On November 8, 2017, Aqua Pennsylvania (“Aqua”) filed a Complaint in the Pennsylvania Court of Common Pleas of Bucks County against the Bucks County Water and Sewer Authority (“BCWSA” or “Authority”), docketed at Case #2017-07215. Joining Aqua as co-Plaintiff is J. Kevan Busik, a customer and ratepayer of BCWSA.
The Aqua Complaint alleges BCWSA (and ostensibly, all PA Municipal Authorities) has a significant competitive advantage for acquisition of water/sewer systems and seeks redress. Specifically, the Complaint cites unfair competitive advantage of BCWSA (and other PA Municipal Authorities) in light of its exemption from property taxation, ability to raise capital via the issuance of tax-free bonds, and freedom from the substantial expense associated with regulation. In addition, it notes that because no regulatory body has oversight of BCWSA to limit its rate setting capability, BCWSA is able to amass funds to give it a competitive advantage.
On an ironic note, the Complaint indicates that neither co-Plaintiff Busik, nor any other current customer of BCWSA, would benefit from acquisition of any other water/wastewater system.
The Complaint cites four separate Counts:
- Count I seeks Declaratory Judgment requesting a Court Order in favor of the Plaintiffs declaring that, pursuant to the Municipal Authorities Act’s (“MAA”) Noncompetition Clause, BCWSA is prohibited from competing with Aqua (or any other privately owned public utility) that serves the same substantial purpose by bidding on acquiring any water or wastewater provider.
- Count II seeks Permanent Injunctive Relief that enjoins BCWSA from bidding upon and being competitive with Aqua in the acquisition of any water and/or wastewater provider.
- Count III seeks Declaratory Judgment declaring BWCSA’s expenditure of revenue generated by its service area to purchase and acquire any water or wastewater provider to be prohibited under the terms of the MAA.
- Count IV requests Declaratory Judgment declaring BCWSA’s rates unreasonable and invalid under the MAA because of BCWSA’s use of funds to acquire water and wastewater systems rather than solely for providing for payment of expenses, construction, improvement, repair, maintenance, and operation of Authority facilities and properties.
Aqua is a public utility providing water and wastewater services to various Pennsylvania residents and is regulated by the Pennsylvania Public Utility Commission (“PUC”). BCWSA originally provided water/sewer service to residential, commercial, and industrial customers solely in portions of Bucks County, and only recently expanded its services beyond Bucks County.
Aqua notes that in purchasing and acquiring water/sewer systems from Pennsylvania municipalities, it is specifically bound by provisions of Act 12 of 2016, which sets forth procedural requirements for determining fair market valuation of acquired water and wastewater systems for ratemaking purposes. BCWSA, in contrast, is not regulated by the PUC for provisions of service, setting of customer rates, or acquisition of new water or wastewater systems. BCWSA also does not fall under the oversight of any other legislative or regulatory body that can limit rate setting, nor is it constrained by any Act 12 requirements. BCWSA’s authority and powers are instead set forth, governed, and controlled by the provisions of the MAA.
Aqua’s Complaint further notes that pursuant to MAA, BCWSA is exempt from paying taxes or assessments upon property acquired or used by BCWSA for purposes of performing essential government services. Similarly, BCWSA is authorized to issue tax-exempt bonds to finance its acquisitions and improvements of municipal water and wastewater systems, and the income from these bonds, including any profits made on the sale of these bonds, are exempt from taxation. BCWSA’s operating income comes directly from the service revenues it receives from its water and sewer customers.
The Complaint identifies two local prospective sales of water/sewer systems in which both Aqua and BCWSA appear to be enormously interested (Cheltenham Township Sewer System and Exeter Township (Berks County) Wastewater System). The Complaint also cites, for background purposes, BCWSA’s recent acquisition of the Springfield Sewer System. BCWSA overcame two competitors – privately owned public utilities – and paid $16,500,100. Aqua alleges the actual value of the Springfield System was approximately $9 million.
This Complaint will surely receive attention from all Pennsylvania public utilities and Municipal Authorities that have been looking to expand, by acquisition or combination, their water and sewer service territories.