Aqua’s Complaint Replies Here is a copy of Aqua’s reply to my consumption volume complaint: And, here is a copy of Aqua’s reply to my trucking complaint: Highlights For Aqua’s Complaint Replies I found Aqua’s filings difficult to read. “Admitted” appears 64 times and “denied” appears 69 times. Both are used as having technical legal meaning. For example, Aqua “admits” that my complaints reference filings Aqua made in its 2021 rate increase filing. However, any characterization I make is “denied”. Both go on like that over and over and over. Essentially, each reply goes through both complaints denying all the points I made. After denying all the issues raised in the two complaints, Aqua moved on to raising a “New Matter”. This is another technical legal term used to raise issues about why the complaints should be thrown out. New Matter highlights include: The complaints are barred by Section 316 of the Public Utility Code. That section of the code essentially says that any final action by the PUC is cast in stone and cannot be challenged. The complaints are barred by the doctrine of collateral estoppel. This is a double jeopardy defense. It says you cannot re-litigate issues that have already been decided in a prior legal case. I participated in the public hearings for Aqua’s 2021 rate case and did not bring up either issue. None of the major parties to Aqua’s 2021 rate case brought up the issues raised by my complaints. My complaints amount to retroactive ratemaking and single issue ratemaking and, therefore, are barred. My Answer To Aqua’s Filings I filed counter replies to each of Aqua’s filings: Here is the consumption volume filing: LINK Here is the trucking filing: LINK They say essentially the same thing: Aqua did not fulfill its obligations in its rate filing. The reason the PUC exists is to protect ratepayers from predatory practices of utility companies. The complexity of rate setting has evolved so that it is easy to conceal items that should not be included. The PUC should be pleased when issues like this are identified and can be acted upon. The complaint issues resulted in significant economic impact on New Garden customers. Correction can be made without a re-do of the rate setting process.

Act 11 Pennsylvania’s Act 11 plays a major role in determining how much regulated Big Water companies are allowed to charge us for water and sewer service. This legislation allows the Big Water companies to move sewer revenues to water customers or to other sewer systems – “if in the public interest”. Basically, it is used to temper “rate shock” for the customers of newly acquired municipal systems. Since 2016 Big Water companies have been buying municipal sewer systems at premium prices enabled by Act 12 . Those premium prices translate to significantly higher water and sewer bills to pay for the investments. The Big Water companies and the PUC use Act 11 to temper the exorbitant rate increases by moving part of the increase to their base of water customers. This practice really stinks – but, it is legal. Your water or sewer bill should pay for the cost of service. If your supplier is a for profit company, that company’s profit is a part of the bill. But, because of Act 11 your bill can include your company’s cost and profit for totally unrelated systems in other parts of the state. The chapter on Beggar Thy Neighbor has the example where Aqua water customers 300 miles away in Warren County PA are helping subsidize our New Garden sewer bills. There is absolutely no connection between them. We did not ask for this and think it stinks, but it is happening. Background Act 11 was passed in 2012. It is a ten page bill of dense legalese dealing with recovery of costs for capital improvements. It applies to all regulated utilities, not just water and sewer. The following is the single paragraph slipped into Act 11 that opens a loophole for the Big Water companies to drive a truck through: "(c) Segregation of property .--When any public utility furnishes more than one of the different types of utility service, the c ommission shall segregate the property used and useful in furnishing each type of such service, and shall not consider the property of such public utility as a unit in determining the value of the rate base of such public utility for the purpose of fixing base rates.  A utility that provides water and wastewater service shall be exempt from this subsection upon petition of a utility to combine water and wastewater revenue requirements.  