Committee Hearing, September 22, 2004

COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING COMMITTEE ON TRANSPORTAION AND PUBLIC UTILITIES - - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, September 22, 2004 2:10 p.m. - - - - RESOLUTION 040298 - Resolution authorizing City Council's Committee on Transportaion and Public Utilities to hold public hearings to investigate the proposed nearly 43% water and sewer cost rate increast to be effective July 1, 2004... PRESENT: COUNCILMAN MICHAEL NUTTER, Chair COUNCILMAN FRANK RIZZO COUNCILMAN DAVID COHEN COUNCILMAN BRIAN O'NEILL - - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 I N D E X RESOLUTION 040289 BERNARD BRUNWASSER, Water........... NANCY KAMMERDEINER, Revenue......... 53 J. ROWE MCKINLEY, Black & Veatch.... 86 LANCE HAVER, Phila. Public Advocate.. 93 3 09/22/04 - TRANSPORTATION - RES. 040298

Ladies and gentlemen, this is a continuation of the hearing of the Council's Committee on Transportation and Public Utilities pursuant to Resolution No. 040298 authorizing City Council's Committee on Transportation and Public Utilities to hold public hearings to investigate the proposed nearly 43 percent water and sewer cost rate increase to be effective July 1, 2004, requested by the Philadelphia Water Department; and in furtherance of such investigation, authorizing the issuance of subpoenas to compel the attendance of witnesses and the production of documents to the full extent authorized under Section 2-401 of the Home Rule Charter. We have a list of witnesses. We have a continuing quorum from the last hearing. And the first witness is the Acting Water Commissioner, Mr. Bernard Brunwasser. Could you please approach the witness table? Please identify yourself for the record. Unless Councilman Rizzo has an 4 09/22/04 - TRANSPORTATION - RES. 040298 opening statement, you can proceed with your testimony. COMMISSIONER BRUNWASSER: Good afternoon, Mr. Chairman. My name is Bernard Brunwasser. I'm the Acting Water Commissioner.

Let the record indicate that Councilman Rizzo is here and a couple other Members are anticipated to join us very shortly. Councilman Rizzo.

Thank you, Councilman Nutter. Councilman O'Neill will be here momentarily. Commissioner, for the record, I know that you always are very responsive with information that we ask for, and we have many of the exhibits in the information. I would like to go back over -- and Councilman O'Neill, I'm sure, will agree. We'll be asking you to follow-up on some of the questions that we had of you during our first hearing. It had to do with the wholesale contracts. 5 09/22/04 - TRANSPORTATION - RES. 040298 Could you for the record talk a little bit about the number of contracts and some of the issues that we requested of you to respond to in reference to those wholesale contracts? COMMISSIONER BRUNWASSER: Yes. As I recall, one of the things that was requested was actually the listing of who these customers are and the length of their contract and so forth. We have actually provided copies of each wholesale customer contract. And that was in response to questions at our first session. We've also provided a discussion of the differences between wholesale and retail, as well as speaking about them at the second session and the first session. And there's a considerable difference between the services that the Water Department supplies for retail customers versus the services that we supply to wholesale customers. That, I believe, was the gist of the questioning of these contracts.

If I can 6 09/22/04 - TRANSPORTATION - RES. 040298 recollect, your answer to the question about the cost associated with the wholesale contracts is that we have a big pipe, we send them X numbers of cubic feet of water. COMMISSIONER BRUNWASSER: Yes.

We haven't gotten to gallons, yet, right; We're still in cubic feet? Based on the fact that we're just sending a quantity of water and we're not responsible for the distribution of that water, that is the rationale on the pricing there? COMMISSIONER BRUNWASSER: Right. That's certainly part of it.

As the Water Commissioner, do you believe that this is good business for the City of Philadelphia, to be in this wholesale? COMMISSIONER BRUNWASSER: I absolutely know that to be a good deal for the owners of the system, and the owners are the citizens of Philadelphia The value of selling wholesale to 7 09/22/04 - TRANSPORTATION - RES. 040298 the suburban customers is that we are spreading some of our fixed costs over a much larger base than what we have now in the City. We have approximately one-and-a-half million people inside the City. When we wholesale wastewater services, we are hitting about three-quarters of a million people beyond our borders and we're spreading some of the cost of the plants, the three wastewater plants, on to those customers. And we're making a profit of 10 percent over above all of our costs.

By the way, just to digress for a second, thank you also for your quick action. I received a call from Bucks County that really appreciated the work that you're doing to try to get them squared away with some of the issues that you identified. One of the critical things that has to happen to go forward with this proposed rate increase is the consumer advocate must be appointed. That has not happened. Could you talk about why that hasn't happened, if you're 8 09/22/04 - TRANSPORTATION - RES. 040298 knowledgeable of that decision-making process? Because nothing can happen here, which for us that's good and that could be bad in the same breath. Could you just talk a little about that, please? COMMISSIONER BRUNWASSER: Councilman, as far as I know, the appointment of a hearing officer and a public advocate, which is done by the Mayor, President of City Council, and the City Controller jointly, that has not yet materialized. I believe that may still be in the Mayor's Office, that request.

The proposal, the timeline for this rate increase, the timeline that was established, could you give me that? I'm talking about the one that was advertised weeks ago. COMMISSIONER BRUNWASSER: We proposed a four-year rate period beginning July 1, 2004, which, of course, has passed. And so that was what we set out to do initially.

What is the impact, each week, each month, that you don't 9 09/22/04 - TRANSPORTATION - RES. 040298 have the process in place? What impact does that have on you? COMMISSIONER BRUNWASSER: Well, obviously, we have not been collecting higher revenues since July 1. We've been collecting at the old rate. And the impact is, the incremental revenue that we need in Fiscal 2005, which is the period we're in already, as each day goes by we have less and less time to collect the incremental revenue that we need to balance our books.

Many of the constituents and, I think, the Members of Council, we were kind of staggered by the significance of this increase. Could you just elaborate on the overall four-year rate increase on the percentages and why they are so significant? It's one of the biggest increases I think I've ever heard announced. Could you just take us through that a little bit and tell us how you got to these numbers? COMMISSIONER BRUNWASSER: Sure. I know I passed this out in a booklet at one of our prior sessions, but there were some major 10 09/22/04 - TRANSPORTATION - RES. 040298 factors that we're looking at right now. And the first one is increasing debt service. We have to continue to go to the bond market to raise capital to continue to replace our infrastructure. Primarily most of what the Philadelphia Water Department needs are funds to pretty much renew and replace what we have in the ground today. Our capital program is not one of tremendous expansion any longer. We expanded our three wastewater treatment plants at an almost $900 million cost back from the late '70s through the early '90s. Since that time it's mostly been renewal and replacement. And we have an old system, as we know, an old City, an old water and wastewater system. So we have to continue to go out into the market. Now, the bond issues that we have contemplated occurring within the four-year rate period would require us to raise about $89 million in additional debt service, principal, and interest payments on those bonds. That was the biggest single item that 11 09/22/04 - TRANSPORTATION - RES. 040298 we were looking at. The second biggest item was $70 million for sewer lateral and water line replacement programs for the lines, customer lines, in the street from the curb to the center of the street or to the main in the street. That was a $70 million program spread out over those four years. That program, of course, is not imminent. There is no 11 ordinance in place for that, nor is there one pending, as far as I know. So that may eventually come out of our filing, thereby lowering the revenue requirement. Then there are additional revenues needed for compliance with environmental laws. We have a lot of combined sewer overflow and storm water issues, watershed issues, that we're spending a good deal of money on, a lot less than many cities throughout the country, but we have a lot of regulatory requirements that continue to come up from Washington or from Harrisburg. So there's a good deal of money allotted for that. We also have security issues that 12 09/22/04 - TRANSPORTATION - RES. 040298 have come up since 9/11. And we're getting rid of our chlorine at all of our water plants In fact, one of them has no chlorine and the two others will move to sodium hydrochloride within a short period of time, and there will no longer be any chlorine at any of our six wastewater treatment plants. That's a good thing because chlorine gas is a potentially dangerous chemical. These are some of the reasons for the sizable rate hike that we're seeking.

Commissioner, you mentioned about the lateral program. I don't mean to get very basic, but the record here is very important, especially on this issue. Could you go back and restate the actual proposal with the lateral program in there, what the increase would mean in percentages, however you'd like to present it, so we truly understand where you are today? I'm sure Councilman O'Neill, since it's his issue, will probably be able to tell you exactly where he is with that. But let's talk about the percentage for the four years, 13 09/22/04 - TRANSPORTATION - RES. 040298 again, however you'd like to try to explain to the record what this proposal will be, what this increase will be. If you could at the end, for an average consumer, explain what that would mean.

Sir, please explain what the lateral program is. Don't assume that we know what you're talking about, because I don't know. COMMISSIONER BRUNWASSER: Right. I guess it was last fall, fall of 2003, an ordinance was sent to City Council and I believe it passed in Committee. I don't recall the Committee. But it was an ordinance 16 that would have the Water Department take over responsibility of maintaining water and sewer customers' service lines and sewer laterals in the street. That's the basic ordinance.

