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Chester Water Authority Chester Water Authority (CWA) has long been the target of a hostile takeover attempt by Aqua PA. If this sale ever goes through, CWA's water rates would double. As noted below, the Pennsylvania Supreme Court has put a stop to this attempted sale - at least for now. CWA is a non-profit public water utility. It is well run. It is physically and financially healthy. The sale of such a public utility like CWA, became possible in 2016 with the passage of Act 12, the so called “Fair Market Value” legislation. Act 12 allows private, for-profit utilities like Aqua to buy healthy public utilities at inflated prices and then recoup the entire cost and reap substantial profits through higher rates. The inflated price of $410 million allowed under Act 12 is the driver behind the proposed sale of CWA to Aqua. Chester City prominently plays a major role in the attempted sale. Decades of mismanagement have left the city of Chester in bankruptcy and state receivership. The following article provides some background: (LINK ). By selling CWA, the state Receiver believed it could use the sale proceeds to clean up Chester's financial mess. Yet over 80% of CWA ratepayers do not live in the city of Chester. We would have received no benefit, but left to pay the bill. The concept of selling public utilities to fix previous financial mismanagement is a very controversial issue. Who should pay for the past misdeeds of local politicians? Should it be the customers of CWA? Former Governor Wolf publicly supported this approach, and that is a big part of the reason CWA is under attack. Governor Shapiro has not taken a public position, but it is his Receiver that pursued the sale of CWA - that, alone, speaks volumes. A fundamental question was whether or not the city of Chester could claim ownership, and thus sell CWA. This led to a complicated legal battle. CWA Timeline 2017 The CWA Board unanimously rejected Aqua’s $320 million buyout offer. 2019 CWA offered the city of Chester $60 million to help its financial situation in exchange for placing the authority in a trust for 40 years. The city of Chester never responded, yet Aqua jumped in and sued CWA over the offer. At this point, Aqua shifted its tactics to position itself as the savior of the city of Chester. 2020 Assuming it was the sole owner of CWA, the city of Chester issued a Request for Proposals for the acquisition of the assets of CWA. As a result, Aqua offered over $420 million. Governor Wolf placed Chester in receivership due to its financial problems. The Common Pleas Court ruled against Chester’s claim of sole ownership and ruled that any sale of CWA requires the approval not only of the city of Chester, but also Chester and Delaware Counties. 2021 The 2020 court ruling was appealed, and the Commonwealth Court ruled that the city of Chester did have the sole authority to dissolve CWA. The case was returned to the Common Pleas Court to address some specific issues. Importantly, the Court ruling included a very powerful minority dissenting opinion. Both can be read here: The Commonwealth Court decision was then appealed to the PA Supreme Court, asking that Court to weigh in on the ownership of CWA. The Chester City Council took advantage of the Commonwealth Court ruling and unanimously passed a resolution asking the Receiver to allow them to enter into an Asset Purchase Agreement with Aqua. 2022 The PA Supreme Court agreed to hear the appeal of the Commonwealth Court Decision. Before the Supreme Court could take any action, however, the Receiver applied for bankruptcy in federal court. This action put a stay on any state cases. 2024 A major issue in the bankruptcy proceeding was whether Chester had the necessary ownership to sell CWA. There was a lot of litigation on that issue. Finally, the bankruptcy court conceded that it did not have jurisdiction over that issue and allowed the PA Supreme Court action to proceed. 2025 One fallout of the bankruptcy threat was that CWA lost its ability to borrow money at favorable muni-bond rates. The possibility that the city of Chester could default on a bond essentially destroyed CWA's credit rating. Unfortunately, CWA needed to re-finance some maturing bonds and had to pay exorbitant interest rates. That alone required a 14% rate increase. The following is CWA's notice informing rate payers: 2026 The PA Supreme Court ruled that the city of Chester did NOT have the authority to sell CWA without the concurrence of the Counties of Chester and Delaware - which were opposed to the sale. The court decision included both majority and minority opinions. Both can be read here: That stopped cold the attempted sale of CWA via bankruptcy. What’s Next The Supreme Court decision will not be the final word for Big Water's craving to acquire CWA. CWA would be a trophy property for them. It would be an instant profit maker. Their likely approach will be political at the Chester County and Delaware County level. They will try to get those jurisdictions to appoint CWA board members that will support a sale. To prevent that, CWA's independence needs to be made a major issue in those local elections. The other avenue is state legislation to protect the utility ratepayer. Multiple bills are generally introduced in every session of the legislature, but they die in committee. Some individual state Representatives and Senators support such legislation, but party leaders will not touch it. Big Water's political lobby power is very effective at keeping any reform legislative bottled up. What can you do? Large private utility companies continue to spend millions lobbying in Harrisburg. The fruits of their efforts are seen in Act 12. We cannot fight them with money, but politicians need our votes more than they need their money. They need to know these issues are important to us. We can only make a difference if large numbers of citizens speak out. Residents of New Garden Township can help by writing or calling our representatives to thank them for their support, and by contacting Governor Shapiro asking him to publicly support the repeal of Act 12. Encourage him to take a public stand against the sale of CWA because of the unfair burden it places on his constituents. Sample letters can be found here: LINK If you do not reside in New Garden Township you can find information about your representative here: LINK

Validating My Consolidation Of Aqua’s Data What I will show here is that the following table is an exact consolidation of Aqua’s six pages of consumption data in their 2021 rate case compliance filing (LINK ). I have already shown how this table was arrived at: LINK Table #1 - Aqua’s Consumption Volumes I suspect Aqua would deny that this represents their filing data. A way to validate the accuracy of the data is to apply Aqua’s billing rates to it and compare the resulting revenue with Aqua’s stated revenue. The following table does that for the rates in effect before the rate increase resulting from Aqua’s 2021 rate filing: The left half of the table tabulates the billing rates and copies the consumption data from the above table. A simple multiplication then calculates revenue for each line - the red box in about the middle of the table. The right side of the table copies Aqua’s revenue data from the six pages of their compliance filing (LINK ). The numbers in yellow are a direct copy of Aqua’s data. Since Aqua’s data is divided into “Consumption” and “Adjustments”, the two are added to arrive at a total revenue - the red near the right hand side of the table. Finally, the far right column compares my calculated revenue with Aqua’s total. For the individual rate bands the agreement is always 99.999% or better. The bottom line total differs by only $1.00 out of a total of almost $3 million. That is strong proof validating my data consolidation. There is also a second validation. Aqua’s compliance filing also tabulated the increased revenue after the rate increase. The following table repeats the revenue comparison for the increased billing rates: Again, it is essentially a perfect match. The “least” accurate is a 99.999% match. The bottom line differs by one dollar out of over $4 million. My conclusion: the consolidation of Aqua’s data is accurate.