The commission, when setting base rates, after notice and an opportunity to be heard, may allocate a portion of the wastewater revenue requirement to the combined water and wastewater customer base if in the public interest." What this means is: #1 - Big Water companies like Aqua Pennsylvania and Pennsylvania American Water can ask the PUC to allow collecting of sewer revenues from their water customers. #2 - But it is different for a company like PECO - a utility that supplies both gas and electric service. PECO is strictly prohibited from collecting gas revenues from its electric customers or collecting electric revenues from their gas customers. How It Is Used Rate cases for Aqua in 2021 and American in 2022 & 2023 illustrate how costs are moved from one customer segment to another. First Aqua in their August 2021 rate case. Aqua Pennsylvania August 2021 Rate Filing The top line titled “Revenue Increase” is the increase Aqua claimed was necessary to cover costs plus deliver their proposed return on investment. As you can see, the sewer customers would be hit with the largest percentage increases – almost 7X the water increase. This is logical since their acquisitions were all sewer utilities. Aqua proposed to temper the “rate shock” of the sewer increases by moving almost $21 million of the sewer revenue to water customers. The total “required revenue” increase for sewer customers was $32.4 million. Aqua wanted to move $21 million (64% of the increase) to their water customers! This would have had raised the rate increase for water customers from ~13% to ~17%. Those water customers had nothing to do with the sewer acquisitions but would be required to pay for the majority of the increase. Does that make sense to you? The final decision by the PUC did two things: #1 - The PUC trimmed Aqua’s allowed revenue by $26 million (a whopping 4% reduction). #2 - It reduced the Act 11 revenue shift to ~$11 million. That was still 38% of the sewer increase. That increased the “rate shock” for sewer customers. And, we can vouch first hand that there was a lot of rate shock when the first bills arrived with the increased rates. Pennsylvania American Water May 2022 Rate Filing Like Aqua, the “revenue increase" for sewer customers was about 7X the water increase on a percentage basis. American wanted to move almost $73 million of revenue from sewer users to their water customers. They wanted their water customers to pay 79% of the increase for sewer! That would have doubled the increase seen by water customers from 11% to 22%. In its final decision the PUC did the following: #1 - American’s revenue was trimmed by $35 million – another whopping 3.5% of total revenue. #2 - The Act 11 adjustment was substantially scaled back to $27 million/yr. That is still water customers paying 29% of the sewer cost increases. #3 - Water customers were hit with a 12% increase while sewer customers are paying 46% more. Pennsylvania American Water November 2023 Rate Filing See next section for the final outcome We find two things astounding about this case: #1 - American wants to move all but $5 million of its sewer increase to its water customers. That is $71 million out of $76 million or 94% of the increase! The total sewer increase would be reduced to only 3% while water customers would see a 24% increase. Why should the water customers have to pay for American's sewer acquisitions whose costs are inflated by Act 12 (LINK )? #2 - American is proposing increases for systems it does not even own yet - BASA and Brentwood. And, BASA figures prominently in the proposed Act 11 adjustment. So, go figure on how all that gets worked out when it comes to setting rates. When the rate increases go into effect, it would absurd to let American collect revenue from water customers for a system it does not own. Pennsylvania American Water November 2023 Rate Filing - Final Outcome As noted above, American proposed increases and Act 11 adjustments for systems it does not even own yet. That did not fly. The above table shows the proposals without those two systems. The revised numbers show over a 15% increase for water customers and 27% for sewer customers. However, American wanted to move all the sewer increase to its water customers. That did not fly with the PUC. The Act 11 adjustment was cut in half. This had the effect of bumping the water increase from 8% to almost 11%. The sewer customers wound up with an increase of 6% - 7%. Conclusions Act 11 allows both Big Water and the regulators to play games with rate increases for expensive acquisitions. All in the interest of avoiding “rate shock”. It could also be described as covering up the true cost of these “Fair Market Value” acquisitions. There is nothing equitable about palming off cost increases on customers totally disconnected from those increases. It will be interesting to see what happens with the next round of rate increases in 2024. There are several possibilities: #1 - If the PUC really moves rates to reflect the cost of service, the current sewer systems are apt to see another large increase. Along with this the Act 11 adjustment should go down and the water increases would be much more modest. #2 - In Pennsylvania over 98% of Aqua and American water customers are lumped into one rate category for each company. This is true whether or not individual systems are connected. This is another form of expensive systems being subsidized by lower cost ones. The same might happen to sewer systems. You could wind up with one sewer rate for everyone, regardless of individual cost. #3 - Almost certainly there will be additional “Fair Market Value” acquisitions. It is likely that new Act 11 adjustments will be applied to those situations. #4 - It is almost certain there will be various forms of “Beggar Thy Neighbor” situations.