Why did Councilman Rizzo call that Councilman O'Neill's program? I've been arguing for that for over years, as have other 24 Councilmembers. 25

I believe 14 09/22/04 - TRANSPORTATION - RES. 040298 Councilman O'Neill moved the issue in the form of an ordinance and it went to Committee and came out, from what I understand, with a favorable recommendation. And when Councilman O'Neill arrives, Councilman Cohen, he can explain -- believe me, it's not a Republican idea. I'm sure that Councilman O'Neill will explain the rationale of that. So what exactly did you say -- refresh all our memories -- came out of Committee? Was it voted out of Council? COMMISSIONER BRUNWASSER: I believe it didn't go in front of the full Council before the full Council recessed in December of last year.

And I assume that Councilman O'Neill will probably try to accomplish that because I know he was very interested in having that occur. You're telling me there's a $70 million tab associated with that ordinance? COMMISSIONER BRUNWASSER: Right. And that's what we included because of our filing. We notified City Council of our plans 15 09/22/04 - TRANSPORTATION - RES. 040298 in late January of this year and the whole filing was put together with the idea that this was an ordinance that would go through.

Commissioner, after you walk us through the proposed increase, taking $70 million out, would you also elaborate on what that would mean to the rate increase? Why don't we start at the beginning. Let's talk about with it in, take us through a four-year period each year, what that means in the increase.

You stated earlier that the bond issue was going to be for $89 million and you said that the lateral issue was for about $70 million, but that may come out of the original bond issue. If it comes out, it means the current issue is only for $19 million. COMMISSIONER BRUNWASSER: I didn't really state what the bond size was. The $89 million is for the debt service, the incremental debt service on the next two bond issues. 16 09/22/04 - TRANSPORTATION - RES. 040298

Which are how much borrowing? COMMISSIONER BRUNWASSER: The first one is for $250 million, 250 being the first issue. And that gives you a debt service of $17.2 million each year. When you play that out over each of the four years, I guess it comes to about $68 million, 68, $69 million for debt service. Then towards the end of the four-year rate period, there's another bond issue contemplated. It's either $300 or $350 million, and that has additional associated debt service.

And there's still debt service owing on the original bond issue, bond issue No. 1? Or pay off full bonds in the four years? COMMISSIONER BRUNWASSER: No. 21

Councilman Rizzo, forgive me. I'm just trying to find out what we're talking about.

I understand, and I appreciate your questions. 17 09/22/04 - TRANSPORTATION - RES. 040298 COMMISSIONER BRUNWASSER: The first bond issue, which will probably occur early in Calendar 2005, will probably have debt service for to 30 years. But it will certainly 6 have that debt service for the four years that 7 we're looking at I'm just looking at the 8 four-year rate window at this point. 9

Why are you only 10 looking at the four-year rate window? Why 11 are you looking at four years instead of two 12 years, three years or five or six years? 13 What's magic about the number four? 14 COMMISSIONER BRUNWASSER: It's for 15 planning purposes. We need a little more than 16 two years to put a plan together and to go 17 through a rate process like this. Rate 18 processes are very expensive and they're 19 relatively onerous for a municipally-owned 20 utility like our own. We can't go through 21 these too often. Four years is a good 22 planning horizon. We think it's about the 23 ideal for a utility like ours. 24

Is it ideal for 25 the people of Philadelphia to be saddled for 18 09/22/04 - TRANSPORTATION - RES. 040298 the next 20 or 25 years with what you call a four-year plan, which is actually a 20- or 25-year plan as intended, to remain as a debt for that long? If there's any second bond issue for later, it's going to be added on. It's not going to be in place of. You're not telling us that this bond issue will later be paid off, but we're going to assume an equal bond debt for other purposes. You're saying this is going to be an add-on for years or 12 more. We're still going to be paying on this 13 issue, plus a new issue, you're telling us. 14 COMMISSIONER BRUNWASSER: We're 15 still paying for issues from 20 years in the 16 past. 17

I think we need 18 some show of honesty, because we don't know 19 that at all. We've always used the Water 20 Department as an example for being a good utility as compared to the Gas Works, which we felt was a bad utility. It seems to me that one can't, from the point of view of the cost of taxpayers, differentiate between the two. Am I right or am I wrong? 19 09/22/04 - TRANSPORTATION - RES. 040298 COMMISSIONER BRUNWASSER: Well, you should continue to use the Water Department as a good example of a utility because we are and we're so known throughout the country.

Well, maybe that's because you've been able to convince people in Philadelphia that you're good. But we don't question it. We don't know what all the bond issues are for. COMMISSIONER BRUNWASSER: As I said earlier, primarily the bond issues at this point in time are just to maintain the systems we have in place. Currently we have 3,300 miles of water main, 3,000 miles of sewer main. We have three water treatment plants. We have three wastewater treatment plants. We have 33 pumping stations. We have a large bio-solids recycle center. All of these facilities and others, like our sewer maintenance yard and our distribution at 29th Street yard --

Maybe we have too many. Do we have more than are needed? It seems to me that the feeling may be that cost 20 09/22/04 - TRANSPORTATION - RES. 040298 means nothing but for let's keep adding on new systems. COMMISSIONER BRUNWASSER: Our costs are much lower than our suburbanites. So I think we're considered to be very efficient

I just think we've got to begin to get much more detailed information before we approve bond issues. Because the Mayor says we're in a financial crisis, but we don't know why we're in a financial crisis. We don't know where the money going. Because this Mayor and maybe mayors before him had a policy of never divulging the full extent of the debt or for what the purpose money is being spent. City Council doesn't know. We think the time has come for openness. We ought to know what every dollar is being spent for. Before I vote on another Water Department bond issue, I'd like to know what the bond issues are and for what purpose and can they be reduced and do we have too many functions. Didn't we prepare for our Water 21 09/22/04 - TRANSPORTATION - RES. 040298 Department to cover the City's need for three million people or two-and-a-half million, far more than what we have? COMMISSIONER BRUNWASSER: Some of our water facilities were designed for perhaps two-and-a-half million people.

And we have a million and a half? COMMISSIONER BRUNWASSER: Correct.

What's the need for continuing the services for a million people that we don't have? Couldn't we reduce the expenses? I'm not saying that today we have to get all of the answers, but today I think it's time to begin raising the questions. Why can't we do something to show that the City has a million-and-a-half people and therefore doesn't need this process of developing water supplies for two-and-a-half million, so that you have to go hat in hand trying to sell the amount of services we have available for an extra million people? Has that been fully explored? If so, we'd like to know how. We 22 09/22/04 - TRANSPORTATION - RES. 040298 might have a few ideas on that. COMMISSIONER BRUNWASSER: Well, as I said, we service about three-quarters of a million people outside of our borders.

Why? COMMISSIONER BRUNWASSER: Because it makes economic sense for us to do so.

Well, I think we have to have a case presented for that. But through our ability to raise questions, we've never had the chance to evaluate that. Maybe all the brains are on the Administration's side and we in Council may be too political or too stuffy or too stupid to understand. But we think we maybe fit a different category and maybe we've been too lenient and maybe we've got to begin learning what the money is for. Unless there's rigid responsibility in accounting, money seems to be something that -- you know, when you talk about a $250 million bond issue, you threaten my whole sense of stability. That is a huge bond issue for the City of Philadelphia to currently 23 09/22/04 - TRANSPORTATION - RES. 040298 consider. We're trying to cut taxes in the City, not increase them. We're trying to cut taxes on business and we'd like to cut taxes on non-business groups. How you do that and increase the bond issues, I don't know. I get concerned when people representing the Administration talk about 25-year bond issues and then tell us what the cost is for the first four years and don't tell us that that of course means the bond issue continues in effect for more years, 13 20 more years. 14 You know, if we talk about fiscal 15 restraint and fiscal responsibility, let's 16 begin practicing it and let's begin doing it 17 by making information available to people who 18 are in a position to vote on it. 19 So I'm not going to support your 20 bond issue unless I get much more information 21 about it. It might make sense. And when I get convinced that you're right in continuing to prepare for three-and-a-half million when we only have a population of a million-and-a-half or two million or whatever 24 09/22/04 - TRANSPORTATION - RES. 040298 the figure is -- we don't need to be in the business of producing water for other agencies or other suburban communities who never appreciate whatever Philadelphia does and never want to participate --

Commissioner, we will have a subsequent conversations about the -- maybe a training session on public testimony and appearances in City Council for many other top operating departments in order to assist you through our process in trying to escape with the rest of your life as possible. We'll do that another day First, why don't we make it clear at this hearing, this hearing is not about a bond issue. There's no legislation in front of us with regard to a bond issue at the moment; is that correct? COMMISSIONER BRUNWASSER: Correct.

Do you have an upcoming bond issue? COMMISSIONER BRUNWASSER: We don't have an upcoming ordinance. But we have a bond issue that has already been approved by 25 09/22/04 - TRANSPORTATION - RES. 040298 City Council, and that issue, hopefully, will happen early in Calendar 2005.

So that's already been approved? It's just working through the process? COMMISSIONER BRUNWASSER: Yes.

Okay. What's the size? COMMISSIONER BRUNWASSER: $250 million.

Why don't you get it to me for the Members of the Committee, a complete schedule of all of your debt service payments, how many bond issues you have presently outstanding. What's the total amount of debt outstanding for the Water Department at the moment? COMMISSIONER BRUNWASSER: Approximately $1.7 billion.

$1.7 billion with a "B"? What's the debt service on that? COMMISSIONER BRUNWASSER: Approximately $160 million. 09/22/04 - TRANSPORTATION - RES. 040298

Does that come out of the General Fund or out of the Water Reserve? COMMISSIONER BRUNWASSER: It's all Water Fund money.

It's all Water Fund dollars, not General Fund dollars? COMMISSIONER BRUNWASSER: Right.