ACT 12 Predatory Pricing Act And Its Impact Background Pennsylvania’s 2016 Act 12 was legislation that allows Big Water companies to buy municipal water and sewer systems at “Fair Market Value”. As noted at the bottom of this page, it went through a fairly quick legislative process and was signed by the governor on 14-April-2016. It became law 60 days later. (Lawyers refer to Act 12 as “1329” – that is the relevant section of the Pennsylvania law) Prior to Act 12 Big Water companies were not making many acquisitions in Pennsylvania. The purchase price was limited to depreciated value. As we will see, this results in lower profits. There was also more focus on distressed systems – ones that had been mismanaged and required expensive fixes. Act 12 changed things dramatically. This legislation raises several questions: What does “Fair Market Value” mean? Why would Big Water companies want to be buying municipal water and sewer systems. Why would Pennsylvania want to move to “Fair Market Value”? Why do the Big Water companies want “Fair Market Value”? What has been the subsequent impact of the law? “Fair Market Value” This is a fairly simple concept. If water or sewer systems were routinely being bought and sold, “Fair Market Value” would be the price that a willing seller and a willing buyer would settle on. But, there are a couple of problems with this concept: First, each municipal water or sewer system is totally unique – a one of a kind entity. Second, these systems are not exactly traded like a stock or bond on a daily basis. So how can a "market value " be determined? The legislation specified that both the buyer and seller would hire an appraiser to value the system in question. Each appraiser had to be approved by Pennsylvania’s utility regulator. Based on those appraisals, a “Fair Market Value” would be determined. Why does Big Water want to buy municipal systems? The answer is very simple: It is all about growing profits. The water and sewer needs of a huge percentage of the population is currently well served. There is not much opportunity for these companies to attract willing new customers and then install the infrastructure to serve them. Absent that type of growth, the alternative is to take over existing systems. Why did Pennsylvania pass “Fair Market Value” legislation? Another simple answer: The Big Water companies wanted it. They worked with the legislature on the bill and lobbied hard for its passage. They are very open about this in their investor presentations (LINK ) . In fact, they position it as a major element for their profit growth strategy. Why does Big Water want “Fair Market Value”? Yet, a third simple answer: Bigger profits. Big Water companies are regulated by the state. They are allowed to charge ratepayers for all their costs plus a profit. That profit is set as a percentage of investment. Therefore, the more they invest, the greater their profits. This is a highly unusual situation where both buyer and seller want the price as high as possible. To illustrate, consider a person shopping for a new car. For a car with a $25,000 sticker on it, The shopper asks the dealer if he would take $45,000 for it. Would you do that? Of course not. But if the shopper is Big Water that is the kind of deal they offer the municipality. The more Big Water pays for a system, the greater its profits – and Big Water is driven by growing profits. The Impact Of Act 12 In the first seven years after Pennsylvania passed Act 12 legislation that allows Aqua Pennsylvania and Pennsylvania American Water (Big Water) free reign to acquire municipal water and sewer systems. They have made 17 acquisitions costing over $850 million. Eight more ($1.0 billion) are proposed or in progress. Tanya McCloskey was the acting Consumer Advocate in 2021. On May 26, 2021 she testified about Act 12 before a legislative subcommittee. Her testimony included the following data on the premium price paid for various Act 12 acquisitions: Just for those eight acquisitions, the premium paid was $220 million. The customers of those eight are now paying about $26 million/year just for the premium price of their systems. The early acquisitions did not draw much attention because ratepayers did not understand what was coming. Deceptive tactics during the sale hid the size of the rate increases. Many ratepayers have now experienced “rate shock” and realize that their elected officials “sold them out” for some very expensive “free” money. The following table illustrates the impact. The rate increases are based on sewer customers using a typical 4,000 gallons/month, the rates before the acquisition and rates after the first general rate increase. Ratepayers are now more aware of the acquisition downsides. As a result, recent acquisition attempts have met with stiff ratepayer resistance. Several proposals have been abandoned because of this resistance: Bucks County - $935 million Norristown - $82 million Conshohocken - $52 million Willistown - $17 million These were cases where the elected officials favored the sale, but had to bow to public pressure. Tredyffrin also rejected a $75 million offer, but did so willingly after listening to public input and doing an objective analysis. Kudos to Tredyffrin Repeal Act 12 Act 12 is siphoning wealth away from the citizens of Pennsylvania and into the coffers of Big Water. The ratepayers are seeing no benefit from this. Their toilets flush the same and the water coming out of the tap is no different. They only thing that has changed is the cost. Act 12 should be flat out repealed. There are bills in the legislature to do this (LINK ), but their chances of passage are about the same as finding a snowman in a blast furnace. Big Water lobbying efforts are very effective in this regard – they protect their turf. In the areas of Pennsylvania where Big Water has been active, legislators are supportive of repeal. But, they are still a small minority of the state. In the meantime, Big Water remains active. They try to keep any deal out of public site until it is close to time to sign a contract. Then the roll out comes quickly with a blizzard of public relations propaganda telling how great the deal is. (LINK ) More and more Pennsylvania citizens will be ripped off unless we can get the legislature to stop these sell outs. Act 12 - A Brief Legislative History Act 12 originated as HB1326 in the Pennsylvania House of Representatives. It passed through the legislative process pretty quickly. The key events were: #1 - The bill was introduced by Representative Robert Godshall on June 11, 2015. On the same day it was referred to the Consumer Affairs Committee. #2 - Only 13 days later on June 24, 2015, the Consumer Affairs Committee voted 13 ‑ 0 to approve the bill. This seems unusually quick, but Robert Godshall was the chairman of the committee. The committee chairs have a lot of control over what the committee processes. So his bill flew through. #3 - The bill next went to the House Appropriations Committee. Four months later, on October 20, 2015, that committee also approved the bill 36 ‑ 0. #4 - On the same day that the bill was approved by the Appropriations Committee, the full House voted on the bill. It passed 176 ‑ 21. #5 - The bill was sent to the PA Senate and assigned to the Consumer Protection & Professional Licensure Committee. After five months, on March 15, 2016, the committee voted to approve the bill 13 ‑ 0. #6 - Just seven days later, on March 23, 2016, the full Senate voted to approve the bill 48 ‑ 0. #7 - Governor Wolf signed the bill and it became law on April 14, 2016. Subsequently, the Big Water companies started their acquisition binge in Pennsylvania. An interesting footnote to this story is that, after shepherding the bill through the legislative process, House Speaker Mike Turzai retired from the legislature in 2020 and took a job as Chief Counsel for Peoples Gas. Coincidentally(?), Peoples Gas is a subsidiary of Aqua’s parent company Essential Utilities.

