayer usually has no say in the deal, but is stuck with large rate increases to pay for Big Water's increased costs and profits. This Must Be Stopped THE DECK IS STACKED AGAINST US Opposing water and wastewater privatization is difficult. Big Water always enters with the upper hand. To avoid an unwanted takeover and the skyrocketing costs that go with it, ratepayers need to get involved and act fast. YOU CAN PREVAIL Follow These Links To Get Started The Basics Big Water Playbook More Useful Links Economics Our New Garden Township Story Local Government (Future) PA Politics Links to other sites About Us The Big Water Companies What's New PUC Rate Setting Full Site Directory Site Overview (Future LINK) So, What Should You Do? If your system is sold, somebody is going to pay substantially increased costs via their water or sewer rates. Our data show that an OBJECTIVE evaluation of the costs and ben efits of a municipal utility sale will show that the costs will outweigh any benefits. This should be the main focus of any opposition. Do not accept what the buyer and seller ar e telling you at face value. Question Everything There Is Strength In Numbers Organize Organize Organize K W A - Keep Water Affordable K W A is an informal confederation of three neighbors in the southeastern Pennsylvania Township of New Garden. We formed in late 2021 when we learned about a sewer rate increase coming our way. Aqua Pennsylvania and New Garden Township had agreed on the sale of our sewer system during April 2016. Due to legal issues, the sale was not executed until the end of 2020. In August-2021 Aqua filed for a rate increase. They proposed to increase our rates by 37%. This was a bit of “rate shock” for us, based on what we had been told prior to the sale. We began digging into the sale and rate filing documents. What emerged is not a pretty picture of how Big Water operates in Pennsylvania. When the rate increases were finalized, everyone using more than 1,000 gallons/quarter (i.e., just about everyone) had their rates more than double versus what they were paying at the time the sale was agreed to. If the proposed 37% increase was shocking, guess how we felt when these bills were received. We are now dedicated to helping ratepayers in other municipalities avoid a similar fate. Customers of municipal water and sewer systems need to understand what their future costs will be if Big Water buys their system. We believe that they would turn a sale down flat in the blink of an eye if they knew the true story. Our mission is to educate people about our story and the stories of ratepayers in other municipalities who have been victimized by Big Water. This website is dedicated to that.

How A Sale Is Conceived And Executed Pennsylvania is a hotbed of acquisition activity by the Big Water companies. Since Act 12 passed in 2016, 33 deals are proposed, in progress or completed. This many deals do not just happen independently, it is likely there is a lot going on that is never seen. We will start with how these things get started – the deal incubation process. How It Starts – The Public Version The first indication that something is going on is usually found in the agenda or minutes of a meeting for a municipal Board of Supervisors or a municipal water/sewer authority. It could be a low key entry in the meeting minutes something like: “Forming a sewer system study committee”. Municipal board meetings are generally very low profile. The vast majority of citizens pay no attention to them at all. For water or sewer customers that can be a big mistake. Clearly, in our New Garden Township it was a huge mistake. How It Starts – A Likely Behind The Scenes Version What never seems to be discussed is where the idea of selling a water or sewer system came from. Did some official just get the idea and say, “Hey let’s consider selling our system”. Or, did somebody from Big Water start contacting one or more officials with a “have we got a deal for you” offer. We believe that most sale evaluations start because of Big Water contacts with municipal officials. In Pennsylvania alone since 2016 there have been at least 33 deals completed, in progress or proposed. Is it likely that 33 different municipalities acted independently? Municipal acquisition is a major growth strategy for both American Water and Essential Utilities (LINK ). With the guaranteed profits that result from an acquisition, it is highly likely Big Water is actively recruiting target acquisitions. And, they target well run systems. The type of systems that add the most to profits. How It Starts – A Top Secret Version A recent deal has caused us to add this "Top Secret" category. On July 24, 2023 the East Dunkard Water Authority (EDWA) announced it had signed a deal to sell itself to Pennsylvania American Water for $5 million. EDWA’s board has m et 27 times in the last year. Just once did their meeting minutes mention selling the system. That was on June 29, 2023 (LIN K ) . And, it authorized some official to go sign the sale papers. That was it! Deal done! The Pennsylvania American press release (LINK ) states that the negotiation process had been going on for nine months. And, the first we h ear about it is the signing of the deal. That sure sounds like a “Top Secret” process to us. Flying Below The Radar Once an effort to sell a water or sewer utility is underway, things normally remain low profile for months or even years. This is the deal forming stage. There seldom is any information with detail or substance. There may be a webpage devoted to evaluation. Most likely it will focus on municipal benefits of the sale and what a thorough job they are doing. Often board meeting minutes may have brief comments like: Engaging consultants Considering options Preparing a request for proposals Waiting on proposals Evaluating proposals Finally, there is an announcement of the proposed sale. And then, things begin to happen quickly. The Rush To The Altar As noted above, the deal may have been many months or even years in the making, but suddenly speed seems to be critical. Usually a public meeting is scheduled quickly. That meeting also generally follows a pattern: There is a slick presentation with all the reasons to sell. Normally, it is not available until you arrive at the meeting and have no opportunity to analyze it. The “winner” of the bidding process might be there and make a presentation about how wonderful they are. Individuals are allowed to make statements or ask questions – usually, with strict time limits. There is NEVER the opportunity for organized debate/discussion/dialog among proponents and opponents of the deal. The whole process is designed to squelch any organized opposition. Even when there is strong or nearly unanimous opposition to the sale, the public officials remain dedicated to the deal. The officials talk about listening to public input, but never seem to change their position based on that input. Sometimes there may be a second or even third public meeting. But, generally the appropriate municipal officials move quickly to hold a vote to approve the sale. Conclusions The public announcement and subsequent public meeting makes one thing very clear: A lot of planning and work has gone into the proposed deal. Responsible municipal officials should have been holding a number of public meetings to educate their constituents about the progress of the process – real dialog sessions. We have yet to see that happen. What we have seen is that the municipal officials are totally dedicated to selling the proposal. Sometimes there is a dissenter, but the majority are gung‑ho for the sale. If the sale is being driven for the wrong reasons, speed is especially important. The longer the public has to really learn about the dodgy aspects of the deal, the stronger the opposition to the deal. Another common theme is that the focus is on all the wonderful things the sale proceeds will do for the community. But, that is never compared to the cost to the ratepayers. There Can Be A Bright Side There have been cases where mass public opposition has stopped a proposed sale. Examples in Pennsylvania include: Norristown - Norristown and Conshohocken were two of the earliest rejections. Conshohocken Willistown Tredyffrin - A case of the local government doing the right thing for its constituents. Bucks County - Potentially a billion dollar deal that generated major opposition. Newberry Towamencin - An especially interesting case. It took political activism and two elections to stop. Organizing opposition can produce results. It takes work and dedication, but it can save you and other ratepayers a lot of money. Learn more about how to fight a Big Water takeover here

