Philly has a plan to replace decaying water pipes and sewers. And you will pay for it

The Philadelphia Water Department, which has increased residential rates about 70 percent since 2007, wants to boost rates by 11 percent over the next three years, keeping pace with a nationwide trend of soaring water costs to pay for aging infrastructure.

The city's water-rate board on Monday will hold the first of seven hearings to listen to public testimony about the department's proposal, filed on March 14. The plan would boost the monthly bill of a typical customer using 500 cubic feet (3,740 gallons) from $66.50 to $73.70 by 2020, or $7.29 a month.

The water department says it needs higher rates to cover increasing operating costs and the costs to comply with stricter environmental regulations, including upgrades to water- and wastewater-treatment plants. It is also increasing the rate of replacing sewers and water mains, whose average age is 70 years old.

"Unfortunately, costs do go up, but we try to dampen it as much as possible," Water Commissioner Debra A. McCarty told the Inquirer and Daily News in an interview Wednesday. "We're very cost-effective, and we're always looking for opportunities to cut costs."

In one example of an escalating expense, the price of the department's ambitious "Green City, Clean Waters" infrastructure program to reduce storm water overflows into streams is on a pace to cost about $4.5 billion over 25 years, McCarty said. The program was initially projected to cost $2.4 billion when it was approved in 2011.

The program, which the city adopted to comply with a U.S. Environmental Protection Agency directive, involves the construction of green gardens and basins to detain rainwater to prevent pollutants from discharging into streams. But green infrastructure has proven costlier to build than anticipated. And the department wants to rein in maintenance costs by using fewer outside contractors and doing more work with city employees, McCarty said.

"We're not the first ones to do green infrastructure, but we're first to do it on this scale," she said. "We're learning as we go, and trying to make improvements as we go."

The department's $2.7 billion six-year capital investment budget, which is not before the rate board, calls for accelerating the replacement rate for water mains from 30 miles a year to 42 miles a year, and also increasing sewer-main upgrades.

The budget also includes $80 million to install advanced metering infrastructure, a wireless network of smart meters that would generate hourly readings, replacing 20-year-old meters that are now read monthly by a vehicle equipped with a radio receiver. With real-time readings, the city can alert customers to potential leaks, and also detect possible thefts. The devices would also give the department the ability to remotely shut off delinquent customers.

The city is currently negotiating a contract with a meter vendor, which will require City Council approval, McCarty said.

Philadelphia's increasing water rates are keeping pace with the industry, as well as those charged by investor-owned utilities that serve many suburban Philadelphia communities, according to the American Water Works Association. Nationwide, the Consumer Price Index for water, sewer, and trash-collection services has increased 133 percent in the last two decades, more than double the 54 percent increase in all consumer prices.

The bill for a residential Philadelphia customer who uses 600 cubic feet of water a month (4,488 gallons) has increased 70 percent since 2007, from $43.54 to $74.05 this year. That's three times higher than the consumer price index over that time.

But the water department says that residential customers are using 21 percent less water than they were a decade ago, as more efficient appliances and water fixtures replace older equipment, mitigating the rate increases. A typical household last year used 585 cubic feet of water a month, compared to 753 cubic feet in 2007, according to the department.

The steady decline of residential consumption, coupled with the closure of large commercial customers such as the PaperWorks Industries packaging mill in Manayunk last year, means the department needs to increase the unit price of water just to maintain revenue. The department this year will generate about $712 million in revenue from ratepayers.

The impact of the rising rates on low-income customers, and the increasing number of delinquencies and late payments, has become a major worry for the utility.

The department is currently enrolling customers into a new tiered-assistance program (TAP) City Council approved in 2015 and was introduced last year. TAP ties payments to a household's income, not water usage, and is open to anyone with an income under 150 percent of the federal poverty level, or $36,900 for a family of four. Payments can be set as low as $12 a month.

More than 11,000 customers will enroll in TAP this year, increasing to 26,400 by 2020, according to Raftelis Financial Consultants in testimony filed in the city's rate case. The average subsidy thus far is about $57 a month, according to the testimony. The total cost of the program, estimated at $3.9 million this year, is projected to reach $17 million annually in 2020, or about 2.2 percent of projected revenue.

Though other ratepayers will pick up the cost, the program's designers hope that it encourages a higher rate of overall payment and will help reduce delinquencies. The department last October reported about $236 million in bills that were overdue by at least a year, according to the rate filing.

"If the bills are affordable every month, it encourages good behavior," said McCarty.

This will be only the second full-rate review for the Water, Sewer, and Storm water Rate Board, an independent five-member body that was created by voters in 2012 in response to public outcry over a steady flow of rate hikes. In 2016, the board cut $16 million from the department's two-year request for an additional $105 million.

Robert Ballenger, a Community Legal Services lawyer who acts as the public advocate before the rate board, said the department's requests typically are based upon overestimated expenses and underestimated revenue, which translates into higher customer rates than are necessary.

"They were conservative in estimates of revenue and expenses," he said. "They consistently, in their own words, 'outperform.' That outperforming means that customers paid more, and that concerns me in all these cases."

Ballenger said three specific areas of concern have emerged so far in the review of the rate request:

The water rate board has scheduled seven two-hour hearings to take public input on the water department's rate request, which is explained in extensive public filings available on the board's website (https://beta.phila.gov/departments/water-sewer-storm-water-rate-board/) under the heading "rate proceeding":