Latest Q&A Related to Sewer Sale
In response to the claim that if the Sewer System is sold, sewer rates will triple within the first year, as well as the question as to how we know rates won’t increase until at least to 2025, please note:
Pennsylvania American Water must, by law, take the rates of the seller at closing and those rates cannot be raised until the conclusion of the next general rate case. Pennsylvania American Water estimates that closing will occur in late March or April 2024. Assuming hypothetically that a general rate case was filed following closing, new rates generally will not become effective for nine months after a rate case is filed. Thus, Towamencin’s rates would not change until January 2025. Additionally, based upon past experience, Pennsylvania American Water anticipates that when rates do change, the rates for Towamencin will likely increase over a period of years to catch up to Pennsylvania American Water's Zone 1 statewide-rate.
In response to the assertion that if the Sewer System is sold, PA American will be able to recoup $10.4 Million Dollars annually, please note:
The assertion assumes that Pennsylvania American Water always earns a 10% rate of return from the PUC on its investments. Pennsylvania American Water has advised this is not true; as the rate of return is not guaranteed, and its rates of return have also been lower in previous years, noting that it finances its acquisitions with a combination of debt and equity, and the cost is different for each. Pennsylvania American Water further advises that it may recover a 10% return on equity, but the cost of debt is much lower. At a rate base of $104 Million Dollars, Pennsylvania American Water's weighted cost of capital (and what it would recover in year 1) is approximately $7.8 Million Dollars, not $10.4 Million Dollars. Furthermore, that $7.8 Million Dollar figure will continue to decrease each year due to asset depreciation until the assets are fully depreciated after 25 – 30 years.
In response to the questions of where is the money from the Sewer System Sale going and who will benefit from it, please note:
This is all outlined in the updated PFM analysis uploaded to the Township’s website. What’s key here is the fact that only the interest earnings from the sale proceeds will be applied to the various projects; the actual proceeds will not be touched. As to who will benefit: All residents will benefit from the projects, reductions in Township real estate taxes, and homestead exclusion increases.
In response to the assertion that residents would rather pay higher real estate taxes than post-sale sewer rates, please note:
Post-sale, sewer bills will be based upon usage. So while some will pay more, others will pay less. Smaller users are not subsidizing larger users. So in the classic example of an elderly individual, who lives alone and therefore doesn’t use much water, they will likely spend less on their sewer bill than if the Township simply raised real estate taxes.
In response to the question as to how much PFM was paid for the updated analysis and the assertion that the PFM disclaimer on the updated analysis means that it cannot be relied upon, please note:
PFM was not paid anything for the updated analysis (which again, has been added to the Township website). Moreover, with the reduced sales price, PFM will now make less from this transaction. As to the PFM’s disclaimer on the updated analysis, that is a standard corporate disclaimer and any suggestion to the contrary is simply not correct.
Pennsylvania American Water – Open Houses April 20th & April 27th
Reminder: Pennsylvania American Water, the purchaser of Towamencin’s sewer system, will be hosting two Open House events to engage with Towamencin residents and the business community. These events will be opportunities to get to know the Pennsylvania American Water team and its operations. Residents and Business leaders are encouraged to attend and bring their questions to one of these Open Houses. The Open Houses will be held at the Holiday Inn.
Dates/Times:
- Thursday, April 20th, from 6-8 pm
- Thursday, April 27th, from 3-5 pm.
Location: Holiday Inn - 1750 Grille Dining Room - 1750 Sumneytown Pike