You're at 160 now in debt service? COMMISSIONER BRUNWASSER: Correct.

Okay. If you could get us a listing of each of the bond issues that's outstanding, when it was issued, and a schedule that goes with each of those issues, that would be helpful. And you can certainly mention the routine maintenance and, I guess, pipe program, the replacement of mains and pipes that you normally do. If there were special projects that were paid for out of any particular bond issue, if you could make a designation or a note for that particular one or a legend. If you're aware, if there was a plant, if there was a building, 27 09/22/04 - TRANSPORTATION - RES. 040298 if there was something outside of underground infrastructure that was taken care of out of a particular bond issue or a series of issues, that would be helpful. Now, with the $17 billion outstanding, does that particular fund -- do you have your own financial advisor or do you use the City's financial advisor? COMMISSIONER BRUNWASSER: The City chooses that for us.

Has there been any discussion about the amount of debt in the context of possible restructuring of the debt, any savings, any refinancings? Tell me anything about that. COMMISSIONER BRUNWASSER: Well, I would say that since 1993 we have refinanced several times. I believe the net present value savings that we've achieved over that well now 11-year period is approximately $93 million.

What was the debt service 10 years ago for whatever amount of bonds you had outstanding at that time? 28 09/22/04 - TRANSPORTATION - RES. 040298 COMMISSIONER BRUNWASSER: It was less than you have today.

Would you show us on the same set of materials or with the same information, show us the either increase or decrease in debt service levels over the last, let's say, years for the Water 9 Department, okay? 10 COMMISSIONER BRUNWASSER: Okay. 11

Let me get to 12 that question. The resolution indicates that 13 you are anticipating upwards of a 43 percent 14 rate increase to be effective July 1, 2004. 15 Obviously that has not happened. When was this announced and what would have had to have happened in order for you to get a rate increase effective July 1, given that nothing has happened and it's now September 22? COMMISSIONER BRUNWASSER: The rate increase, I think, was announced the same day we sent the filing, I believe, to Council President Verna. I think that was January 27th, give or take a day.

Okay. And what 29 09/22/04 - TRANSPORTATION - RES. 040298 are the mechanics of making the announcement on January 27th in order to have a rate increase effective July 1? What would have had to have happened? COMMISSIONER BRUNWASSER: We would need to get an independent hearing officer appointed. We'd also need a public advocate appointed. That hearing officer would call the parties that would have registered with the Department of Records. The filing sits in the Department of Records for 30 days --

Stop right there. Who authorized you to make the filing with the Council President about the rate increase in the first place? COMMISSIONER BRUNWASSER: We in the Water Department determined that we would have a revenue requirement, an incremental revenue requirement, beginning July 1, 2004. We determined that last year sometime.

I understand. COMMISSIONER BRUNWASSER: We commissioned a comprehensive study of our rates -- 30 09/22/04 - TRANSPORTATION - RES. 040298

I understand. We don't have to debate for the moment the size of it. What I'm trying to understand is, when you make the decision that the rate needs to increase by whatever, what is the internal process that gets to the point -- I mean, does the Commissioner have the authority absent anyone else or in a unilateral fashion to make the rate request, or does it work its way up through the Administration? Does someone have to sign off on this? COMMISSIONER BRUNWASSER: It did work its way up through the Administration. Whether it has to under the Charter or any other documents, I don't know whether that's so, but it did work its way up through the Administration.

Did the Mayor approve you filing for a 43 percent rate increase? COMMISSIONER BRUNWASSER: Yes.

But still today you don't have a hearing examining officer? What's this person? 31 09/22/04 - TRANSPORTATION - RES. 040298 COMMISSIONER BRUNWASSER: This would be an independent hearing examiner or hearing officer similar to what the Gas Works has.

I understand. How does the person get appointed? COMMISSIONER BRUNWASSER: What we have done is, we have presented three resumes of folks that we believe could do this job and are independent of the City. In other words, it's preferable, we believe, to have someone who doesn't have an ongoing relationship or contractual relations with the City government, and we have presented that. Those three names. And the Mayor, the Council President and the City Controller are free to choose whomever they want. It doesn't have to be any of these three people.

I wondered a little bit about that. Doesn't that put you in a slightly unusual position of recommending who should oversee the case based on the petition? What's the Water Commissioner's role in the rate process? 32 09/22/04 - TRANSPORTATION - RES. 040298 COMMISSIONER BRUNWASSER: The Water Commissioner has final say on rate increases.

Why then would we have a process where the Water Department recommends who is going to conduct the process? COMMISSIONER BRUNWASSER: These regulations were adopted with the knowledge of folks who had served as public advocates in the past, Community Legal Services, and they felt that that would be a fair process.

So it's the Mayor, the Council President and the City Controller have to agree on a hearing examiner? COMMISSIONER BRUNWASSER: Correct.

And that has not happened? COMMISSIONER BRUNWASSER: Right.

Do we know if the people have been contacted? COMMISSIONER BRUNWASSER: I personally do not know. I believe this is going to be imminent, but I don't have any 33 09/22/04 - TRANSPORTATION - RES. 040298 specific knowledge right now.

So let's say it was imminent. Let's say it happened by the end of the week. Then what? COMMISSIONER BRUNWASSER: The hearing officer would call the parties that have registered with the Department of Records as wanting to be part of the process, part of the hearing process, want to be parties to the process, that hearing officer would call these parties together --

How would people know that there was a process? COMMISSIONER BRUNWASSER: When we filed with the Department of Records, we also advertised in fairly large -- not the little legal advertisements, but we advertised in the paper that people, if they are interested in seeing the filing, it's at the Department of Records. And I think we sent those to all the regional libraries as well. If they're interested in becoming a party, they should so register.

I understand. 34 09/22/04 - TRANSPORTATION - RES. 040298 I would only suggest to you, you know, that was eight, almost nine months ago. If ever the process starts, you might want to remind people that there's a process going on for anyone else who is interested or happened to miss the big ads back in January or February Let's say you do all of that, what's your best estimate of when there would be a conclusion? If you're in effect losing money because you didn't get the increase on July 1 that you expected, so now your rates are at the same level that they've been, is it reasonable to say that you built into your budget or are you anticipating increased revenues as a result of the anticipated rate hike? COMMISSIONER BRUNWASSER: Yes. That's a fair statement.

How much revenue have you -- I don't want to say theoretically. I guess maybe in fact, how much revenue would you estimate that you've lost as a result of the rate hike not going into effect on July 1? COMMISSIONER BRUNWASSER: To date, 35 09/22/04 - TRANSPORTATION - RES. 040298 I would guess that we've probably lost somewhere between or $7 million in revenue. 4

Between 6 and $7 5 million? 6 COMMISSIONER BRUNWASSER: Uh-huh.

What's been the impact on the Department as a result of that rate hike not going through? COMMISSIONER BRUNWASSER: Well, there hasn't been a great impact yet. It's one of the offsetting items that I spoke a little bit with Councilman Rizzo earlier. Clearly we're not going to be in a position to provide this lateral program at the date we thought we would need to provide it, so some of those costs would not occur, at least not within Fiscal '05. So there is some offset. The bond sale is going out later than anticipated, sothere is some offset in debt service as well. So there would be some adjusting that would have to be done.

Councilman O'Neill is here so he can speak to this much more intelligently. To some extent the rate 36 09/22/04 - TRANSPORTATION - RES. 040298 hike and the lateral program, I thought they had been decoupled to some extent. There was basically no connection between the one and the other. COMMISSIONER BRUNWASSER: Not decoupled, no. I know we were asked to see what would happen to rates, for instance, if we were able to capitalize the cost of the lateral program. And we did that. That would certainly lower operating costs in the early years.

Okay. I have one last question -- and then Councilman O'Neill has a question -- which is, tell me a little bit more about the Rate Stabilization Fund. What's the size of it, how the dollars flow into it, what's the money for? COMMISSIONER BRUNWASSER: The Rate Stabilization Fund came about when we went to our new general revenue bond ordinance back in 1993. Before that time we had no Rate Stabilization Fund. The fund currently stands at approximately $157 million

What's the money 37 09/22/04 - TRANSPORTATION - RES. 040298 for? COMMISSIONER BRUNWASSER: The money is there to do exactly as it states. It's there to stabilize rates. What we use it for is in those years where our revenue does not come up to meet our coverage requirements under our bond ordinance, we draw Rate Stabilization Fund money down to meet bond coverage.

Where does the Rate stabilization money come? What's the source? COMMISSIONER BRUNWASSER: The Rate Stabilization Fund, it's basically revenues that have come in over the years. In those years where we collect enough current revenue to meet our bond coverage, anything collected over and above our bond coverage needs gets deposited to the Rate Stabilization Fund, so it does not get counted in that year's revenue. We can only count revenue once under our ordinance. So it resides in the Rate Stabilization Fund and is drawn out those years when we need it. 38 09/22/04 - TRANSPORTATION - RES. 040298

And this started in 1993? COMMISSIONER BRUNWASSER: Yes.

What's the highest it's ever been? COMMISSIONER BRUNWASSER: I think it reached just over $200 million some years back.

Can you give us a schedule showing since '93 on a yearly basis what the amount, quote/unquote, deposited in the Rate Stabilization Fund has been? COMMISSIONER BRUNWASSER: Yes.

Okay. Thank you. Councilman O'Neill.

