What’s in the PWSA’s compliance plan?

Summary: The Pennsylvania Public Utility Commission (PUC) was given, through Act 65 of 2017, jurisdiction over the Pittsburgh Water & Sewer Authority (PWSA) in 2018 because of the authority’s problems relating to high debt levels, poor infrastructure, unmetered accounts and questions about its relationship with city government.  Prior Policy Briefs (Vol. 17, No. 49 and Vol. 18, Nos. 14, 29 and 49) discussed PWSA’s troubles in detail.  After much delay, the PWSA submitted a plan of corrective actions to the PUC and has received a response.


The PUC’s oversight directive to the PWSA called for a compliance plan outlining the steps it will take to improve its operating and financial situation. That plan, due September 2018 was filed on September 28. In April 2019, the PUC’s Bureau of Investigation and Enforcement, along with the Offices of Consumer Advocate, Office of Small Business Advocate, Pittsburgh United and Pennsylvania-American Water Company were all parties to the plan settlement.

Written and oral testimony was given at an evidentiary hearing in August 2019. The following month the joint petitioners filed the partial settlement for the plan. Finally, on March 26, 2020, the partial settlement of the PWSA’s compliance plan was approved.  However, several major issues still must be resolved. 

The following items detail some of the major problems facing the PWSA.

Capital improvement plans and debt

The PWSA’s capital improvement plan, covering the period FY 2020 through FY 2024, is estimated to cost $1.29 billion. It’s to be funded with $1.27 billion in revenue bonds, $134 million in cash and $28.2 million in grant money from PENNVEST.

This new bond debt will be a massive addition to the more than $700 million of outstanding bond debt already carried by the authority. Sharply climbing costs arising from principal and interest payments will undoubtedly require increased revenue from ratepayers.  Without the added revenue, the authority could face a financial crisis.

1995 city-PWSA cooperation agreement

One of the largest hurdles facing the PWSA is the 1995 Cooperation Agreement with the city in which the PWSA pays the city an annual fee ($7.15 million) for services (i.e. vehicle lease and fleet maintenance). The city receives 600 million gallons of water per year without charge.

Furthermore, because the water is not metered there is no way to know if the city exceeded the 600 million gallons per year. The city (government offices and city-owned properties) receives unlimited water without charge.

Other locations such as The Pittsburgh Zoo and PPG Aquarium, Phipps Conservatory, The National Aviary and city-owned swimming pools and fountains are all unmetered and receive unlimited quantities of water at no charge. The authority has been directed by the PUC to renegotiate a new cooperation agreement, which it resisted doing until December 2019. 

Importantly, the PUC opposes the 1995 Cooperation Agreement, noting the PWSA lost approximately $11.4 million in annual revenue from the city due to unbilled usage. Indeed, earlier this year the PUC’s Office of Administrative Law Judge directed that the agreement be terminated and the PWSA and the City of Pittsburgh should operate at a “transactional arms-length basis.”

Proposed new city-PWSA cooperation agreement

The PWSA’s board proposed a new agreement in December 2019.  Under this proposal, the city offered PWSA employees eligibility in the city’s pension plan, fuel for PWSA vehicles, vehicle fleet maintenance services and 50 percent of street-sweeping costs starting Jan. 1, 2020.

This agreement would have also had the PWSA compensate the city for the above services and goods provided based on actual direct expenses. The city would be treated like other commercial customers with some exceptions.  One of those being the PWSA and the city would “equally share” in the cost of meter vault installation in city parks larger than 50 acres.

Additionally, the city would be responsible for the total costs of all other water service lines and sewer laterals by 2025 and after. The PWSA proposed using a “phased approach” for billing water usage (0 percent paid by city in 2020, 20 percent in 2021, 40 percent in 2022, 60 percent in 2023, 80 percent in 2024, full price in 2025 and after).

The proposed new cooperation agreement would have continued to afford preferential treatment to the city.  (Note that the administrative judge did not review the new proposed cooperation agreement (December 2019 version) because it wasn’t submitted at the time of the law judge’s review of the compliance plan.) 

However, the PUC has overruled the PWSA’s plan to phase in the billing increases through 2025 and to begin metering and charging for water usage.  Further, the administrative law judge ruled that the city and the PWSA should invoice all services provided to one another at a fair-market cost. 

Adding clarification, the PWSA was ordered by the law judge to revise the agreement to instead regard the city as a customer without any previous special, or preferential, privileges.


The PWSA’s proposal to “equally share” in the cost of meter installation with the city regarding city parks runs contrary to the law judge’s decision that the PWSA is responsible for the cost of meter installation for all customers, including the approximately 200-400 unmetered city-owned properties. The PUC specified the authority, as the utility, is responsible for the cost of meter installation.   

Until the meters are installed, the PWSA must introduce a flat rate at minimum customer charge, based on the customer’s class, for all currently unbilled customers until they are metered then immediately billed for full usage.

The PWSA contended that if it were to pay for meter installation it would create financial distress and limit its funding for other long-term projects.  The “phased billing” approach was defended by claiming the city might be unable to immediately pay the full bill.

The administrative law judge reiterated that the PWSA was not responsible for whether the city could pay its water bills. The authority’s responsibility was to meter and then immediately bill the full usage amount for all customers, including the city.

Residency requirement

The PWSA follows the city’s Home Charter Rule language requiring all employees to be Pittsburgh residents.  The PUC ruled the residency program does not promote the most cost-effective and qualified candidates for employment. However, the law judge ruled the PWSA’s residency requirement is an optional business decision and PUC approval is not required.

Further litigation regarding a new cooperation agreement with the city, the PWSA’s low-income assistance program, billing for the city’s fire hydrants and additional issues will occur in the next stage of the compliance plan settlement.

PWSA’s most current quarterly compliance plan progress report (Jan. 31, 2020)

The PWSA filed its most current progress report on Jan. 31, 2020. At the time the law judge had not approved the joint partial settlement of the PWSA’s compliance plan. The progress report demonstrates some of the authority’s “progress”, but also reveals the sluggish pace of the PWSA’s efforts. For instance, the PWSA is behind in its program to replace fire hydrants (only 76 of a promised 100 hydrants per year in 2019).