Detailed Summary Of The Complaint Hearing Introduction Hearings for “Formal Complaints” are very formal procedures. They are run by and Administrative Law Judge (ALJ). This is not a judge in the sense of a branch of government, but is an employee of the PUC. I saw somewhere that they are tenured positions giving them some degree of independence. There is a court reporter transcribing the entire proceeding. And, of course, there are the two parties to the case. The hearing is a public event and anyone is welcome to listen in. In fact, there was another member of KWA listening to the whole procedure. I was the only one speaking on my behalf. Aqua had a lawyer and their Manager of Rates as an “Expert Witness”. The process began with the ALJ laying out the process and expectations of the parties. Then she turned it over to me to make my case. My Introduction “What I intend to show today is that Aqua did not meet its obligation to provide factual and correct data for its New Garden sewer operation, and it was done in a way that a normal rate-setting litigation process would never uncover and that it would increase the profitability realized by Aqua beyond what was approved by the PUC ”. The Trucking Complaint I then proceeded with the trucking complaint. That was basically a presentation of the three elements of evidence that Aqua started their pipeline up and stopped trucking well before the deadline for making rate case adjustments. That meant Aqua had a legal obligation to remove that cost from the rate case. During my trucking presentation Aqua objected seven times. After the seventh objection the ALJ indicated she did not like all the interruptions. I suspect Aqua had several objectives here: Several of the objections were “hearsay’ relating to Aqua’s Operations Manager’s presentation at a New Garden Township meeting November 21, 2022. I think Aqua really wanted to keep that out of the case record. In the end it was admitted into the record and most of Aqua’s objections were overruled. My favorite “hearsay” objection was my statement about a 35% loss of capacity at New Garden’s South End treatment plant. That 35% was “hearsay”. In a sense that was true. But, the one I heard saying it was Aqua’s Operations Manager at the New Garden Township meeting. And, it was available for all to hear. Was Aqua’s Operations Manager an unreliable source? In any event, the 35% had zero significance to my case. I also think that Aqua may have been trying to rattle me. However, I had carefully prepared my presentation and never had a problem picking up where I left off. I concluded the trucking phase with a statement that the PUC should investigate when trucking ended and take appropriate action. At that point the ALJ wanted Aqua to cross examine me. Aqua deferred saying it wanted to cross examine the two complaints together. The ALJ agreed and I began my presentation of the consumption volume complaint. The Consumption Volume Complaint The consumption volume complaint is difficult to understand. There are a lot of numbers involved and you must understand how those numbers relate to setting rates. The key steps are: It starts with six pages of detailed Aqua consumption data for New Garden. LINK Those six pages get distilled down to a table of just twelve numbers that are fully equivalent to Aqua’s six pages of data. LINK An analysis showing how that table of twelve numbers does not represent actual use by New Garden customers. I presented this as a series of “Major Issues”. That was a lengthy process. Looking back at the transcript of the hearing, I do not believe that the ALJ really understood the significance of the consumption volume issues. Added to that were another six objections by Aqua. After I completed my consumption volume piece, the ALJ asked me a series of questions about my experience. She acknowledged that I was not your average layman. It appeared that she was trying to determine if I was an “Expert Witness”. Aqua Cross Examines Me Cross examination started with a series of questions that I believe were intended to discredit me. For example: “Have you ever been responsible for the preparation of an allocated cost of service study in a base rate proceeding before the Pennsylvania Public Utility Commission?” Clearly, the answer was “NO”. This also set up a contrast with Aqua’s witness who would later answer “Yes” to the same questions. A second line of questioning was whether or not I participated in the public hearing for Aqua’s 2021 rate case. I believe the intent was to establish that participating in the public hearings disqualified me from filing my two complaints. That was not overtly stated during the hearing but was part of Aqua’s replies to my complaint filings. The issue was if I had challenged the trucking cost during public hearings that would disqualify me from filing my complaint. Indeed I had participated in the public hearings. And, I asked what was a $1.2 million/yr cost called “Purchased Wastewater”. Aqua in its Main Brief answered it was the trucking cost. I did not challenge the cost as being inappropriate, but only wanted clarification of the vague term “Purchased Wastewater”. Aqua concluded its cross examination with this: “Is it your position today that