In May, the Chester Water Authority (CWA) unanimously rejected a $250 million unsolicited acquisition offer from Aqua America after receiving its proposal. The company promised to freeze rates and retain current employees for at least 10 years, among other things.
What followed were months of tension and protests at CWA board meetings by employees and supporters, including most of the 19 municipalities served by CWA, urging the CWA board to stand firm in its rejection of the publicly-traded water utility.
The CWA Board of Directors considered the proposal a hostile takeover tactic and empowered its solicitor, Francis Catania, to research the origin of the interest. Catania reported learning that Aqua and officials from the state’s Department of Community and Economic Development (DCED) had initial conversations about a possible acquisition because the City of Chester is on a financial track that may result in a state takeover of its finances if it can’t find tens – if not hundreds — of millions of dollars between now and next May.
Aqua, in its proposal letter and at public meetings, asserted that its proposal would help the city alleviate its debt.
But the CWA is not owned or controlled by the City of Chester. It was established in the city but it serves customers in two counties and 19 municipalities and most of them all passed resolutions imploring the board to reject the Aqua deal.
Since then, Aqua has tried telling its story to the community through personal contacts, newspaper advertising and open access to the media.
Last week, three of the company’s top officials – Aqua Pennsylvania President Marc Lucca, Aqua America President and CEO Christopher H. Franklin, and Aqua America Executive Vice President for Strategy and Corporate Development Dan Schuller — sat with The Spirit for a wide-ranging interview.
“Regionalization of water and wastewater systems is really important,” said Franklin. “Long-term, most of them aren’t viable standing on their own. There are no economies of scale. Can you imagine if our electric and underground gas systems operated like water and you had 2,500 systems? It would be difficult to make the grid work. In many ways, that’s what’s happening with water systems. It’s just disconnected.”
Aqua America was born in Swarthmore in 1886 and the Chester Water Authority was founded in 1866. Franklin says they have been “good neighbors” to each other for more than a century.
“We are now big enough that we can buy materials cheaper than almost anyone can,” explained Franklin. “If we can take those economies of scale and bring it to the CWA, we can, long-term, put more pipe in the ground, put more hydrants in and do more work for the same capital dollars. We think we could bring greater redundancy; they have one pipe to the Octorara (Reservoir). We think we could do things to support that if they ever had a problem,” he said offering another justification for a CWA interest.
The Spirit: Aqua got serious pushback from people with a great sense of loyalty to the CWA, including employees.
Franklin: We just wanted to engage in a discussion and talk about the possibilities. A mixed answer came back. From that point on, there was an effort to generate resolutions from municipalities…we were a topic of conversation at every CWA board meeting since then.
Schuller: Between May and November we weren’t active at the meetings or submitting new letters, but we were always the topic of conversation.
Franklin: There are only so many times you can hear yourself disparaged. They were talking about our rates being three times as much, which is completely inaccurate. In November, we felt enough was enough and we had to tell our story. I’d like to see any other utility say they would freeze rates for a decade. I realize there is apprehension from employees. All we ever asked for is a discussion.
Schuller: There was apprehension among (employees) at other (municipal water authorities) we have acquired, but once they are integrated, they become a part of the Aqua family and see better career opportunities as part of a larger company.
Franklin: (Listing West Chester, Malvern, Media and other systems Aqua acquired) I don’t think there is a single mayor who would do it differently. There is always uneasiness from employees.
The Spirit: Protestors, signs and anti-Aqua sentiment marked many of the CWA meetings. What’s that like to sit through?
Lucca: We have been through so many of these acquisitions. We know these employees are nervous and we understand that. Given the opportunity to talk to the employees and some of the residents, we may be able to convince them that this is a viable alternative. We’re looking for an opportunity to see what makes it tick. At the end of the day, if it doesn’t work, it doesn’t work. But we owe it to ourselves to do an honest and thorough evaluation. I don’t think we have been given the opportunity yet.
Franklin: Some of the support we have seen generated — not just the signs, but the resolutions from the townships — look very similar. ‘Aqua’s going to come in and raise your rates.’ It’s not true. It’s scare tactics.
The Spirit: Marc Lucca talked to many people at the first CWA meeting. What did you learn from those conversations?
Lucca: When you sit and talk with people like that, you get genuine concern and hear their questions. I did my best to answer them and would welcome that opportunity to talk to anyone at anytime because that is how we begin to know how to fit into this family of an organization.
The Spirit: What happens if the people of Chester and the CWA remain firm that “no means no?” Will Aqua bow out?
Franklin: If they decide, at the end of the day, the answer is ‘no’ and it’s not a political decision… it’s actually a real decision based on factual information, we would have no recourse other than to bow out. There is no such thing as a hostile takeover with municipal systems.
The Spirit: Delco is a family-oriented place. How would Aqua integrate itself should the CWA acquisition happen?
Franklin: When I graduated (from college), I started at the Delaware County Chamber of Commerce. I know Delco fairly well. We serve water to the vast majority of the county, already. It’s really this pocket around the (City of Chester) that would be new to us. Part of it, is telling our story, putting ads in the paper and our website. We acknowledge we had to be more communicative since we were silent for so long. We started out making all the calls like we would for any acquisition. It’s standard.
Schuller: We met with city officials in Chester – the mayor, the City Council, the board appointees. We also met similarly in Chester County with the three county commissioners and two of the board appointees. We reached out to Delaware County and the same conversation with elected officials and appointees. Those offers were rebuffed. We had conversations with the Act 47 team to learn about the dynamics.
Franklin: What’s astonishing to us is, we read the paper and go to meetings…to make it like it’s a conspiracy, is the silliest thing. Anytime we do any kind of work, where we are going to make an offer, we are very astute. We talk to everybody. That’s how you do your job. Then you deliver your proposal. We don’t just write something on a piece of paper and bring it to a public meeting.
Lucca: The key is communication and the opportunity for us to sit and talk to the board, would be how we would learn how we would fit into the community. We are known to a lot of people here as an outstanding community company. We support community efforts and give opportunity to employees to advance and provide exemplary service.
The Spirit: In this area, people obviously take water seriously. Some (probably) think it should be free. Flint, Michigan has raised many concerns about the safety of it. What does it mean to you to be leaders (in this critical industry?)
Franklin: We are the current stewards of the water system. We don’t own the water. It passes through our plants. I would suggest to you that the water (itself) is almost free. But the infrastructure it takes to move the water from the place it comes, clean it, and move through a pipe to get to you without fail…it’s an awesome responsibility. It’s such a mission-based company. We think about water all the time. It’s a heavy responsibility, but it’s a mission we believe in. We are very aware (that) our family, friends and neighbors are all drinking this water, including ourselves.
Lucca: Ours is one of the few industries where there is an expectation of perfection everyday. We have to be perfect and it is an awesome responsibility; and one we all sign up for when we come to work. We are all tethered everyday.