Big Water Friendly Legislation Big Water companies spend millions of dollars annually lobbying Pennsylvania legislators. The results are easily seen in the important legislation passed into law in the past 10 years. Two pieces of legislation promoted by the utility companies set the stage for the current push by private, investor-owned utilities to buy municipal utilities in Pennsylvania. In 2012 the PA legislation passed Act 11 which had two major impacts on rate setting by water and wastewater utilities. #1 - It allows utilities to petition the Commission for approval to implement a Distribution System Improvement Charge (DSIC). This allows utilities to raise rates after implementing system improvements before their next formal rate adjustment request. #2 - It exempts water and wastewater utilities from the prohibition on combining, for ratemaking purposes, different utility types and by allowing the Commission to allocate a portion of the wastewater utility's revenue requirement to the combined water and wastewater utility. Learn about Act 11 Act 12 was signed into law in 2016. This piece of legislation did more than any other legislation to help line the pockets of Big Water. Before 2016, investor-owned water or wastewater utilities were restricted to purchasing “ailing” municipal utilities for their depreciated book value. Unsurprisingly, few sales were seen in Pennsylvania. Act 12 now allows investor-owned utilities to purchase well run, stable municipal utilities for “fair market” value, leading to a rash of sales at inflated prices. The cost of these sales is, of course, passed to the ratepayer. The politics of Act 12 are interesting and highlight the close relation between Big Water and the PA legislature. Learn about Act 12 There is some activity in the Pennsylvania General Assembly to repeal or modify Act 12. On December 12, 2023 the PA House Committee on Consumer Protection, Technology & Utilities held a hearing on four bills to amend Act 12. Here is a link to that hearing (LINK ). Then on January 22, 2024 the PA Senate Democrat Policy Committee held a hearing on Act 12. Two co-founders of Keep Water Affordable testified at that hearing. Follow the link in the red arrow below for more about that hearing. PA Senate Hearing On Act 12

The Curious 2018 New Garden Sewer Rate Increase New Garden Township raised its sewer rates 30% beginning in 2019. This came in the middle of the process to sell the system to Aqua Pennsylvania. The circumstances surrounding the increase call into question the need and justification for the increase. Read on to find out why. Background New Garden Township signed a contract to sell its sewer system to Aqua Pennsylvania in August‑2016. That contract included a rate cap provision that limited rate increases for a period of ten years. Because of litigation, the deal did not close until December‑2020, over four years later. In the middle of the sale period New Garden moved to increase sewer rates by 30%. The circumstances surrounding this increase are unusual: Key Events The following are excerpts from New Garden Board of Supervisors Meeting Minutes during their 2019 budget planning: New Garden used to have links to the meeting minutes for the above meetings. However, New Garden has since removed all meeting minutes prior to 2021. We still have copies of the relevant sections and they can be found in this file: What Happened #1 Indeed, what happened? The status of the litigation on the approval of the sale is important. Eleven days before the October 22, 2018 budget meeting the Pennsylvania Commonwealth Court handed down its decision for the appeal. That decision overturned the PUC's sale approval, but for relatively minor issues – things that could be easily fixed. This was a bright light at the end of the tunnel. Some stuff had to be done, but the sale could proceed. Aqua delayed the process by appealing to the PA Supreme Court – which was denied. It was only two more years before the sale was actually executed. What Happened #2 The “official” story was that increase was necessary to cover increased costs. However, we do not think the following financial records support that position. In 2018 expenses exceeded income by a little over $200,000. However, the sewer operation still had a cash reserve over $3 million at year end. Another couple of years of negative cash flow was not going to seriously deplete that cash reserve. And, it was not to fund capital costs – as the table shows, capital expenses were negligible. Consider the much greater negative cash flow of the two previous years shown in the following table. Nobody was claiming a rate increase was needed then. The 2016 deficit was largely driven by a $1.0 million cost for sewer sale expenses. Likewise, sewer sale expenses were almost $350,000 in 2017. Evidently, depleting cash reserves was not a problem when big money was being spent on selling the system. So, Why Raise Rates? That is a question we would really like to know the truth about. But, truth is hard to come by. Increased cost does not appear to be a valid reason for raising rates. In situations like these, the principle of “follow the money” can be most revealing. The following is our SPECULATION about what happened: #1 - The contractual rate cap was based on rates in effect at the time sale was executed. Starting that cap at a 30% higher base would be worth an extra $5.7 million to Aqua over the 10 year period. #2 - The 30% rate increase was only worth about $680,000 to New Garden Township. It is pretty obvious who benefited the most. #3 - Why would New Garden burden its ratepayers with $5.7 million extra cost for a relatively small benefit? That is a question for which we do not have an answer and probably never will. #4 - Should Aqua have had a say in the rate increase? Definitely not – that was a New Garden issue. Did they? We would really like to know, but never will. Conclusions Was the New Garden sewer system in financial need of a rate increase? The notes from the budget meetings started out with a flat statement that no increase was needed. And, the financial reports support that position. The second budget meeting waffled a bit. Then at the third budget meeting, WHAM, there is a full fledged ordinance for a 30% rate increase. That seems like a strange sequence to us. Following the money brings into question whether the buyer had a role in requesting or demanding a rate increase. It would explain a lot. But, this is a conjecture that will never see the light of day. Epilogue A year after the rate increase, and before the sale closed, the rate cap was removed from the sales contract. That story is told here (LINK ). As a result we have seen rate increases over 100%. Here is a picture of what we were originally promised versus actual: (LINK ). No surprise, sewer customers in New Garden Township have not been very happy.