Thank you. Commissioner, the capitalization of the pipes obviously would cost more in later years because you have more debt service the more you do it. Isn't that the same thing that is true of the Capital Program itself, I mean, with your water mains and things? So it's oranges and oranges, in that sense. Has 39 09/22/04 - TRANSPORTATION - RES. 040298 a decision been made to capitalize? COMMISSIONER BRUNWASSER: My position on it, and I've thought about it quite a bit, I would say that it would be best for us not to capitalize that for several reasons. We still have issues of ownership of the pipes. And using capital funds -- our accountants tell us you're supposed to have an asset at the end of day, and if we don't have ownership of pipes, then we don't have an asset. From a financial standpoint, I think after 13 or 14 years of capitalizing these, the lateral program, we would then begin to reach over $20 million a year in actual expense just for the debt service. And with our debt service we have a bond coverage requirement which is percent over and above 20 your debt service. So a $20 million debt service requirement, the payment requirement, requires a $24 million revenue requirement or 120 percent over your actual debt service. So in about a dozen years to 15 years, we would be paying more just for the debt service than 40 09/22/04 - TRANSPORTATION - RES. 040298 we would be paying for laterals if we went on an operating pay-as-you-go basis. The other point I want to make is, we are an old City We have a lot of debt service. You may have heard $1.7 billion in outstanding debt, $160 million in debt service. $160 million in debt service over $520 million operating budget, that's pretty highly leveraged business. And what we're trying to do is actually keep our debt service under control as much as possible. One thing I should tell you is, under our '93 ordinance, we've been putting in at least $16 million a year towards our capital program, pay as you go. It's under our ordinance. We're required to make a payment each June of 1 percent of our net plant property and equipment. And in our case, that's approximately $16 million. So we've deposited probably $170 million or so to capital from operating over the past 11 years. This year we also made a deposit from our residual fund, which is another complicated thing to get into. 41 09/22/04 - TRANSPORTATION - RES. 040298 We are trying our best to maximize how much we do on a pay-as-you-go basis because we recognize and Wall Street recognizes that we have quite a bit of debt. It's not very unusual for a water and sewer utility which has all this unbelievable infrastructure to pay for and maintain and is an older utility like we are, it's not unusual to have percentages of that nature. What we don't want to do is exacerbate the problem of too much debt, and I don't believe that this will be looked on favorably if we capitalized the lateral program. When we go up to New York and tell them, Well, our typical annual capital budget, instead of being $120 million, is now 140, and it's not for anything new, new infrastructure, it's for taking over this operation of this function --

I appreciate the answer and I appreciate recognizing that the same argument making against doing it for laterals, you already have the same problem on the finance side with your sewer system and 42 09/22/04 - TRANSPORTATION - RES. 040298 water system. Last time we spoke in Council Chambers, I was trying to determine the difference between what I think is a relatively small cost of retroactively -- we don't have to talk about retroactively, but just looking backwards at the number of laterals that were fixed under the Help Program -- because the others are kind of beyond our control. But to the extent that we know all of them, fine. Because there's all kinds of numbers out there. We should have permits and the shut-off notices, whatever that go with it. But there's a much higher number that we would be replacing than we're forcing owners to replace because we know they're bad. They're just not so bad that we are, from a policy standpoint, forcing people to do it. Is that exponent, is it 10 times, is it 5 times, is it 15 times that we'd be doing more than is being done today under the current system? COMMISSIONER BRUNWASSER: Councilman, I know you're talking primarily 43 09/22/04 - TRANSPORTATION - RES. 040298 about the Help Loan Program --

But if you have information on all of them, I find it hard to believe that somebody won't use Help when they get at least a minimal guarantee. I think a year is too short, but we've got contractors willing to negotiate. They also get the interest-free loan for five years. If they don't take the Help Program, it's probably because they're getting told by somebody knocking on their door, the Water Department rips you off. I'll do this quickly. They don't tell them that it's probably not any cheaper. And secondly, there's somebody watching this thing, that we use approved, bonded contractors. We get at least a one-year guarantee. I would hope that if we ever got big arms around this thing, that we could do better than a year. That's for the future But my concern is -- and I've said it before; I'll say it again. If you just use a simple number like 1,000, if 1,000 are being done currently, being replaced, but we 44 09/22/04 - TRANSPORTATION - RES. 040298 know we should be replacing 10,000 a year, and that's what we're pricing it, the onus on the ratepayer is, oh, your neighbor's lateral is getting fixed so you're getting a rate increase by this. Where if we just instead of splitting at the curb, ownership -- this is an idea I've developed in the last week or two knowing these hearings were coming up. If we knew that 1,000 are being done a year, and it's no more the homeowner's fault than it is our fault that they break, if we just didn't delineate or differentiate between house to curb, curb to main, and we just said, if you go on the Help Program, we'll pick up half of it. The numbers on the 1,000 are the same. We just aren't doing anymore out there unless we get more aggressive in our ordering new laterals. It's a lot different for me as a homeowner, if instead of now rolling dice -- and I'll admit I came up with the dice roll -- that where the break occurs, not my fault in either place, but you pay one and I'll pay the other, we agree no matter where it is, we just 45 09/22/04 - TRANSPORTATION - RES. 040298 split the cost. If I'm willing to go on the Help Program, not have some unknown contractor out there who could be a fly-by-night, could be somebody that we have no record of, doesn't have a bond or anything else, doesn't give a guarantee, I think that may be a middle ground at least to start with because, to me, the leap from the number of laterals being replaced today to the number that you will be replacing under a responsibility and the street change is an enormous amount of money that gets tagged with, oh, yeah, we're going to start picking up the streets. It's not apples and apples. It's apples today, oranges tomorrow because it's a totally different program once the Water Department gets in the streets. I don't need an answer on that today. But it's one way I'm thinking of going on this thing, keeping the cost low, probably saving you and the homeowner money in that case. But it may be a little simpler to explain. It may seem more customer friendly. And if we could keep the number the same, then 46 09/22/04 - TRANSPORTATION - RES. 040298 if we decide to go to the other system, we say we're doing this. We think it's right, but it's going to cost money, but it's not because all of a sudden we're going to start helping with the cost of lateral repairs or taking it over. I just say that for the record today because this, to me, is kind of a work of progress, whether it makes it into this rate increase or not. I don't want it to be a negative when it happens. That's all. And I think right now it's a huge negative offsetting what should be a huge positive, but the negative seems to be a lot larger. Two other areas. One, your final authority over rate increase, that's in the Charter, isn't it? COMMISSIONER BRUNWASSER: Correct.

Okay. I thought so. We're a very large public water company. There's bigger companies, but they're private and they go all over the place. There's a couple that are in our area. Are there any public companies that match up 47 09/22/04 - TRANSPORTATION - RES. 040298 in size with us, other cities that are public water that are like ours? What I'm trying to get at is, I know it isn't apples and apples if you compare certain things to the private companies, whether it's because they're in the suburbs with new pipe and things Do we ever have someone do a unit analysis for us, either a unit cost, unit audit to just tell us what we're paying for this system and what we're charging our customers? How does it relate to the rest of the world, you know, factoring in public employees and the like and all that goes with it? Do we have anything like that, that we're constantly looking at to make sure we're as competitive as possible as a utility rather than a government on the General Fund side? Not that we shouldn't be doing it there, too. COMMISSIONER BRUNWASSER: There are. Obviously, we published a table of how we compare to our suburbanites. There are two major, major private companies in our area, Aqua Pennsylvania and Pennsylvania American, 48 09/22/04 - TRANSPORTATION - RES. 040298 that are international companies. In fact, the Pennsylvania American is really at the moment a German-owned firm. But they're large. They're huge and they're in most of the states in the US and in Canada. Now, we are less than half of their cost. But that's also a function of the region. You know, they may have much different costs in Utah or Nevada, you know, places actually where water is rare -- or scarce, I should say. People are willing to pay a lot more for water than they are here. So it's difficult to make those kinds of comparisons. There is a company -- and I know the owner because he's very big in the industry. Of course, George Raftellas (ph). His company prepares a book each year -- it used to be done by Erston Young (ph) -- of comparative water rates. I'm not sure about the sewer side, but comparative water rates throughout the country. And that's something we should look at. I'm not saying we're the lowest of 49 09/22/04 - TRANSPORTATION - RES. 040298 the big city water utilities in price, because we're not, but we're competitive with virtually all of them. Sometimes it's very difficult to compare one City to another because they have certain different requirements. For instance, our plumbing requirements here in Philadelphia are a little more stringent. There's something more that's required here than in most places in some cases. And some might argue it's unnecessary. Some argue it is necessary. We have other things. For instance, in our wastewater side, we have storm water included. Whereas many, many communities', the storm water charge is in their tax bill, buried in their tax bill, and no one really knows what their sewer costs are. So it's difficult, but we do look at this book for national comparison. And of course, we take a look at the suburbs and see what their charges are.

And in the suburbs, that's where we got into the 50 09/22/04 - TRANSPORTATION - RES. 040298 discussion about the wastewater comes here. COMMISSIONER BRUNWASSER: Yes.

