Facts and fears laid out at first hearing on MABS sale

SHENANDOAH – About two dozen residents came to the Shenandoah Senior Citizens Building Monday for the first of two public hearings to discuss the potential sale of the Municipal Authority of the Borough of Shenandoah.

Background

Cross began by explaining how the process has progressed over the past five years, since the Pennsylvania Economy League produced a report on the borough and its infrastructure via their Early Intervention Program. That report was funded by a state grant.

“The report reviewed the sewer and water authorities finances and operations,” Cross said. “After that first report, council requested a second state grant to hire independent experts to review operations and to inform council on its options regarding the authorities.”

Cross explained that that report outlined four options for the two authorities, and that the sewer authority was able to resolve significant issues by obtaining capital to rebuild the treatment plant, a project which is still ongoing, without imposing the cost on the borough.

“Following this, borough council applied for a third follow-up grant. That grant enabled the borough to prepare a request for proposals from qualified buyers and interested parties,” Cross said. An RFP was authorized by the borough and MABS in May of 2019, he said. Cross added that MABS again authorized the issuance of an RFP in June of 2019.

He said that several priorities were determined by the borough, which were, in order of importance, the protection of the interests of MABS employees; the opportunity to address capital investment to maintain the water system; the impact on customer’s rates; the financial and operational interests of the borough and MABS; and the net purchase price and application of proceeds.

“Bids were received and approved, and the Aqua America [Aqua Pennsylvania’s parent company] bid was selected in late 2019 to begin negotiations on the asset purchase agreement,” Cross said.

Goldfield said that, early on, the idea was to sell MABS via a public-to-public deal.

“We did receive a letter from the Schuylkill County Municipal Authority, but they declined to put a bid, because they said that the capital needs of the system were too great and they wouldn’t be able to spread it across their ratepayers,” Goldfield said. “We got two bids, from the biggest water companies in the Commonwealth of Pennsylvania, PA American and Aqua.”

Goldfield said the purchase price is $12 Million, and directed attention to Addendum 1, which was sent out to all bidders during the bidding process.

“In all of the meetings, we told them that this isn’t like other deals. In a lot of places I’ve been, it’s ‘Get the highest price, we don’t care what happens, we want the highest price,'” Goldfield said. “We told the bidders, time and time again, that the purchase price is going to have to reflect the fact that we know there’s going to be a lot of capital investment and it’s a small town, and we want the rates to be stabilized and the investment to be made, and we want the people of MABS to be taken care of.”

In all of the meetings, we told them that this isn’t like other deals.

Steven Goldfield, Municipal Advisors Solutions

The priorities outlined in Addendum 1 were read aloud at a council meeting in Sept. of 2019, reading that “the purchase prices should reflect the borough’s and MABS’s expectations that the winning respondent will make a significant investment in the infrastructure of the water system so that the water system can and will be operated and maintained in a manner that will assure clean, reliable, affordable, and sustainable water service to all customers and other users of the water system.”

“Purchase prices should reflect the preservation and continuity of the existing jobs of current employees to the largest extent possible for the longest extent possible,” the addendum added. “Purchase prices should reflect the respondents ability to spread capital investment over a significantly larger rate base thereby protecting rate payers from the costs associated with the capital investment to the largest extent possible and for the longest period of time possible.”

Goldfield said that, under the proposed purchase agreement, all full-time MABS employees are expected to be retained by Aqua, and that most union employees are likely to see raises phased in over time.

He added that the $23 to $25 Million figure for system improvements was determined by several entities in the water utility industry.

“Is it exact? No. When you buy anything, you can get an expert to come in and look at it and say, ‘well, I think you’re going to need this and that,’ but until you move in, you don’t know exactly what you need,” Goldfield said.

“Whether MABS maintains the assets and invests $20 Million to $30 Million over the next 20 or 30 years, rates are going to go up,” Goldfield added. “If Aqua buys it, they’re going to invest a little more quickly than MABS will, and rates are going to go up, because when you rely on safe and reliable water, you need to keep up with the infrastructure.”

Goldfield said that, with MABS, the cost would be spread out over 3,000 customers, and, with Aqua, it will be over a 450,000 customer service area.

What Aqua sees in Shenandoah

Goldfield then introduced Lucca to speak about what Aqua sees in the borough. He was joined by several other executives, including Area Manager Steve Draus, who oversees the company’s Roaring Creek Division, which includes Girardville and Mount Carmel, and would include Shenandoah should the sale go through.