PA Democratic Senate Policy Committee Holds Public Meeting State Senator Katie Muth (D-Chester/Montgomery/Berks), chair of the Pennsylvania Senate Democratic Policy Committee, joined Senator Carolyn Comitta (D-Chester), Senator John Kane (D-Chester/Delaware), Senator Tim Kearney (D-Delaware), and Senator Judy Schwank (D-Berks) on January 22, 2024 in Chester County to co-host a public hearing focused on water privatization and the unintended consequences of Act 12 of 2016. The meeting included testimony from two panels: Panel 1: Affected Residents ● Bill Ferguson – Co-Founder, Keep Water Affordable ● Peter Mrozinski – Co-Founder, Keep Water Affordable ● David McMahon – Neighbors Opposing Privatization Efforts (NOPE) ● Kofe Osei – Towamencin Township Supervisor, Neighbors Opposing Privatization Efforts (NOPE) Panel 2: Policy Solutions ● Anthony Bellitto – Executive Director, North Penn Water Authority | Pennsylvania Municipal Authorities Association ● Noel Brandon - Board Chair, Chester Water Authority ● Amy Sturges – Pennsylvania Municipal League ● Chairman Stephen DeFrank – Pennsylvania Public Utility Commission ● Patrick Cicero – Office of Consumer Advocate The committee stated its unanimous support for repeal of Act 12. A meeting summary, a full video of the meeting, as well as copies of written testimony can be found at: https://www.senatormuth.com/policy-hearing-focuses-on-addressing-rising-water-wastewater-rates/ Our KWA testimony starts at about 15:00 of the meeting video.

Conflict Of Interest In the world of law firms this is an important issue because they often serve many clients, and conflicts do arise. Most firms have well established protocols to avoid and resolve conflict issues. When there is doubt, you get a different law firm. To illustrate, if you are on trial for a crime you did not commit, you do not want the prosecutor acting as your defense attorney – he would be conflicted and you would most likely wind up in jail. New Garden Conflict Investigation After New Garden’s sewer sale was complete, it came to light that the Solicitor’s law firm had a conflict. The law firm also did work for Aqua, the buyer. This was critically important because the Solicitor was one of the major architects of the sales agreement. Could he have been cutting too sweet of a deal for Aqua to benefit his firm at the expense of his New Garden client? That is the heart of conflict of interest issues. When this came to light, New Garden agreed to hire a different law firm not associated with Aqua to investigate. That law firm did its investigation and reported its findings at the November, 21, 2022 special meeting. The Conflict Report The meeting presentations were recorded on video and posted on Facebook. Unfortunately, after a couple of years Facebook removed the video. However, we have a mp4 recording of the video. Here is our transcript of the report: Neil Morris (the conflict attorney) “OK so moving to the conflict issue. So we looked at this and the Lamb McErlane firm Vince Pompo was the solicitor for New Garden, and he did not represent, to our knowledge, Aqua in any matters. But there was concern that other attorneys in his firm had represented Aqua. So, the question was raised was there a conflict. And we looked into this, and of course there was a conflict. But in looking into it further, we learned that the solicitor did in fact disclose the conflict to the Board of Supervisors at that time. And at that time the Board of Supervisors waived the conflict, and Lamb McErlane continued.” Voice from audience: “What was the date?” Neil Morris: “That was, I believe, sometime in 2016 to 2019 at that point. Our conclusion was that there was not adequate disclosure. That we believe that they shouldn’t have continued representation. However, again looking with hindsight here what happened was that we concluded that there wasn't adequate disclosure. Lamb McErlane disagrees very strongly with that. They believe that there was disclosure. There was disclosure here. We believe that a something, something should have happened. There should have been change of counsel at that time.” Neil Morris continued speaking about the resulting deal. It sounds to us like he was trying to sugar coat the situation by claiming that the resulting deal was okay. Summary #1 – There clearly was a potential conflict. The Solicitor’s law firm did work for Aqua. #2 – The conflict attorney stated: “to our knowledge” the Solicitor did not do work for Aqua. This phrasing brings up the issue of whether they directly asked the question. If they did, we would expect a statement more like: “the law firm stated that ...” Not having knowledge could be the direct result of not asking the question. #3 – There was some form of disclosure and agreement by New Garden. #4 – Yet, the conflict attorney concluded that there was not adequate disclosure and the Solicitor should not have been in his role for the sale. But, there was no explanation as to why. #5 – Timing is important here. The conflict attorney gave an uncertain three year window as to when the disclosure took place. However, even the earliest date was well into the sale process. Proper protocol would have been to resolve potential conflict issues as soon as potential buyers were identified. In August-2014 potential buyers had visited and a request for proposals was being prepared. By December-2014 three proposals had been received. Presumably, Aqua’s was one of them. Pennsylvania American and DELCORA were probably the other two. All three should have been considered for potential conflict of interest at that time. #6 - The Solicitor’s law firm "very strongly" disputed the finding of a conflict. But, there is no further explanation of why. #7 - The Solicitor in question was a key principal at the meeting, but remained silent on the issue. Subsequent Follow Up We want to see the final report submitted by the conflict attorney. Therefore, we filed a right-to-know request to obtain it. That request was denied on the grounds of it was a “non-criminal investigation”. Apparently that is some loophole in the Right To Know law. This denial was upheld on appeal. That denial makes no sense to us and smells to high heaven of cover up. New Garden contracted with an outside firm to study an issue. That firm did its work and filed a report. Normally, such a report should be public information. New Garden has elected to not reveal the content of the report. In fact, New Garden spent over $11,400 in legal fees to justify not releasing the report. Let that sink in. What does that suggest? Later one of New Garden’s Board of Supervisors was asked about implementing one of the conflict attorney’s recommendations. The answer was there was no need to. When asked why, the Board member said because the Solicitor’s law firm said it was not necessary. We think it is hard to find a more obvious case of the fox guarding the hen house. What do you think? Conclusions There was some sort of conflict of interest in the deal. That is not an accusation one law firm is going to make lightly about another law firm. If something was done wrong, New Garden should “fess up” to it and show people what happened how it will be prevented in the future. How did that effect the deal? We will probably never know. It seems to us that New Garden is intent on making sure we never do.