And we're not necessarily getting our fair return for the political salvation we give some of these people that would have to otherwise put a sewage treatment facility in their community. COMMISSIONER BRUNWASSER: You made a very good point with that. I was thinking about that the other day. There's another advantage to us, one that's not mentioned. Obviously, when you think about this, if there were smaller sewage plants just north of the City, for instance, in Bucks County and whatnot, it would impact the quality of the raw water coming into Baxter plant, for example, and we would have to do --

I know that. But the fact is, that's technical. You can measure it. The political escape that we provide is immeasurable. As they say on some of those commercials, priceless. I'm not sure we get a priceless return on that discount we give. 51 09/22/04 - TRANSPORTATION - RES. 040298 I have two items, and one may be as much revenue as water. Actually, they both are. So I'll go with the easier one for me to understand. The northeast mini City Hall -- I know we have two mini City Halls. I'm astounded at the collections that go on in this little place that you can't even find unless you really are on the hunt looking for it in the middle of a shopping center that doesn't have any frontage or anything. It seems like they collect upwards between real estate and water of $100 million a year, according to the staff we talked to and what they take in a day on an average day. The collections sheets I saw, just some daily sheets, had water even higher than real estate, but I'm sure that that fluctuates depending on the season. I had asked the Gas Works the other day to move an office, or at least a part of their office and a few staff members into that facility and help pay for it because they don't have anything in the area. Their Northeast Philadelphia office now is not 52 09/22/04 - TRANSPORTATION - RES. 040298 Northeast Philadelphia. It's a real hike to 4400 Frankford Avenue from Welsh and the Boulevard or Somerton or whatever, a hike that most people don't take. And the total cost of this facility, rent and utilities, is $43,000 a year. Fairly reasonable. And if something can be found cheaper, fine, but it doesn't seem like an astonishing number. I was just wondering, does water pay part of the cost of that on any basis, whether it's a square footage, revenue, or just a negotiation, you know, you're getting half, we're getting half? You can do customer service out of there as well. I'm just trying to offer some suggestions to the Administration to keep it open because I think it's a value. You get $100 million in collections, over 100,000 people use the facility a year, or at least there are that many individual trips. It is providing a service and hopefully helping with collections on at least taxes and water. I think it could be a help on gas. Could you answer that question? 53 09/22/04 - TRANSPORTATION - RES. 040298 COMMISSIONER BRUNWASSER: I just want to make sure Nancy Kammerdeiner --

Nancy is here. I'll let you call her up. COMMISSIONER KAMMERDEINER: Nancy Kammerdeiner, Revenue Commissioner. I don't know that there's anything that's contributed toward the rent and the utility costs you mentioned. There are certainly some staff from the Water Revenue Bureau who are paid from the Water Fund who are present at that space and provide service and support. And at least one of the cashiers who is located at each of the service centers is also paid for through the Water Fund. Some of the equipment that they use has been purchased by the Water Fund in the past.

I expected the salaries to be paid, at least in part. That's a pretty straight line. When I heard the cost was relatively as low as it is, rather than lose it, it may make sense to recognize the contribution and return, on the ROI, as 54 09/22/04 - TRANSPORTATION - RES. 040298 everybody says. I just wanted to ask a technical question. I'm not talking about a lot of money. The salaries are not being talked about to be eliminated. Those people are just being talked about -- we'll bring them down to Center City. So if that were an issue, it would complicate things greatly. COMMISSIONER KAMMERDEINER: I would like to say that the salaries are spent much more efficiently, particularly on the cashier and the payment processing side, if we're talking about it from the Municipal Services Building. If we had, for example, a drop box at that location and someone made their payment by putting an envelope in a drop box, we pick that up and brought that down to Center City to the Municipal Services building, we would do high speed processing of that payment, encoding the check, doing the validations, sorting it for the bank, all high speed. And it's much more efficient and less costly to handle that process. So you get more from the staff who are working in that process. 55 09/22/04 - TRANSPORTATION - RES. 040298

Commissioner, have you ever seen this site? It's about the size of Ann Verna's inner office, which is not very large, the inner office. And they are collecting a $100 million a year out of this. You accept cash, right? COMMISSIONER KAMMERDEINER: We accept cash.

If I want to pay my bill with cash, I'm okay at MSB. There's a big sign up there. They're doing all this with a big sign that says, "No cash accepted." COMMISSIONER KAMMERDEINER: And then it comes back here and we process again some of what they bring in up there. I'm just saying that it's more efficient --

They don't take cash. COMMISSIONER KAMMERDEINER: I understand that.

I can guarantee you that probably 99 percent of the people that go there will never, ever go to 56 09/22/04 - TRANSPORTATION - RES. 040298 MSB. So you can pretty much write them off as people who are likely to pay every month in person and have their money in their hand. COMMISSIONER KAMMERDEINER: We would rather have them pay by mail or pay in a way that we do the high speed process, rather than have a cashier handle the individual transactions, because those are more costly transactions on an individual basis than the others.

I know. But the fact is that most of them have to travel 12 to to miles to get here, where your 15 office, your collection place, is really 16 convenient to people who don't live in the 17 Northeast or that far away. And I don't have 18 a problem with that. It's worked great for 20 19 years, but I didn't realize how little it 20 cost. I'm just trying to reduce the cost or spread it over the period. I just needed the answer. The justification, I'm sure the Managing Director and the Mayor will look at. COMMISSIONER KAMMERDEINER: They're working on it. We're also offering now online 57 09/22/04 - TRANSPORTATION - RES. 040298 payment by credit card. That's another possibility that wasn't available before. That is something that is on an increasing basis available for people to pay. And I remind you also of the zip check possibility, for someone to make a payment automatically from their bank account on a regular basis that don't even have to come into the office to do either of those things. We're trying to avoid having people come into, whether it's the Center City office or one of the service centers, and find a way to make the payments convenient.

I understand. And if we're one of the most senior states in the nation -- I think we're third. The northeast is probably the most senior part of the City that doesn't do any of the things you just mentioned and they're not going to. They're not going to learn tomorrow. It's a wonderful, inexpensive opportunity to take in a whole lot of revenue from people who aren't going to give it to us any other way, unless they can find their way into this no man's 58 09/22/04 - TRANSPORTATION - RES. 040298 zone in a big shopping center. While you're here, because either one of you can answer this question. The answer I wanted was that we're not paying any money or we were, and at least I know that. COMMISSIONER KAMMERDEINER: Not to my knowledge

I'm not talking about bankrupting the Water Department. I'm talking about a very tiny payment. COMMISSIONER KAMMERDEINER: The one thing I didn't mention is that every year at the end of the year there's an inner fund transfer to make adjustments between the General Fund and the Water Fund for things that one fund has done for the other. It is possible -- I don't know for sure, but it is possible that some portion of the cost is taken care of.

Okay. Could you find that out for me? Because if we were already doing it, it would almost make it silly to close it. I won't go that far without knowing. 59 09/22/04 - TRANSPORTATION - RES. 040298 Our collections, last year there was some confusion, and I experienced some of it myself, but I also learned the difference between current collections and five-year collections; five-year collections being real high, current collections being kind of -- I don't know. You're getting like the gas company. Could you give me the two numbers again? Current is in the mid 80s or so and the high 90s with the five years? COMMISSIONER KAMMERDEINER: Between 85 and 87 in the current year. You have to remember that some of that would be billed in June wouldn't even be due until July. So when you look at those numbers, that may seem --

They're not 12-month numbers? COMMISSIONER BRUNWASSER: The definition that we're using, current collection factor, would mean that bills that went out June 12th, June 15th, June 28th, they have due dates in July. Even if a person pays them in a timely basis, if they pay them near 60 09/22/04 - TRANSPORTATION - RES. 040298 the due date, those receipts fall into the following year. So you never get to a 100 percent.

You're killing yourself with your own definitions. If you just back track months and included last 8 July, the last July, as long as I get a 9 12-month picture, that's current for me. You 10 give me an 11-month picture and charging 11 yourself with 12 months of collections, 12 you're starting out with a big ball and chain around one leg that you put there that no one asked you to. Whatever you do internally is fine If you're giving us current annual collections, give us 12 months that were sent out and collected on time. Because it doesn't help anybody. You don't have to give it to me today, but I'd like to know where the 85 to 87 goes. How much is current for the last 12 months, no matter when you take the snapshot, in July or December or whenever, what's your average current 12-month experience? What bothers me -- and it's hard to 61 09/22/04 - TRANSPORTATION - RES. 040298 even make this a real strong statement now because I don't know how far that whole thing changes. It may go up to 95 percent if you add a month; I don't know. COMMISSIONER KAMMERDEINER: No, it doesn't.

What does it go up to? COMMISSIONER KAMMERDEINER: I don't have the exact number right here. I will have to get that for you. But it takes approximately five years to get to that 95 percent point. In 10 years, it's 98.5 percent.

This is what bothers me. Of all the things other than Comcast to collect -- because everybody needs Comcast. You can't live without it, no matter how much you don't like paying other bills. But just dealing with the three main utilities that everybody deals with, water, electric and gas. All you need to talk to is anybody who's ever been in a situation or had a family member in a situation that either can't or 62 09/22/04 - TRANSPORTATION - RES. 040298 won't -- and often times it's won't -- pay their utilities for whatever reason, mental health or whatever -- I guess it's usually mental health if they can pay. They have a choice of what they can live without at certain stages. You can live for a while without electric, provided you can turn your gas on. You can live without gas and turn your electric on. After a while you might need kerosene or something for one those things. Commissioner, you got the best thing going. About day and a half, two days. You didn't smoke them out. You did another thing to get them out. You can't live without water. Our numbers, if we're as aggressive, if we're half as aggressive as we're asking the gas company to be, you stop me in my tracks if you say you're going to shut my water off. I can't function without the water. COMMISSIONER KAMMERDEINER: Some people do, and it's surprising to me as well.

