Pennsylvania American seeks a 25% increase in water and sewer bills

Pennsylvania American water and wastewater customers would see their monthly bills increase about 25% next year under a $173.2 million rate increase request, which state regulators on Thursday agreed to examine more closely in a series of hearings.

The Pennsylvania Public Utility Commission on Thursday voted 3-0 to formally investigate the rate request by Pennsylvania’s largest private water company. The rate request, which was filed April 29, has already attracted an outpouring of opposition to the regulatory agency.

Pennsylvania American serves about 400 communities across the state, including clusters of water customers in Bucks, Montgomery and Chester Counties anchored around such towns as Norristown, Coatesville and Yardley.

Investigations of rate requests are routine and give the PUC nine months from the filing date to make a decision.

If the company’s proposed rates are approved, a typical monthly water bill for a residential customer using 3,212 gallons a month would increase $15 next January, from $60.49 to $75.49. The typical monthly residential wastewater bill would increase $19.05, from $76.64 to $95.69.

The proposed increases are the latest price hikes facing customers of private water companies, which are upgrading aging infrastructure, but also spending top dollar to acquire public water and wastewater systems under a 2016 state law that encourages the consolidation of public water systems.

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

The PUC last month approved an increase for Pennsylvania America’s rival, Aqua Pennsylvania, that boosted a residential water bill for a customer in Aqua’s main rate zone by 12% from $69.35 to $77.51, an $8.16 increase. Rates for Aqua sewer customers went up 59%, from $55.51 to $88.18.

Aqua’s rates are quoted for customers using 4,000 gallons of water, which is greater than the 3,212 gallons that Pennsylvania American uses as a metric. Under Pennsylvania American’s proposal, a customer using 4,000 gallons would pay $89.10 for water and $115.66 for wastewater, higher than Aqua’s approved rates for the same amount.

Pennsylvania American last received a rate increase in January 2021, which went into effect in two steps, the most recent of which boosted bills on Jan. 1, 2022. Those increases boosted monthly water bills about 8.6% and sewer bills by 30%.

The proposed rates for all Pennsylvania American customers would boost total annual operating revenues by $173.2 million, or about 21%.

In a statement, Pennsylvania American said it needed the higher rates because it is spending $1.1 billion this year and next to improve service reliability, water quality and fire protection across its system. That includes replacing 90 to 100 miles of aging pipeline in its 11,613-mile network of water and sewer lines.

Pennsylvania American filed the rate increase request only weeks after the PUC approved its $235 million acquisition of the York City Sewer Authority.

The York system was the largest privatization approved thus far under Act 12, a 2016 state law that allows investor-owned utilities to pay a higher “fair-market” value for municipal water and wastewater systems and to recover the sale price from customers through higher rates. Previously, buyers could recover only the lower depreciated cost for the systems.

Under the purchase agreement, the rate for York city customers will remain at $32.60 for three years, but then will go up by about 47%. Eventually, York customers can expect their current monthly rates to increase even more to match Pennsylvania American’s rates under a PUC policy to gradually unify the rates.

The higher cost for operating sewer systems will also impact Pennsylvania American’s 678,000 water customers, even if they are not wastewater customers themselves.

The company proposes to shift about $73 million — or about 36% of its costs for operating wastewater systems — to water system customers, even if they are not Pennsylvania America sewer customers. Under a 2012 state law, Aqua is allowed to shift some costs of wastewater systems to water customers to avoid the “rate shock” experienced by sewer customers.

Pennsylvania American estimates the cross-subsidy will cost a typical water customer about $6.42 a month, or $77 a year.

Though Aqua Pennsylvania is the dominant water utility in the Philadelphia suburbs, Pennsylvania American has pockets of customers. It provides water service in Lower Makefield, Falls Township, Yardley, Norristown, East and West Norriton, Limerick, Royersford, Spring City, East Pikeland, Coatesville, South Coatesville, Valley Township, Sadsbury, Parkesburg, West Sadsbury, Highland, and West Caln.

Pennsylvania American, which is based in Hershey, is a subsidiary of American Water Works Co. Inc. of Camden.

Under the PUC’s ratemaking process, Thursday’s action suspends the rate increase request for up to seven months, and the case will now be assigned to the PUC’s Office of Administrative Law Judge for an investigation and recommended decision. A final decision is due by Jan. 28, 2023.