Big Water Growth Strategy Nationwide the two largest water/wastewater utilities are Essential Utilities – the parent company for Aqua Pennsylvania American Water – the parent company for Pennsylvania American Water Both companies are seeking aggressive earnings growth through acquisition and infrastructure renewal. This is not surprising because as regulated companies their annual earnings are a direct percentage of their investment. The more they invest, the greater their profits. Therefore, their strategy is to grow their investment base. One element of investment growth is infrastructure renewal. Pennsylvania is a prime example for both companies for their water business (LINK ). The second major element is acquiring nonprofit municipal water and sewer systems. In Pennsylvania most of the acquisition activity has been for sewer systems (LINK ). Both companies are very open about their acquisition strategy. A good source of information is their periodic investor presentations - typically four or five every year. A couple of examples follow. These examples are for specific presentations, but there is substantial consistency from one presentation to the next. Open whatever is the most current one and you will see extensive discussion about the growth drivers for their business and how they are maximizing investor benefit. American Water As the time this was written, American's latest investor presentation was dated June-2026. It can be downloaded here (LINK ). If that link does not work you can Google "American investor presenations" and the latest one will pop up. Highlights of the presentation include: #1 - There are a total of 36 pages. Of those, 24 directly relate to their business growth strategies. #2 - There are a couple of pages on earnings per share. Notably that they forecast 7% - 9% growth every year. #3 - There are multiple pages on their capital spending plans - a key earnings driver. #4 - There are pages on favorable state legislation. #5 - Aging infrastructure is addressed as an opportunity. #6 - There are pages on acquisition activity - both completed and in progress. #7 - Several pages address rate increases obtained recently. Essential Utilities (Aqua in most states) Essential's most recent investor presentation was May 9, 2026 - at least at the time this was written. It can be found here (LINK ). Highlights include: #1 - There are a total of 22 pages. However, eight of those pages are "place holders" - things like pictures of key officials and a forward looking disclaimer. So, 14 pages of real information. Of those 14, seven are related to earnings growth, acquisitions, investment plans and regulatory activity. #2 - One page touts that since 2015 Essential has spent $570 million acquiring 138,000 customers. It also notes three other pending acquisitions. #3 - Two pages detail regulatory actions leading to higher revenues. Nationwide the two Big Water companies, have captured almost 190,000 customers in the last few years. What benefits have these customers realized? Is the water coming out of their faucets more pure? Do their toilets flush any better? In the large majority of cases the answer is a resounding NO!. The most dominate impact on customers is significantly higher bills. Big Water acquired those customers to increase their profits (LINK ). So now those customers have to pay up. The following table illustrates the point for acquisitions made in Pennsylvania. We used tariff rate data from before the acquisition and rate case records to calculate the rate increases customers are actually seeing. They are based on a customer using 4,000 gallons/month. The water companies typically claim their "average" customer ranges between 3,000 - 4,000 gallons/month. This is called “rate shock”. How much say did these customers have in the acquisition process? It is pretty likely that the answer for most of them is “not much”. Here is a description of how many acquisitions take place: (LINK). however, there is hope, push back on these acquisitions is forming.

The Two Largest Of The Big Water Companies American Water Works Co. Inc - AWK (stock market symbol) - Website: LINK This is the largest of the Big Water companies. It has almost 3.6 million customer connections. That is over three times the second place Essential Utilities. Its 2025 revenue was $5.1 billion. The vast majority of American's business is water and sewer services. Essential Utilities Inc - WTRG (stock market symbol) - Website: LINK Essential is the second largest. It has 1.1 million customer connections for water and sewer service - about one third of American's size. Its 2025 revenue was $2.5 billion, but only $1.3 billion of that was water and sewer revenue. The balance was natural gas service. So, in terms of size Essential is a distant second behind American. In most states Essential is better known under its legacy name of Aqua. Others There are other investor owned water companies, but they are considerably smaller than American and Essential. Also, the focus of Keep Water Affordable (KWA) is mostly Pennsylvania. And, in Pennsylvania, the only two of significance are American and Aqua. Therefore, KWA has essentially ignored any of the others. The Proposed Merger American and Essential announced a proposed merger 10/27/2025. In effect, it will be American acquiring Essential. Both companies have approved the deal and now they are working through a maze of regulatory approvals. They forecast closing the deal in early 2027. The sections that follow provide a perspective of the geography served by the two companies and an analysis of their water and sewer businesses in Pennsylvania. American Encompasses A Wide Swath Of America In addition to the eight states noted in the above chart, the "Other" slice includes six more states: Hawaii, Tennessee, Georgia, Maryland, Iowa and Virginia. Plus, there are another ten states in which American provides services to military installations. The total is almost half the states. American investor presentations generally include an excellent map of their operations. For their June-2026 report it is page four: LINK Clearly, American serves many customers in the USA. Essential Utilities Has A Long Pennsylvania History Essential Utilities traces its history back 140 years to the outskirts of Philadelphia. About 75 years ago it became Philadelphia Suburban Water Company and in 2004 became Aqua America. In 2020 it acquired People's Natural Gas and re-branded itself as Essential Utilities. It probably is no surprise that Pennsylvania accounts for almost half of Essential's water and sewer business. In most states the water and sewer businesses carry the Aqua name - Aqua Pennsylvania, Aqua Ohio, etc. What follows is a profile of the Pennsylvania water and sewer businesses of the two companies. The data is taken from the annual reports each company is required to file with the Public Utility Commission. Big Water's Water Business In Pennsylvania The water side of the business is dominate for both companies. For Aqua, it is almost 90% of their business and for American it is over 80%. If you read the investor presentation materials of the two companies, you would think it is a vibrant growing business. That is certainly true for revenue and profits. However, in two key aspects it is very much a stagnate business. Slow Customer Growth Over the last 14 years they have only increased their customer count by 9%. That is less than 0.75% per year compound growth. There have been some minor acquisitions, but, clearly, acquisitions have not been a major strategy for water operations. Another source of