Aqua has not charged you consistent with its tariff at any point, at any point in providing you service?” Of course, the answer was “NO”. The rate case ultimately produced billing rates that Aqua accurately applied to my bills. The real issue was that the data that went into setting those billing rates did not fairly represent costs and use for New Garden customers. That ended Aqua’s cross examination. However, the ALJ wanted to further pursue Aqua’s question about whether Aqua had correctly billed me. That discussion helped confirm my belief that the ALJ really did not understand that eliminating a major cost from a rate case would change the billing rates that resulted. Aqua's "Expert Witness" The next phase of the hearing introduced Aqua’s “Expert Witness”, their Manager of Rates. Aqua’s lawyer asked 85 questions that basically established that the 2021 rate case went through all the standard steps in arriving at an outcome. A few highlights: Aqua made a big deal that they did not collect “The Full Cost of Service” from New Garden customers. The full cost was about $5.4 million/yr while New Garden customers actually paid about $4.4 million/yr. I found that quite deceptive. Aqua DID collect the full $5.4 million/yr. Via Act 11, the PUC permitted Aqua to collect the $1.0 million/yr difference from other customers. Aqua addressed my allegation that the consumption volumes were understated. The answer was that Aqua used annualized number provided by New Garden from the acquisition. However, that data was never entered into evidence. It was merely a statement by Aqua’s witness. Of the 85 questions, exactly one concerned the trucking complaint. That exchange was: "Q. And could you please provide an overview of your understanding of Mr. Ferguson's complaint at c-2023-3043109? A. That is the expense complaint, and that alleges that New Garden customers have an expense included in their revenue requirement that Aqua is not incurring , and because of that expense that he has singled out, a refund to customers should be issued ." The ALJ asked Aqua’s witness a couple of questions and then turned it over to me for cross examination. My Cross Examination of Aqua's Witness Highlights include: I started by asking about the $1.2 million/yr trucking cost. Aqua’s witness replied that it was a “Purchased Wastewater Expense” and that it was $800,000 trucking and $400,000 other stuff. I noted that Aqua’s Main Brief clearly stated it was the trucking expense, so where in Aqua’s filings was it otherwise defined. She stated it was not. I asked if she knew Aqua was working to activate the pipeline to eliminate trucking. I believe the answer was most evasive: “At the time of filing, I was aware that there was an enormous purchased wastewater expense that we were incurring for hauling that and that we were actively searching for a solution, but that no solution had been found yet.” I asked if it was company policy for the operations department to communicate important milestones for a project that would impact rate setting. The question was not answered. I asked whether Aqua had formally authorized a project for the dryline activation. I feel there was some evasion here. There was never a direct answer about the pipeline project. With some questioning Aqua’s witness finally admitted only that Aqua had a project approval process. I asked if the New Garden volume data was publicly available. She said it was part of the New Garden acquisition settlement agreement. Again, I believe this is a deception. The settlement agreement contains a table with the consumption volumes (PDF page 38 of the Settlement Agreement: LINK ), but that is an Aqua document, not New Garden data. Finally I ask if having correct consumption volumes is important to rate setting. There was a clear “Yes” to that one, however, Aqua called them “billing determinants”. Aqua "Redirects" Questions To Its Witness This is important: Aqua stated that if there was a significant change in expense during the rate case, the filing would be corrected if the record was still open. But, Aqua did not become aware of any significant change. Finally, Aqua’s lawyer tried to make the point that if the PUC granted my complaint on consumption volumes, New Garden rates would increase. I believe the answer was another significant deception by Aqua. My complaint had two elements, under stated volume and incorrect distribution. Aqua's answer was that if the volume was unchanged , [emphasis added] then the rates would be higher. Which is true, but it side steps the critical point about a higher volume. The ALJ then asked Aqua’s witness a couple of additional questions and then turned it back to me to ask additional questions. My Second Cross Examination of Aqua's Witness A couple of important things came out: I asked what was the cut off date for making corrections in Aqua’s 2021 rate case. The answer was December 21, 2021. (I believe the docket record indicates it was January 21, 2022. See page 4 of this docket filing: LINK ). This is important because there is strong evidence that the trucking stopped before year end 2021. I then noted that she testified rates would go up if the correct distribution was used, but total volume remained the same. So I asked