The Saga Of New Garden’s Rate Cap (Have We Got A Deal For You) But ... Now You See It AND ... Now You Don't Background In August of 2016 New Garden Township signed a sales contract with Aqua Pennsylvania (Aqua) to sell its sewer system for $29.5 million. A key provision was that Aqua contractually promised a ten year cap on sewer rate increases. From the date the sale closed there would be a two year rate freeze. Then for the next eight years rate increases would not exceed 4%/year. That was positioned as a very good deal for rate payers. Here is a picture of how that would impact the ratepayer: Rates would increase for the average customer from $56/month to $74/month over that period. This is a side issue, but what happens in year eleven? Check that out here: (LINK ). The Approval Process Aqua is a regulated utility. The Pennsylvania Public Utility Commission (PUC) has to approve any deal before a sale can be executed. That is a long involved legal process run by an Administrative Law Judge (ALJ). Besides Aqua and New Garden Township, the Office of Consumer Advocate (OCA, part of the Attorney General’s office) and the Bureau of Investigation & Enforcement (I&E, a part of the PUC) were major players. The rate cap was a major issue in the PUC approval process. Both the OCA and I&E opposed the rate cap. They claimed that the rate cap was a “Rate Stabilization Plan". That is a technical term within the PUC. It requires special documentation to approve it. Aqua said no, the rate cap was a contractual issue with New Garden ratepayers and did not provide the needed documentation. Who Pays The Difference The difference between what Aqua would collect from ratepayers with and without the rate cap is considerable. We are speculating here, but it is likely Aqua was not expecting to forego that difference. Aqua probably expected to be able to use Act 11 (LINK ) to make up the difference from other ratepayers. Both the OCA and I&E were adamantly against that idea. In the end, the OCA got a stipulation in the PUC approval where Aqua was welcome to charge New Garden customers less than its normal rates, but at shareholders expense, not out of the pocket of other ratepayers. The First PUC Approval At the end of the PUC approval process, the ALJ recommended against the approval of the acquisition. That is a story by itself told here (Future Link). But, the full Commission overruled the ALJ and approved the acquisition on June 29, 2017 – a little less than a year after the deal was signed. Essentially, the commissioners agreed the rate cap was private contractual side deal between Aqua and ratepayers. However - and, this is important - they did include the provision that the cost of the rate cap would be borne by shareholders, not other ratepayers. It is a bit of convoluted legal language, but here is the PUC's statement on the issue (pages 73 - 74 of the PUC's Opinion & Order - LINK ): "12. That the Commission retains the authority to allocate revenues, if appropriate, to the New Garden Township customers that are in excess of the restrictions outlined in the Asset Purchase Agreement. Aqua Pennsylvania Wastewater, Inc., and its shareholders should bear all risk of a shortfall between revenues it is permitted to recover under its Asset Purchase Agreement with New Garden Township and New Garden Township Sewer Authority and the costs that Aqua Pennsylvania Wastewater, Inc., will incur with respect to the acquired system. To the extent that Aqua Pennsylvania Wastewater, Inc., is unwilling or unable to charge costs in excess of the limitations provided in the Asset Purchase Agreement, the excess costs should be borne by its shareholders and not spread to other ratepayers." Litigation Of The PUC’s Approval At that point the OCA sued the PUC to overturn the decision. This acquisition was the first under Pennsylvania's new "Fair Market Value" law (Act 12) - explained here (LINK ). As a first "test case" it was not surprising that it would be tested in court. That lawsuit had absolutely nothing to do with the rate cap. The issue the OCA focused on was not adequately informing ratepayers about the impact of the acquisition. On October 11, 2018 the OCA won its case. The approval was remanded to the PUC for re‑consideration. Aqua appealed the decision to the PA Supreme court but was turned down on April 23, 2019. The basis for the court overturning the PUC’s approval was narrow and technical. Aqua had to make an estimate of the cost impact of the acquisition on all ratepayers and then notify those ratepayers. Those were relatively easy things to do. The PUC should have been able to move forward quickly with the second approval. But, that is not what happened. Public Meeting On The Rate Cap There was a quiet period and then on September 23, 2019 New Garden Township held a public meeting of HUGE importance to sewer ratepayers. The meeting was not well publicized. The "official" announcements about the meeting follow. About a month before the September meeting, the Board of Supervisors meeting minutes from August 19, 2019 had the following statement: Note that they were going to “explain” potential changes. There was no indication of what those changes might be or how significant they were. There had been two previous changes that were minor and technical in nature. There was another Board of Supervisors meeting on September 16, 2019, just three days before the big public meeting. The meeting minutes had the following statement: They were going to provide an “update”. No big deal, just an update. The 9/23/2019 Public Meeting - Introduction This meeting turned out to be a big deal. It was a full Board of Supervisors meeting. All five supervisors were present. All four sewer authority board members were present. Five Aqua officials also participated. Not many New Garden residents attended. One who did estimated that maybe 20 others were in the audience. New Garden’s solicitor (Mr. Vince Pompo) more or less ran the meeting. The proposal to drop the rate cap was introduced as follows (Pompo is speaking - pages 13 -14): "As discussed before, certain legislation provides for the distribution of costs related to acquisition of water and wastewater systems over the entire existing water and sewer customer base throughout Pennsylvania of the purchaser, in addition to the customers at the acquired system, when in the public interest. The logic is that by spreading costs equitably as determined by the PUC, user