It is also behind schedule with meter testing.  With an estimated 50,000 meters exceeding PUC’s testing and replacement guidelines (every 20 years), the PWSA only tested/replaced 10,000 in 2019 with plans to do another 10,000 this year.

With large diameter meters, only 60 of 806 (7 percent) that have been in service for more than eight years were replaced in 2019. The PWSA will begin following PUC guidelines and within the next three years plans to complete testing/replacement of all large meters.

The authority will now follow a company-wide procurement policy and follow the Municipal Authorities Act, which requires projects costing more than $20,600 to be competitively bid.

The authority plans to hire a contractor to assist with the inspection and installation of meters for municipal buildings and flat-rate customers by 2024. The PWSA estimates there are 200-400 unmetered municipal buildings and 500 flat rate customer locations.

To date 231 municipal customers and 174 flat rate customers have been inspected. PWSA estimates the metering program will cost approximately $35 million and will take approximately five years to complete the project.

The PWSA finally ended its Pennsylvania American Water Company subsidy program for city customers in southern neighborhoods who use the private company because they are out of reach of PWSA lines.  Based on billing data from May 2019, approximately 30 percent of all customers received no subsidy while 80 percent of residential customers were receiving a subsidy of $1 or less.  The average subsidy was less than 50 cents per month.

In summary, the scope of the PWSA’s necessary infrastructure work is daunting as will be the cost associated. It will likely incur large amounts of debt and begin to raise the rates on customers.  The sooner the authority establishes its independence from the City of Pittsburgh, the sooner it can begin to operated more efficiently and deal with its problems more effectively . Additionally, the PWSA must make an honest effort to become compliant under PUC oversight. The time is far past for the PWSA to operate as an independent authority and not a political arm of the city.

PWSA’s 5-Year Plan

Summary: The Pittsburgh Water and Sewer Authority (PWSA) was placed by the state Legislature under the oversight of the state Public Utility Commission (PUC) in 2017.  The PUC was tasked with making sure the PWSA brought its operating procedures up to its guidelines and with forcing the agency to craft a long-term plan to replace/upgrade its aging infrastructure.  The first five-year plan has been released and this Brief looks at some of its details.


2017 was a momentous year for the PWSA.  After a couple of water system issues spotlighted a frail and aging system that would be very costly to repair, the state Legislature placed the PWSA under the regulatory oversight of the state PUC (see Policy Briefs Vol. 17, Nos. 14, 29 and 49).  Act 65 of 2017 compels the PWSA to do two things: 1) bring its operating system into compliance with the rules and regulations of the PUC, and 2) put together a long-term infrastructure improvement plan for the replacing/upgrading of its systems, both water and sewer conveyance.

PWSA’s plan, covering the first five years, 2018 to 2023, was submitted to the PUC in September 2018 and is now being reviewed by the PUC.  News reports note that after obtaining public input, the PUC has until November 2019 to accept outright, accept pending the PUC’s recommended changes or reject the plan.

The proposed plan spells out the details of the two systems’ infrastructure components.  The water system is very old and much of it is well past its expected life span with an estimated average age of over 80 years.  Forty percent of the system was installed prior to 1920 and 86 percent was built prior to 1970.  It is comprised of over 1,000 miles of water lines of which 964 miles are water mains.

While the entire system has not yet been adequately cataloged and updated, the PWSA says it is using a Geographic Information System that is constantly being updated to get a more accurate picture of the system’s health. However, given the extreme age of much of the system, estimates of needed immediate and near-term replacements are just that. It is almost impossible to know with certainty where potentially calamitous breaks might occur.

The water system contains two treatment plants (one rapid sand and one microfiltration), eight distribution pump stations, four reservoirs (three covered, one not), 10 distribution storage tanks/reservoirs, two finished water pumps, one raw water pump on the Allegheny River, 24,900 valves and 7,450 public fire hydrants.

While the PWSA does not treat sewage—the Allegheny County Sanitary Authority (ALCOSAN) does—it does have a conveyance system to ALCOSAN that needs to be looked at as well. There are 1,213 miles of sanitary, storm and combined sewer lines in the system.  The system also has four wastewater pump stations, 30,000 inlets, 29,000 manhole covers, 185 storm sewer outfalls and 38 combined sewer overflow outfalls.  Approximately 77 percent of the sewer system is combined with storm water, which by federal consent decree, must be separated. There are 24 neighboring municipalities that convey wastewater through PWSA lines for which they do not provide a cost share to PWSA.

Obviously, the system is immense and will take many years and billions of dollars to fix it in its entirety.  The proposed five-year plan covering 2018 through 2023 will be the first of several such plans. Recall that a similar comprehensive plan by an engineering firm from 2012 proposed a 40-year time frame recommending eight five-year plans, for overhauling the entire system.

According to the five-year capital improvement plan submitted to the PUC, the top priorities are “the Aspinwall Water Treatment Plant, replacement or rehabilitation of the two major (treated) or finished water pumping stations, upgrades to storage facilities; replacement of critical transmission lines; continuation of the lead service line replacement program; and acceleration of the small diameter water main replacement program with an overall five-year budget of approximately $775 million.”  Small diameter pipes (8 inches or smaller) are scheduled to be replaced in one percent of the system (720 miles) in the next five years.  The lead service line replacement program has been well underway, replacing more than 2,700 lines from 2016 to 2018 and plans to be finished by 2026. It has been under a Pennsylvania Department of Environmental Protection order to do so since 2016.

As was mentioned in a state Auditor General’s report from 2017, the city had an agreement with PWSA to provide bulk water to city properties (600 million gallons per year) and that many city properties were not metered.  As part of this plan, the PWSA will also be installing meters at approximately 200-400 sites that are currently unmetered along with another 500 properties that pay a flat rate but do not have a meter.  The cost of this part of the program will be billed to these customers and is expected to take five years to complete.  The PWSA does not provide an estimated cost per meter.

This five-year plan also includes wastewater system renewal priorities that have a budget of $155 million over the five years.  The total budget for the three project areas comes to $930 million.

