As has been widely reported, the town of Purcellville is considering selling its utility system to Aqua Virginia, which is a subsidiary of publicly traded firm Essential Utilities. The town received an unsolicited proposal from the company.
It is unclear what the benefit to the residents and businesses of the town would be. The risks, however, are enormous.
After six years of ignoring their own fiscal consultants regarding rate setting and economic opportunities that could negate the need for further rate increases, the town is now embarking on the latest get-rich-quick scheme that in the end could do significant economic damage to town residents and businesses. Given the town’s failed privatization scheme of Fireman’s Field, the debacle of how our chief of police has been treated and the associated cost — $1 million plus and counting — and the incompetent management of the water/cell tower refurbishment, there is plenty to be skeptical of. Here are eight things to consider.
1. Town loses control of rate setting
Should the town sell its utility system to a private company, water and sewer rates would be set not by Town Council – your duly elected representatives – but by the State Corporation Commission in Richmond. This is the same group that year after year approves the rate increases for the most expensive toll road per mile in the U.S. — the Dulles Greenway. Who do you think would be more responsive to town residents and businesses?
2. Lack of transparency
Aqua Virginia has proposed to purchase the utility system through a legal mechanism that prevents the public from seeing the contract and any details on the transaction, including the impact on ratepayers. Therefore, residents are left in the dark as to what this transaction would mean to them.
3. Paying for the same infrastructure over and over again
While it is true that the funds received by the town for the system could be used to pay down the debt for the construction of our water and sewer system, town residents and businesses would then be paying rates to pay for the sewer and water system through Aqua Virginia.
Essentially it is like selling your home, but being contractually obligated to live in the house forever and pay the mortgage and have no say over how much the rate will be. Remember, the State Corporation Commission would set rates, not the town. Simply, there is no such thing as a free lunch.
4. Undefined risk to the town
The town has restructured its debt twice since 2017. Currently, the debt on the town’s water and sewer utilities are all paid off by 2038. That end date has been extended by four years with increased cost. Previously, water and sewer debt would be paid off by 2033 and 2034, respectively, but the town restructured its debt in 2017 and again in 2020.
Should the system be sold, it is most likely that Aqua Virginia (Essential Utilities) would use long-term corporate bonds to make the purchase. So if 30, 40 or 50 year bonds are used to purchase the system, town residents and businesses would be paying many decades more for a system that would be paid off much earlier if the town maintains control of the system itself.
According to Simply Wall Street, Essential Utilities has liabilities $8 billion more than its cash and near-term receivables combined.
Town ratepayers could be in the difficult position of seeing rate increases to help Essential Utilities pay down debt for projects not even remotely related to town infrastructure. Again, with no transparency on the transaction from the town or Essential Utilities, there is no ability to make an informed judgement on the proposal.
5. Essential Utilities has a lower bond rating than the town
On April 13, Essential Utilities issued international bonds with a 3.351% interest rate for $600 million maturing in 2050. The bonds had a rating of A- from Standard and Poor and Moody’s of Baa2 from Moody’s. In contrast Purcellville has a AAA Rating from Standard and Poor and Aa2 from Moody’s. Comparatively, the town’s recent refinance of debt comes with an interest rate of 1.5%.
6. Poor rating from consumers and the Better Business Bureau
Aqua America (the predecessor to Essential Utilities) receives a C- rate from the Better Business Bureau. Take the time to read the reviews from consumers to understand their concerns.
There are plenty of articles regarding Aqua America and their poor customer service and rates.
7. Reports and profiles of Aqua America
Food and Water Watch, a not-for-profit organization, has issued a number of reports and profiles regarding Aqua America. You can find the reports online. I encourage you to familiarize yourself with the issues at hand.
8. These assets belong to us, the residents of Purcellville
The town’s forefathers had the vision to purchase the property to build the town reservoir and water system to ensure a safe supply of drinking water for the community. Subsequently, the town has built wastewater treatment facilities to make sure that our wastewater meets all the standards legally required of the town.
Water and sewer is a vital public service and not something that should be sold off for political convenience so the elected officials can blame the other guy when rates and the overall cost of the system goes up. We all know that is exactly what is going to happen.
Bob Lazaro served as mayor of Purcellville from mid-2008 until mid-2014, when he did not seek re-election.