new customers is likely developers building new homes and businesses that tie into existing systems. The following chart shows their customer growth: Water Volume Sold The volume of water billed to their customers has actually gone down. Over 14 years the water volume is down about 9% or 7.6 billion gallons/year. This is likely due newer appliances that use less water and cost conscious customers. The following chart shows this result. Revenue Since they are selling less water, you might expect declining revenues. No, quite the opposite. Over the last 14 years American's revenue has increased by 75% and Aqua's by 60%. In the last 5 - 7 years the rate of revenue growth has increased significantly. This is clearly shown by the following chart: Operating Cost With revenue increasing so steadily, one might wonder how much of that is driven by the costs to operate the system. The answer is almost none. The two companies have done an excellent job of controlling operating costs. For American over the 14 years costs have only gone up by 20%. In fact, during the first seven years costs actually went down. Aqua actually has done even better. Over the 14 years Aqua's operating cost only went up by 13%. For the two companies combined increased operating cost only accounted for about 9% of the revenue increase. All shown by the following chart: Investment So, with operating costs under good control and volume being sold is actually declining, what is driving the revenue and rate increases? In a single word: INVESTMENT - which is what the utility companies call Rate Base. Here is how the investment for these two companies has increased over 14 years: Investment has grown very steadily over the fourteen years for a combined increase of $6.3 Billion. That is BILLION, with a capital B. That is an increase of 143%. Rate base drives 3/4 of Big Water’s costs - essentially all the costs except operating cost: Interest cost = a direct percentage of rate base. Depreciation = another direct percentage of rate base. Net earnings = also a direct percentage of rate base. Income taxes = yes, another direct percentage of rate base. Clearly, increased investment is the driver for Big Water’s revenue growth. So, why is investment increasing so rapidly for a no growth business? In two words: Infrastructure Renewal : Aqua’s 2024 rate filing indicated continued investment of about $300 million/yr. American plans to invest $3.5 billion over the next five years. As a result of Big Water’s continuing infrastructure renewal, their customers can expect to see ever higher costs. Profits While revenue has been growing at 3 – 4% per year, as the chart below shows, profits are growing at about 7% per year. Specifically over the full 14 years: American – earnings have increased by $135 million/yr. About 36% of their revenue increase has gone to earnings. Aqua – earnings have increased by $143 million/yr. A whopping 64% of their revenue increase has gone to earnings. Big Water's Sewer Business In Pennsylvania Big Water's sewer business is very different from their water business. Although much smaller than water, it has been growing rapidly by acquisition of municipal systems. Acquisition grows customer count, revenue, profit and investment in big chunks. However, there was very little growth until Act 12 (LINK ) passed in 2016. Then Big Water went on an acquisition binge of non-profit municipal sewer systems. American made 13 acquisitions and Aqua made 9. With the one significant exception noted below, all were made under the provisions of Act 12. Customer Growth The following chart shows several key features about how their customer base grew via acquisition: #1 - Their combined customer count soared from about 32,000 in 2010 to 177,000 in 2024 – an increase of 145,000 or over 450%. #2 - It clearly shows a no growth business until Act 12 was passed in 2016. Even then, it took a year or two for the initial deals to be executed. #3 - There is one exception to the Act 12 acquisitions. That is American's acquisition of Scranton in 2016. It was NOT Act 12, but did add 31,000 customers to American's roles. Revenue As the chart below shows, revenue has grown even faster than the customer base - probably not a surprise. The impact of Act 12 is also clearly visible in this chart beginning about 2018. Over the 14 year period total revenue has gone from about $16 million/yr to $245 million/yr. That is over a 1400% increase. The large majority driven by acquisition Profits As the chart below shows, profits have grown even faster than revenue. Again, most of the growth has come after the passage of Act 12 in 2016. The combined companies profits have grown from $3 million in 2010 to $110 million in 2024. That is over a 3400% increase. Investment The chart below shows how the two Big Water companies have increased their sewer investments by $1.9 billion over the 14 year period. Most of it, over $1.6 billion came after the passage of Act 12. However, the composition of that investment increase is very different than their water business. For the sewer business, 2/3 of the investment has been for acquisition of municipal systems. The balance, slightly over $600 million, has been for infrastructure. Like the water business, growth in earnings is driven by the growth in investment. Conclusions Big Water's Growth Clearly, both companies are aggressively growing both their water and sewer businesses. That is what for-profit businesses strive to do. But, in this case there is a cost - a substantial cost - associated with that growth. Existing customers are seeing regular rate increases well above normal measures of inflation and newly acquired customers are hit with "rate shock" levels of increases. Growth Via Acquisitions As shown above, Big Water's sewer business growth has largely been driven by acquisitions. And, those acquisitions totally revolve around Act 12. The short summary of what is going on with Act 12 acquisitions is told here: (LINK ) Act 12 was promoted by Big Water to legislators as a solution for fixing distressed systems. That was a bait and switch operation. Of 25 Act 12 acquisitions completed so far ZERO have been distressed systems. What Act 12 really has accomplished is allow Big Water to offer municipalities about twice what their systems were historically worth. That is a temptation too many local politicians cannot resist. They grab the money and leave their citizens to pay the bill - a bill substantially inflated by the doubled investment cost. Typically, the rate increases (and rate shock) come a couple of years later. Then the politicians and Big Water try to lay the blame on the PUC as the one who sets the rates. That is pure dishonesty because those rate increases were predictable in advance. Two things are needed to level the playing field for Big Water acquisition of municipal water and sewer systems. First is outright repeal of Act 12. Second, it is evident that local politicians are not acting in the best interests of their constituents. Therefore, a rate payer approval/veto of any sale should be required. Growth Via Infrastructure Renewal How much infrastructure renewal is really needed? Big Water has done a masterful job of positioning our water and sewer infrastructure as old and falling apart. And, they tout how they are fixing it. They cast themselves as the white knight rescuing infrastructure. And, they profit significantly from it. Old does not mean falling apart. It is not easy to determine when it is economically justified to replace old facilities. Does a 50 year old pipeline that is functioning perfectly need to be replaced just because of its age??? Big Water has a strong profit motive to renew as much infrastructure as possible - and, has nearly unlimited access to capital to do so. The PUC should be the counter balance to Big Water’s profit drive. Do they have the capability to assess true renewal needs? We have substantial doubts. If the PUC cannot competently assess renewal needs, the utilities an unequal advantage in the regulatory process. As a result of Big Water’s continuing infrastructure renewal, their customers can expect to see ever higher costs.