rates can be kept reasonable. As part of the potential settlement, New Garden and Aqua will be asked to amend the Asset Purchase Agreement to remove the provisions regarding the rate freeze and the compound annual growth rate." Without naming it, the first part talks about Act 11 (LINK ) and how costs can be distributed across a very large user base so that “user rates can be kept reasonable”. This seems to suggest, but does not overtly state, that a rate cap is really not needed because costs will be distributed over the whole system. We think that was a deceptive introduction to dropping the rate cap. But, dropping the rate cap was the very next statement. There were a number of questions from residents that clearly indicated they understood that New Garden costs would be shared across a wide customer base. The answers to those questions were always evasive. The 9/23/2019 Public Meeting - Omissions We think there were a couple of important omissions at this point: #1 - When the PUC first approved of the sale in 2017, they ordered Aqua to set up New Garden as an independent rate zone. If you are going to lump all users into one big group, separate zones would not be needed. This should have been a red flag that New Garden being subsidized by other Aqua customers could be very limited. #2 - The ethical thing to do would have been to estimate New Garden rate increases based on a stand alone basis. Indeed, disclosing ratepayer impact was the reason the PA Commonwealth Court overturned the original approval. One resident actually complained that no one would even make an estimate on rates. Everything was generalities. One of Aqua's participants was a financial leader qualified to answer the rate questions. He remained silent on the issue. The 9/23/ 2019 Public Meeting - End Result At the end of the meeting the New Garden officials voted to drop the rate cap. It is pretty clear to us that was the planned outcome from the very start. Our rate cap was gone! So what happened to New Garden ratepayers when Aqua filed to increase rates in August, 2021? The following chart shows the result: Aqua’s rate increase of May, 2022 increased our rate 146% over the contract commitment. Needless to say there was a lot of “rate shock” when the bills with the rate increases arrived. As a side note, there is a small increase in 2021. That is the story of a different rate increase that probably was not needed. That story is told here (LINK ) The full transcript of the September 23, 2019 meeting is available here: Why Was the Rate Cap Removed This is a question that is not easy to get a straight answer on. The question was asked at the September 23, 2019 meeting (page 46). Here is the back on forth on the issue: STAN LUKOFF: "Yes, sir. Stan Lukoff, Reynolds Road. I'm a present New Garden sewer customer. So, I may have missed something, but why are we removing the provision around the compound annual growth rate and the rate freeze in the Asset Purchase Agreement Is that because the New Garden sewer rates are superceding that?" MR. POMPO: "The basic answer to the question is because there were other parties in the matter, arms of the PUC and the Office of Consumer Advocate that objected to those provisions in the agreement. That's the simple answer." STAN LUKOFF: "Certainly not in the customers benefit to do that." MR. POMPO: "Well, one can argue that both sides, because we thought that that was in favor of the customer, but others, including the Consumer Advocate, for good reason I'm not going to go into, did not follow that same logic." Paraphrasing the reason given: others, including the Consumer Advocate made us do it. But, I am not going to tell you why . We have been filing right to know requests and appeals to validate this claim. So far we have been stonewalled on this. New Garden either claimed the records no longer exist or are part of "settlement discussions", which are a protected category. A few documents have been produced but they bear zero relevance to the requests. There was a second public meeting on this issue held November 21, 2022 (LINK ). This was long after the sale had been executed. The purpose of the meeting to address citizen unrest about what happened to our sewer system. At that meeting Mr Pompo stated clearly multiple times that the OCA would not approve the deal unless the rate cap was removed. It is unlikely that the OCA demanded that the rate cap be removed for the following reasons: #1 - The issue had been thoroughly processed in the first PUC approval of the acquisition. Although the OCA was not happy about the rate cap, they did succeed in having clear language that Aqua shareholders would bear the cost of the revenue shortfall, not other ratepayers – which was their primary concern. #2 - When the OCA appealed the PUC approval through the court system, the rate cap was not part of the appeal. That makes it very unlikely that it would later become a non negotiable issue. #3 - The OCA does not have veto authority over PUC decisions. They can vigorously state their position, but the PUC commissioners are the deciding authority. #4 - Since the New Garden case, Pennsylvania American Water acquisitions have included rate freeze/rate cap provisions. Whether or not the OCA approved them or not, it was not an issue that stopped the approval process. We had direct communication with the OCA principals in the New Garden approval case. They told us that dropping the rate cap was an issue between Aqua and New Garden. Conclusions So why was the rate cap dropped? #1 - It is pretty clear that it was NOT the OCA demanding it. #2 - Our speculation is that Aqua was not willing to forgo over $2.5 million/yr of revenue the rate cap would take away. There would have been essentially zero profit during the first ten years of the deal. But, did Aqua have an escape clause in the contract? We can not find it. Could New Garden have sued Aqua to enforce the contract? Possibly. Why didn’t they? We do not know. It might have been the irresistible lure of the $29.5 million of “free” money. But, we must note that New Garden did receive compensation for the dropping of the rate cap: $10.00. That is ten whole dollars. Not ten thousand or ten million. Ten dollars. Aqua will be collecting over $20 million additional revenue over their first ten years of ownership and New Garden sold that to them for the paltry sum of ten dollars! One thing is clear: the rate cap disappeared. And, WE ARE PAYING FOR IT.

