Aqua Pennsylvania’s rate hike: The price per flush will go up 50% as early as Thursday

A half-million Aqua Pennsylvania water and wastewater customers are about to experience the impact of rising infrastructure costs.

Rates for 440,000 Aqua water customers are set to go up about 10% this week, according to an order posted Monday by the Pennsylvania Public Utility Commission. Rates for Aqua’s 40,000 wastewater customers will go up 51% or more.

The precise impact on Aqua customers is not known because the Bryn Mawr utility, a subsidiary of Essential Utilities Inc., has not yet filed its formal tariff that spells out new charges for various rate zones across Pennsylvania. The new rates could go into effect as early as Thursday. An Aqua spokesperson said Tuesday that the company would file its tariff “later this week.”

Most Aqua residential customer using 4,000 gallons a month currently pay $69.35 for water and $55.51 for wastewater. Most Aqua customers receive only water service.

The PUC on Monday posted its order detailing the complicated rate request and the reasoning behind its unanimous decision last week that granted Aqua a $69.3 million increase in annual revenue, or about a 12.6% overall increase. The PUC on Thursday voted at the last minute to boost Aqua’s annual revenue by about $7 million, requiring the commission staff to rewrite a 512-page opinion and order, delaying its release until Monday.

» READ MORE: In Philly suburbs, sewer systems are for sale, and citizens push back, fearing rate hikes

The PUC’s news release, issued Monday night, presented the rate increase as “substantially lower” than Aqua’s original $97.7 million rate request. While the approved amount was 29% less than Aqua’s request, the final $69.3 million award was more than double the $32 million increase recommended by Administrative Law Judge Mary D. Long in February. Long’s recommended decision was not mentioned in the PUC press statement.

The difference in recommendations is largely due to the approved “return on equity,” a multiplier that the PUC uses to calculate how much it allows utilities to mark up their rates to generate profits and attract private investment. The PUC agreed to grant Aqua a 10% return on equity. Long had recommended an 8.9% ROE. Aqua had sought 10.75%.

The PUC apparently was poised to grant Aqua a 9.75% ROE until Commissioner Ralph V. Yanora proposed Thursday to increase the amount by a quarter of a percentage point as a management performance bonus. That was for Aqua’s rescue of three small failing private systems that it agreed to take over at the request of the PUC and the Pennsylvania Department of Environmental Protection.

Aqua said it appreciated the PUC’s acknowledgment of the company’s assistance to several troubled water and wastewater systems outside its service territory. “In those instances, Aqua stepped in to fix systems and provide safe drinking water and reliable wastewater service for the greater public good,” the company said.

Each tenth of a percentage point boost in ROE adds about $2.9 million in revenue for Aqua, according to Gladys Brown Dutrieuille, the commission’s chair. So the management performance bonus will boost Aqua’s revenue by about $7 million a year.

The company said that the primary reason it needed a rate increase was to recover $1.1 billion that it spent to upgrade its distribution and treatment systems, including a new financial reporting system, SAP, to replace the company’s 25-year-old software. “Aqua noted that increases to its operating and maintenance expenses are also a contributing factor in making its rate case filing,” the PUC said.

Some of the increase for existing Aqua customers is also due to the company’s aggressive efforts to acquire more municipal water and wastewater systems under a 2016 state law that encourages the consolidation of smaller utilities by allowing private buyers to pay the higher “fair market value” of municipal utilities, rather than the “book value,” and to recover the higher price from ratepayers.

Pennsylvania’s Office of Consumer Advocate has argued that the 2016 law, known as Act 12, has encouraged inflated prices, which has fueled a faster recent pace of water and wastewater rate increases than those of other Pennsylvania utilities. The rate shock has particularly stung wastewater customers because municipal owners sometimes kept rates low and neglected to make expensive upgrades before they sold the systems as fixer-uppers to private buyers.

Since 2016, Aqua has agreed to buy eight wastewater systems in the Philadelphia suburbs for $295 million: New Garden Township, Limerick, East Bradford, Cheltenham, East Norriton, Lower Makefield, Willistown, and East Whiteland. Aqua paid about $76 million more than book value on the systems in New Garden, Limerick, East Bradford, Cheltenham and East Norriton, which were included in the rate filing.

Customers in those five towns, which generally paid low rates under municipal ownership, will experience rate shock when Aqua’s new rates go into effect. Limerick Township customers will pay 82% more; East Bradford, 64%; Cheltenham, 65%; East Norriton, 57%; and New Garden, 53%. The Lower Makefield system was acquired this year, and its current rates will remain frozen for two years. The Willistown and East Whiteland sales are pending PUC approval.

The PUC’s opinion also sorts out how much of a cross subsidy Aqua water customers will pay to support sewer operations even if they are not Aqua wastewater customers. About $11.2 million, or 2% of Aqua’s expected $562 million in water revenue, will be allocated to wastewater operations.

Under a state law, Aqua is allowed to shift some costs of wastewater systems to water customers to avoid the “rate shock” experienced by sewer customers. Aqua had sought to shift about $21 million in wastewater costs, but the PUC could only justify a smaller amount.

The PUC also approved what Dutrieuille called “significant expansions” in Aqua’s low-income assistance programs, replacing its existing “Helping Hands” program with a tiered customer assistance program that provides discounted rates for customers based on household income relative to the federal poverty level. Such income-based programs are similar to those provided by energy utilities and the Philadelphia Water Department, but are uncommon with private water companies.

Aqua’s rates are set according to a number of different zones, though the PUC’s policy is to gradually unify charges across its system so that the costs are shared equitably among all customers. Under that policy, customers in low-rate towns acquired by Aqua will eventually see their rates rise to match the majority of customers.

Among the myriad of matters addressed in the PUC’s opinion was a mixed decision for about 3,000 sewer customers across the state who are billed a flat rate for wastewater treatment because they have unmetered private water wells. Aqua bills those customers based upon an average 4,000-gallon-per-month consumption.

Some residents in the Poconos community of Lake Harmony complained that the flat rate was unfair because they occupy their homes only a few days every month. The PUC rejected a proposed pilot project to install water meters on some dwellings but directed Aqua to study whether a different method of calculating the flat rate for different service areas is more reasonable.

Aqua last raised bills in 2019, when the PUC approved a boost of 9.8% in the bills for water customers and 34.6% for wastewater customers. The final rate increase was about two-thirds of what Aqua first sought.

Aqua, which traces its roots to the Philadelphia Suburban Water Co., has water operations in eight states. Its Pennsylvania unit is its largest, and about 83% of its customers there are in the four counties surrounding Philadelphia. Sewer customers are a minority, about 9% of the total.