Meeting offers little clarity about the future of the Oxford Area Sewer Authority
By Steven Hoffman
The Oxford Area Sewer Authority held a special meeting at the Lower Oxford Township Building on Aug. 29, and the agenda included a presentation by three representatives of DELCORA, the Delaware County Regional Water Quality Control Authority.
Those officials—Chris Lenton, Mike DiSantis, and John Pileggi—had the unenviable task of explaining the stunning announcement in July that DELCORA had entered into negotiations to merge with Aqua, a large, private, for-profit water corporation. Those merger discussions halted, at least for now, an agreement for the Oxford Area Sewer Authority to sell its assets, including the state-of-the-art wastewater treatment system, to DELCORA.
Nothing that transpired during the meeting offered much clarity about the future of the Oxford Area Sewer Authority.
One major piece of information that the DELCORA officials shared with the Oxford Area Sewer Authority Board at the Aug. 29 meeting is that the exploratory, non-binding conversations between Aqua and DELCORA will now continue through Oct. 1. Initially, those discussions only had a six-week window.
Oxford officials and residents were understandably concerned about how DELCORA could enter into merger negotiations with Aqua while negotiating to purchase the Oxford Area Sewer Authority’s assets for more than a year.
Lenton assured the Oxford Area Sewer Authority Board that they were not aware of DELCORA’s plans to seek a merger with Aqua when they last met with Oxford Area Sewer Authority officials a few months ago.
“At the last meeting in May, we thought we had a deal with you,” Lenton said. “We did not know anything about [the merger with Aqua] either. This is not what any of us were envisioning when we met back in May.”
The officials said that only the highest-ranking DELCORA officials had knowledge of the possibility of a merger with Aqua.
The DELCORA officials went on to explain that capital project plans have been developed for the Authority’s existing service area, and approximately $1.2 billion in work will be necessary over the next two decades to fully implement those plans. While DELCORA is in good financial shape, a merger with Aqua could be the best way for the Authority to fund those capital projects and limit the burden on rate payers.
As for why Aqua would be interested in merging with DELCORA, the reason is that DELCORA’s total wastewater treatment operations in the region dwarfs what Aqua currently has. DELCORA could function as the wastewater treatment arm of the company in the area. There is currently no deal in place for Aqua and DELCORA to merge, but the discussions are continuing.
DiSantis said that from what they have been told, DELCORA would be willing to walk away from any deal with Aqua if there isn’t some sort of agreement on fair rates for rate payers.
Lenton told the Oxford Area Sewer Authority that Aqua officials have already said that they would be willing to come to Oxford to discuss the ongoing situation with them, and that any deal, if one does take place, would certainly take some time to complete because Public Utility Commission approvals would be needed.
Oxford Area Sewer Authority officials seemed skeptical about the possibility of selling its assets to DELCORA if, in the near future, that municipal authority would be merged with Aqua.
Robert McMahon, a member of the Oxford Area Sewer Authority Board, noted that the board previously took a vote only to sell to a municipal authority—not to a for-profit water corporation like Aqua.
Ron Kepler, the chairman of the Oxford Area Sewer Authority Board and a supervisor from Lower Oxford Township, reiterated that stance.
“An Authority looks out for its rate payers,” Kepler explained. “Aqua looks out for its shareholders.”
There was a brief question-and-answer period where the DELCORA officials responded to questions by those in attendance.
Vince Pompo, the solicitor for the Oxford Area Sewer Authority Board, asked for clarification on whether the DELCORA Board had taken any formal action related to the purchase of the Oxford Area Sewer Authority’s assets.
The officials responded that the DELCORA Board had not taken such action.
Richard Winchester, a resident of Oxford Borough, said that he was disappointed in the whole process. He said that he would recommend that the Oxford Area Sewer Authority Board seek another potential buyer rather than continuing the process with DELCORA.
Blair Fleishmann, a resident of Upper Oxford Township, said that while it was good of three DELCORA officials to come to the meeting to provide answers, it was also troubling that DELCORA would negotiate with the Oxford Area Sewer Authority while simultaneously pursuing a merger with Aqua—and not share that information. She said that she would like to see the Oxford Area Sewer Authority remain as a separate entity until there is more clarity about the situation.