In sum, this plan calls for spending a very large amount of money.  And it represents only the first five years of repairs and replacements.  As was noted in an earlier Policy Brief (Vol.17, No. 14), the PWSA carries a large amount of debt.  In 2015 the amount of net total bonds and loans stood at $763 million before increasing to $866 million at the end of 2017 (2017 audited financial statement).  The net position of the PWSA at the end of 2017 was negative $43.8 million—up from 2015’s negative $35.7 million but better than 2014’s negative $59.1 million net position. And this figure depends on what can only be an estimated value of the system’s infrastructure.

In the plan, the PWSA states that “current planned improvements will be funded through both current rates and rate increases, as well as through revenue bonds, a capital line of credit, pay-as-you-go funding, and PennVest low interest loans.”  It will also explore federal funding through the Water Infrastructure Finance and Innovation Act of 2014, which offers low fixed-interest rates and flexible terms.  It will also look to potential private-public partnerships where possible—and if allowed by the mayor and council who have been unalterably opposed to privatization.

In September 2018 it was reported the PWSA petitioned the PUC to increase rates across its customer base, including 17 percent on residential customers and 10 percent on educational and health care organizations. In 2018 the PWSA’s budget show receipts from water totaled $109.7 million.  With an estimated composite average rate hike of 13.5 percent, those receipts should climb another $14.8 million. If approved the new rates will take effect in April 2019 and remain through 2020.  It will likely be the first of a several rate increases for PWSA customers in the coming years.

And, of course, the plan’s estimates of costs are just the direct monetary cost of the replacement and repair to be borne by the PWSA. There will be other huge costs, some non-monetary, imposed on the citizenry as streets are closed during work on the water lines. Add to that the lost revenue and output of businesses whose patrons and employees cannot get to them.  Nor do the PWSA’s costs include the serious inconvenience of water service being cut off to communities for extended periods.

According to the plan, in 2014 through 2017 annual capital spending was under $40 million per year. Spending increased to $70 million in 2018 and is projected to balloon to $330 million by 2021 before dropping a bit to $265 million in 2023—in all $1.35 billion over five years.

But this is the price that has to be paid because of years of failing to address the problem of antiquated system components. Bear in mind, too, that PWSA funds were misused by past administrations to shore up city budgets rather than investing in needed repairs.

Still this plan, though too long in coming and purposely delayed, is the first step of many to insure a properly functioning reliable water and sewer system for Pittsburgh.

PUC to Begin Exercising its Jurisdiction over the PWSA

Summary: The Pennsylvania Public Utility Commission (PUC) officially begins its oversight of the Pittsburgh Water and Sewer Authority (PWSA) on April 1st. This will be a monumental task. The PUC has moved quickly to get its arms around that task by approving a tentative implementation order specifying how it will carry out its duties and provides deadlines the PWSA must meet to accomplish the mandates specified by the Legislature.


On Dec. 21, 2017, Governor Wolf signed Act 65 of 2017 into law. The statute amends the Pennsylvania Public Utility Code to give the PUC regulatory jurisdiction over the PWSA with regard to the provision of utility water, wastewater and storm water service. The law also establishes regulatory deadlines for the PWSA. The law went into effect immediately upon the governor signing the legislation. Section 3202 of the amending legislation provides a date certain on which PWSA will become subject to commission jurisdiction: Sunday, April 1, 2018.

A December 2017 Allegheny Institute Policy Brief (Vol. 17, No. 47) summarized the myriad  issues and problems facing the PWSA. An auditor general report concluded that, “the City [Pittsburgh] has over-extended authority regarding the PWSA,” and the PWSA was never intended to be a truly independent organization. Indeed, the city has maintained ownership and leases the infrastructure and equipment to the PWSA. In part, the PWSA was used to help the city with its financial problems.

Then, too, the PWSA has piled up enormous debts that reached $750 million by the end of 2016. The massive debt has crippled the authority’s ability to spend on needed infrastructure replacement. Replacement is now estimated to cost upwards of $5 billion.

It was these and other serious and unaddressed problems that prompted the Legislature to pass with overwhelming majorities the bill giving the PUC a major role in fixing the problems at the PWSA. On January 18th , the PUC approved a Tentative Implementation Order (TIO) in which it lays out how it intends to proceed with its regulation of the PWSA under the requirements spelled out in the law.

Under its regulatory authority regarding rate-setting, the TIO states, “This section provides that PWSA prior tariff rates and terms will have the force and effect of law as of April 1, 2018.  That Prior Tariff will continue in effect until modifications are approved by the Commission.”  Moreover, the TIO says “In practical terms, beginning Monday, April 2, 2018, the Commission will entertain informal and formal complaints from PWSA customers as it would any other regulated utility.  For PWSA, this will mark the end of its current Exoneration Hearing Board as an adjudicative body.”

The PUC expects the PWSA to submit a tariff filing by July 2, 2018.  The PUC also would prefer the PWSA to utilize  a method similar to the Philadelphia Gas Works’ cash flow ratemaking method as it is likely most appropriate for PWSA to gauge compliance with its bond covenants.”  In addition, the PWSA will within 180 days—by Sept. 28, 2018—file a “compliance plan with the commission which shall include provisions to bring an authority’s existing information technology, accounting, billing, collection and other operating systems and procedures into compliance with the requirements applicable to jurisdictional water and wastewater utilities.”

A still larger part of the Legislature’s charge to the PUC, as it assumes regulatory control over the PWSA, is to see to it that the PWSA “develop and file its proposed compliance plan, including a long-term infrastructure improvement plan (LTIIP). This plan will also be submitted by Sept. 28, 2018. According to the TIO, the LTIIP should include any metrics that PWSA uses to track and evaluate the effectiveness of infrastructure improvements, e.g., lost or unaccounted for water, main breaks or non-revenue water.  PWSA should also provide detail on how the programs and property eligible for LTIIP consideration were determined and targeted, e.g., a risk-based approach, age, material type, lost or unaccounted for water, non-revenue water, regulatory directive or audit findings.”

