After Water System Privatization, Consumers Get Hosed

In Pennsylvania, residents are resisting a corporate takeover of their water system as state lawmakers attempt to change a law that incentivizes privatization.

By Paul Blest, More Perfect Union

When Danielle Gross moved to Fairview Township, Pennsylvania in 2009, her local wastewater system — like those serving the overwhelming majority of people in the U.S. — was operated by the municipal government. 

In 2015, however, the Pennsylvania-based subsidiary of the multi-billion dollar corporation American Water bought Fairview’s wastewater system for just under $17 million in a deal the company said would provide a “long-term environmental and financial solution” for the community of 17,000-plus. 

But several years into private ownership, Gross and her neighbors aren’t feeling that much of anything was solved. In January 2021, her water bill was $62, according to a copy of the bill provided to More Perfect Union, but in December, her family will have to pay $106—a hike of more than 68 percent in fewer than three years. 

“[Town officials] like to brag that they haven’t raised taxes in over three years,” Gross, a partner at a Harrisburg-based communications firm, told More Perfect Union. “But when your residents are paying this exorbitant rate that our public system would never force on them, how it is any different from a tax, other than the fact that it comes from a private company rather than a public entity?” 

The experience of Gross and her neighbors is common; all over the country, residents of municipalities that sold their water systems to private companies have seen their water bills spike, sometimes to fund the cost of purchasing other water systems. 

This has resulted in a local backlash to the growing takeover of public wastewater by corporations like American Water and Essential Utilities. The Essential Utilities subsidiary Aqua, for example, bid $1.1 billion in 2020 for the sewage and wastewater system in Bucks County, the fourth-most populous in Pennsylvania. But after an outcry from residents and municipal leaders over an opaque process that allowed negotiations between Aqua and the local water authority to go on for months before they became public knowledge—as well as concerns about the impact on consumers—county commissioners killed the deal last year.

A pair of Pennsylvania American Water water tanks. (Photo by Dan Gleiter, Penn Live)

In 2016, Pennsylvania passed a law called Act 12 that incentivized municipal governments to sell their water and wastewater systems. Like other so-called "fair market value" laws around the country supported by for-profit water companies, Act 12 did this by reworking how public utilities are appraised to inflate their value. Under the new rules, municipal governments stand to get more money from selling their utilities, while companies have far more leeway to recover the costs—and reap profits—by raising rates on customers.

Now there’s growing pressure to change the law and scale back privatization. A bipartisan group of state representatives and several state Senate Democrats introduced bills earlier this year to repeal the law. A group of Democrats introduced a bill Thursday to reform Act 12, saying in a memo that "it's become clear that the manner in which the Act has been used has run far afield of that original intent." The first hearing on this bill is scheduled for December 12. 

"The harm that [Act 12] had done is already there,” Mary Grant, who leads the Public Water for All campaign at the advocacy group Food and Water Watch, told More Perfect Union. “Rates have already gone up so much, and American Water just went in for another rate hike, a pretty sizable one.” 

“It's a terrible policy and never should have passed,” Grant added. “It needs to be repealed.” 

Water privatization spreading nationwide

Nearly nine out of 10 Americans’ drinking water is provided by publicly-owned systems, according to the Environmental Protection Agency, and three-quarters of Americans are served by a publicly-owned wastewater system, according to the Cybersecurity and Infrastructure Security Agency. 

But in recent years, some municipalities—particularly those struggling financially—have turned towards privatization, both as a way to raise short-term cash and to offload the upkeep of a public service (and the political pitfalls of increasing rates) onto someone else. When Fairview Township agreed to sell its sewer system to Pennsylvania American in 2015, prior to the passage of Act 12, town officials touted the deal as a way to wipe out millions in sewer-related debt and slash property taxes. 

Act 12 sailed through the then-GOP-controlled Pennsylvania legislature in 2016, with unanimous support in the Senate and little opposition in the House. "It’s one of the pet pieces of legislation of the private water lobby... We had some concerns about it at the time, and I think they've really come to bear,” Grant said. 

Pennsylvania is one of at least a dozen states that has passed “fair market value” legislation, according to a 2021 study by the National Regulatory Research Institute. In June, Florida — whose residents are already beset by skyrocketing energy costs — became the latest state to pass such legislation.  

After temporary restrictions on rate hikes are lifted following a private water system takeover — for Fairview, it was two years after the sale — companies often pass their costs onto, and reap profits from, consumers. 

In 2022, some Pennsylvania communities whose sewage systems are now run by Aqua saw rate hikes of more than 90 percent. A Food & Water Watch study of water rates in the 500 largest water systems in the U.S. found that private, for-profit companies charged on average 59 percent more than public systems, and in Pennsylvania, 84 percent more.

So far in 2023, American Water has acquired or is under agreement to acquire 46 systems across 10 states, including 13 in Pennsylvania alone, according to its Q3 earnings report. Essential Utilities, meanwhile, said in an investor presentation earlier this month that it’s added 129,000 water and wastewater customers since 2015, and that pending deals would add more than 211,000 customers—mostly in Pennsylvania—with nearly $18 million in “incremental annual earnings potential.” One of those deals, to take over wastewater treatment for Delaware County, would affect roughly half a million Pennsylvanians, but has been tied up in state court for years. 

In November, Pennsylvania American filed a rate adjustment request with the state’s public utility regulator, asking for approval to hike water rates an average of 25 percent for residential customers. The rate adjustment, the company argued, is necessary to carry out $1 billion in improvements to water and wastewater infrastructure.

Resisting water system takeovers

While state lawmakers embark on efforts to change or repeal Act 12, more and more Pennsylvanians are actively working to stop the private takeover of their local systems.

Kofi Osei is one such resident. In 2020, the elected government of Towamencin Township, a community of more than 17,000 people in the Philadelphia suburbs, began taking steps to sell its sewage system to NextEra Energy — the massive energy utility and parent company of Florida Power & Light, among others. Osei, a 30-year-old actuarial analyst who grew up in the township, began working with his neighbors to try to stop it. 

"I read in the news that this has happened a few times in the area and it hasn't gone that well,” Osei, who is also a member of the Democratic Socialists of America, told More Perfect Union. “It just struck my financial background to not make much sense to me.” 

Township supervisors voted 4-1 in 2022 to sell the sewer system to NextEra for $115 million, despite opposition from Osei and his neighbors. Town officials argued that the sale of the system would be used to wipe out debt and reduce taxes.

But opponents, led by the Osei’s group Towamencin Neighbors Opposing Privatization Efforts (NOPE), didn’t end their fight there. Last November, residents approved a ballot question creating a government study commission and elected seven NOPE members, including 30-year-old Kofi Osei, as its representatives. That commission then wrote a new charter, which township voters also approved in May, that would prohibit the sewer sale. 

NextEra also pulled the plug on its growing water business in March and turned over the contract to Pennsylvania American, which would pay Towamencin $104 million—$11 million less—for its sewer system. But despite the new charter, Towamencin supervisors say the sale should still go through. 

Osei and fellow NOPE organizer Jenn Foster sued to stop the sale in August. And Osei himself ran earlier this month against Republican township supervisor Rich Marino, the result of which was a tie at 3,035 votes each, according to the Montgomery County Board of Elections. On Thursday, Osei won the seat after the tie was broken by a random number draw. 

"The biggest thing is you have to catch this early… Paying attention to your local government's minutes or the local newspaper is really important,” Osei said. “And going out of your way to reach out to people — we've knocked on doors a lot, we started meeting, we're pretty active on social media.” 

“I think people understand if they just know it's happening,” he added. “Just making sure people are aware is the big thing.”