what “if the total volume was significantly higher, would that change the result?” It appears she dodged the question by saying she did not think that would be the case and that Aqua used the best information available. I pressed the question about IF the volume was higher could the rates be lower. Aqua’s lawyer jumped in and objected at that point. The objection was not sustained, but somehow I did not get back to the question – a mistake on my part. Entering Exhibits Into The Official Record That ended the testimony phase of the hearing. The next order of business was to identify all the exhibits that would be entered into the record. There are almost 1,000 pages of exhibits, only 47 of which are mine. Aqua filed a ton of rate case documents. A table of contents of the exhibits can be found here: My Closing Statement I made a very short statement that I believed I clearly had made my case about both complaints and that the PUC should investigate. Aqua's Closing Statement Aqua started by saying they were prepared to make a closing statement, but preferred to file “full merit briefs”. That did not excite the ALJ. She said: “I would love that, but we already had close to five hours of testimony and a lot of exhibits. I don't really see how merit briefs would contribute more than what's already been contributed”. The ALJ asked if I was okay with filing “merit briefs”. I was concerned that Aqua might be trying to pull something here. For example, the issue of “collateral estoppel” that was a “new matter” in Aqua’s reply briefs. The ALJ concluded she had all the information needed and Aqua's lawyer agreed to proceed without additional filings. Aqua then proceeded with a closing statement. With my comments in brackets, key points included: I did not carry my burden of proof, therefore, the complaints should be dismissed. [Naturally I disagree] The rate case was fully litigated and I had not disputed any of the actions of the proceeding. [true, but not relevant to my complaints] Once the tariff was approved, Aqua was legally bound to apply those tariff rates. [again, true, but not relevant to my complaints] There are general prohibitions against “retroactive rate making” and “single issue rate making”. And, my complaints are classic “single issue rate making”. [true but there are exceptions to those prohibitions. Utility misbehavior is one of them] Aqua testified that it did not collect the full revenue allowed by the 2021 rate case. [True, but irrelevant. Aqua was not entitled to that revenue. It was a parameter from which to set rates. Actual revenue would vary depending on how well Aqua performed against the many assumptions that went into setting that revenue. This became a significant issue during the subsequent appeal to the Commonwealth Court. Here are more details on the issue:] Aqua demonstrated that if my consumption volume complaint were granted, rates would go up. [only because Aqua assumed that their estimated total consumption volume did not change. A major part of my complaint was that the volume was understated.] With that the hearing was essentially over. The ALJ summarized the next steps the PUC would take and ended the hearing.

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

Pending PA Legislation Although sparce, there is bi-partisan support in both the PA House of Representatives and PA Senate. Several bills supporting ratepayer rights have been introduced in both houses. These legislators need to be supported. Contact each telling them you are thankful for thier work and that you support them. In The Pennsylvania House Of Representatives Rep John Lawrence (R-PA-13) https://replawrence.com/ has introduced a four-bill package to amend Title 66 (Public Utilities) of the Pennsylvania Consolidated Statutes. His bills dealing with Act 12 are: #1 - House Bill 626 – Ratepayer Referendum Prior to the Sale of a Municipal Water or Sewer System #2 - House Bill 627 - Repeal of Act 12 of 2016 & Require a Ratepayer Referendum Prior to the Sale of a Municipal Water or Sewer System #3 - House Bill 628 – Transparency Around the Process to Pay Appraisers Utilized to Value Municipal Water and Wastewater Systems #4 - House Bill 629 – Independent Fiscal Office Analysis Prior to the Sale of a Municipal Water or Sewer System For more detail on these bills go here (LINK ). Rep. Christina Sappey (D-PA-158) https://www.pahouse.com/Sappey/ She has introduced HB1205, a Ratepayer Bill of Rights meant to “ensure ratepayer fairness”. Details can be found here: (LINK ) Rep. Leanne Krueger (D-PA-161) https://www.pahouse.com/Krueger/ She has introduced HB1308 which would limit the use of Act 12 to financially and/or physically distressed systems. Details can be found here (LINK ) In The Pennsylvania Senate Sen John Kane (D-PA-9) https://pasenatorkane. com/ He has introduced two bills in the PA senate: #1 - SB866 would repeal Act 12. Details on SB866 can be found here (LINK ) #2 - SB432 is a Ratepayer Bill of Rights meant to “ensure residential customers all over the state have input when a municipal water or wastewater authority may be acquired by a public water utility.” Details can be found here (LINK ) Sen. Michele Brooks (R-PA-50) https://www.senatorbrooks.com/ She has introduced Senate Resolution 141 calling for a study of the water and wastewater acquisitions since the passage of Act 12. Details can be found here (LINK )