The TIO explains that it will require the PWSA to include a schedule for eligible property repair and replacement by class and category for each year for the duration of the LTIIP. To carry out this effort the PWSA will “project its annual capital expenses including detailed estimates of expenses by category to ensure that the LTIIP is cost effective.”

In more detail the TIO lays out what it expects to see in in the PWSA’s LTIIP in terms of achieving cost effectiveness:

i. the competitive bidding process or other means of choosing contractors;

ii. how contractors are evaluated in terms of work quality, safety and cost effectiveness;

iii. how much LTIIP work will be performed by contractors and/or competitively bid and the process for determining what projects are done by contractors;

iv.how materials are economically procured and vendors are chosen;

v. the salvage and scrapping process/program

The LTIIP will also show how PWSA will accelerate the replacement of aging infrastructure and how repair, improvement or replacement will maintain safe and reliable service.

In addition to the LTIIP, the PUC will request that PWSA provide it with an Annual Asset Optimization Plan (AAOP).  “The AAOP includes associated expenditure information for completed LTIIP work for the reporting year and the projected year.  AAOP data is broken out by individual projects completed in the reporting year.”

Obviously, a major overhaul of the PWSA’s infrastructure will be very expensive and revenues must increase to cover those expenses. The PUC addresses this by allowing the PWSA to “petition the commission for the establishment of a distribution system improvement charge (DSIC).”

The PUC says in the TIO that it understands that PWSA does not currently collect a DSIC surcharge.  If PWSA wishes to reinstate its DSIC after April 1, 2018, the law will require PWSA to petition for approval of a DSIC that is fully compliant with statutory requirements.  In order to recover costs through a DSIC, the PWSA must first submit a LTIIP.

In sum, the PUC, following the requirements set out in the recently amended utilities law, will within the next year or so put the PWSA on a course of better day-to-day management and a long term plan of overhauling its old and rapidly deteriorating distribution systems. Further, it has the authority to grant the PWSA permission to levy a distribution system improvement charge on water and sewer bills to pay for the costly repairs and replacements.

The inability and or the unwillingness of the city to manage its water and sewer system effectively and keep it in good shape have forced the Legislature to take the drastic step of placing a municipal authority under the regulatory control of the PUC and has given the PUC specific mandates as to steps that must be taken to fix the problems at the PWSA.

This process will be painful for customers of the PWSA. But years of neglect and misuse of the PWSA by city officials has made the actions taken by the Legislature necessary.  Now the city’s elected officials can blame the PUC and Harrisburg when the inevitable detours and serious inconveniences due to construction get underway and higher water bills start arriving in mailboxes. Will the electorate and customers accept the blame-shifting?

A New Chapter Begins in the Long Running PWSA Saga

Summary: The year 2017 has not been kind, to say the least, to the Pittsburgh Water and Sewer Authority (PWSA).  As Policy Brief Vol. 17, No. 14, described earlier this year, the PWSA’s very old infrastructure has been continually springing leaks that have cost millions of dollars to repair.  The mayor proposed leasing the beleaguered authority to a private operator.  But given the very high level of debt and the daunting problem of replacing the many miles of water and sewer lines at a cost of several billions of dollars, finding a firm that will enter into a lease agreement on the mayor’s terms is not likely to happen. A state auditor general’s (AG) report claims that half of all the water treated is lost before it reaches customers.


PWSA’s very serious problems caught the eye of the state Legislature which introduced a bill (HB 1490) back in June to place the authority under regulation by the state Public Utility Commission (PUC). After the House passed the bill and sent it to the Senate, HB 1490 was not acted on again for several months.  It received legislative approval and was signed into law in late November.

The legislation does two essential things:  First, it holds the PWSA accountable for putting together a compliance plan to bring its procedures such as accounting, billing and technology in line with the requirements applicable to other PUC-governed water and wastewater utilities.  The authority needs to improve its asset management capabilities so it will know what assets need repair and be able to prioritize those repairs.

Second, it requires the PWSA to create a long-range plan to improve its infrastructure. This plan must include a general description of items needing repair, where they are located and an initial schedule of the planned repairs or replacements.  The PWSA will also be required to project annual expenditures to implement the plan and will be allowed to raise rates to pay for the repairs/replacements.  The authority will be allowed to update the charge quarterly as appropriate while keeping customers informed about any rate increases.  In addition, the PUC will require the authority to submit an annual plan detailing what has been improved or replaced as well as a description of the work to be done in the coming year.  This requirement is designed to ensure that the PWSA follows through on the urgent need to replace the outdated and fragile infrastructure.

The legislation gives the authority six months (until May 20, 2018) to present its compliance plan.

In addition to legislative action on the PWSA this year, the AG conducted an audit of the authority (the city controller had performed an audit earlier in the year).  The AG audit focused on the leadership of the PWSA and its ties to city government but also provided a useful history of the authority.

A succinct recap of that history follows: The PWSA was established in 1984 under the Municipal Authorities Act of 1945 but was not granted a fully independent status.  Indeed, its primary function was to oversee a $200 million capital improvement program to refurbish the entire system.  The city would bill the PWSA for any back-office services the authority used and employees remained on the city payroll. In 1995, the PWSA and city replaced the 1984 arrangement by entering into a new agreement in which the authority would lease the system from the city for an upfront payment of $101.4 million to cover the 30 year lease. At the end of the lease, the authority could purchase the system for $1.

However, the 1995 agreement also included a 40-year co-op arrangement in which the city would also provide for a fee the same services agreed to in 1984—telephone and data, vehicle fuel and repair, legal aid, computer services, payroll service and administration of benefit programs.  A major change was to move PWSA employees off the city’s payroll.

In addition, the PWSA would provide the city with 600 million gallons of water per year at no charge (estimated to be worth $6 million and $6.84 million at 2016 and 2017 rates, respectively).  The city would also charge the authority for direct and overhead expenses for any services required (estimated to be worth a total of $7.15 million from 2012 to 2016).  Furthermore, the PWSA is required to make equalization payments to city residents not served by the authority and have to get their water from another provider if its water costs more than PWSA water. Over the three years ending in 2016, this requirement cost PWSA an estimated $4.8 million.