The "Links" Page This page is devoted to connecting readers to other websites that have useful information about water and sewer utility privatization. Freshwater Future Freshwater Future's stated mission is: "Freshwater Future is a catalyst for community action that strengthens policies designed to safeguard the waters of the Great Lakes region." It's website is here: (LINK ) It's Facebook page is here: (LINK ) Disclosure: Our keepwateraffordable website is a sponsored project of Freshwater Future. Food & Water Watch Their "Who We Are" statement: "With more than 2 million supporters, Food & Water Watch fights for safe food, clean water, and a livable climate for all of us. We protect people from the corporations and other destructive economic interests that put profit ahead of everything else." It's website is here: (LINK ) It's Facebook page is here: (LINK ) Food & Water Watch has actively supported our efforts to stop willy nilly privatization of water and sewer utilities in Pennsylvania. Save CWA Chester Water Authority (CWA) is a municipal water system serving over 44,000 customers in southeastern Pennsylvania. Since 2017 it has been the target of what its governing board terms a "uninvited hostile takeover from Aqua Pennsylvania". At $410 million, it is a big deal. A central figure in this uninvited takeover is the City of Chester. It has been in financial difficulty since the mid 1990's and was put into a receivership in 2020. It has pension obligations well beyond its capacity to service. The city and Receiver think they might get some or all of the proceeds of a sale of CWA. A morass of lawsuits has resulted. There is a CWA website with information about the proposed sale at this (LINK ) The CWA Facebook page is (LINK ) Our own summary the the situation is here: (LINK ) "In The Public Interest" In The Public Interest is a non-profit organization with the following mission statement: "In the Public Interest is a national nonprofit research and policy organization that studies public goods and services. We help community organizations, advocacy groups, public officials, researchers, and the general public understand how the privatization of public goods impacts service quality, democracy, equity, and government budgets. We also advocate for strengthening, adequately funding, and building popular support for a government that works for all of us." Water Wars In The Public Interest recently published a study called "Water Wars In Pennsylvania: How Corporations Play The Long Game. A Report on Water Privatization in Pennsylvania--and the Efforts to Fight Back" It provides a great history of privatization and how the Big Water companies have worked the system to gain an advantage in taking over non-profit systems. Here is one quote from the report: "Privatization “is a loan, disguised as a gift, wrapped up with empty promises that must be paid back with exorbitant rate increases resulting in no better service to the customers.” You can download a free pdf copy of the report here: (LINK ) Water Wars Webinar In The Public Interest and Food And Water Watch hosted a webinar on Water Wars on September 17, 2024. It highlighted key findings of the report followed by four other speakers discussing their privatization experience in Pennsylvania. Here is a link to the webinar: (LINK ) You will probably need this pass code to gain access (note that the period is part of the code): @?$dWE3. N O P E NOPE = Neighbors Opposing Privatization Efforts. This is a grass roots organization in the greater Philadelphia area. They have been very successful at stopping some municipal utility sales and educating the public about the issues. Their website can be found here (LINK ) They have several Facebook pages for different communities. They are on the website drop down menus. Exeter Township Exeter Township had their sewer system acquired by PA American in late 2019. Since then they have seen some of the largest increases that we have tracked. As a result opposition to both acquisitions and rate increases has been organized. They have a Facebook page here: (LINK ) And a Google page here: (LINK ) Philadelphia Inquirer The Philadelphia is a major independent newspaper in southeastern Pennsylvania. They have published editorials opposing privatization. The links that follow are behind a subscription paywall. They have a policy (at least they used to) that you can access a small number of articles for free (three is what I recall, but that is shaky). "As Pa. municipalities sell water systems to for-profit companies, consumers are left paying the price " Published August 18,2022. (LINK ) "It’s time to repeal the Pa. law that allows the sale of municipal water system s" Published September 18, 1922. (LINK ) "Court’s reversal of East Whiteland sewer sale is a win for consumers " Published August 17, 2023. (LINK ) Pennsylvania's state appeals court Reversed a Public Utilities Commission approval of a sewer privatization sale. This basis was that it did not serve a public benefit. The Inquirer has also published three Op-Ed articles we have written: "Big water companies are gobbling up public water systems ". Published March 29,2022 (LINK ) PDF version here: Just a week after the above Op-Ed, Robert Powelson published a rebuttal that can be found here (LINK ). Mr. Powelson is a former chairman of the Pennsylvania Public Utilities Commission. At the time he published this article he was CEO of NAWC - The National Association of Water Companies. He had gone from being the chief regulator of Big Water to being a leading spokesman and advocate for Big Water. "Is water privatization a good idea in Pennsylvania? " Published September23, 2022 (LINK ) PDF version here: "Four steps to keep water affordable in Pennsylvania " Published May 24, 2023 (LINK ) PDF version here: Other Op-Ed's We Have Written "Municipal Sewer And Water Customers: Beware of Big Water! " Published May 9, 2022 in the Delaware Valley Journal. (LINK ) A few days after the above article, Robert Powelson (see above, in the Inquirer section) published a piece about how wonderful Big Water is. "Sale of CWA Good for Consumers, City of Chester " Published May 20, 2022 in the Delaware Valley Journal. (LINK ) (note: as customers of CWA, we are strongly opposed to its sale. We do not need our water bills to double for no change in service) "Towamencin Officials Presented Fishy Numbers to Public to Push Sewer Sale " Published June 10, 2022 in the Delaware Valley Journal (LINK ) "Pennsylvania needs to declare a time out on the sale of municipal water and sewer systems " Published October 18, 2022 in Penn Live (LINK ) Worthwhile News Articles "Corporate vultures’: how Americans fearing higher water bills are fighting takeovers " Published in the Guardian January 25, 2022 by Nina Lakhani (LINK ) "The War Over Public Water in Pennsylvania " Published in The Nation August 8, 2022 by Hadas Thier (LINK ) "Holding Back the Tide of Water Privatization " Published in The Nation September 22, 2022 by Hadas Thier (LINK ) "Pa. court reverses PUC decision on East Whiteland sewer sale to Aqua " Published by WHYY (a PBS organization) on August 4, 2023 by Kenny Cooper (LINK ) " Sewer rates soar as private companies buy up local water systems " Published by Stateline on November 7, 2023 by Alex Brown (LINK ) Here is a version of the same article customized to Kentucky (LINK )