We can get them 63 09/22/04 - TRANSPORTATION - RES. 040298 for something else real quickly, because we've all had that experience. And the neighbors usually pick up on that real quick. There's some that go out the window and some that just start spreading down the block, but it's pretty apparent to the neighbors when they're trying to function without water in a house. When you heard the numbers in the gas company of what a percent means, the increases, I mean, it's enormous, the cash flow change once you increase 1 percent. But I also know that if you're getting 95 to 97 percent over 5 and 10 years, you are spending a whole lot of money to make money. Because you're at the point now where you're doing lawyers, you're doing collection agencies, you're doing liens, you're doing all kinds of stuff that you're ringing these accounts. Some of them are commercial and they've got different issues than that residential comparison I make. But they still can't live without the product. I obviously was kidding about 64 09/22/04 - TRANSPORTATION - RES. 040298 people not being able to live without their cable, but sometimes you would think that when you see the payment records. So if you could just tell me maybe at the next hearing we have -- because I have a feeling that Councilman Rizzo is going to at least want one more -- first of all, what your current program is for shutting somebody off, how hard you are or how soft you are or how much public policy has built up. The Gas Works people leadership was very clear. There's been a policy in the Gas Works that it's easy to get it for free for years or to scam the gas company by payment plans that really aren't serious, changing people's names and all this, which they're now trying to undo because they have the public support, meaning the government support to not treat it as a social service. I'm just wondering, as we're talking about rate increases, probably more so than any of the other things I just asked you, if you could get percent, percent, percent in this thing and ratchet those numbers up, we 65 09/22/04 - TRANSPORTATION - RES. 040298 may be able to be saving a lot more, whether we put it towards debt service or whatever. I'd like to have a discussion maybe next time. I'll lead off with that. If you could just give me some ideas you might have if we have support for this. The gas company, for instance, can't shut off Friday. It goes back to the days when the banks weren't open on Saturday or Sunday. They haven't been able to change it through the PUC. They're hoping it will get changed. Little things like that should be tremendous for them to have changed and help them to be more efficient and effective. COMMISSIONER KAMMERDEINER: I'll get more of the information. But just in general, a $75 bill in delinquency for two cycles will put you into the shut-off cue. And so we are already starting the process with that. We have better than 50 percent of the people who get the initial shut-off letter who come in and pay or enter into an agreement to pay. If they fail to keep an agreement, the next time they have to pay in full before they get their 66 09/22/04 - TRANSPORTATION - RES. 040298 water turned back on.

Fifty is pretty low for people who can't live without something. My own editorial. If you said only 95 percent of the people come in after they get a shut-off, I'd say, well, that's 5 percent. Fifty percent of people ignore it? COMMISSIONER KAMMERDEINER: Then they get a second notice and then it goes to shut off. So basically we are sending probably about 30 to 40 percent of those people who we initially identified for shut-off to the Water Department for shut-off during the period in -- I'll call them the summer months. But we also face the moratorium issue of no shut-offs between November 1st and April 1st

Is that City Council or is that a state utility? COMMISSIONER KAMMERDEINER: It was an agreement that was entered into with CLS and others a number of years ago in lieu of having formal legislation that mandated a moratorium from shut off. 67 09/22/04 - TRANSPORTATION - RES. 040298

November 15th to? COMMISSIONER KAMMERDEINER: I'm sorry. December 1st until April 1st. In the past our problem was that we couldn't provide sufficient information to you and to others who were concerned about the low income population, enough information that showed that we provided a safety net. Our current legacy system, which is 25-plus years old, has been difficult to set up in terms of giving you that kind of assurance that someone who is really low income is getting all of the assistance and support they need. We think in the next year or so we'll be able to do that really effectively. We really do want to eliminate the full moratorium period. We think that that's what causes people to get into a habit of not paying at times and playing a game in terms of paying their bills.

I think the Gas Works is trying to come up with some kind of policy -- they may have already done it. I 68 09/22/04 - TRANSPORTATION - RES. 040298 know they were talking about it -- to get some relief. I think they have to go to the PUC. To get some relief for people who are in and out of these agreements based on when the shut-off period is in moratorium and recognize that if it's recurrent then you're just being scammed and it doesn't help anybody. You also have the lowest bill. That's the only other thing I forgot. Of the three utilities, I need you the most, can't live without you very long, and it's the lowest bill. I think there's a way of tightening it. I think there's support for this. The Gas Works may have been your best friend on this because I think they've really gotten those who pay concerned that they're paying for those who can pay, but don't. The smaller the bill is, the smaller the affordability factor is. You don't have $600 bills that somebody might get in a month, and at least we can then look at their income. But if anybody has income, they can afford your bill if they're dealt with in a 69 09/22/04 - TRANSPORTATION - RES. 040298 very stern way. It probably helps them in the long run, not just helps us. I think it might be that the timing might be right to be revisiting how to get these numbers up and reduce the need for the five to year 7 expenditures, I call them. Because they are 8 significant. 9 COMMISSIONER KAMMERDEINER: A 10 significant amount of the money that comes in later does come in as a result of transfers of property at the time of settlement, so that is one way that we're not expending money to bring that money in.

What's that cost called -- it's been a while -- the cost of not having the money? COMMISSIONER KAMMERDEINER: Right. There is the cost of money and not having it. But I'm saying we're not expending money for enforcement on some of what we bring in.

You could also move on those liens before they decide to sell the house. COMMISSIONER KAMMERDEINER: Yes. 70 09/22/04 - TRANSPORTATION - RES. 040298 That is a program we're instituting to go to foreclosure for water liens on the house.

These are the things I want to hear. That agreement, by the way, it may be time to revisit it and at least now having experience, seeing where the holes are in it and how to close them from our standpoint. COMMISSIONER KAMMERDEINER: We would appreciate your support on that. That is something that we would very much like to do.

I'd like to make a point on Councilman O'Neill's point. I don't understand the difference, and I think I can figure it out. What's the winter months have to do with water? Other than, I believe, years ago many of the hot water heating systems were dependent on hot water. COMMISSIONER KAMMERDEINER: Not in the older homes in Philadelphia. Most of them are still water based.

I understand that. But I'm sure that many of the homes that you're allowing to stay on during the 71 09/22/04 - TRANSPORTATION - RES. 040298 moratorium are not dependent on water to keep the heating system going. What Councilman O'Neill said is that you might have to have a separate criteria for the termination. July is no different than November or December when you're talking about water. Again, I think the rationale probably is the heat. And if you don't need water to heat your house -- COMMISSIONER KAMMERDEINER: We agree we would like to revisit the moratorium procedures that we follow and we would like very much to eliminate or, at a minimum, revamp it so that we're not doing it on a universal basis.

Truly, a well-functioning, proper functioning hot water heating system doesn't really need a lot of make-up water to keep the system going anyway. Again, that's another issue for another day. But I would like to go back, Commissioner, and just -- Thank you, Commissioner Kammerdeiner. Commissioner, and again I don't want 72 09/22/04 - TRANSPORTATION - RES. 040298 to go too long here because we have a couple more witnesses. I would like you for the record, though, to go back and tell me about the proposed rate increase and the fact that the lateral program has added 70-some million dollars to that increase. So take us through the four years, what those percentages are and what that would mean to the average consumer in your one year, two year, three year, four. COMMISSIONER BRUNWASSER: Sure. Our initial filing, again, was back in January. We had a four-year rate program beginning in Fiscal 2005. That's July 1st just passed. In Fiscal 2005, we were proposing a 9.7 percent typical rate hike for the typical residential customers. That means an additional $4.03 a month. In Fiscal 2006, another 9.7 percent rate hike, which means $4.42

For how many cubic feet? COMMISSIONER BRUNWASSER: This would be, I think, for 800 or 833 cubic feet. I forget which. 800 cubic feet. 73 09/22/04 - TRANSPORTATION - RES. 040298

Again, I jested about this before with you, that they give it to you in gallons. How much water is a cubic foot of water? COMMISSIONER BRUNWASSER: One cubic foot equals seven-and-a-half gallons. Six thousand gallons, roughly, per month is what 800 cubic feet equals.

Seriously, there are companies that have done away with that and went to gallons. Why don't we just keep it simple, put people under standard gallons versus cubic feet. I didn't mean to interrupt you, but it's something that's always bothered me. COMMISSIONER BRUNWASSER: Mr. McKinley said that it's done about 50/50 throughout the country. I know we're in cubic feet probably more so because that's the way our billing system is set up, to read cubic feet.

Could we do gallons? COMMISSIONER BRUNWASSER: I'm sure 74 09/22/04 - TRANSPORTATION - RES. 040298 it's possible, but I'm not sure what it would take to convert over.

Because I'll bet you there's a lot of people in this room who don't really know how much water they use. Just based on the dollar amount, they know. Just look into that. I know other municipalities don't use cubic feet. They use it in gas, but I'm always surprised to see it in water. So we're back to Fiscal Year '06, 9.7, which is about 4 -- COMMISSIONER BRUNWASSER: $4.42. Fiscal 2007, 8.5 percent increase, which is equivalent to $4.26. And then Fiscal 2008, 94 percent increase By that time that's equivalent to $5.14. As the rates get compounded, that's why the dollar amounts vary. Even though there's four years, none of them are as high as 10 percent. When you compound them, it's 42.7 percent, which got rounded up to the 43 percent. So we're phasing in that 43 percent rate increase.