“Aqua is one of the largest regulated water utilities in Pennsylvania and across the United States,” Lucca said, describing his company. “We have 11 surface water treatment plants, like the one you have here in Shenandoah, 300 wells… 40 wastewater treatment plants, and 570 water and wastewater treatment professionals.”

“Our Roaring Creek division is headquartered in Shamokin and has about 20,000 customers. It serves parts of Adams County, Bradford, Columbia, Cumberland, Juniata, Northumberland, Schuylkill, and Snyder Counties,” Lucca added, saying that the division has about 40 employees.

Lucca said, citing a 2017 report by the American Society of Civil Engineers, that it’s estimated that Pennsylvania’s public water systems will have a $10.2 Billion funding gap in the next ten years.

He said the report has identified aging infrastructure throughout the state in water and wastewater, noting that cast iron — which Shenandoah has for water pipes — have a significant breakage rate, which is only increasing.

“Our goal is to provide excellent water quality and the highest reliability of service,” Lucca said. “With that in mind, you will see that it is with those two goals in mind that we have prepared the estimate” of $23 Million for capital improvements.

Michael Daschbach, Entech Engineering, attending via Zoom, explained the improvements in further detail.

“It was about $15-16 Million for distribution, including things like water audits, leak detection and repair, meter replacement, and water main replacement,” said Daschbach. “I think everyone’s aware that Shenandoah has a greater than 60% non-revenue water rate which is extremely high, so there’s anticipated a lot of work to be done in the distribution system.”

Daschbach added that another $8 Million is estimated for treatment, including dam repairs, water treatment plant upgrades, pumping station improvements, and storage tank cleaning.

“I don’t think that the capital expenditures is underestimated in this case,” Daschbach added.

Lucca then moved into rates, emphasizing that “we cannot change your rates without approval from the Pennsylvania Public Utilities Commission.”

“A rate case proceeding is a very public proceeding and takes about nine months,” Lucca said. “There are public hearings,” he added, saying that there were seven in the last rate case.

Plant operator asks for employee guarantee, says $8M for plant is overestimate

The first member of the public to speak during the hearing was Dan Salvadore, MABS plant operator and union steward.

Salvadore questioned the $8 Million estimate for water treatment plant upgrades, and asked how it’d be guaranteed that he and other MABS employees would retain local jobs.

In addition, Salvadore questioned a mention in the borough’s press release earlier this month that claimed MABS defaulted on a loan. He says MABS deferred the loan.

“What guarantee to I have for my union employees and for the borough of Shenandoah residents?” Salvadore asked regarding the jobs. “Are the jobs in Shenandoah or in Bryn Mawr? We don’t know that. We never had a follow up meeting with Aqua. They said we were going to, and then we didn’t, and then COVID hit.”

“Also, you said that you would put $8 Million into the water plant. That’s a way overestimate,” Salvadore said, saying that MABS will have plant upgrades completed within a year or so.

Salvadore mentioned, regarding MABS’ outstanding loan, that it’s typical of utilities to take out loans for upgrades, and expressed concerns in the fact that the borough still owes $2 Million on the 40-year-old sewer plant.

“That’s an indication, maybe, of past mismanagement and skullduggery which really bothers me because, is this the reason we’re selling [MABS], because the borough was so mismanaged in the past, because if it is, it’s not a really good reason to sell your resources,” Salvadore said. “Once it’s sold, it’s sold. You have no control over it.”

Salvadore expressed concerns that Aqua is a private company, saying “They work for their stockholders. They will raise your rates, guaranteed.”

That’s an indication, maybe, of past mismanagement and skullduggery which really bothers me because, is this the reason we’re selling [MABS], because the borough was so mismanaged in the past, because if it is, it’s not a really good reason to sell your resources. Once it’s sold, it’s sold. You have no control over it.”

Dan Salvadore, MABS Plant Manager, on an outstanding sewer authority loan

Salvadore says he’s against selling it, saying that “We’ll lose a commodity, and a resource.”

He also asked for a guarantee for his union workers.

Salvadore added that the MABS of today is a “whole different MABS” from the one outlined in the PEL report of 2015.

“We’re in the black, there’s money in the black. Knock on wood, we need some more warm winters, but we’re doing a lot better than we were when that report was made,” Salvadore said.

Goldfield said, in response to Salvadore’s question, that the intention “is for this operation to stay locally.”

“Whenever we acquire a system, we make it our policy to have offers of employment to the existing employees,” Lucca said, adding that such a provision would be in the asset purchase agreement. “The jobs will not be in Bryn Mawr, I assure you. The jobs will not be in Texas, the jobs will not be in Ohio, the jobs will be here.”