Introduction What follows is an open letter to Governor Shapiro of Pennsylvania about the Chester City bankruptcy and its impact on the customers of the Chester Water Authority. It was mailed on Saturday, August 14, 2024. Or, here is a PDF copy of the letter: September 13, 2024 CC: R. Siger, Secretary, DCED Chester City Bankruptcy (An Open Letter To The Governor) Governor Shapiro, I am a resident of Chester County and a customer of Chester Water Authority (CWA). I am writing to express my total disgust about how the State has abdicated responsibility for the Chester City financial mess. It has been six governors and almost 30 years since the State stepped in and found the city in a condition of “almost complete financial mismanagement”. It appears that the State has just kept “kicking the can down the road”. So now the situation deteriorated to the point that a rare municipal bankruptcy was filed. Why was this allowed to get so bad? Covid clearly made the situation worse. But, the federal government fire hosed money over everybody to defuse the economic impact. This should have been the ideal opportunity to provide Chester City a fresh start. But, that apparently did not happen. Why? The real solution to the Chester City mess is three fold: A competent and honest city government. Economic development. A fresh start: Bankruptcy? State funding? Some combination of the two? Monetizing CWA was not an issue until relatively recently. It appears that the ownership issue came from Aqua – whose motive is not focused on Chester City. Subsequently, monetizing CWA has become the State’s main focus. However, does Chester City even have ownership rights to CWA? An extensive legal process has been underway to answer that question. In fact, the Pennsylvania Supreme Court agreed to resolve it and was ready to hear oral arguments. But, your Receiver filed for federal bankruptcy, stopping State court action. Could this have been because it appeared the Supreme Court might rule against Chester City? The optics are not good. Does that mean a federal judge now determines the ownership issue? That makes no sense. State law still determines ownership. One certain effect is extending the case for several more years. The stakes are so high that no matter what the federal judge rules, it will be appealed up to the US Supreme Court. The Chester City financial mess will continue the whole time. The plan to monetize CWA is the age old strategy of getting someone else to pay for your problems. Sometimes it is called “beggar thy neighbor”. In this case you want the CWA ratepayers of Chester and Delaware Counties to pay for all the mismanagement by both Chester City and the State. The only source of CWA money is their ratepayers, 80% of whom live outside of Chester City. Your Receiver’s “Plan of Adjustment” has a particularly dubious feature. He proposes to keep CWA publicly owned, but in a public-private deal that would funnel enough money to Chester City to resolve all the city’s financial problems. That raises multiple red flag issues: 1) - In public-private deals the private party always seems to wind up with no skin in the game, but handsome profits. Again, all paid for by ratepayers. 2) - If the courts decide that Chester City really does own CWA, why would a third party be needed? The city could raise rates and use the funds how ever it wanted. The optics would be awful, but at least the “private party” is cut out. 3) - For the ratepayers of Chester and Delaware Counties it raises the issue of taxation without representation. Although not technically a tax, it amounts to backdoor taxation because their money would go directly to fund city government. It violates the principle that a municipal utility should be self sufficient. And, it sets a terrible precedent for other money hungry municipalities. 4) - It appears that the Public Utility Commission would not have jurisdiction to protect ratepayers. That leaves ratepayers with unlimited liability for Chester City failures – past, present AND future. 5) - Another odious feature of the bankruptcy process is that the selection of the “private” partner will be hidden from the public. Nobody will know what kind of deals are being considered or who is connected to them. Could someone politically connected get a nice payoff? If the ownership outcome is that Chester City does not have exclusive rights to CWA, what is your Plan B? In conclusion, we have a city that is bankrupt because of long term mismanagement by both the City and State. After 30 years the State owns the problem as much as Chester City. If the State is not willing to accept the normal “hair cuts” bankruptcy imposes, then the State should own up to the funding required to bail out the city. In short, when is the State of Pennsylvania going to do what is needed for the City of Chester? The State’s performance to date has been shameful. It is time to man up and face the problem. Thank you for your attention, Bill Ferguson Co-Founder of Keep Water Affordable Email: keepwateraffordable@gmail.com P.S. Copies of this letter will be emailed to a number of Representatives, Senators and media contacts. A copy will also be posted on our website at keepwateraffordable.org Epilog I received a reply from Governor Shapiro's office about three weeks later. The text of the letter follows with a few comments added. Or, here is the PDF version: October 3, 2024 The Fergusons xxxxxxxxxxxxxxxxxx [Address information redacted. If desired, you can contact us at our website - see the link at the bottom of the page ] Landenberg, PA xxxxxxxx Dear The: ["Dear The", and that is literal direct quote. My first name has become "The". It is also a give away that this is a form letter and "The" is a first name field. What a dubious start. But, in the second paragraph things go further south. ] Thank you for contacting the Office of Governor Josh Shapiro. Governor Shapiro is committed to assisting constituents and appreciates the opportunity to hear your concerns. Based on the details in your correspondence, it appears this issue is governed at the local level. For assistance, please reach out to your local authorities such as your mayor, councilmembers [sic], or County Commissioners. [If you have read the letter, it is pretty clear this is not a local issue. This type of response does not generate confidence in government competency .] The County Commissioners Association of Pennsylvania maintains a list of county websites online at: https://www.pacounties.org/who-we-are/pa-county-websites . To learn how Governor Shapiro's administration is working for you, please visit www.governor.pa.gov . You can also receive updates by following Governor Shapiro on Twitter and lnstagram at @Governorshapiro and on Facebook at www.facebook.com/Governorshapiro . Sincerely, Governor's Correspondence Office (717) 787-2500

Aqua’s Consumption Volume Data This section reproduces the six pages of Aqua’s compliance data for New Garden customers. They are PDF pages 157 – 162 from this filing by Aqua: LINK I challenge anyone to identify the issues in my consumption volume complaint from the following pages. This is PDF page 157 from this filing by Aqua: LINK The key numbers are highlighted in yellow. This is PDF page 158 from this filing by Aqua: LINK The key numbers are highlighted in yellow. This is PDF page 159 from this filing by Aqua: LINK The key numbers are highlighted in yellow. This is PDF page 160 from this filing by Aqua: LINK The key numbers are highlighted in yellow. This is PDF page 161 from this filing by Aqua: LINK The key numbers are highlighted in yellow. This is PDF page 162 from this filing by Aqua: LINK The key numbers are highlighted in yellow.