Beggar Thy Neighbor What in the world does “Beggar Thy Neighbor” have to do with water and sewer systems. A lot. First lets make sure we have a common understanding of what the term means. Beggar thy neighbor is trying to get someone else to pay for something you want. For example: Big City Hotel Taxes Both states and cities add exorbitant taxes and fees to a hotel bill. In New York City it is about 15%, for hotel rates that are not cheap. Who pays those taxes? Not many city or state residents. New York is “beggaring” money from travelers from all around the country. They are taking advantage of the “destination” status of the city. This happens in most cities. Toll Roads The State of Delaware runs a “Beggar Thy Neighbor” operation on Interstate 95 at the Maryland border. Coming or going, Delaware hits each car up for a $4.00 toll. A semi‑tractor trailer pays $11.00. Delaware collects about $140 million/yr this way. Not very much of it is paid by Delaware residents. Delaware is “Beggaring” east coast travelers. Beggar Thy Neighbor It goes on in the sewer and water business several ways. For example: New Garden Sewer Sale New Garden Township sold its sewer system to Aqua PA, a Big Water Company. All the township residents benefit from the $29.5 million windfall. But, only half of the residents use the sewer system. That half are paying the full price of that windfall via exorbitant rate increases. They are being “beggared” by those with septic systems. New Garden sewer customers On the other hand, those same New Garden sewer customers are now “beggaring” their Pennsylvania neighbors. Aqua acquired the system and raised rates by $2.6 million/yr (89%).. However, $1.0 Million/yr of the increase was foisted off on other customers. As a result, Aqua water customers 300 miles away in Warren County PA are subsidizing our sewer bills. There is absolutely no connection between them. Is it equitable? No, but it happens. This is an example of ACT 11 distortions in rate setting (LINK) . Chester Water Authority (CWA) The attempted sale of CWA is a move to “beggar” a small segment of the population to solve a state political problem. The City of Chester is bankrupt. State and local politicians propose to sell CWA to Aqua for $410 million. If this comes to pass, who pays the resulting price for the doubling of water rates that will ensue? Hint: only 20% of CWA’s customers live in Chester City. They will be “beggaring” the other 80%. And, the state government gets off free. Selling A Regional Utility The sale of a large municipal regional system can involve significant “beggaring”. These systems will normally span multiple municipalities. If one is sold, who gets the money and who pays the increased rates? Clearly, everyone will pay the higher bills, but do all the municipalities share the sale proceeds? Probably not. Bucks County, PA has a regional sewer system that tried to do a billion dollar sale to Aqua. It was eventually killed by pressure from surrounding municipalities that would not get their share of the sale proceeds. Conclusion The bottom line is that Big Water acquiring municipal water and sewer systems can result in all kinds of inequalities. If your system is a target, you should get involved and ask lots of questions. Follow the money, it tells you a lot. And, do not accept evasive answers – of which there will be many.

New Garden Township A Case Study In 2014 New Garden Township announced it was exploring the sale of its sewer system. In 2016 NGT announced a sale agreement with Aqua PA for $29.5 million. In December 2020 the sale was closed. Reasons For The Sale The sale was justified on the following points: The system was in bad shape and needed $12 million investment to repair and upgrade it. A 78% rate increase was needed immediately to pay for the $12 million investment. Aqua could do the improvements at a lower cost. A two-year rate freeze and ten-year 4% cap on annual growth would limit Aqua rate increases for 10 years. If, for some reason, rates went above this limit, NGT would use some of the sale proceeds to offset the additional increase. NGT would receive $29.5 million. This money would be used in part to offset the need for future tax increases. Key Events During And After The Sale Here is what really happened: Four years elapsed from the dire warning that a $12 million investment was needed immediately until the sale was executed. During that time New Garden invested nothing. During the first two years after the acquisition, Aqua has invested $2.7 million in the system. Of that total, $670,000 paid for an improvement that saves Aqua $1.2 million annually in operating cost. That was a smart investment that we think New Garden should have made years earlier. Prior to sale closing , but well after the claim that a 78% rate increase was needed without a sale to Aqua, New Garden raised rates by 30%. One and a half years after the sale, Aqua raised NGT rates by 85%. Although we were warned about a 78% increase, our rates went up over 140% with none of this increase paying for system improvements. Aqua will recover the