Both the 1984 and 1995 agreements placed conditions on the PWSA that doomed it to financial hardship—while providing a bailout for a city that couldn’t put its fiscal house in order. The AG quoted a former mayor who claimed that from 1984 to 1995 the PWSA was used to help balance the city’s budgets. Revenues were diverted to uses not related to the PWSA system limiting the authority’s ability to invest in infrastructure upgrades.

A primary aim of the 1995 agreement was to spin off the PWSA to “focus on rebuilding the system and not use it as a financial tool of the city.”  The AG’s report notes that the city used the $101.4 million payment—which the PWSA had to borrow—to improve its own financial situation. According to the audit, “the City retained ownership of the system, yet pawned the financial and operation responsibilities of the neglected system off on the PWSA.”

The AG believes the “City has over-extended authority regarding the PWSA.”  Based on the original governing documents (1984 and 1995 leases), the city never intended the PWSA to be a truly independent organization.  That starts with the makeup of the board of directors.  One seat belongs to city council, two belong to the city finance director and treasurer and the remaining four are appointed by the mayor.  The board appoints an executive director.  Little wonder the authority agreed to lopsided agreements with the city.

Additionally, to the detriment of the PWSA, the 1995 lease agreement states that the PWSA is to keep the system in “as good condition as it is in on the date hereof, ordinary wear and tear excepted… while also putting all the financial burden on the authority.” The new 1995 agreement stipulates that “the City shall not be liable for any [PWSA] debt payments.”  This holds the PWSA responsible for the system and absolves the city of any responsibility even though it still owns the system’s assets. City ownership of the assets and the co-op agreement have limited the steps PWSA could take to accelerate needed improvements.  This arrangement designed to benefit the city while hamstringing the PWSA is not remotely akin to good governance.

As mentioned above the AG audit reports that the city receives free water worth close to $7 million, the value of the 600 million gallons allowed under the 1995 agreement. What is not known is how much water the city actually uses because the water it uses is not metered. The city does not have a list of all properties that receive free water. However, as the audit explains the known free water users include, “its departments, agencies and instrumentalities (i.e., Pittsburgh Zoo, Phipps Conservatory, National Aviary, and Schenley Golf Course).”  Although in a footnote it is explained that the golf course was metered in 2012 and has been paying bills, but for prior years was not.

The PWSA has severely under-invested in its infrastructure in large part due to the heavy debt load incurred over the past 30 years.  The audit notes the debt levels (debt, bond and loan debt minus swap debt) increased from $300 million in 1995 to $680 million in 2012 to $750 million at the end of 2016.

High debt levels at the PWSA have critically hampered the authority’s ability to make adequate investments in its infrastructure.  For the years 2012-2016, the period of the audit, the PWSA’s average annual capital investment was $31.4 million, ranging from $21.4 million in 2013 to $47.2 million in 2015.  The recommended annual capital investment during this time, as noted by a PWSA official, was $200 million.  Obviously the actual investment fell well short of what was needed.

Misuse of the PWSA as a source of funding for the city resulted in inadequate expenditures on the crumbling infrastructure.  This ill-advised policy has caught up to the authority (and the city) in a big way and it will cost several billions of dollars to fix the problems now staring them in the face.

So where does the PWSA go from here?

Provisions of HB 1490 require the authority to start working on a plan to begin addressing the dreadful condition of its delivery infrastructure. Presumably, the PWSA board is taking the six- month deadline seriously.  Moreover, the board and the city should also take the AG’s audit to heart and begin to develop a more arms-length relationship wherein the PWSA has greater independence and less influence from city government officials.  Perhaps the PUC can help with that effort.  While the authority will remain an autonomous entity, its board will be accountable to the PUC and ultimately the Legislature which will undoubtedly be keeping a close watch.

Of utmost importance is to keep the PWSA’s critical problem of repairing and/or replacing its very old equipment at the forefront of management thinking. And that project will be very costly—recent estimates place the cost at $5 billion. Unfortunately, with its current debt and revenue levels, the authority will find it difficult to borrow the enormous amount of funding necessary to carry out a long term repair and replace program.  Thus, as our earlier Policy Briefs pointed out, customers will be forced to bear the cost of borrowing the funds for the project in the form of substantially higher rates. Note that rate hikes must be approved by the PUC and those increases must conform to the long-term plan.

And what can the city do to help fix the mess it has allowed to develop? While the co-op agreement frees the city from any PWSA debt responsibility, nonetheless the city should take steps to help.  First of all it needs to meter all city properties and begin paying for water like any other user.  Secondly, city officials should pledge to support the PWSA as it develops a long-term plan as required by law and avoid carping when rate hikes become necessary. Indeed, city officials should help prepare residents and businesses for the likelihood of substantially higher water and sewer bills to come over the next several years.  Dealing with this critical problem cannot be avoided any longer.  In short, the city must accept the urgent need for a wholesale system upgrade and fully and willingly cooperate and assist in the process.

State Legislature Weighs in on Pittsburgh Water and Sewer Authority

Summary: The plight of the Pittsburgh Water and Sewer Authority has caught the attention of the Pennsylvania Legislature.  The State House has unanimously passed a bill which would place the PWSA under the oversight of the state Public Utility Commission.  The bill would require the PWSA to bring their operating system under PUC compliance and put together a long-term plan to address long-standing infrastructure issues.


A Policy Brief (Volume 17, Number 14) from April outlined the troubles of the Pittsburgh Water and Sewer Authority (PWSA), specifically its aging infrastructure and the trouble they have with high debt levels which may preclude them from seeking help from a private operator as proposed by the Mayor.  That Brief also noted an engineering report from 2012, commissioned by the PWSA, which had inventoried the entire system and gave recommendations on how to begin to a replacement program at a cost of $2.51 billion (in 2011 dollars).  Other recent estimates put the replacement at four to five billion dollars. The Brief noted that the engineering report recommendations have largely been ignored by the PWSA at its own peril.