This is with 75 09/22/04 - TRANSPORTATION - RES. 040298 laterals? COMMISSIONER BRUNWASSER: Yes. This is with laterals, correct. And I think what we were estimating was that the lateral program that we were contemplating doing would cost the typical customer about $3.50 per month when it was fully implemented. And we looked at it sort of as an insurance policy. For that additional $3.50 per month, that was something you didn't have to worry about anymore, at least if it happened in the street.

You put it in there for every customer like Councilman O'Neill said earlier. That's not realistic to think that you could even do all these. I don't know why you would use a number like that that brings it to $70 million when you never spend anywhere near that money in any fiscal year. COMMISSIONER BRUNWASSER: Well, what we were looking at -- and Councilman O'Neill was very correct when he said that. I know in the past that people may look at the Help 76 09/22/04 - TRANSPORTATION - RES. 040298 Loan Program as being the universe of lateral repairs, which it's not. We know it's only a small portion of what's out there. We believe that there could be 8,000 to 10,000 of these repairs needed each year at a cost -- you know, we worked out the costs. And for a full fiscal year we assume about a $20 million cost to repair 8,000 to 10,000 water lines and sewer laterals through perhaps a warranty company. We wouldn't be doing these ourselves.

Before Councilman O'Neill arrived, you indicated that you didn't have an ordinance. COMMISSIONER BRUNWASSER: Right.

So what is your strategy now with your proposed rate increase? COMMISSIONER BRUNWASSER: When we sit down, when hearings actually do begin, we will adjust our filing to reflect our best estimates at that point in time, whether or not to have the lateral program in there or whether to have it in there but to begin at somewhat down the road, somewhere within that 77 09/22/04 - TRANSPORTATION - RES. 040298 four-year period but not at the outset. And we would adjust in that manner.

Getting back to the laterals, we didn't put it on the record, but I'm still trying to get an idea -- and I know you guys internally have an idea how many are fixed a year under the current program. We really wait until the last possible moment to tell somebody we're going to shut them off if they don't do it. Some of them do it on first notice, but a lot of people wait. Somebody has to pull up a permit for that street opening so we have some idea of how many are being done now a year. How many is that? Give me a close approximate. COMMISSIONER BRUNWASSER: I believe it's on the order of 5,000 per year that go through L&I. Excuse me. Let me correct that; 5,000 to 8,000 that go through L&I each year.

But you only think you're going to go to 8 to 10 if you get involved? Or is that because it's really only half of those that are in the street and -- 78 09/22/04 - TRANSPORTATION - RES. 040298 COMMISSIONER BRUNWASSER: I think we provided in one of our documents all the permits.

You gave me a stack about inches high, and I wanted it on 7 the record anyway, so I'd rather be talking 8 about it on the record anyhow. 9 COMMISSIONER BRUNWASSER: This is 10 Deputy Commissioner Debra McCarty, head of 11 operations. Debra just told me that it's 12 based on what we see currently by and large. 13

Okay. So we're 14 not looking at an increased number in the 15 future. There is a difference in that we're 16 seeing permits pulled that are on the property 17 or in the street. So 5,000 to 8,000 a year, 18 that's a pretty big jump. If you had said 19 5,000 to 5,100, but our best numbers have a 20 range of 3,000. COMMISSIONER BRUNWASSER: We actually provided all the information, so we do have probably an exact number. I don't think we brought that with us.

All this brain 79 09/22/04 - TRANSPORTATION - RES. 040298 power here and nobody remembers that number? COMMISSIONER BRUNWASSER: It's close to 8,000.

Okay. How many is Help a year in that 8,000? COMMISSIONER BRUNWASSER: Approximately 2,000.

There may be a better educational piece we could be doing with the Help Program and water bills and things. People should at least have a comparative. If they get a cheaper price, they should know that there are differences in quality and guarantee. But assuming the 8,000 today over the four years of the increase, how many a year do you project doing? COMMISSIONER BRUNWASSER: I think it was based on current levels continuing.

You're basically looking at the 8 staying at 8 or pretty close to it? COMMISSIONER BRUNWASSER: Yes.

So you're not 80 09/22/04 - TRANSPORTATION - RES. 040298 looking at being more aggressive and going out after the problems you know are there but aren't serious enough to be cited for a shut-off based on defective laterals? COMMISSIONER BRUNWASSER: I think it's incumbent upon us when we do see something in the street that we do cite the property. But there's a limit to how much we're going to capture, as you know.

Looking at the 8,000, and assuming that if the Water Department is paying half of my bill, I might use the Help Program, a little more than 2,000 out of 8,000, that it might go up quite a bit. There will two things happening. First of all, you're going to get better prices because there's more work to be dangled out there. You may get better guarantees because there's more work. And the numbers are going to be roughly the same of what it costs. It might be a little cheaper. And we still only have to spend it if somebody is in the Help Program. We couldn't think about doing this outside the Help Program, where we have no 81 09/22/04 - TRANSPORTATION - RES. 040298 control over whether a permit is pulled, whether the plumber is even a plumber. Take a look at that and just let me know what you think of it, that idea Obviously, you need more revenue to do it. The same number of laterals would be repaired a year either way. We would have a much better incentive to use the Help Program and to have bonded plumbers that we think highly of doing the work. We might not even have to go to an outside warranty company People would get help whether it's the lottery on their land or the lottery in the street. If you could do that, it may have some promise. Thank you.

Commissioner, are we going to have a rate increase or the hearings that will authorize you to make a decision? What about the fact that we have $160 million in the Rate Stabilization Fund? It sounds like a lot of money. Why would we need a rate increase if you have $160 million 82 09/22/04 - TRANSPORTATION - RES. 040298 in that fund? COMMISSIONER BRUNWASSER: That's a very good question. There are some limitations on the Rate Stabilization Fund. There's a maximum we can draw out in any given year.

By what authority? COMMISSIONER BRUNWASSER: It's a covenant that we have signed with the bond insurance companies. All four major bond insurance companies in the United States have some of our debt insured. We're a customer of all four of them. Back in 1993 when we went to this new ordinance, we also did a massive refinancing at that time. The whole bond issue was in excess of $11 billion. One of the things that we agreed to was that current revenue had to be at least -- let me explain this. After we pay for operation and maintenance costs, what's left over in revenue is called net revenue after you've paid your 83 09/22/04 - TRANSPORTATION - RES. 040298 expenses. The net revenue is then compared to your senior debt service, in our case $160 million at the present time. That net revenue has to be at least 90 percent of the senior debt service. So at least 90 percent of $160 million has to be coming from current year revenues. If you fall below that, you've violated this covenant. Now, to meet your other covenant test, 120 percent, you have to have percent 12 above the $160 million, and you take that 13 money if you need it from the Rate 14 Stabilization Fund. So using $160 million as 15 the example, you need net revenues of 90 16 percent of 160, which means $144 million has 17 to be from your current year revenues. You 18 can't go below that. So your maximum 19 borrowing to make your 120 percent of $160, 20 which is $192 million, is the difference between 144 and 192 It gives you a $48 million cap that you can draw down from Rate Stabilization. I know it's an awfully complex thing to explain. But currently with $160 million 84 09/22/04 - TRANSPORTATION - RES. 040298 of debt service, the most we can tap Rate Stabilization for is $48 million a year. The rest of it has to remain in that fund for the following years.

Commissioner, you missed July 1. You thought you'd have a rate increase in place. The 9.7, that's what you were looking for. You missed that. So where are we with the process? It seems as though it's here, it's there. There's three people involved. Realistically, I'm sure you're asking that question a lot. Where are you with the process? Are we just not even going to be addressing that issue in the near future? What could you comment on this? COMMISSIONER BRUNWASSER: We honestly have to address this issue, and very quickly. The process, once we do get a hearing officer and a public advocate named, the process would hopefully move very quickly to rate hearings, both informal where the public can come in and voice their opinion, and formal hearings where the staff of the 85 09/22/04 - TRANSPORTATION - RES. 040298 Water Department and its experts are cross-examined The public advocate's experts in turn will be cross-examined because they will come up with an alternate revenue requirement. So that process would probably have to last three to four months. So realistically if we got a hearing officer very soon, within the next week or two, realistically we could have new rates in place perhaps by February 1st, maybe at the earliest January 15th, something along those lines. We have to achieve enough revenues to meet all of our costs, of course, but then also all of these covenants that we've promised the bond holders. If we don't meet those covenants, then we're in technical default of our bond covenant, and that has great implications on Wall Street.

Commissioner, could you stay at the witness table? I'd like to ask Mr. McKinley to come forward Commissioner, this issue of the wholesale of water, even though we understand 86 09/22/04 - TRANSPORTATION - RES. 040298 about it going from point A to point B and thousands of cubic feet -- you got me using that now -- there's still a lot of concern about this whole process. I have a question for your consultant. I understand -- correct me if I'm wrong -- that you also represent our customers in the wholesale transaction?

Black & Veatch does have a contract with DELCORA, Delaware County Regional Water Authority. We're not representing them in any capacity against the City of Philadelphia. All we're doing is taking the costs which Philadelphia charges to DELCORA for provision of wastewater service and assisting DELCORA in allocating those costs amongst their own customer base. We have no relationship with them to compete or combat the City of Philadelphia with regard to those rates.

Commissioner, are you comfortable with that? COMMISSIONER BRUNWASSER: With the limitations that Mr. McKinley just said, yes.

