Receiver Files Plan to ‘Monetize’ Chester Water Authority
Reprinted by permission of Delaware County Daily Times – 08-26-24
By Kathleen E. Carey | [email protected] | delcotimes.com
In a move that will impact hundreds of thousands in and out of Chester, Receiver Michael T. Doweary is seeking to monetize Chester’s water, stormwater and sewer systems while keeping them in public hands.
“I am excited to propose an innovative approach that, if done properly, could not only help Chester address its financial situation, but also result in a publicly-owned regional entity that would preserve public sector jobs, minimize the impact on ratepayers and provide a regional solution to stormwater management,” Doweary said. “While more work needs to be done, this is the first step in how best to move forward for the residents of Chester.”
The move was included in the Plan of Adjustment Doweary filed in U.S. Bankruptcy Court for the Eastern District of Pennsylvania.
In November 2022, Doweary filed for Chapter 9 bankruptcy in the same court with nearly $40 million of past pension payments due. As part of the process, a Plan of Adjustment must be filed that outlines proposed measures to move the city out of bankruptcy.
As the receiver’s staff remain in mediation negotiations with retirees from the police and firefighters’ unions, this plan does not include recommendations on their compensation or benefits. It also does not address current employees or other creditors.
“This plan is our best opportunity to let Chester be Chester and to ensure we have the revenue needed to meet our obligations and to improve and sustain the services that our residents need and deserve,” Chester Mayor Stefan Roots said of the monetization plan. “The water and wastewater systems are the city’s most valuable assets, so it makes sense to utilize them for our residents.”
The receiver said this is a critical step to restructure the city’s debts while also providing services to residents as a way to move out of bankruptcy.
In addition to the pension costs, Chester faces increasing health care costs while its tax base is unable to support basic services.
To monetize the systems, Chester will issue a request for proposals to third parties to acquire, manage, or operate the city’s water, sewer and stormwater assets with the requirement that they remain publicly owned. That includes the assets of the Chester Water Authority, the assets of the Chester Stormwater Authority and the city’s reversionary sewer assets in DELCORA.
Special consideration would be given to public authorities or other public entities interested in a merger or other combination.
Proposals have been asked to include minimizing the impact on future rates and ratepayers, particularly those within Chester; retention of public sector jobs; providing a regional approach to stormwater management with the ability to potentially manage the stormwater requirements of other communities who voluntarily agree to participate; and a proposed governance structure that is fair to ratepayers served by the entity.
The goal is also to secure guaranteed annual payments to the city for acquisition or use of its water, stormwater and sewer assets. The intention behind these annual payments is to ensure revenue to allow the city to provide services to residents.
The monetization proposal, the receiver’s office said, is the single most important part of the receiver’s strategy to ensure Chester avoids extreme cuts in service that would disrupt the lives of its residents.
A similar tactic was taken in Harrisburg, which created Capital Region Water to take care of the drinking water, wastewater and stormwater services for the city and surrounding areas while it was under receivership.
In Chester, the Chester Water Authority was created in 1866 and provided service to 67 customers in the city. It has since grown to a system of 656 miles of pipeline with a capacity to store up to 106 million gallons of treated water. It serves more than 42,000 customers with a total impact of approximately 200,000 people.
The CWA now serves the city of Chester and Chadds Ford, Concord, Thornbury, Chester Heights, Middletown, Aston, Bethel, Upper Chichester, Nether Providence, Brookhaven, Upland, Chester Township, Lower Chichester, Marcus Hook, Trainer and Parkside in Delaware County.
In Chester County, the CWA serves West Nottingham, East Nottingham, Lower Oxford, a part of Oxford, Upper Oxford, West Fallowfield, Londonberry, Penn, New London, Elk, London Grove, Franklin, Avondale, New Garden, East Marlborough, Kennett Square, Kennett, Pennsbury, Birmingham and Thornbury.
Of its customers, about 20% are in the city of Chester, another 20% are in Chester County and the remaining 60% are in western Delaware County.
In 2017, then-Aqua, now now Essential Utilities, made an offer to buy the Chester Water Authority for $320 million, which the authority rejected. Litigation ensued, including the issue of who owns the assets such as the pipelines, treatment facilities and employees.
In September 2021, Commonwealth Court ruled that the law does allow a municipality to obtain the assets of an authority it creates.
The Chester Water Authority petitioned the Pennsylvania Supreme Court to hear the case, which it agreed to do on Nov. 30, 2022. However, before that occurred, Doweary filed for bankruptcy, causing the matter to be placed on hold.
DELCORA
The Delaware County Regional Water Quality Control Authority, also known as DELCORA, treats wastewater for approximately 500,000 customers in 46 municipalities in Delaware and Chester counties.
In September 2019, Aqua Pennsylvania signed a $276.5 million asset purchase agreement with DELCORA in a move that the parties said would push back costs to the customers of looming infrastructure needs.
As part of the agreement, DELCORA planned to place the proceeds of the transaction into a trust to provide payments to customers to assist with future bills.
In May 2020, Delaware County Council filed a complaint in Delaware County Court of Common Pleas maintaining that DELCORA had violated the terms of the Municipality Authorities Act in establishing this trust. This matter was eventually appealed to Commonwealth Court.
The matter had also been sent to the Public Utilities Commission for consideration. Several actions had been taken but the situation remained unresolved before the city bankruptcy was filed, causing this to also be placed on hold.
STORMWATER AUTHORTY
The Crozer building rises eight stories tall along Avenue of the States in Chester, next to the historic Colonial Courthouse. The Chester Stormwater Authority is positioned on the fourth floor.
The Stormwater Authority of Chester was created in November 2016 by Chester City Council to manage the city’s 2,000 inlets, to improve rain runoff quality and to address flooding.
The receiver has maintained that the Stormwater Authority has placed liens on 1,500 homes in Chester and is among the highest sewer rates in Pennsylvania.
Stormwater Authority leadership says the receiver is staging a political coup.