Who Pays Big Water's Interest Costs? Short answer: The ratepayer definitely is paying Should the ratepayer be paying? Not sure, there are some reasons for doubt. We need some help here - please read on. Reason #1 For Doubt There is a 1972 Pennsylvania Supreme Court decision called "York". We have seen it referenced in a number of filings related to acquisition cases. The text of the decision can be found here (LINK ). The case addresses issues with the merger of telephone utilities. Two sections of that opinion are relevant. The first is page 1, paragraph 6 which states: About midway through the opinion there is a footnote that states: Those two statements appear to be very cut and dried that ratepayers do not pay for interest costs. Reason #2 For Doubt Big Water's rate case filings contain Profit and Loss (P&L) type statements with an unusual structure: Interest is shown as an after tax cost. A P&L statement for a "traditional" business would show interest cost as a pre-tax expense. The following table compares the two (the numbers are made up for the illustration): Both formats include the same five cost items: Operating Expenses Depreciation Misc Expenses Interest Income Taxes For the PA Utility Format, interest is the last thing deducted from "Operating Income (after tax) ". That makes it appears that it is an "after tax" or a "below the line" expense. Several observations about the two formats: No matter what order you subtract the same five costs from Operating revenue, you get the same bottom line net income. PA utilities subtract the first three costs to arrive at what they call "Operating Income Before Tax ". It is a subtotal they have created for their type of P&L statement. Next, they subtract Income Taxes and arrive at another new subtotal called "Operating Income (after tax) ". There is an important caveat here: Income taxes are NOT calculated based on their "Operating Income Before Tax ". Rather, they subtract Interest from "Operating Income Before Tax " and then calculate taxes. Guess what: (Operating Income Before Tax) - (Interest) = Pre-Tax Income Therefore, the tax calculation is the same in either format. So, a couple of lines have been moved around and two new subtotals created. The substance has not changed. But, interest now appears to be an after tax cost - or in the language of the York decision "Below the line ". WHY? Is it related to the "York" opinion???? The Ratepayer Pays Every Dime Of Interest Cost For most businesses, Net Earnings is what is left over when all the cost items are deducted from revenue. In the real world, Net Earnings could be either a profit or a loss. The world of regulated utilities is different. In Pennsylvania, the amount of "Operating Income (after tax) " is first calculated and then all the other costs except interest are added to that to determine the amount of revenue the utility is allowed to collect from its customers. The utility is essentially guaranteed a profit. The critical feature here is that the calculated "Operating Income (after tax) " includes the full interest cost of the utility. The algebra is a bit involved, but is fully developed here: The bottom line is: Isn't that "interesting"! "Operating Income (after tax) " is simply the sum of Interest Cost plus Net Earnings. Once this number is determined by the above calculation, all the other cost elements get added to it to determine allowable revenue. The result is that the ratepayer winds up paying the full interest cost of the utility. Is It Legal? That is a question we really wish we had an answer to. Here are some general observations: We figured this out as a result of a 2021 sewer rate case. It is likely that it has been going on a long time. The "York" decision is over 50 years old. Is there more legal history to the case? Probably, but we do not know how to find it. Going back to the first part of the "York" court decision: Clearly, interest costs impact the rates paid by customers. The "operating income (after tax) " the utility is permitted to collect directly includes the interest costs. Is there "wiggle room" because Interest Cost is "below the line"? That term generally means an after tax cost. Interest is definitely not an after tax cost. And, the utility companies deduct it from income when calculating taxes. "Operating Income (after tax) " is not a commonly used term in business finance. Could it be an artificial construct to "work around" the "York" decision? The second part of the "York" decision leads us to believe it is indeed a "work around". It states (referring to interest cost): "While such charges must be paid by the company, they are to be paid out of the return allowed the company for the use of its property and capital devoted to the public service. " Could "Operating Income (after tax) " be interpreted to be the "return allowed the company"? That is very likely what the utility companies and regulators would claim. The fact that it specifically includes just Net Earnings and Interest Cost looks suspicious to us. If it is nothing more than a "work around", we think that stinks to high heaven. If the "York" decision was applied so that interest cost was really "below the line", then the rate setting process would set the ROE and calculate the Net Earnings before interest cost. Then whatever interest cost was incurred would reduce Net Earnings. That is definitely not happening today. As the page on profitability shows (LINK ), the Big Water companies seem to earning outsized profits in Pennsylvania. Interest costs being truly "below the line" would go a long ways to equalize Pennsylvania with other states. Bottom line: Is it legal? We are suspicious, but do not know. Can You Help Us? Interest is a major cost for utility customers. The "York" decision raises the issue of whether or not it should be a part of rate setting. Subsequent to the "York" decision there should be some legal history for the "Operating Income" (after tax) "work around". However, we do not have a clue at how to begin to track that down. Any help that readers might provide would be very much appreciated. Big bucks are involved. Just the two largest water and sewer utilities in PA (Aqua and American) are collecting $175 million/year for interest costs. They serve about 1.2 million customers in a state that has over 5 million households. That makes them small potatoes compared to the electric and gas utilities. The electric utilities serve everyone. If the "Operating Income" (after tax) "work around" does not have a legal basis, there is potentially a multi-billion dollar class action lawsuit that should be brought against the utility companies and PA's regulator.