It turns out that the State House has also paid attention to the issues of the PWSA and has unanimously passed HB 1490 that has now been sent to the Senate. This bill places the PWSA under the oversight of the Pennsylvania Public Utility Commission (PUC).  HB 1490 adds a new chapter (Chapter 32) to Title 66 of the Pennsylvania Consolidated Statutes (Public Utilities) giving the PUC some limited power over the PWSA.

Chapter 32 will compel the PWSA to do two things:  1) bring their operating system into compliance with the rules and regulations of the PUC, and 2) put together a long-term infrastructure improvement plan for the replacing/upgrading of their distribution system.

The first point is fairly self-explanatory.  The bill states that the PWSA would have 180 days from the effective date of passage to file a compliance plan which would “…bring an authority’s existing information technology, accounting, billing, collection and other operating systems and procedures into compliance with the requirements applicable to jurisdictional water and wastewater utilities…”  This is a great first step as the City Controller recommended in an audit from earlier this year that the PWSA needs to improve their asset management capabilities so they will know what assets need repair and to prioritize them.

The second point is perhaps the most important—putting together a long-term plan to fix the aging system.

In the same section that orders the PWSA to put together a compliance plan for their management system (3204b), comes another directive to “…include a long-term improvement plan in accordance with subchapter B of Chapter 13….”  Title 66, Chapter 13, subchapter B (§ 1352a) outlines what the long-term improvement plan needs to include:  a general description of what needs to be repaired, where it is located, and an initial schedule of the planned repairs or replacements.  Furthermore the subsection requires projected annual expenditures to implement the plan and how the repair/replacement will ensure and maintain safe, reliable, and reasonable service.  If the PUC deems the plan to be insufficient, it can order a new or revised plan.

Section 1353 would allow the PWSA to implement a service charge to pay for the repairs/replacements.  “…[A] utility may petition the commission, or the commission, after notice and hearing, may approve the establishment of a distribution system improvement charge to provide for the timely recovery of the reasonable and prudent costs incurred to repair, improve or replace eligible property….”

To do so, the PWSA would have to submit information about the base rate charged to customers called the “initial tariff” which the PUC will consider when setting/allowing the distribution system improvement charge.  The PWSA would then have to justify the improvement charge by demonstrating that it is in the public interest and will help finance the long-term plan.  The PWSA would be allowed to update the charge quarterly as appropriate.  It would also have to let customers know the about the charge and if adjustments have been made through their bills.

If the PWSA is granted a distribution system charge to pass along to customers, it will have to file an annual asset optimization plan (§1356).  This will require the PWSA to file an annual plan that must include a description of all eligible property that had been improved or replaced within the previous year as well as a description of work to be done over the next year.  This requirement should hold the PWSA’s feet to the fire and compel them to get the necessary repairs/upgrades done.

Of course a distribution system charge will not sit well with PWSA customers, or even the City’s elected officials.  Past administrations and councils have been reluctant to raise water rates on city customers, a major reason the water department was spun off to its own authority. Thus, placing the PWSA under PUC oversight and direction should go a long way to push the authority to do what everyone knows must be done but that heretofore has been the proverbial can being kicked down the road.  With HB 1490 requirements, local politicians can blame Harrisburg for higher rates.

PUC oversight will come with a price.  HB 1490 subsection 3207b allows the PUC to “…impose an assessment on an authority based on the authority’s proportional share of the commission’s expenses relating to the commission’s utility group…on an annual basis….”  Considering that the PWSA currently operates with thin margins and may not be able to absorb this cost internally, this may be another addition to customers’ bills.

However, the PWSA will retain most of its autonomy and nothing in the proposed bill will prevent an audit by the City Controller.

The problem with aging infrastructure has been known for quite some time but the urgency to take the necessary steps is just now getting the attention it deserves. At a cost of over $2.5 billion (or more) upgrading the PWSA’s water and sewage conveyance systems is going to be very difficult to accomplish. Decades of neglect are finally being addressed seriously by the Legislature.  It is unfortunate that local political games playing have forced the State Legislature to take action to prevent major water and sewer system disasters.

PWSA Infrastructure Problems are Getting Worse

Summary: The Pittsburgh Water and Sewer Authority (PWSA) has a host of problems that will require large amounts of capital—both monetary and political—to solve.  The century old system is in dire need of replacement but the PWSA is deeply in debt and will have great difficulty raising the revenue and capital necessary to complete such a large project.


The PWSA has been beset by problems this year continuing a trend dating back several years. This year alone the PWSA issued a boil water advisory, had a problem at a pumping station, and then a break in a water main that leaked 10,000 gallons a minute before it was diagnosed and stopped.  Repairing the break will cost an estimated $1.7 million.  This break is very worrisome as it may just be the beginning for a water system with pipes dating to the early twentieth century.

Pittsburgh’s Mayor has suggested looking to outside sources for help and has convened a panel to look into the issue.  The plan would be for the City to retain ownership of the system and have an outside firm come in that would not only manage the system, but foot the bill for replacing it.  In return this firm would be allowed to keep any revenues.  However, there are four major obstacles to this plan being successful. First, the cost of replacing the entire system (water and sewers) has been estimated to be above $2.5 billion.  Second, the system is very old—well past its design life—and as such is subject to an unknowable failure rate (and unpredictable future year capital and repair costs). Third, the PWSA has a very heavy debt load—$763 million according to their 2015 audited financial statements.  Fourth, the PWSA has had negative net income with operating costs and debt service payments exceeding revenue in both 2015 and 2016. Not exactly a resume that will have suitors beating down the door.  Who would contemplate pouring billions into an economic entity that is losing money and whose maintenance and repair costs could swell losses for years to come and long before the infrastructure replacement can be completed?

Bear in mind that the system’s oldest reservoir, Highland Park #1, was constructed in 1879 and that the system’s oldest pipes and valves date back to 1887.  It has been estimated, by an engineering firm who completed a study of the system that most of the cast iron pipes are over 70 years old—about the life expectancy of such pipes.  The water system’s inventory includes four in-ground reservoirs, twelve above ground storage tanks, the Aspinwall filtration plant, a membrane filtration plant (Highland Park # 1) and 1,012 miles of water lines ranging from one to 120 inches in diameter.  There are also 25,330 valves and 7,558 hydrants.  This inventory was compiled as part of the engineering firm report’s 40-year plan released by the PWSA in 2012.  The estimated cost to replace the entire water system (at 2011 prices) was $1.25 billion.