system improvement investment, plus profit, from future rate increases. Aqua's claims its operating and investment costs are lower, though this has never been quantitatively verified. But, 44% of every Aqua bill goes to funding their before tax profits. Since municipal systems are non-profit, that increase totally overwhelms any other savings. Both the rate freeze and growth cap were removed from the sale agreement before sale closing, with no explanation. In December 2022 the NGT Board of Supervisors voted to not use any of the sale proceeds for rate mitigation. NGT received $29.5 million in December 2020. In October 2023, NGT announced plans to raise property taxes by 127%. Looking Back The sale of the NGT sewer system was the first such municipal utility sale after Act 12 was signed into law. Residents were not aware of all the issues involved in such a sale and they were never educated on these issues, particularly how the sale price would impact future rates. Any questions about rate increases were always answered vaguely. So, no opposition to the sale ever developed. It is clear that this was the first test of the Big Water Playbook. In the first step of the playbook, Big Water sets the hook with the promise of free money . They then reel in with the scare that the system needs major investment, and this will result in large rate increases. Finally, they claim that municipalities should not be in the utility business because Big Water can do it better and cheaper. Our analysis of the public record indicates that both the amount of investment and the rate increase needed were significantly overstated. Follow the highlighted links for detail. The claim that Big Water can do the work for less does have a grain of truth, but Big Water’s other expenses more than offset any cost savings. Follow this link for details. Prior to sale closing, on September 23, 2019, New Garden Township and Aqua agreed to sign an amendment to the Asset Purchase Agreement removing both the rate freeze and cap on growth from the agreement. This was announced at a public meeting at which questions of why this was being done were not answered. the full story of the rate cap removal is told here: (LINK ). Epilogue Events in New Garden Township in the three years after the sale closed show that this sale did not turn out as expected for the Township. The extra financial burden placed on the ratepayers has not resulted in any benefits worth the price. In February 2020, eleven months prior to sale closing, the BOS published a list of 6 items detailing how the sale proceeds would be used. To date, however, the money has not been allocated in alignment with any long term plan. The largest use of the money was to fund a new police station. Of the original $29.5 million, $22 million now sits in an interest-bearing account. Only recently has this account earned any substantial interest, and these proceeds are being added to the township’s general funds. The list of six items are on page 5 of this file: In August 2021, Aqua filed a rate adjustment with the PUC. When this adjustment was announced the residents of New Garden became aware of the impact of the sale. By January 2022, all but one of the board members responsible for the sale had left office, either by choice or because they were voted out. Hope for some help from the new supervisors was high. At another public meeting on November 21, 2022, those hopes were dashed. NGT again would not answer basic questions about issues ranging from attorney conflict of interest, to why the rate freeze and cap were removed from the Asset Purchase Agreement. Instead, the township has spent over $20,000 of taxpayer money this year to fight release of any records relevant to these issue. Then on December 19, 2022, the Township Board of Supervisors voted 3 to 2 to not use any of the sale proceeds to offset the higher Aqua rates. In October 2023, NGT announced plans to raise property taxes by 127%. As part of the discussion about this increase, the township said the tax increase would need to be higher if not for the availability of the interest from the sale proceeds. This was quantified as an addition 1 mill increase which was not required because of the use of the interest. A 1 mill increase in taxes means a resident with a “typical” property assessment would see an additional increase of annual property taxes of $186 without the offsetting money from the interest on the sale proceeds. What the township failed to address was the additional burden due to the increased sewer rates to fund this revenue. A “typical” sewer customer saw an annual increase of $670, over 3.5 times the tax “saving”. We expect this rate to increase substantially again at Aquia's next rate adjustment because they will transfer the entire sale cost to New Garden ratepayers. This may not seem like much when looking at one “typical” ratepayer. But multiply this by the large numbers of ratepayers affected by privatization in PA and it blossoms into over $65 million annually leaving local communities to pay Big Water shareholders. Money that could be spent to bolster municipal economies.

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.

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?

