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05/18/2024 12:59 AM
Pennsylvania House of Representatives
https://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=H&SPick=20230&cosponId=40235
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House of Representatives
Session of 2023 - 2024 Regular Session

MEMORANDUM

Posted: March 20, 2023 01:36 PM
From: Representative John A. Lawrence
To: All House members
Subject: COSPOSNOR MEMO - REFORM THE PROCESS AROUND SELLING PUBLICLY MANAGED UTILITIES - FOUR BILL PACKAGE
 
Dear Colleagues –
 
In the near future, I will introduce a four bill package dealing with Act 12 of 2016.  This law governs a process utilized when a municipal water/sewer system is sold. 
 
Back in the 2015-2016 session, the cosponsorship memo for HB1326, which became Act 12, promoted the proposal with the following language:
 
Currently, there are community owned and private water and wastewater utilities whose system infrastructure is urgently in need of repair or replacement however, the system owners cannot afford to make these needed upgrades without significant investment resulting in increased costs to its customers. For many of these systems, sale to a larger water or wastewater company is a welcome opportunity as it enables system improvements and ensures the continued provision of safe, reliable service to customers at reasonable rates. However, current law relating to valuation of utility property discourages these acquisitions because the purchasing utility may not be able to recover its investment.

While it is true that there are a number of municipal water and wastewater utilities that need expensive upgrades, the fact of the matter is that Act 12 does not reduce or eliminate the need for ratepayers to pay for these costly repairs.  In fact, as a result of Act 12, in addition to paying for these repairs, ratepayers also have to pay for a new and substantial cost – the substantially higher purchase price paid by the new private owner for the formerly municipal water or wastewater utility.  Ratepayers have no ability to speak directly into the decision to sell a municipal water or sewer system.
 
These four bills deal with Act 12 in different manners, but all seek greater transparency and disclosure for those most affected – utility ratepayers.
 



Document #1

Introduced as HB626

Description: House Bill 626 – Ratepayer Referendum Prior to the Sale of a Municipal Water or Sewer System   
 
This proposal, similar to HB97 of last session, would require ratepayer approval prior to the sale a publicly managed water or wastewater utility in the Commonwealth valued at more than $1,000,000.  Under this proposal, a publicly managed utility contemplating selling itself would be required to mail a ballot to each ratepayer of the utility asking “Do you approve the sale of (selling utility name) to (acquiring entity) for the sum of (the proposed sale price)?” Ratepayers would have a minimum of 30 days to vote via US mail or through a secure internet website. In addition to mailing a ballot to each ratepayer, a selling utility would be required to publish notification of the referendum in a newspaper of major circulation in any affected municipality.  If a majority of ratepayers vote against the proposed sale via referendum, then the Public Utility Commission would be required to disapprove the sale.  Other states, including neighboring New Jersey, require voter input prior to the sale of a publicly managed utility. 
 
 

Document #2

Introduced as HB627

Description: House Bill 627 - Repeal of Act 12 of 2016 & Require a Ratepayer Referendum Prior to the Sale of a Municipal Water or Sewer System   
 
This legislation would repeal Act 12 of 2016 and add the requirement for a ratepayer referendum prior to a sale of a municipally owned water or wastewater system.  One of the effects of Act 12 has been an exponential increase in the sale price of publicly managed utilities to buyers, who then petition the PUC for rate increases to finance their newly purchased utility.  These exponential price increases are then passed along to ratepayers in the form of dramatically increased water and wastewater bills.  This legislation will repeal Act 12 and give ratepayers the opportunity to speak into any decision regarding the sale of a municipally owned water or waste water system.
 
 
 

Document #3

Introduced as HB628

Description: House Bill 628 – Transparency Around the Process to Pay Appraisers Utilized to Value Municipal Water and Wastewater Systems
 
Under current law, an appraisal must be completed by two separate “utility valuation experts” prior to the sale of a municipal water or sewer system to an outside entity.
 
Title 66 § 1329 b(3) states:
(3)  Fees paid to utility valuation experts may be included in the transaction and closing costs associated with acquisition by the acquiring utility or entity. Fees eligible for inclusion may be of an amount not exceeding 5% of the fair market value of the selling utility or a fee approved by the [PUC].
 
In plain English, the appraisers get handsomely paid on a percentage basis for their services.  In a direct conflict of interest, these appraisers can get paid more if they provide a higher appraisal value to their clients.  Note that the law allows the PUC to approve a different (perhaps higher) rate.  These fees are then eventually passed along to – ratepayers. 
 
In my view, there should be transparency around this process.  Ratepayers who are footing the bill should know upfront what they are being asked to pay for these “utility valuation experts.”  With this in mind, my legislation will remove the ability of the PUC to approve a rate higher than 5% for these “utility valuation experts.”  It will also require that these fees be disclosed to ratepayers in a special mailing/notification. 
 
 

Document #4

Introduced as HB629

Description: House Bill 629 – Independent Fiscal Office Analysis Prior to the Sale of a Municipal Water or Sewer System   
 
Currently, there are community owned and private water and wastewater utilities whose system infrastructure is urgently in need of repair or replacement.  This is a large and growing problem, and it is not cheap or easy to solve.  Distressed municipally owned water and sewer systems face a choice:
  1. Keep the system under municipal ownership.  Apply for grants, borrow money (bonds), and raise rates to make necessary repairs to operate an efficient water or sewer system.
  2. Sell the system.  The buyer will apply for grants, borrow money (bonds), and raise rates to 1) make necessary repairs to operate an efficient water or sewer system, and 2) pay for the substantial (tens or perhaps hundreds of millions of dollars) purchase price of the formerly municipal utility.  Ratepayers’ rates will also increase to pay for the aforementioned costs incurred when the buyer purchases other water and wastewater systems across the state.
  3. Do Nothing, or keep things running with “chewing gum and duct tape.”  Ignoring necessary repairs and deferring maintenance to an unknown future date carries significant risk and often results in higher costs when the issues are finally addressed.
 
This legislation will require a municipality or a municipal authority contemplating a sale to request and receive an analysis of the costs associated with each of these three options from the Independent Fiscal Office.  The IFO review will include a breakdown of anticipated needs and costs, and what it will cost water/wastewater ratepayers under each option.  This review will be public information, available in print and on the internet.  Ratepayers and municipal decisionmakers will have unbiased information to make informed decisions.