States Are Helping Corporations Privatize Tap Water. You’re Paying the Price.

Pennsylvania has been particularly susceptible to the corporate takeover of water and sewer systems. Residents want to undo the law that encourages it.

By Paul Blest, More Perfect Union

During a legislative hearing in Harrisburg, Pennsylvania last December, Rep. Joe Ciresi, a Democrat from the Philadelphia suburbs, described the consequences of water privatization to executives of Pennsylvania American Water and Aqua Pennsylvania, the state’s two largest investor-owned utilities. 

“Your product is free, other than how it gets to the house,” Ciresi said. “The challenge we have today is when I have a senior citizen calling me and telling me she's peeing in the yard because her water bill and sewer bill doubled, and no one cared." 

Corporations and private companies have been buying publicly-owned water and sewer utilities for decades, but since 2016, encouraging these sorts of sales has become a matter of official state policy, thanks to a law known as Act 12.

But now, after the sale of more than two dozen water and sewer systems under the policy has resulted in anger from residents about skyrocketing bills and a lack of transparency that preceded the sales of their systems, Pennsylvanians are pushing back and calling for reform. 

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Pennsylvania is one of more than a dozen states with “fair market value” laws, which promote public utility sales by baking more factors such as income, the cost of repairs, and expected revenue into the sale price. This inflates the price, allowing local governments to capture a big windfall. 

Laws like this were pitched as a solution for “distressed” utilities whose local governments struggle to complete the necessary repairs and upkeep of their water and sewer systems. But in its marketing to local governments, the industry’s top trade group says fair market valuation is “not only for distressed systems,” and in Pennsylvania, that result has borne out; the state Consumer Advocate said in a hearing in December that none of the nearly two dozen systems purchased under the Act 12 rules are distressed. 

“They are almost seduced by a large sum of money offered by the big water companies,” Bill Ferguson, a New Garden, Pennsylvania resident, told More Perfect Union. After the law was passed in 2016, New Garden sold its sewer system to Aqua for six and a half times its annual budget. 

In return, the new owner of the utility recoups its investment in perpetuity, and then some. After Aqua took over New Garden’s sewer system, Ferguson’s bill nearly doubled, from $234 to $413.33. 

“You don't really think about it until your system has been privatized and you get a bill that was twice what it was last time,” Ferguson said. 

The fight over the Chester Water Authority

One of the most contentious fights over Act 12 thus far has been over the Chester Water Authority (CWA), a publicly-owned water utility that began in the city of Chester in the 1930s but now also serves tens of thousands of homes and businesses in Delaware and Chester counties. 

Soon after Act 12 passed, the board of directors for the CWA unanimously rejected an attempt from Aqua to buy the utility. But Aqua has continued to push to buy the system, and the city of Chester, which is currently in receivership due to its debts, has tried to sell the utility for $410 million. That fight is currently tied up in the courts, but the hostile takeover has drawn outrage from both Democratic and Republican legislators who represent the area. 

“One of the tactics that they use is basically to say that the infrastructure that we have is very poor,” Noel Brandon, the chair of the CWA Board of Directors, told More Perfect Union. “We’ve been operating quite successfully, quite reliably. We are an award-winning authority, [the] best-tasting water in Pennsylvania.”

Of Aqua’s true motives, Brandon claims: “They want to get well-run systems because it means that there's less money they have to put into it.” 

Act 12 and the takeover of local systems is part of a broader national strategy for companies like Aqua and American Water, who have made the overwhelming majority of purchases under Act 12 so far. Both American Water Works and Essential Utilities, Aqua’s parent company, are publicly traded companies whose top shareholders are the multi-billion dollar asset managers Blackrock and Vanguard.

And the industry has enormous influence over Pennsylvania politics. Former House Speaker Mike Turzai, who presided over the passage of Act 12, went to work for Essential Utilies’ natural gas division when he retired in 2020, and the chair of the Pennsylvania Public Utility Commission (PUC), Stephen DeFrank, was a registered lobbyist for Pennsylvania American Water (and Norfolk Southern, among other companies) when former Gov. Tom Wolf nominated him to lead the state utility commission in 2022.  

Years of increasing bills, however, have resulted in a growing backlash against privatization. Residential opposition sank a 2022 deal to buy Bucks County’s sewer system that would have been the largest of its kind in U.S. history, and residents of Towamencin, Pennsylvania changed their charter and elected a pro-public water activist to the town board last year in an attempt to stop the sale of their system to Pennsylvania American Water. (This case is also tied up in the courts.)

And the outrage has forced policymakers to consider changes. The PUC under DeFrank is proposing a series of changes to how Act 12 is implemented including a minimum of two public meetings before the company and local government sign an asset purchase agreement. A group of House Democrats led by Rep. Robert Matzie, meanwhile, have a package of four bills—which includes measures Democrats say will limit acquisitions of healthy systems and rate hikes—that have already cleared one committee. During a hearing in December, Matzie stressed that the reforms he proposed were an attempt at a compromise that could pass both the House and Republican-controlled state Senate. 

Those reforms wouldn’t, however, affect the purchase of the CWA, as DeFrank said in a December hearing on the package. (An amendment from Chester County Republican Rep. John Lawrence that would have stopped the sale broadly passed the House in 2022, but was never taken up in the Senate.) 

And others say the proposed PUC and legislative changes do not go far enough. "I'll save everyone some time," Sen. John Kane said during a Senate Democratic policy hearing in February. "I think we should repeal Act 12, and I have introduced legislation to do just that."

For now, the fate of publicly-owned water and sewer systems in Pennsylvania rests on the ability of its residents to mount an organized opposition. Brandon, the CWA board chair, told More Perfect Union that residents should “attend any public meetings where this is discussed and raise their concerns,” and vote for lawmakers who will protect public water.  

"If ratepayers want to work towards preventing takeovers,” he said, “it really comes down to their voice.”