The Big Picture The following five charts summarize what water and sewer privatization is all about in Pennsylvania and what needs to be done to provide some ratepayer protection. The same thing is going on in other states. If "Fair Market Value" is new to you, click here (LINK ) (In Pennsylvania "Act 12" = Fair Market Value)

The Business Differences Of For-Profit Versus Not-For-Profit Water And Sewer Utilities Follow The $$ Money $$ Introduction This is about economics and financial management - a topic that makes many people's eyes glaze over. But, fear not. Our objective is to keep it simple and easy to understand. The cost differences between a for-profit and a non-profit water or sewer utility are dramatic. These differences are the very reason that rates go up sharply when a for-profit utility purchases a non-profit one. If your non-profit system is the target of a buy out, understanding the differences will help you evaluate a purchase offer and lead to asking key questions about how you will be impacted. The topics addressed are: #1 - The non-profit municipal utility business. #2 - Why would a municipal system want to sell? #3 - The for-profit Big Water business. #4 - The cost structure of a for-profit utility. #5 - The cost structure for a non-profit utility. #6 - What happens to customers when their non-profit is bought out. #7 - Estimating rate increases. #8 - What if major system improvements are needed? #9 - A less costly alternative to selling #10 - Who pays interest costs? Municipalities In The Water And Sewer Utility Business Should a local government provide water and sewer service? We think so. It is a common need fulfilled in a very cost effective way. The Big Water companies will claim that this kind of thing should be left to the “pros” – i.e. themselves. This is developed further here: (LINK ) Reading on you will find that the cost structure for a municipal utility strongly favors cost efficient operation of these services. ??? So Why Sell A Municipal Utility ??? Good question. There are two major reasons that are offered repeatedly. We do not think either one is valid. They both apply the old axiom of follow the money. Here are the claims: We get a huge sum of cash – FREE CASH, that can be used for all sorts of good causes in our community. This is addressed here: (LINK ). But, there is no free lunch. The customer will be paying. But, local politicians can be seduced by the large sums of money being offered. The system is falling apart and we cannot afford the repairs. Those repairs would require large rate increases. We have to sell. Are those repairs really needed? They may not be. It might be a contrived reason for selling. This is developed in more detail here: (LINK ). Or, those repairs may really be needed. Then, yes, a rate increase may be needed. However, the reality is that when those repairs are made by Big Water, the rate increase will be larger, much larger. There are also good reasons that a water or sewer utility should NOT be sold. A key one is that there is a cheaper alternative available: Raise the same amount of money via a bond. That is developed in detail here: (LINK ). Why Big Water Wants To Buy Municipal Utilities This is a simple case of follow the money. Business success is driven by growing profits. Water and sewer utilities are not businesses where you can run an advertising campaign to attract new customers. It is a very slow growth business in that regard. Their solution to that problem is to acquire existing municipal systems. This is covered in more detail here: (LINK ) and here (LINK ). For-Profit Cost Structure The for-profit utility is pretty much a standard business financial cost structure. A very large part of the costs are driven by the investment in facilities. In the regulatory world, this investment is called the “rate base”. It is essentially all the money spent on plants, pipes, equipment and any other permanent facilities. The major costs for running a Big Water business are: Operating Cost –This is all the people, supplies, customer service and all the other things necessary to run and maintain a system on a day to day basis. For Big Water in Pennsylvania, about 25% of your water or sewer bill goes to operating cost. Depreciation – This is essentially the cost for “wearing out” the physical facilities as they are used. It definitely is a cost that for-profit utilities charge to their customers. Depreciation is driven by the rate base and usually runs in the range of 2% - 4% of the company’s rate base. From the customer’s perspective, about 20% of our water or sewer bill goes to depreciation. There is a detailed discussion of depreciation here: Let’s illustrate depreciation with a car analogy. Assume you buy a car for $40,000 and will drive it 100,000 miles at which point it will be kaput – totally worn out and unusable. For every 1,000 miles you drive that car, 1% of the original purchase price or $400 will be “used up”. For personal use of a car we never even think about that. Personal use is a “non-profit” operation. But if you were in business for yourself driving that car doing meter reading for a water utility, you need to charge enough for your services to recover that cost and be able to buy a new car when the old one wears out. The car “depreciates” as you drive it reading meters and you need to get paid for that depreciation cost. Interest Cost –Large for-profit utilities have sophisticated management of their rate base. Most of them finance about 50% of their rate base via debt. The interest cost of that debt is paid for by their customers. In effect it is a “forever” ongoing cost. This is a significant cost for Big Water utilities. For their customers, it is 10% - 12% of their bills. Profits – Any water or sewer utility is a monopoly business. Monopolies have a rich history of extorting huge profits from their captive customers. In theory, this is limited by a regulatory agency setting how much the utility can earn. The normal practice is to set an allowable return on the utilities investment (i.e. “rate base”). The utility then sets rates to deliver that return. This is by far the biggest cost paid by customers. In Pennsylvania, over 40 cents of every dollar paid on a water or sewer bill goes to the company’s profit. Here are two charts depicting the cost structures of the two largest for-profit water and sewer utilities in Pennsylvania: (LINK ). It is visually obvious the large impact profit has on rates. It is actually a bit surprising what a small part the actual operating cost is. This is a characteristic of a business driven by large investments. Non Profit Cost Structure At a basic level, the financial management of a non-profit utility is really very simple. It is essentially just managing the cash flow: balancing revenue coming in and expenses being paid out. There are only two major cost elements to manage: Operating Cost – Just like the for-profit utility, this is the people, supplies, customer service and all the other things necessary to run and maintain a system on a day to day basis. For similar sized systems, the costs are likely to be quite comparable. And, there is economy of scale for larger systems. Depreciation – This is zero expense for a cash management system. It is listed here to show a major difference opposite the for-profit utilities. A non-profit system will calculate depreciation for balance sheet purposes. But, depreciation does not figure in rate setting. See the above PDF file for a more technical discussion on why depreciation does not matter for a non-profit. Debt Service – Most municipal systems carry some debt in the form of revenue bonds they issued in the past. Those bonds typically paid for investments in expansion, upgrades or major repairs. Debt service is the periodic payments to pay off those bonds over time. This is the non-profit version of interest cost. A key difference is that both principal and interest are being paid off. Profit – By definition, this is zero for a non-profit utility. It is listed here to show the other major difference opposite