As the supervisors of Center and Summit townships appeal the Butler Area Sewer Authority’s sale to Pennsylvania American Water, their solicitor is optimistic the sale could be overturned due to a precedent set earlier this year.

According to the townships’ solicitor, Michael Gallagher, a July ruling that reversed the $54.9 million sale of East Whiteland Township’s sewer system to Aqua Pennsylvania could prompt a similar fate for the $230 million BASA sale.

“We believe that case has a lot of the precedent that the Commonwealth Court will look at,” Gallagher said on the case that unfolded in Chester County, in the southeastern corner of the state.

On July 31, three Commonwealth Court judges said the Pennsylvania Public Utilities Commission (PUC) “erred and/or abused its discretion” in approving the sale of East Whiteland Township’s sewage system to Aqua Pennsylvania Wastewater, a decision the PUC made July 29, 2022, according to court documents.

The July decision came after the Pennsylvania Office of Consumer Advocate appealed the sale, arguing the harms to the 3,900 customers outweighed the benefits of the sale.

Like in the case of the BASA sale, Administrative Law Judge Marta Guhl had issued a recommendation that the sale be denied, prior to the PUC’s decision.

“It was a sale that was settled … the PUC rejected Guhl's determination, and they approved the sale,” Gallagher said. “That got appealed to Commonwealth Court, and they reversed the PUC and affirmed the decision of Judge Guhl.”

Gallagher said the East Whiteland Township case provides a basis for Center and Summit townships’ arguments against the BASA sale.

Center Township supervisors voted to appeal the sale via a 3-2 vote at a special meeting Tuesday. Summit Township supervisors appeal the sale in a 2-0 vote Wednesday, Dec. 6.

“I believe, as township officials, we were elected to make sure we protect your pocketbook and do what’s best for our community, and that’s what we’re doing,” Center Township supervisor Don Pringle said Wednesday.

Center and Summit townships have entered an agreement where Center Township will pay 70% of the legal fees and Summit Township 30% for the cost of appealing the decision. The cost split is based on each township’s number of equivalent dwelling units, according to Sean Gallagher, an attorney with Gallagher Law Group. The townships also will continue paying the group its hourly rate during litigation on the case.

Pringle estimated the cost to Center Township would be more than $40,000, but said it would be worth it if the sale was overturned. He noted residents would see water bills increase because of the sale.

A statement from Ciesler Media on behalf of the BASA board said the involved entities will continue moving toward a closing on the sale. The statement said the merits of the settlement agreement should propel the case through any appeal against the sale.

“This agreement is unique in that it was approved by the PUC without modification, and it included a unanimous settlement among several key stakeholders,” the statement said. “This agreement guarantees significant community benefits and ratepayer protections, enhanced environmental benefits, and protections for BASA employees.”

Dave Zarnick, Butler Township commission chairman, said the appeal could delay the closing of the sale, because BASA’s legal representation will have to respond to the claims made by Center and Summit townships.

“We’re in a holding pattern until the attorneys read the appeal,” he said. “Our focus remains on moving toward closure.”

Zarnick added that Butler, Butler Township and BASA are paying Ciesler Media to assist with public relations around the sale. He said the entities will pay Ciesler for its services when their job is complete.

The appeal was filed Thursday or Friday. It could be up to a year before the court addresses the appeal.

The PUC approved BASA’s sale in a 3-2 vote at a meeting Nov. 9, allowing Pennsylvania American to acquire all of BASA’s assets for $230 million, which will be split between the authority’s incorporators, Butler and Butler Township, following debt payments.

BASA serves customers in those two municipalities, as well as in Center, Summit, Penn and Oakland townships, plus East Butler and Connoquenessing. Supervisors at Center and Summit townships have contested the sale since Butler and Butler Township had entered confidentiality agreements with the water company for negotiations.

When voting on the BASA sale, members of the PUC — some in favor of and others against the sale — noted its resemblance to the East Whiteland Township case.