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 culminated with a rate increase on February 22, 2025. A summary of the rate setting process can be found here: (LINK ). That summary used Aqua's 2024 rate case as an example. As a result it contains a lot of information about the 2024 rate case. What follows is information about the major issues for the rate case. Major Issue #1 - Size of Aqua's Proposed 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. As summarized below, that was, indeed, the result. Major Issue #2 - Rate Increase For East Whiteland The PUC approved Aqua's $54 million acquisition of East Whiteland's sewer system on 7/29/2022. 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 Office of Consumer Advocate (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's approval of the deal. Oops, Aqua had spent $54 million on the acquisition, but suddenly did not have the necessary approval to own 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 did issue a ruling before the rate case was complete. When Aqua filed its rate case, 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 the PUC's Bureau of Investigation & Enforcement (I&E) strongly objected to this. Their position was that without the approval the PUC does not have jurisdiction. If the Supreme Court upheld the Commonwealth Court, then Aqua would 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 $6.4 million would have been 181% rate increase - nearly a tripling of rates. In either case there would be no Act 11 adjustment. 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. Ultimately, the PUC Commissioners denied Aqua an increase for East Whiteland. Well after the rate case was complete, the Pennsylvania Supreme Court reversed the Commonwealth Court, allowing Aqua to keep East Whiteland's sewer system. A rate increase for that system will now be part of Aqua's next rate case. Based on the $6.4 million/yr noted above, there will likely be some major rate shock whenever Aqua's next rate case goes into effect. Major Issue #3 - Settlement By The Major Parties For this rate case, the major parties came to agreement (LINK ) 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. Based on Aqua's numbers noted above, the water increase is about 10% and the sewer increase is about 20%. 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. Major Issue #4 - The DSIC Impact On Rates 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 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. Outcome #1 - The 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 rates in the Settlement be accepted. 3 - They did note the revenue discrepancy noted above. Outcome #2 - The PUC's Final Opinion & 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 was denied permission to raise rates for East Whiteland. How Much Will My Bill Increase Aqua has now filed its revised tariff schedule so the rate increases can be determined. Here are the system wide averages and links to zone by zone increases: Water - 18.4% excluding the DSIC charge. 11.0% including DSIC. Here are the individual water zone increases: Sewer - 22.6% excluding the DSIC charge. 21.3% including DSIC. However, much of the increase will be paid by the Act 12 acquisitions. Aqua customers prior to the Act 12 acquisitions will see much more modest increases. Here are the individual sewer zone increases: Rate increase data specifically for the five Act 12 sewer acquisitions can be found here: 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 file summarizing the more important filings:

Does Big Water Cost Less? For the ratepayer the flat out answer is NO ! Yet when a municipality wants to sell a water or sewer system to Big Water, lower costs are usually a selling point. How can this be? The claims usually revolve around both operating costs and capital costs. There is a grain of truth in each. But, in making these claims there is an elephant in the room that both the seller and buyer seem to prefer to ignore. Read on for more detail. Capital Investment The standard story is that municipal capital costs are 25% - 35% higher. This means that a construction project that Big Water could execute for $10 million might cost a municipality over $13 million. This grain of truth is based on federal law requiring local governments to pay prevailing wage rates for work they contract. In effect, this means paying union shop wages. Non-union contractors may pay lower wage rates and be used by Big Water. Since labor is usually a big part of construction costs, it is possible that municipal improvements costs could be higher. Although we have seen this claim several times, we have never seen it substantiated. But, lets assume capital costs really are 30% higher for a municipality. The real issue that matters to ratepayers is how that capital investment will impact their rates. We have never seen that issue addressed. Here is an illustration that explains why. Assume that Big Water could install a capital project for $10 million, or a municipality could do it for $13 million - the 30% higher cost. The following chart shows the ratepayer impact: Most municipalities would fund major improvements by issuing a bond. Rates would most likely have to be raised to cover the “mortgage payments” for the bond. This is a very equitable way for users of the system to pay for the improvements. Those who benefit pay the extra cost. When the bond is paid off, the extra cost goes away. The Big Water company will pay for the improvements via their normal capital management system. This typically would be a mix of borrowing, depreciation and reinvested earnings. When the improvements are complete, Big Water will move to increase rates. Over 70% of what they collect from ratepayers depends on their investment. So they quickly move to fully recover their costs plus earn a substantial profit. The short answer is that although Big Water’s capital cost may be 30% less, Big Water will charge ratepayers about a third more. We Can't Afford The Repairs On a related subject, when a municipality wants to sell a water or sewer system a common claim is that needed repairs would be so expensive that we cannot afford them. But, whatever capital investment Big Water puts into a system, it will cost ratepayers more than if the system was not sold. More detail on this issue here . If you are hearing this story line, we suggest you challenge it vigorously. Operating Cost Here, the grain of truth is that Big Water has economies of scale that enable them to operate at lower cost. For small municipal systems this is probably true. For large systems, the savings probably diminish considerably. The problem is that lower operating cost does not offset Big Water’s other costs. The following charts illustrate why. Only about 25% of the ratepayer’s dollar goes to Big Water’s operating cost. Reducing that by 20% would only reduce the ratepayer’s bill by 5%. Profit and depreciation comprise over 60% of Big Water’s costs – both of which are paid for by ratepayers. And, these are costs not incurred by a municipal system. Therefore, they are a big part of the rate increase when a municipal system is sold to Big Water. So, the talking point before the sale is operating savings. The ~5% savings is touted but the 60% increase is not mentioned. Aqua’s acquisition of New Garden’s sewer system illustrates how this works. New Garden is a small system with less than 2,500 customers. In their PUC filings, Aqua noted that they had several nearby systems that could share costs. Indeed, Aqua’s rate filing data indicates that they have reduced operating cost by almost 40%. That is a substantial savings. Yet, they raised our residential rates by almost 80%. The following chart illustrates what happened: Clearly, there are operating savings. Equally clear is how profit and depreciation totally overwhelm those savings. The increase we saw in 2022 was just the first step. When Aqua files its next rate case, much of that "$1 Million Paid By Other Customers" will be shifted to New Garden customers. This is part of the PUC's policy to mitigate "Rate Shock", but move systems to their full cost of service. This is not an isolated case. Every Big Water acquisition we have looked at shows this same pattern. Conclusions There are significant differences in the financial structures of Big Water and municipal water and sewer utilities. The two noted above usually favor Big Water. And, when Big Water wants to buy a system, those advantages are touted. But the money Big Water will be collecting from ratepayers for profit and depreciation are the elephant in the room that both buyer and seller want to ignore. If your water or sewer system is up for sale, you need to understand these issues and: Question Question Question Your Local Officials.

