17736_Authority_August

54 The Authority | August 2024 PMAA frequently receives inquiries from its membership regarding privatization of water and wastewater systems. We consolidated some of the most frequently asked questions and presented them to Bill Rhodes, a public finance attorney at Ballard Spahr LLP in Philadelphia. Bill has represented local governments and authorities, as both seller and buyer, in privatization and regionalization of water and wastewater systems. The following is an excerpted copy of his responses to the questions presented. PMAA decided to publish these responses to assist its members in understanding the scope and complexity of many issues relating to privatization. Q What types of systems have private investor-owned utilities purchased since the enactment of Act 12 of 2016? A Historically, investor owned utilities (IOUs) showed a much greater interest in water treatment and distribution systems, but in recent years, the IOUs have shown a renewed interest in acquiring wastewater collection, conveyance and treatment works. As stormwater systems and authorities have begun to spring up around the Commonwealth, those systems also are drawing the interest of IOUs. While IOUs occasionally acquire troubled water and wastewater systems, these are usually smaller, developer-built systems, and the IOUs take them over as a public service at the urging of environmental regulators and/or the Pennsylvania Public Utility Commission (PUC). Many of the municipal-owned systems acquired by IOUs since 2016, however, have been well- run, economically viable water and wastewater systems owned by municipalities or their authorities. Q Who decides if an authority is privatized? A Ultimately, the elected official of the incorporating municipality (or the member municipalities in a joint authority) will make the ultimate decision whether to sell, lease or otherwise dispose of a water or wastewater system. For example, the township supervisors of a second class township are the individuals that have to make the ultimate decision whether to sell or lease its public water and wastewater systems. Q Who are the parties impacted in these transactions? A Potentially, many parties may be impacted by a sale or lease of a water and/or wastewater system, beyond just the seller and the buyer. A municipality that owns a water or wastewater system directly (or through an authority it created) will be making a fundamental decision to divest itself of a valuable public enterprise and related assets and thereby cede operational control to an entity who enjoys a quasi-monopoly of service and is primarily beholden to its shareholders. Second, a municipal authority may have no reason to continue to exist after a sale or lease of its assets and may be terminated by the municipality after paying off its liabilities. Third, the customers of the system will be impacted because rates charged by an IOU, though subject to periodic formal approval by the PUC, typically increase rather dramatically within the next few years. Those same customers may come to regret the loss of local control and the power they hold at the ballot box for local governance. Fourth, the public employees of the municipality or the authority who operate and maintain a public water or wastewater system prior to a sale or lease may find themselves without a public sector job and, for those who have not yet vested in their public pension, a potential loss of their unvested, future pension benefits. To their credit, IOUs usually offer private sector employment opportunities for these public employees. While the wages and benefits offered by IOUs are certainly competitive – and perhaps more lucrative in certain ways – than the public sector may offer, each impacted employee will need to decide whether the compensation and benefits package being offered by an IOU are satisfactory. Q What is the business model of IOUs? What motivates them economically, strategically, managerially, operationally? A Historically, IOUs tended to grow through acquisitions of systems on the periphery of, or within, their existing service areas. In P rivatization : U nderstanding the S cope and C omplexity