Stephen DeFrank, chairman of the PUC board, assented to the sale, and referenced the case involving East Whiteland Township in a written statement, which highlighted in a settlement agreement between BASA, the city of Butler; Butler, Center and Summit townships; Pennsylvania American; and the state offices of Consumer Advocate, Small Business Advocate and the Bureau of Investigation and Enforcement of the Pennsylvania Public Utility Commission.

The settlement agreement, revealed Aug. 14, indicates Pennsylvania American Water will contribute $3.5 million, or $700,000 annually over five years, to the company’s statewide hardship grant program, which helps low-income families pay overdue water and wastewater bills in emergencies. The company also will increase eligibility for hardship grants from 200% to 250% of Federal Poverty Income Guidelines.

Additionally, the water company will introduce a formal program for payment arrangements for commercial customers, which formerly was only available to residential customers.

Within that agreement, the water company also agreed to increase wastewater rates by only up to 1.4 times the current rate in the year after closing the sale, or on Jan. 1, 2025, and to only recoup $228 million through customer rates.

“Standing alone, this fact would not be sufficient to warrant granting the application, however, it is another factor that distinguishes this matter from East Whiteland Township and further supports reversing the recommended decision and granting the application,” DeFrank said.

Kimberly Barrow, vice chairwoman of the PUC board, disagreed.

In a statement, she recognized some benefits, including keeping of BASA employees and possible service improvements, but said the harms, such as rate increases, prompted her to say “no” to the sale.

“The stated benefits to this transaction outnumber the harms; however those benefits do not outweigh the harms,” Barrow said. “The vast majority of the benefits of this transaction accrue to the municipality, with some benefit to BASA customers.”

But current and new customers of Pennsylvania American Water would pay the price of the sale, she said.

Like the sale in East Whiteland Township, Judge Guhl recommended the PUC not approve the sale of BASA.

In her Sept. 14 decision, she said BASA could make improvements to its system if necessary.

“BASA has been successful in its efforts to obtain low-cost financing, as evidenced by BASA’s financial statements,” Guhl said in her recommendation, “and there is no apparent reason to believe that financing future system improvements at PAWC’s cost would be more advantageous than financing available to BASA.”

Guhl wrote the cost to BASA customers is cause to not recommend the sale; and the settlement agreement reached between BASA, the water company, Butler and Butler Township should also be denied.

East Whiteland Township in Chester County and Aqua entered into an agreement on Jan. 8, 2021, for the sale of the rights, assets and properties of the sewage system for the price of $54.9 million, court documents said.

The Pennsylvania Office of Consumer Advocate appealed the sale, arguing the harms to customers of the system would be outweighed by the benefits of the sale.

The Consumer Advocate office said Aqua anticipated spending $16.9 million for capital improvements to the sewer system over 10 years, but the acquisition would result in an annual revenue deficiency of about $5.011 million, which would be recovered from customers.

The Commonwealth Court judges found there was no proof rates would become more affordable for East Whiteland Township customers after the sewer system sale, despite Aqua freezing rates for the first three years.

In the Whiteland Township case, Guhl said, while Aqua could provide service, the benefits the company claimed were not proven improvements for the customers of the system. The township was already providing safe and reliable service and had the financial ability to make the upcoming capital investments, court documents said.

The Commonwealth Court opinion also said that while East Whiteland Township would be paid for the sale, those funds are available because the system’s customers, and potentially Aqua’s current customers, would bear the burden of the costs.

The opinion also said East Whiteland Township could afford improvements to its wastewater system if necessary, and that Aqua’s services would not significantly differ from the authority’s services, but would have a higher price tag.

“Holding that a transaction will result in substantial affirmative public benefits because it will provide the same services as already being provided is not a benefit, let alone a substantial affirmative public one as required by statute and our case law,” the opinion said.

The PUC requested a rehearing of the Commonwealth Court’s decision on Aug. 14, which was denied on Sept. 26.

The PUC then filed a petition for allowance of appeal to the Pennsylvania Supreme Court on Oct. 26.