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PAWC’s Purchase of the City of Coatesville Authority’s Water and Wastewater Assets

2002 NCPPP Project Award Winner
Project Location: Coatesville, Pennsylvania
Public Sector Partner: City of Coatesville and the City of Coatesville Authority (CCA)
Contact Name: Paul Jannsen, City of Coatesville Manager, 610.384.0300
Private Sector Partner: Pennsylvania – American Water Company
Contact Name: Robert Ross, President and CEO, 717.531.3200

Project Summary
On March 22, 2001, Pennsylvania – American Water Company (PAWC), a subsidiary of American Water Works Company, City of Coatesville Authority (CCA) and the City of Coatesville closed on the sale of CCA’s water and wastewater assets to PAWC.

Benefits Derived from the Partnership
The $48.225 million transaction expands PAWC’s service territory to include an additional 8,600 water customers and 6,500 wastewater customers in 16 municipalities. In addition, the sale expands PAWC’s revenue base, allowing the company to purchase chemicals and equipment at lower costs because they are bought in larger quantities. This allows PAWC to spread costs across a wider customer base – causing greater economies of scale, which benefits PAWC and its customers. The company also recognizes in the future. Over the next 10 years, PAWC estimates that this transaction will result in adding another 6,000 water customers and 4,500 wastewater customers due to the economic development and new housing starts in the greater Coatesville area.

City of Coatesville and Residents
As part of the agreement, the City and its residents are benefiting from the sale in the following ways:

  • Rates for both water and sewer are frozen for three years
  • PAWC will contribute annually to the City’s Economic Development Fund
  • Funds from the sale, which exceeded $39.5 million after the debt was paid, were placed in a Reserve Fund
  • The City will be given a $10,000 credit for future water usage and a $10,000 credit for sewage treatment.

Funds from the sale are being invested to maximize their return to the City in the form of investment income. At the blended investment rate of 6.8%, the return on the reserve fund will be a minimum of $2.686 million annually, which will be utilized for the following tax cuts and program enhancements:

  • Tax Cuts ($1,101,000): Earned income taxes were cut in half from 2% to 1%, which equates to a $300 savings for a person earning $30,000/year; real estate taxes were cut by 1 million for improved property (from 6.2 million to 5.2 millions), representing a $100 savings for a $100,000 home; and the per capita tax was eliminated (a $20 fee/person). A family of four, who earns $60,000/year and owns a $100,000 house, would save $740/year ($600 on earned income taxes, $100 in property taxes, and $40 from eliminating the per capita tax).
  • Small Business Enterprise Development Program ($375,000): Provides financial assistance and technical support for disadvantaged persons who seek to start a business.
  • Coatesville’s Multipurpose Recreation and Activity Center ($200,000): Provides debt service, capital and operating dollars for the construction and operation of the center, which will be open year-round, 24 hours a day, with access for all residents.
  • Annual Funding for Capital Reserve Fund ($500,000): Fund to be used for road paving, park improvements, municipal construction projects, etc.
  • Enhance Existing Programs ($273,000): To provide additional funding for existing city programs including the size of the police force, additional support for the Main Street Manager program and expanded public works projects.
  • Rainy Day Fund ($237,000): To be used for emergencies and special projects.

Another cost savings to the customer came as a result of what is termed service laterals. Pennsylvania – American assumed responsibility for maintaining water and sewer service lines from the main in the street to the service line control valve, usually located at the edge of the customer’s property, for those customers who dedicated their lines. Typical costs to maintain broken service lines range from $3,000 to $4,000. Prior to the sale, this was the responsibility of the customer.

Originality
The fact that the project was bid was unique. This allowed PAWC to bid competitively on the water and wastewater assets. Otherwise, it could have been sold to another entity, without providing PAWC with the opportunity to bid. Vice versa, this allowed the City to maximize its return on the sale.

Elements within the signed purchase agreement between the two entities were innovative, including the service lateral program. What was the responsibility of the customer at the time of the sale, now is the responsibility of Pennsylvania – American if the customer agreed to dedicate their laterals. This provides a potential cost savings to customers and it provides PAWC with greater control over the operation and quality of the water service, as repairs on these pipelines can be made immediately.

Funds from the sale provided the opportunity to the City for revitalization in the community as well as expansion of its business base through the various tax cuts and economic assistance programs.

The manner in which the trust fund was structured by the city was unique in that all of the dollars obtained from the sale were invested in long-term investments. This maximized the return to the City and will provide permanent financial stability.

Quality
PAWC is the largest investor-owned water utility in the state, serving nearly 6000,000 customers in 35 counties. The company’s first operation was incorporated in 1818 in Berwick, Pennsylvania. As such, the company offers Coatesville water and wastewater customers the financial resources and nearly two century’s worth of experience in providing the highest quality water and service to its customers.

PAWC’s knowledge and resources allow the company to keep pace with new regulations. PAWC is a member of the Partnership for Safe Water, and has received 31 Directors Awards from the US EPA, the state Department of Environmental Protection, and other water-related organizations for achieving excellance in water quality far beyond what is required by federal and state regulations. PAWC is now providing the same high level of service to residents and businesses in the greater Coatesville area.

The transition from CCA to PAWC was seamless and transparent to the customers. The City did not receive any complaints from its residents.

Implementation
Prior to the sale, PAWC associates from operations, engineering, water quality, loss control and human resources met with Coatesville Authority representatives and employees and toured the Coatesville facilities on numerous occasions to determine the needs of the operation. This allowed for a smooth transition upon the PUC’s approval.

Economics
The sale expands PAWC’s revenue base, allows the company to purchase chemicals and equipment at lower costs because they are bought in larger quantities, and allows the company to spread costs across a wider customer base – a greater economy of scale, which benefits PAWC and its customers. The future expansion prospects of the water and wastewater systems also made the purchase of the Coatesville Authority assets attractive to PAWC.

The residents benefit economically as a result of planned tax cuts, a three-year freeze on their water and wastewater rates, and through the service lateral program.

The City of Coatesville has gained permanent financial stability from the sale, and has enabled them to invest more economic development and community programs and provide significant tax cuts to its residents.

Public-Private Partnership
This partnership between Pennsylvania – American Water Company, the City of Coatesville Authority and the City of Coatesville fits the definition in that it was a contractual arrangement, whereby Pennsylvania – American would purchase and therefore own and operate, the Authority’s water and wastewater assets. In order for the partnership to be a success, it required the efforts of all partners involved and, as a result of the partnership, all partners benefited from the contractual arrangement.

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