Settlement Unanimously Approved in Pennsylvania American Water Rate Case - Acquisition of McKeesport Wastewater System Closed

Jan 05, 2018

The Pennsylvania Public Utility Commission unanimously approved a settlement that allows Pennsylvania American Water to raise water and wastewater rates, effective January 1, 2018. The primary factor behind the rate increase is the approximately $1.26 billion of investments to replace and upgrade aging infrastructure since its last rate case in 2013. The following acquisition of the wastewater system assets of the Municipal Authority of the City of McKeesport is the first transaction completed under commonwealth's Fair Market Value legislation. The purchase price is approximately $159 million.

“We are pleased the commission has approved this fair and reasonable settlement, which balances our customers’ interests with the much-needed investments we make to ensure reliable, quality service,” said Pennsylvania American Water President Jeffrey McIntyre. “We appreciate the diligence and cooperation of the PUC Bureau of Investigation and Enforcement, Office of Consumer Advocate, Office of Small Business Advocate and other intervenors who made it possible to reach this settlement.”

McIntyre said the approximately $1.26 billion in improvements for treatment plants, storage tanks, wells and pumping stations reflect a commitment to protect public health in the more than 400 communities served by Pennsylvania American Water. The investments also include replacing nearly 450 miles of aging pipe, as well as valves, service lines, hydrants and other parts of the company’s nearly 10,700-mile network of water and sewer lines.

The typical monthly residential water bill for Pennsylvania American Water customers using 3,630 gallons will increase by $5.22 per month, from $55.63 to $60.85. When the new rates take effect January 1, it will be the company’s first base rate increase in four years. With the approved rate increase, the average family will receive a day’s worth of water for cooking, bathing, cleaning, drinking and all other purposes for around $2.00. “We believe the clean, safe and reliable service we are providing for communities remains a remarkable value,” said McIntyre.

As part of the settlement, Pennsylvania American Water will increase its annual contribution to its Help to Others (H2O) Program™, which assists disadvantaged and low-income customers. The company’s annual contribution will increase from $310,000 to $450,000 to support the H2O Program, which the company funds through matching customer and employee donations.

The settlement will result in an increase of approximately $62 million in annual revenue. The company had filed its original rate request with the PUC on April 28, 2017, seeking an annual revenue increase of approximately $107.9 million.

Pennsylvania American Water Closes Acquisition of McKeesport Wastewater System

The transaction marks the first acquisition completed under Pennsylvania’s Act 12 of 2016, which allows municipalities to sell water and wastewater systems for a price based on the fair market value of the system. The MACM wastewater system provides service to approximately 22,000 customers, including those served under bulk contracts, in 13 municipalities in Allegheny County.

“As the first finalized sale under Pennsylvania’s Fair Market Value legislation, this acquisition establishes a strong example for other communities to consider,” said Pennsylvania American Water President Jeffrey McIntyre. “Prior to the passage of Act 12, the depreciated cost of this system might have prevented the City of McKeesport from the opportunity for financial stability.”

“The crux of this transaction is bringing financial stability to the City of McKeesport and saving our taxpayers from Act 47 municipal bankruptcy,” Mayor Michael Cherepko said. “When we think about it, the privatization of local sewage services truly makes sense. The City isn’t involved in other utility businesses – gas, electric, water – and this is a final step in providing consistent, regulated utility services to our community.”

The transaction’s closing follows a regulatory review and approval process by the U.S. Environmental Protection Agency (EPA), Pennsylvania Department of Environmental Protection (DEP), the Pennsylvania Public Utility Commission (PUC) and Allegheny County Health Department. The PUC recognized Pennsylvania American Water’s ability to provide much needed investment in the system, enhanced customer service and assistance program for low-income customers when the commission approved the acquisition on October 26, 2017.

McIntyre added that long-term rate stability is one of the most important benefits for these wastewater customers. Under the purchase agreement, Pennsylvania American Water will not increase base wastewater rates any earlier than one calendar year after the closing. The company’s rates are regulated by the PUC and any future rate changes would have to be reviewed and approved by the PUC.

This acquisition adds to the company’s series of municipal wastewater transactions. In 2016, Pennsylvania American Water acquired the wastewater assets of the Scranton Sewer Authority in Lackawanna County and the Borough of New Cumberland in Cumberland County.

About Pennsylvania American Water

Pennsylvania American Water, a subsidiary of American Water, is the largest investor-owned water utility in the state, providing high-quality and reliable water and/or wastewater services to approximately 2.3 million people. With a history dating back to 1886, American Water is the largest and most geographically diverse U.S. publicly-traded water and wastewater utility company. The company employs more than 6,800 dedicated professionals who provide regulated and market-based drinking water, wastewater and other related services to an estimated 15 million people in 47 states and Ontario, Canada.

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