- Associated Press - Tuesday, July 28, 2015

July 28—With a city badly in need of a financial infusion and the Scranton Sewer Authority facing more than $140 million of investment required by consent decrees with federal and state regulators, the state’s largest water utility presented itself as a savior for the Scranton sewer system.

Executives from Pennsylvania-American Water Co., who were in Scranton to dedicate a park it helped fund, met with the Times-Tribune editorial board on Monday to promote its plan to acquire the struggling sewer system that serves Scranton and Dunmore, empowered by a law that would allow it to spread the cost of the improvements over 665,000 customers in the state.

While PA-American Water has expressed an interest in operating or purchasing the system, this is the first time the utility, which already supplies water to most of Northeast Pennsylvania, identified itself as a bidder responding to a request for proposals this May. There are a total of four bidders, the company delegation said.

Because they are under a confidentially agreement, they could not disclose the amount of their bid or other details. The purchase price would be used to discharge some debt and the remainder, typically, is dispersed to the founding municipalities. In past transactions, Dunmore has been treated as a one-sixth owner of the system.

The Scranton Sewer Authority’s next regular monthly meeting is today at noon at the authority’s administrative office at 312 Adams Ave.

Thanks to Act 11 of 2012, utilities that acquire sewer systems may spread the cost of capital improvements over their entire rate base of both water and sewer customers. The law gives privately operated utilities an incentive to take over deficient or poorly operated sewer systems.

“Rather than recovering that money only from Scranton customers, our investment could be spread out to our entire system,” said Walter Lynch, president and chief operating officer of regulated operations for American Water. “This makes acquisition of a system more palatable to the parties involved and the ratepayers.”

It’s been going on already. Pennsylvania American Water users help, in a small way, to subsidize the capital improvement costs of the sewer system the company acquired in Saw Creek Estates, for example, and Coatesville, and several others.

“Eventually, every system will require capital improvements, and eventually, everyone benefits from a combined tariff,” said Mr. Lynch, a native of Moosic.

The company executives made several points as to why it would be the best operator for the system.

—Existing infrastructure.

As the dominant water utility serving the area, Pennsylvania American already owns and operates water pipelines running under the same streets. With water and sewer under a single entity, the company can better stage service and replacement of lines and tearing up of roads.

“If you open up the street, that’s already our infrastructure,” said Kathy Pape, senior vice president for American Water’s Mid-Atlantic Division.

—Spreading costs.

The sewer authority is bound by a consent degree and a legal settlement to invest $140 million over 25 years to reduce the amount of raw sewage discharge into the Lackawanna River during storms, when runoff overwhelms the combined storm and sanitary sewer system. Add to that $60 million of anticipated normal capital improvements. That is expected to result in average bills of more than $1,400 per year if the improvements are born entirely the local customers rather than the company’s service base, Mr. Grundusky said.

—Economies of scale.

Parent company American Water Works Co. is a national player in bidding on chemicals, pipe and anything else required to run a water or sewer system. That savings will be passed onto customers, Mr. Grundusky said. With 90 percent of its revenue coming from regulated utilities, American Water Works does business in 45 states with 10 million customers and is the largest publicly traded water and wastewater utility in the U.S.

Because sewer customers are already the company’s customers, the company and customers would benefit from streamlined billing.

—Local ties.

The company acquired the water system from Pennsylvania Gas & Water in 1996 and last year consolidated its local workforce and the Field Resources Unit, a national dispatching division, on Stafford Avenue in Scranton in a mostly new building.

“We are connected to Scranton and connected to this area,” said Ms. Pape said. “We are local. We are neighbors. We are right down the street and we are connected to what goes on here.”

—Employment contracts.

The company will retain employees and abide by collective bargaining contracts, Mr. Lynch said. The company has 3,200 employees under 18 bargaining agreements. The company needs the current employees, Mr. Lynch said. As part of the American Water, employees have greater opportunity to advance.

While the company has separated combined sewer systems most recently in Clarion, it has never confronted a separation the size of the Scranton’s.

“I don’t think anyone has,” Mr. Grundusky said. “It’s a pretty large lift.”

Contact the writer: [email protected]

Since Scranton officials started eyeing privatizing the sewer authority as a critical part of the distressed city’s recovery plan, Dunmore Borough Council has objected to the idea.

Councilmen described the plan as forcing borough residents to help bail out Scranton through what they believe will inevitably result in higher rates a for-profit business would charge.

With just one of five votes on the sewer authority and about 20 percent ownership of the operation, however, their options are limited.

Dunmore solicitor Thomas Cummings has so far been unable to find a way for the borough to single-handedly block a sale or long-term lease on its own. But the borough can still use its legal standing to ensure the sewer authority does the transaction correctly.

“If they said, ‘OK, we’re going to sell it for a dollar.’ Well, no, you can’t do that because the statute says you have to get fair value,” Mr. Cummings said. “Or, ‘we’re going to sell it and disconnect it.’ No, because we have the EPA and DEP responsible for the environment and for the ratepayers. So, you have to follow the procedure.”

Councilman Timothy Burke was not ready to give up and proposed at this month’s council meeting the borough hire a paralegal assistant to research cases around the country to search for any ways to block a transaction Mr. Cummings might not be aware of.

“If you want to (continue the search), I’ll back you,” said council President Michael McHale, who represents Dunmore on the sewer authority.

— KYLE WIND

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(c)2015 The Times-Tribune (Scranton, Pa.)

Visit The Times-Tribune (Scranton, Pa.) at thetimes-tribune.com

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