William “Radar” O’Connell, a supervisor in Penn Township, said that there were justifiable reasons to be concerned about selling off the system to Aqua because of the potential for large rate increases. As evidence, O’ Connell noted that Aqua sought 84 percent increases in rates for Penn Township residents last year. The rates eventually were increased by 37.4 percent, and O’ Connell warned that a similar increase could be a possibility if the Oxford Area Sewer Authority does sell off its assets to a larger, private water company.
Following the presentation by the DELCORA representatives, the Oxford Area Sewer Authority Board still had the regular business to attend to, including updates about the current operations of the Oxford Area Sewer Authority.
Executive director David Busch talked about the efforts to make good on two missed debt-service payments to the U.S. Department of Agriculture (USDA) that the Sewer Authority failed to make in 2016, before Busch came on board. It was the missed debt-service payments totaling $1.2 million that prompted the Oxford Area Sewer Authority to pursue a sale of its assets in the first place.
Over the last two years, the Sewer Authority has taken a number of steps to improve its financial position, and it has been able to meet all its obligations, including the debt-service payments that are due twice a year.
Busch said that the Sewer Authority has received a demand letter from the USDA about the two late debt-service payments notifying them that they must make a payment of slightly more than $600,000 by Dec. 31, 2019, and the other payment by the end of June in 2020.
Busch said that he was hopeful that the Sewer Authority could sell two properties—a parcel on Reedville Road that is situated in three different municipalities and the Oxford Area Sewer Authority office building in downtown Oxford. Those two properties could bring in enough funds to make up for at least one of the missed debt-service payments, Busch said, but that isn’t likely to happen by December 31.
Busch said that he has already reached out to several banks to find out the terms that the Sewer Authority could get on a loan that would be sufficient to cover the missed debt-service payments.
“We are not the best option to loan money to,” Busch acknowledged. “Do I think we can get a loan? Yes. I think we can get a loan.”
At the time the Sewer Authority initially secured the $27 million loan from the USDA, the four member municipalities—Oxford Borough, Lower Oxford Township, East Nottingham Township, and West Nottingham Township—agreed to guarantee the loan in the event that the Sewer Authority could not meet its obligations.
The Oxford Area Sewer Authority Board voted to send a demand letter to the four member municipalities notifying them that the missed debt-service payments must now be paid, but not everyone was in agreement that this is the best path forward.
Brian Hoover, the Oxford Borough manager and one of the borough’s two representatives on the Oxford Area Sewer Authority Board, voted against sending the demand letter to the municipalities. He said that the best option is for the Sewer Authority to take care of its obligation.
“It’s a sewer authority issue, and if the sewer authority can borrow the funds, they should do that,” Hoover said.
Busch agreed, noting that the missed payments were the Sewer Authority’s obligation. Efforts to get the USDA to find a better way to resolve the issue of the missed debt-service payments, such as simply moving those payments to the end of the original loan, are continuing.
Hoover and several others emphasized that the USDA has no intention of foreclosing on the loan, so the importance of the demand letter for a payment by Dec. 31 should not be overstated. The USDA is aware of the Oxford Area Sewer Authority’s situation.
Next, the Oxford Area Sewer Authority Board voted to reduce the asking price on the two properties that it is looking to sell in hopes of bringing in an infusion of cash.
As for the larger question of the future of the Oxford Area Sewer Authority, Hoover talked about the need to explore options.
“We can’t bury our head in the sand,” Hoover said.
Officials said that it’s likely that, no matter what, rates will be going up in the future. It’s costly to run a wastewater and water system, whether the Oxford Area Sewer Authority continues to operate as a separate entity or it gets sold to DELCORA or to a private, for-profit corporation like Aqua.
Hoover talked about the need for growth—new commercial and residential connections that will generate revenues for the Oxford Area Sewer Authority and spread out the costs moving forward to greater numbers of people.
“Customer growth will help, but it doesn’t make it all go away,” Busch said. “All we can do is keep taking care of business.”