Goldfield added that “Shenandoah’s residential rates are relatively high,” saying that several local authorities have lower rates.

“The difference at 3,000 gallons a month between Aqua and Shenandoah rates is very small at a quarterly basis,” Goldfield said.

Goldfield added that, should the sale be approved, it would not be done in time for Shenandoah to be included in Aqua’s next rate case.

“Shenandoah’s rates would be the exact same as they are now until the next rate case,” Goldfield said, which is expected in 2024, adding that if rates are increased, they’d be in the ballpark of 15%.

What happens to the land, asks resident

Joseph P. Anczarski asked about what would happen with the MABS-owned land atop Locust Mountain.

“I was curious if the sale would be just the infrastructure and the plant, or if it’d be a certain amount of acres, and if so, how many,” Anczarski said, with a follow up question asking how much land, if any, would be included.

Goldfield said that the real estate specifics would be ironed out after an asset purchase agreement is signed.

“You’ve got to own the plant, you’ve got to get the easements for the distribution system, the land where the pump station is, and the source,” Goldfield said, noting that the specifics would be figured out by real estate lawyers. “No one’s done the heavy lifting of what real estate lawyers do.”

Anczarski mentioned how Roaring Creek’s reservoirs are on state game lands, so the surrounding land is protected, but expressed worries that land around the MABS reservoirs could be sold.

“I’m curious if a certain amount of property is sold, what stops Aqua from being able to sell off portions of that to get their investment back, and will it affect our drinking water because something would be developed near a reservoir,” Anczarski said. “That’s a big concern I have.”

Lucca said that the concern is one he hears often, and noted that the land surrounding the Roaring Creek reservoirs are state lands because they donated them.

“It’s not uncommon for us to do that. We have thousands of acres around the state that are held by Aqua or have been donated,” Lucca said. “We’re very protective of the land because we recognize that the reservoirs from which these communities get their water must be protected and that protection is the buffer that the land affords.”

MABS board left in the dark as of late

Anczarksi asked if the group had met with the MABS board, as his father serves as chair.

Pietkiewicz said that an offer was extended, and that, either due to COVID or a lack of a response, it didn’t happen.

Goldfield said that, prior to November of 2019, he had met with the MABS board and borough council on several occasions, and that prior to November, the two entities were aligned and on the same page.

“We had asked MABS on several occasions to participate in these [negotiating] sessions and, some time after November, it just shut down,” Goldfield said. “There’s absolutely been adversity from the MABS board.”

Goldfield said that, on one occasion, Lucca came to meet with MABS and the borough, and the MABS board didn’t show. Anczarski said his father had dealt with a reverse issue, where he was told of a meeting, showed up, and no one was there.

Amato said that informational sessions had been held on the subject, and MABS had been invited to one in May, and received a response from MABS’ special counsel, Elliott, Greenleaf, and Dean, saying that the board would prefer to discuss the subject in a public forum.

Attorney Kristyn R. Giarratano, with Elliott, Greenleaf, and Dean, attended the meeting via Zoom.

“I do want to say that, on May 22, we did receive that letter, but as far as any meeting held before that time, and especially on Feb. 21, the authority didn’t have any notice of that meeting,” Giarratano said. “I want to put it out that, at all times, we have been cooperative and we have been willing to negotiate.”

“There’s documents establishing that they knew of the meeting. There’s documents establishing that they wanted a public meeting, they did not want to meet with us for an informational session. I’m not going to litigate the case here, but we did reach out to MABS to have them come, and they declined our offer,” Amato said.

“With all due respect, we have asked for evidence of these documents discussing the meeting and we have not been provided with any documentation saying that you would like to meet with us in February,” Giarratano said.

“We do have an email, with regard to the February meeting, and I did provide that to Jack Dean. Regardless of the February meeting, we did try to re-establish communications with MABS in May, to which they declined our offer to attend an informational session to discuss these issues,” Amato said.

Giarratano added clarification that they didn’t outright decline the meeting, they just wanted it to be in a public forum.

Moving forward

The next step in the process is another hearing, next Monday, Oct. 26, at 7:00pm at the Senior Citizens building on North Market Street.

A vote isn’t expected for the near future.

Questions on the matter can still be submitted via an email address, [email protected], which the Pennsylvania Economy League has set up. Questions will go to the professional team and be answered promptly by the appropriate person.

Answers to submitted questions will be published on the Sentinel‘s website regularly.

About Author