the for-profit utilities. And, it is a MAJOR difference. The management of the non-profit system normally would set rates to collect the operating and debt service costs plus a little extra. The extra would go into a cash reserve fund. The reserve fund would gradually build over time and be used to pay for unexpected expenses caused by things like weather events or an accident. If the reserve fund grew too large, rates could be adjusted to hold it steady. If a major expense came along bigger than the cash reserve, new bonds could be issued. Payments on those bonds would increase the funds needed for debt service and rates may or may not be adjusted. Let’s use another car analogy to illustrate finances for a non-profit utility: Operating Cost – The gas, insurance and routine maintenance costs of owning and driving a car. Depreciation – The car is for personal use and depreciation is ignored. Not many people keep track of their driving and toss 40 cents in a jar for every mile they drive. Debt Service – The payments you must make on the loan used to buy the car. Each payment consists of principal and interest. After the last payment, you fully own the car. Profit – This is personal use, profits are zero. You also might put away a few dollars each month to prepare for infrequent expenses like new tires or a brake job. That would be your cash reserve. But what if your “check engine” light came on and you were facing a $2,000 repair that was way beyond your cash reserve. That could be managed by some form of a personal loan. The car gets repaired and continues to serve you. But, the new loan payments get added to your debt service. It is really that simple – at least we hope you see it as simple. My Non-Profit Utility Wants To Sell To Big Water What Will Happen To My Rates? When a for-profit company buys a municipal utility, all or most of the purchase price will be added to the buyer’s rate base. That means the buyer will be increasing somebody’s rates to collect the depreciation and profit for the new system. A key question is whose rates will go up. Until there is a rate case after the acquisition, the answer to that question is not knowable. The Big Water companies and the Public Utilities Commission (PUC) regularly use Act 11 (LINK ) to move costs from sewer systems to water customers. This is a form of Beggar Thy Neighbor (LINK ). The rationalization is that it reduces “rate shock” and promotes “socialization” of total system costs. The question that never seems to be asked is why should existing water customers pay for the high priced acquisitions enabled by via Act 12 (LINK ). We fail to see any element of fairness in this practice. A good first guess is that rates will have to double to collect the added costs. Here is a more detailed look at the comparison: (LINK ). And, here is what happened to New Garden after Aqua bought the system and raised rates (LINK ) Since Act 12 was passed in 2016, the large majority of acquisitions have been sewer systems. Sewer operations are a small part of Big Water’s operations in Pennsylvania – about 11% for Aqua PA and 20% for PA American. What Act 11 allows is foisting a significant portion of the sewer acquisition rate increases off on their water customers. Since the water revenue is so much larger, the percentage increase is not as eye popping. The Act 11 link above has examples of how much increase the Big Water companies wanted to foist off on water customers and what the PUC actually allowed. We at Keep Water Affordable are currently benefiting from water customers paying for part of sewer increase resulting from Aqua’s acquisition. We still think the practice stinks because it hides the real cost of these acquisitions. Estimating Rate Increases If your system wants to sell out to Big Water, your first assumption should be that you will be hit with the full rate increase that results. That may not happen, but it gives you some idea of what the upper limit of the damage could be. Even if you are not hit with the full increase at first, later rate cases could reduce the subsidy paid by other customers meaning your rate goes up. Also bear in mind that you could be paying the cost of future acquisitions made by your new company by having part of that cost foisted off on you. It is the old principle of what goes around comes around. When Big Water has offered to buy your system, either the buyer or seller will usually provide some estimate of future rate increases. The Public Utilities Commission (PUC) will require notification AFTER the sales contract is signed. But, at that point all you can do is complain in the PUC approval process. It is not likely that your complaint will carry any weight. It is important to have a good estimate before the sales contract is signed. It is really fairly easy to make a very good estimate of your own. You need to know the selling price, some very basic cost data for your current system and a few financial parameters of the buyer. All of this should be public information that should be easy to access. Good places to start are audited annual financial reports of the seller and rate filings by the buyer. This is covered in detail here: (future link). There is even a spreadsheet to help with the calculations. What If Major Improvements Are Needed A common justification for selling a municipal system is that very expensive repairs are needed and we cannot afford them. Let the Big Water “pros” handle that problem. We think that an objective analysis of the costs will show it is significantly cheaper for the customer if the municipal system makes the needed investment. The first step should be to question the claims being made about the cost needed. In our New Garden sale we feel the costs were substantially inflated to help justify the sale. Our New Garden experience with this issue is covered here (LINK ). If the improvement costs are legitimate, there is still the issue of what it will cost the customer in terms of future rate increases. The main driver here is the investment related costs. If the non-profit makes the investment, then debt service costs will go up. If Big Water makes the investment, their interest, depreciation and profit costs all go up. And, as you have seen from the above information the profit costs are a big driver of higher rates. A side by side example is shown here: (future LINK). A Less Costly Alternative To Selling The main benefit from selling a municipal utility is the large sum of money the municipality receives. It is usually multiples of their annual budget. For New Garden it was 6X their budget at the time they signed the sales contract. This amount of money can be seductive. Just imagine all the wonderful things that money can provide to the community. And, the attraction between politicians and money is pretty well known. What is not generally considered is the cost that ratepayers will be stuck with after the sale is complete and the new owner has raised rates to cover his increased costs and realize the profits the regulator entitles him to. What should be considered is how that same benefit could be realized at lower cost to ratepayers. In almost every case it would be cheaper to issue a bond for the same amount of money as the sale. That is developed in detail here: (LINK ). Who Pays Interest Costs There is a 1972 Pennsylvania Supreme Court opinion that on the surface clearly states that for-profit utility companies cannot collect interest costs from their customers. This seems unusual because interest costs are a normal part of doing business. The rate setting process in Pennsylvania very definitely collects interest costs from utility customers. Yet, to do so they go through some very unusual contortions in their financial statements. This is explained in detail here: (LINK ). We would really like to hear from anyone who has knowledge about this issue. Is there a legal basis for what the utility companies are doing? Or, have they distorted the appearance of their profit and loss statements to make it look like interest costs are not being charged to customers?