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

Consumption Volume Complaint This complaint focuses on the issue that Aqua’s consumption volumes for New Garden Township customers differs substantially from actual use by those customers. The 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 total consumption volume of 104 million gallons per year. That is substantially less than the 126 million gallons New Garden reported during the last year they owned the system. When setting the per gallon billing rates, the lower volume results in higher rates. This difference could have a significant impact on rates. Second, Aqua charged New Garden customers different rates depending on consumption volume. The problem was that the forecast volume in each rate band bore no relationship to actual use by customers. Accurate rate setting depends on using accurate data. The discovery of the consumption volume issues came almost by accident. That story is not a core part of the issue, but this page tells the story if you are interested: Here is the actual complaint as filed: What follows covers the main issues one by one. Background The issues of my complaint result from Aqua’s consumption volume data in the following table: Table #1 - Aqua’s Consumption Volumes The above table is my consolidation of six pages of Aqua data. Six pages of what I consider very opaque consumption data (LINK ). This LINK shows the steps required to consolidate Aqua’s six pages into the above table. Aqua will probably dispute that this table really depicts their compliance data, but the following link shows how it matches gallon for gallon and dollar for dollar with their filing data: LINK Total Volume Issue The first issue with Aqua’s data is the total volume. The table shows an annual forecast of 104 million gallons. There are two pieces of evidence that indicate 104 million gallons significantly understates actual New Garden consumption.. The first is a communication with the then Chairman of New Garden’s Board of Supervisors, Stephen Allaband. During a meeting with him, he gave us the following: The source is credible and shows a wide divergence from Aqua’s number. The above is also Exhibit H of my complaint. No surprise, during the complaint hearing Aqua objected to that exhibit as “hearsay”. It could not be admitted as evidence because Aqua did not have the opportunity to cross examine the source of the data. Indeed, the ALJ excluded that exhibit from the evidence record. The second data source disputing the 104 million gallons is Aqua’s own filing data. Their data was broken into two parts: a “consumption analysis” for the twelve months ending 3/31/2021 and “Billing Adjustments”. Since the New Garden sale closed 12/20/2020, that “consumption analysis” essentially represents first quarter 2021 consumption. That consumption volume = 31,238,100 gallons. Annualizing that number = 112,890,163 gallons. That is lower than New Garden’s data but higher than Aqua’s. What we do not know is how complete Aqua’s 1Q2021 data was. So what happens if Aqua sets rates based on 104 million gallons and customers actually use 125 million gallons? If Aqua’s data accurately represented customer use patterns then Aqua would see a 20% bump in revenue. Given the $4.4 million/yr authorized revenue that would yield Aqua almost $900,000 extra revenue. Impossible Consumption Patterns Aqua used three rate bands to charge New Garden customers increasing rates for higher consumption volumes. There were three rate bands: 0 – 5,000 gallons/quarter 5,000 – 15,000 gallons/quarter Greater than 15,000 gallons/quarter. Aqua then applied those rate bands to three different category of customers: Residential Commercial #1 Commercial #2. Table #1 above shows Aqua’s forecast for each category of customer. The problem is that those volumes do not reflect actual customer use. To realize why these volumes do not reflect customer use patterns, you need to understand how the volumes in each rate band interact with each other. This is explained here: Impossible Consumption Patterns - Residential Customers For residential customers, Aqua’s consumption data skews use heavily towards the >15,000 gallon band. This is shown by the following chart: The green bars are Aqua’s first quarter 2021 data noted above. The red bars are Aqua’s full year forecast. It is obvious that Aqua’s forecast is weighted much heavier towards the >5,000 gallon customer. What is not obvious is that Aqua’s forecast use pattern requires that 2/3 of New Garden customers use zero water – unrealistic for anything other than a ghost town - and, New Garden is no ghost town. There is considerable math involved in arriving at this conclusion. The methodology is shown here: If you want to tinker with the numbers, here is the spreadsheet I used to do the above calculations. You will find two possible outcomes: an impossible negative volume or 1,303 customers using zero water. Commercial Customers For commercial customers, the issue is even more clear cut: the consumption forecast is actually mathematically impossible. For the Commercial 1 customers Aqua has 171 customers using 13,149,400 gallons in the 1,667 – 5,000 rate band. However, it would require 329 customers using the full 5,000 gallons to use that volume – almost twice the actual number of customers. And, those 329 customers would have to consume over 6.5 million gallons in the 0 – 1,667 rate band. That is 7.5X Aqua’s stated consumption for that rate band. Clearly an impossible situation. It is the same situation for Commercial 2 customers. Aqua tabulates 27.7 Commercial 2 customers. However, the middle rate band would require 49 customers using the full 5,000 gallons for that band. And, those 49 would have to use 10X the stated consumption for the lowest rate band. Clearly, both Commercial data sets are impossible. And, Aqua used that data to set rates. The detailed math for commercial customers is documented here: It is not possible to set fair and just rates using data that does not reflect actual consumption. Conclusion I believe the evidence clearly shows that Aqua understated New Garden’s consumption volume and used a totally unrealistic consumption pattern to set rates. I figured that the PUC would be outraged to learn what had happened and would take corrective action. I was wrong.