The engineering firm recommended a timeline at which the work would be accomplished in eight, five year periods.  Their report also recommended the PWSA embark on a program to spend $14.8 million per year to rehabilitate and replace medium to high risk mains over the next 40 years. PWSA plans $60 million in capital spending for 2017. To date however, the 40 year plan has not been implemented, with PWSA staff telling the City Controller that the 40 year plan was just a “wish list” and was not adopted as an actual plan.

While the PWSA does not process sewage, it does have conveyance lines to the ALCOSAN system.  The sewage system comprises 1,211 miles of sewer lines, 29,084 manhole covers, 24,143 catch basins, 99 diversion structures, and four sewage pump stations.  The cost of replacement for this system is another $1.26 billion.  The total bill for replacing the entire water and sewer system, as estimated in the 40-year plan, was pegged at about $2.51 billion—again at 2011 prices.

The average age of the pipes and the recent pattern of large and expensive breaks cast doubt on the 2015 audit’s $583 million estimate of the value of PWSA’s depreciated capital assets.  To be blunt, with the rapidly deteriorating, very old pipe system, it is hard to believe that the PWSA’s capital assets are worth $583 million dollars and that the net negative balance sheet position is only $36 million. The repair and replacement costs are likely to soar in the coming years making the system worth only what net income would justify and net income will likely be negative for a long time as spending rises sharply

Here is the key question: Would a water company (or any other firm) be interested in entering into an agreement to lease the PWSA with the requirement to replace the very old infrastructure in return for the right to operating revenues?

A prospective bidder would look at recent performance data as well as long term financial information. To wit, data from the PWSA’s 2017 budget shows 2015 actual operating expense ($122 million) and receipts ($172 million) for net operating income of $49.8 million. However, when debt service of $52.6 million is included (principal and interest payments) it brings total expenses to $174.8 million.  Thus the net income for 2015 was a loss of $2.8 million.  The revised 2016 budget called for a decrease in operating costs ($182.4 million, down from $185.7 million) combined with a small revenue increase ($184 million, up from $180.8 million) that would reverse the loss and produce net income of $1.65 million.

Even though small changes to costs and receipts made 2016 look better than 2015, the amount of debt service remains very high at $53.7 million.  The audited financial statements for 2015 show the PWSA with total debt (bonds and loans) of $763.3 million.

The 2017 budget is even more optimistic about revenue thanks to an approved rate increase of 30 percent for water used and sewage conveyance. The flat rate charge for the first 1,000 gallons was raised only 15 percent to $18.42 and the sewer flat rate was raised 34 percent to $6.09. Significant further increases in both water and sewage conveyance rates are slated for 2018. Meanwhile, ALCOSAN has boosted its charge for sewage treatment by 11 percent in 2017, the fourth consecutive hike that has boosted the rate to $6.90 per 1000 gallons of usage. A total monthly bill from PWSA for a residential customer using 3,000 gals of water per month and including Alcosan charges will exceed $70, up about $11 from 2016.

Total receipts are expected to increase to $218.8 million in 2017 while expenses are scheduled to increase to $151.4 million.  Thus net operating income is forecast to be $67.4 million.  With debt service budgeted at $53 million, net income will be about $14.4 million. The PWSA plans to borrow $60 million to spend on capital projects.

Projected net income at this level might be enough to entice bids to take over the PWSA, assuming the numbers come in close to budget projections and can be sustained in the face of greater expenditures in the future.  Bear in mind however, that the company would pay taxes on any profits—the authority does not have to pay income taxes. And depending on the terms of the lease, the company might have to pay property taxes as well. Then too the new operator would have to pour in huge amounts of capital to rebuild the system and having already taken responsibility for nearly $800 million in authority debt, might find borrowing more money difficult or expensive unless it has deep pockets and considerable income from other holdings.

Unless a firm is given the authority to enhance future revenue numbers substantially as needed and has the power to cut operating expenses through personnel and other changes, it is unlikely there will be serious bidders.  Even a modest 20 year plan for completion will require outlays of  $125 million per year (not including inflation and/or major cost overruns) and no significant rise in other operating costs. If borrowed in tranches and paid for over 40 years, the full $125 million per year would not have to be generated immediately but rates would have to rise sharply for several years to make the program viable wherein borrowing could occur and residential bills could double with comparable increases in commercial and industrial users’ bills. And that is before the firm makes any profit.

The City Controller in his recent performance audit echoed the engineering firm’s findings that the fix will be very costly and take many years.  He also recommended the PWSA “establish a realistic and comprehensive line replacement plan of action for both the water and sewer lines.”

In light of the severe problems and the probability of significant failures increasing with every passing year, dramatic actions are needed to keep Pittsburgh’s crucial water and sewer systems capable of supplying the City’s requirements.

One, the PWSA needs to complete interior inspection of all large pipes and then catalog the most likely to fail pipes and valves for immediate attention. They then need to create and implement a plan for replacement or upgrade for all system infrastructure and equipment older than 70 years (the average life span of cast iron pipes) or with a high probability of failure in the next 15 years.

Two, to fund these capital projects, the PWSA should put in place scheduled water and sewer rate increases to build sufficient capital reserves to complete the necessary upgrades.  Once those rate hikes has been authorized, they should look for large water and sewer firm (or other suitable management firm) to take over the PWSA.

By way of comparison, for a residential customer the Pittsburgh monthly charge for water and sewer for 4,000 gallons per month will be $90. In Philadelphia that volume will cost just over $59—with an add-on $14 storm water fee.  Seattle, DC, San Francisco are $100 per month or higher, while Cincinnati, Cleveland, Charlotte and many other cities are at $70 or lower.  In sum, PWSA is not the highest cost among the bigger cities but is moving closer to that group. And that means the needed push to raise prices and revenues will be exceedingly difficult politically.