The New Garden Wastewater Trucking Saga New Garden operated two bio-treatment lagoons for its wastewater system. The treated water was disposed of by irrigation on surrounding land dedicated for that purpose. During 2015 the land around the South End lagoon lost capacity to absorb the needed amount of wastewater. There was about a 35% reduction in capacity. But, the inflow did not slow down and something had to be done with the excess wastewater. Therefore, New Garden began to truck wastewater from the South End plant to the East End plant. Trucking Is Expensive By February-2016 100,000 – 150,000 gallons per day were being hauled. This was costing $3,000 - $5,000 per day. New Garden has confirmed that this was costing $100,000/month. This is partially validated by operating costs going up by over $1.3 million in 2016. This went on until the sewer sale was complete at the end of 2020. So, over a five year period, New Garden spent somewhere between $5 - 6 million trucking wastewater. There Was A Cheaper Alternative There is a major untold story here questioning why New Garden wasted so much money trucking waste. It turns out there was an unused pipeline that could be used to pump the wastewater instead of truck it - and, pumping is a heck of a lot cheaper than trucking. New Garden knew about this pipeline but did nothing about it. Prior to 2005 the Hartefeld subdivision pumped wastewater about two miles to the South End plant for treatment. Then in 2005 Hartefeld switched and began pumping to the East End plant. The pipeline to the South End plant was abandon in place. This is documented in a 2015 Report on the South End Waste Treatment Plant (LINK ). So the basic facilities were already in place to pump from the South End plant to Hartefeld and then on to the East End plant. In spite of knowing about this pipeline, New Garden did nothing about it. Aqua, once they owned the system, immediately started to activate this pipeline. It took 8 – 10 months and cost less than $700,000. Spending $700,000 to save $1.2 million/yr is a high return investment – it is a no brainer. Why Didn't New Garden Activate The Pipeline? Clearly, New Garden could have saved a lot of money. One possibility is that New Garden did not want to spend capital money on a system they were about to sell. In April of 2016 Aqua was going to be picked as the buyer. However, the deal with Aqua could have included funding for the pipeline when the sale was executed. At the start of 2016 the New Garden sewer system had $4.4 million in cash reserves, so funding the project would not have been a problem. Another possibility is that the trucking provided a lot of justification for selling the system. Selling the system would off load the issue onto the buyer. The final outcome was that the sewer sale dragged on for another five years. If New Garden had activated that pipeline, it would have saved $4 – 5 million. Instead New Garden trucked for five years until the system was sold. When Aqua took over, they got busy and fixed the problem.

Are You Being Told There Will Be A Big Rate Increase If Your Municipal Water Or Sewer System Is Not Sold? Generally the story goes: The system is in dire need of repairs Those repairs would require a huge rate increase Therefore, we have to sell If this is what you are hearing, read on New Garden Township Experience We experienced the above scenario beginning in 2014 when New Garden Township started evaluating a sewer system sale. Key justification for the sale was that major repairs were needed and that was going to require an almost 80% rate increase. What follows are highlights about what we were told and what we have been able to piece together about the need for a rate increase. 2014 - 2015 The Sales Evaluation Process In March 2014 New Garden Township announced it would start evaluating a sewer system sale. Very little was communicated during this period. What was focused mainly on what a thorough job was being done. Then came 2016 ... 2016 - Announcing The Sale On April 14, 2016 New Garden Township officials held a buyer selection meeting. A month later they announced at a board meeting that Aqua had been selected as the buyer. Then on July 19, 2016 New Garden posted this set of FAQ's on its website explaining the sale: A key part of those FAQ's was the investment and rate hikes that would be needed if the sale did not go through. By contrast, Aqua would be contractually committed to much lower rate increases for 10 years. They made it sound like a sweet deal. This was the core of the justification for the sale. We have two issues with this: First the required investment was likely grossly overstated. This is analyzed in detail here (LINK ). If any rate increase was needed, it would have been far less than projected by New Garden. Keep reading to learn why. The Rate Increase Without A Sale The July 19, 2016 FAQ's announced the following rate increases if the system was not sold: Aqua's rate at the end of 10 years would be $263/quarter - only a 39% increase. They sure made it sound like a good deal. As a side note, no one ever mentioned what would happen in year 11. They should have. It would look something like the chart shown here (LINK ) The Cost To Fund A $12 Million Investment The normal way a municipality funds capital projects is to issue a bond. Municipal bonds have very favorable interest rates because they are exempt from federal tax. At the time of the sale, interest rates were typically less than 3%. Water or sewer authority bonds are especially safe because they are paid from ratepayer revenue which can be increased as needed to service the bond. Using an interest rate of 3%, the annual debt service will depend on the length of the bond as shown in the following table: For facilities with a long life, 20 or 25 years would be typical. Therefore, annual debt service of $700,000 - $800,000 per year would be required. Rate Increase Economics The revenue generated by the proposed rate increase is shown by the following table. The revenue generated by the first 40% rate increase would more than pay for a 20 year bond. So why would the next 27.5% increase be needed? However, even the need for the first 40% is questionable. The following table is a more complete look at New Garden's financial situation. Check out the red box on the debt service line. The last payment on an earlier bond was going to be made in 2017. That was going to free up over $600,000/yr for other uses. That by itself would have funded 75% of a new $12 million bond. In 2021 another bond costing $170,000/yr would be paid off. The two combined would cover 95% of the new debt service. And, the sewer system had adequate cash reserves to manage through any short term cash issues. There is another major issue mitigating against the need for a rate increase. That is the over $1 million/yr cost to truck wastewater from the South End plant. Part of the proposed $12 million was to eliminate that. In fact, when Aqua bought the system, they promptly invested $600,000 to activate an existing pipeline and eliminate the trucking and its cost. That story is told here (LINK ). So there was over another $1 million/yr savings that could have been applied to other uses - or even a rate reduction. New Garden's Financial Forecast New Garden did provide a 10 year financial forecast. The first six years of it are reproduced in the following table: Observations about this forecast: It looks like the $12 million debt was issued in two pieces: a small part in 2017 and a much larger part in 2019. There is a reduction in debt service from 2017 to 2018, reflecting the $600,000/yr bond being paid off. After 2021 debt service is about $1.3 million/yr. Why such high debt service instead of the ~$800,000/yr noted above? One way to achieve that is to make it a 10 year bond and a $1.4 million/yr payment. It helps make the sale case look attractive. Between 2018 and 2022 surplus funds average over $500,000/yr. That says that about 32% of the rate increases are just going to build cash reserves, not pay for improvements. When the sale process started the New Garden sewer system had $4.4 million in cash reserves – over two full years of income. Why would more cash reserves be needed? Operating expenses do go down between 2018 and 2019. This most likely reflects eliminating the wastewater trucking expense. Conclusions If $12 million investment was really required, it could have been financed over 20 years for little or no rate increase. New Garden's own numbers show that much of the rate increase would not be going to pay for the new investment. And, as shown here (LINK ) $12 million grossly overstated the needed investment. What we think this means is that New Garden's rate increase forecast was a scare tactic to justify the sale. If your local government wants to sell your water or sewer system and a big rate increase is part of the justification, it is time to ask a lot of questions. This is an area where financial experience is needed. If you do not have the needed skills, try to find someone who does. It is important that the straight forward honest story is told about the economics of the sale. Que stion Question Question You r Local Officials .