Given the current multitude of problems at the PWSA, it is unlikely a buyer or potential partner can be found who would be willing to absorb the risks posed by the aging system and the high water and sewer charges already in place. A new management firm, without the authority to make substantial personnel and operational changes and with no ability to increase revenues significantly through rate hikes will be unable to correct the major infrastructure problems at the PWSA.

In the worst case scenario wherein a firm to take over cannot be found, the City might have to take back ownership of the water and sewer system and find new sources of revenue or divert existing city funds to supplement usage charge revenue in order to have the funds necessary to begin the badly needed replacement.

Water Under the Bridge

The Pittsburgh Water and Sewer Authority (PWSA) is staring at some sunk costs. According to an article today the PWSA spent $2.7 million on a financial management system that is essentially a closed loop and cannot communicate with the integrated City-County financial management system that took quite a long time to implement. A former City employee was quoted as saying that the PWSA should have jumped in on the integrated platform and one board member is not happy with the system they have.

But is that characterization of getting in on the City-County platform accurate? A March 2011 article seems to indicate that it was the City that was proposing to go with the PWSA’s platform as an alternative to joining the County’s system (the Act 47 rejected this option). That means the City-County integration was not even done at that point-that was not formally announced until January 2012, possibly two years after PWSA purchased its financial management system.

And how about the board member’s position-that "PWSA upper management recommended the system, and it made sense to approve it"? The PSWA board includes four Mayoral appointees: surely they had to have known in 2010 that there was a push to get a large integrated system. It was mentioned in the amended Act 47 plan that was written in 2009, a year before the PWSA purchase was made. Add on top of that the fact that the Mayor was bullish on cooperation and completed a purchase of the Borough of Millvale’s water system under the admirable goal of efficiency. Didn’t those appointees get direction from somewhere other than PWSA management? The other three members of the board are heavily involved in City finances-the Controller, the Finance Director, and the Treasurer. Did they offer opinions on where to steer the Authority’s financial platform?

New Water Leader Dives In

The Pittsburgh Water and Sewer Authority (PWSA) has just entered into a one-year contract with a private company to provide managerial services for the Authority. The company will be paid a base monthly amount and can earn more money if it finds efficiencies within the system. When the PWSA purchased the water system of the Borough of Millvale in 2009 is was expected to be just the first in a series of purchases as part of what the Mayor of Pittsburgh described as one of the "…unique ways, as government officials, to be efficient".

The management agency now fits into this arrangement: it answers to the seven member board (four appointed by the Mayor); employees participate in the City’s non-uniformed pension plan; the PWSA is seventeen years into a cooperation agreement and system lease in which the one-time City Water Department employees became PWSA employees and PWSA provides 600 million gallons of water to the City without charge and is involved in an arrangement whereby PWSA reimburses the City for keeping the rates of customers in the City’s southern neighborhoods served by other companies the same as if they were PWSA customers.

Looking at the finances of the PWSA (available through 2009) shows that there might be ample opportunity for the management firm to make the bonus money. Here are two. Under "direct operating expenses" the PWSA cost of production in 2009 was $29.1 million: going back to 2001, the cost was $16.6 million. That’s a 74% increase in eight years (about 9% per year). In addition, the payments made to the City of Pittsburgh under the cooperation agreement have grown from $7.1 million to $9.6 million (35%) over that same time frame. Think customers who were just hit with a 5% rate increase would like to see some efficiencies?

The Drip, Drip, Drip of Water Rates

City taxpayers will be paying a higher City property tax rate (as a result of the library referendum), a higher County property tax rate (as a result of County Council’s 1 mill increase) and now higher water rates based on the vote of the board of the Water and Sewer Authority. Based on a typical residential customer (use of 4,500 gallons per month) the increase will tack on $2.57 per month to the typical $47.12 bill, which itself was boosted to that amount by a 7.7% increase in 2010.

According to the City CAFR (the page titled "Revenue Bond Coverage") the PWSA’s gross revenues increased 231% from 2001 to 2010 ($60.4 million to $139.7 million) while operating expenses grew 242% over that same time frame ($38 million to $93.1 million). In 2010 the net revenue (gross revenue – operating expense) was $46.5 million, while debt service was $55.6 million. That means net revenue cover 84% of the annual debt service. The debt-which in total is $662 .7 million-is not a direct obligation of the City of Pittsburgh government.

After envisioning the PWSA as an agency that would be interested in purchasing other small municipal systems after it did so in 2009 when it bought Millvale’s system (the authority’s head at the time said the "city authority is considering buying other water systems in surrounding communities") the discussion recently turned to privatization as a possibility. The Mayor mentioned that "We remain open-minded to doing what’s best for the city of Pittsburgh."

Could the Water Authority Evaporate?

Tucked into the discussion on the City of Pittsburgh’s finances was a mention that part of the overall wish list could involve privatization of the Water and Sewer Authority, the public agency that is responsible "for the operation and improvement of the City’s water distribution and wastewater collection systems".

This responsibility was housed within the City water department for many years; the Authority was created in 1984 and in 1995 entered into a Cooperation Agreement and a Capital Lease Agreement that transferred Water Department employees to the Authority and the Authority agreed to lease the water system for a period of thirty years. Under the terms of the agreements the Authority assumed workers’ comp liabilities, provides the City with up to 600 million gallons of water free of charge, subsidizes the water rates of South Hills residents who are served by a private operator, pays the City $101 million annually under the lease, and, in the year 2025 can purchase the system for the nominal fee of $1.

Water and sewage systems are popular options for privatization-after all, providing drinking water is not a core public service and much of it is supplied by private interests currently. According to the Reason Foundation’s most recent privatization report, some 1,300 local, state, and Federal agencies contracted out some part of water service in 2008. Six privately operated plants reverted to municipal control the same year.

Much like the proposed parking lease deal, the attractiveness of selling/leasing the water system hinges upon opportunities for profit and much of that is tied to debt load and the City’s audited financial statements show that the Authority has $881 million in outstanding net debt, about $150 million more than the general obligation debt of the City itself.