Explain DELCORA. 87 09/22/04 - TRANSPORTATION - RES. 040298 Like Councilman Cohen said, we believe we understand you, but we want to make sure we really understand you. Talk about who you represent and all of the lists of municipalities that we have contracts with, Bensalem and so on and so on. Who is DELCORA?

DELCORA is the Delaware County Regional Water Authority.

So that's the only municipality that we have a contract with that you represent?

To my knowledge, that's the case.

One?

That one, yes. We have represented the Philadelphia Water Department for many, many years in regards to wastewater rates. When this opportunity to be of service to DELCORA came up, we cleared this with the Water Department and with the understanding with DELCORA -- and we've done this with other clients in the past too where they may have a wholesale customer that wants our services. We in no way can represent 88 09/22/04 - TRANSPORTATION - RES. 040298 them against our basic client in combatting the rates or contesting the rates.

You understand why I'm asking the question? It's perception. When people go to the trouble to send an e-mail to a Member of Council making us aware that you are representing other municipalities, obviously the perception is that this isn't good, that you can't represent the seller and the customer all in one. You were aware of this right, Commissioner? COMMISSIONER BRUNWASSER: I was. To tell you the truth, I had forgotten about it already. What Mr. McKinley -- his firm is doing out in Delaware County is helping Delaware County to properly allocate their costs to their customers.

That relationship has no effect on the contractual arrangement that you have? It's apples and oranges?

It's a Chinese wall that's been set up. In many ways I guess you could call it that. I don't have any input to 89 09/22/04 - TRANSPORTATION - RES. 040298 the study that's going on for DELCORA. But the study that we're doing for DELCORA, basically it's whatever the cost of service provided by the Philadelphia Water Department to DELCORA is just a given in our study with them. We accept that and we allocate that cost amongst their retail customers. That's the purpose of our study, how to allocate the cost from the Philadelphia Water Department to their own retail customers. We have no 12 basis on the side of DELCORA to analyze whether that's proper cost or to converse with them. In our context with the services that we provide for the Philadelphia Water Department, we use traditional cost of service allocation methodologies. We use the contract language with DELCORA to establish the appropriate rate from Philadelphia to DELCORA.

How long have you've been doing this for the Water Department, your company?

Approximately 30 years. 90 09/22/04 - TRANSPORTATION - RES. 040298

Commissioner, that leads me to my final question on this particular issue. How many other firms are there out there that do what Black and Veatch do? What is the process in hiring the same company for 30 years? COMMISSIONER BRUNWASSER: Well, there are a number of engineering firms and I guess financial firms that do the same kind of work. One of the reasons that we've gone with Black and Veatch for so many years is their reputation in the industry I may have mentioned before that Mr. McKinley is the current chairman of the American Water Works Association's Rates and Charges Committee. Rowe has written sections of the Water Rates Manual and the Wastewater Rates Manual for a totally different organization, the Water Environment Federation. So when you have someone who has that level of expertise in the industry, you want to hold on to them for a couple of good reasons. One that I'll cover now is the fact 91 09/22/04 - TRANSPORTATION - RES. 040298 that from time to time we may have a dispute with our township customers, one of our township customers --

I hope not Delaware County. COMMISSIONER BRUNWASSER: No. But they may in turn hire an expert or an expert firm to question these rates on which basis we charge them. In those kinds of instances, we're very happy that Mr. McKinley is on our side because there's nothing about rates that he does not know.

So this company has been doing this for 30 years. In your opinion -- I don't want to put words in your mouth -- they're pretty good at what they do and you feel good having them at your side. But what other companies have ever come to you or written to you and been -- I don't want to use the word rejected, but how does the process work? Is it your decision to hire them and what kind of dollar value are we talking about? COMMISSIONER BRUNWASSER: Well, 92 09/22/04 - TRANSPORTATION - RES. 040298 obviously the initial decision to bring Black & Veatch in goes back to the time I was probably a management trainee --

In the '70s, by the way. COMMISSIONER BRUNWASSER: -- and had no say in these matters. Going way back we've had another firm do rates for us. But there are firms that the Philadelphia Water Department does business with today that would love to do rates for us, because we have a number of engineering firms that assist us in our various complex work and they also have a management division that performs rates. But even though we're very happy with these firms for whatever they're doing for us engineering-wise, we don't have the same degree of confidence that we have in Mr. McKinley.

Mr. McKinley or the firm? COMMISSIONER BRUNWASSER: Well, we understand that Mr. McKinley may not be there forever. 93 09/22/04 - TRANSPORTATION - RES. 040298

I don't think he's been there 30 years either. COMMISSIONER BRUNWASSER: Oh, yeah.

He has? COMMISSIONER BRUNWASSER: Yes.

You're holding up good. COMMISSIONER BRUNWASSER: But seriously, there are very few firms where we don't try change, but --

Again, it's rare that there's that length of a relationship and it's just curious and it's good to know that we've got the best. I think that's it. I'm going to ask Lance Haver to come to the table to give him an opportunity. We had one consumer, Debbie Williams. Is she here? I don't see her. Thank you, Commissioner. Good afternoon. Thanks for hanging in there.

Good afternoon. Thank you very much for this opportunity. 94 09/22/04 - TRANSPORTATION - RES. 040298

I know you testified at our first hearing. I wanted to give you an opportunity and I just didn't want to have you holler from the back of the room, whether you had anything that you would like to add to the testimony today.

I would like to start with what I think is some good news. I've been working with the Water Department, the Water Revenue Department, to set up an almsman so people who do have trouble with their bills will get them straightened out. I think, as you heard testimony earlier from the Commissioner, we have a legacy computer system which, unfortunately, creates some difficulties for people who are having some problems So we're not there yet, but we're definitely making headway trying to make it as efficient as possible for people to get their bills straightened out. The second piece of good news, as far as I'm concerned, is I want to again just state what the Water Department has told you. The water rates in Philadelphia are the lowest 95 09/22/04 - TRANSPORTATION - RES. 040298 in the region. That's absolutely true There's no argument. We have a tremendous asset in the Water Department. That being said, I think there are some questions that can be asked that may help alleviate the need for a rate increase. Let me start with the Rate Stabilization Fund. As I read the Five-Year Plans, the amount in the Rate Stabilization Fund has increased over the last two years. I heard earlier Councilman Nutter ask for a report over the last 10 years of the amount in the Rate Stabilization Fund. In my opinion, if the Rate Stabilization Fund has been increasing, that would suggest there's a surplus in the rates. If that is the case, then maybe we don't need as much of a rate increase as what we think we need. Second, what we have seen in the past is sometimes our wholesale customers actually are worse payers than some of our own customers. I'm not sure that we've had a chance to investigate that, whether there continues to be difficulties in collecting 96 09/22/04 - TRANSPORTATION - RES. 040298 from our wholesale customers. It was a problem years ago. There's been a change at the Water Department. I'm not suggesting that that's still the case, but I have not heard that question asked. Unless there is a hearing, we won't have an opportunity to ask that.

I'll put that as a question, Commissioner That will suffice as me asking that question. Thank you. Excuse me, Lance

What I think is just a tremendous asset at the Water Department is that we are ahead of the curve in cleaning the wastewater before it's released. And I'm not sure we take advantage of our lab and actually use that lab and offer the service to smaller water departments across the country and actually find a way of making that revenue positive for us. I'm sure you've heard the Acting Water Commissioner speak about this, but the City of Philadelphia is really in the forefront of having cleaner water than what's 97 09/22/04 - TRANSPORTATION - RES. 040298 legally necessary right now. That's because the laws will be changed and we have to keep up. But we have this tremendous asset. I'm wondering if we can't find a way to offer what we've discovered to other cities that are farther behind. It's rare for Philadelphia to be ahead of everyone, but here is an example of where we are. As Councilman Cohen mentioned earlier, the Water Department is actually built to be able to take more water out than what we're currently taking out and serve more customers. As a result, we have this tremendous asset. If Arizona could get our water, they would be thrilled. But one of the things we don't do is we don't market the availability of low cost water as a way of economic development And it is a tool, I believe, that PIDC should be made aware of, and they don't market that. I think that's unfortunate because, obviously, more people who are buying water from the Water Department, the less need there is to raise rates because it's spread out over more 98 09/22/04 - TRANSPORTATION - RES. 040298 shoulders. I think that's a very valuable asset the Water Department can have. If they are able to get a seat at the table when we are recruiting industry to come into the City to help people understand that if you have a process that uses water but doesn't return it into the sewer system, that you get a very deeply discounted water bill. I also think that Councilman O'Neill's point about -- I know the Water Revenue Commissioner doesn't particularly like the idea -- but having the opportunity to use northeast City Hall as a chance to combine collections for PGW and the Water Department can serve as a test so we can see if there really will be a tremendous cost savings by combining billing and collections with PGW and the Water Department. Right now, as you know, we have two municipally-owned utilities sending bills to the same households, collecting from the same people. In my mind, it makes sense to start to talk about how do we combine them for one billing, one collections and one opportunity to save 99 09/22/04 - TRANSPORTATION - RES. 040298 money.

Save a lot on postage alone. I have a question, and it will save me a phone call. The Administration announced this pay online, pay with your credit card. Does that include the Water Department.

Yes.

I know that on occasion I'm solicited to pay various bills by using the credit card, but there's a premium. I found it as high as 5, $10 just to pay your bill. Are our constituents going to have to pay an up-charge to use their credit card to make the payment?

I don't feel I can give you a definitive answer. My understanding is no, but if I'm wrong, someone should correct me.

If I want to pay my water bill and use my credit card, it will cost me $1.45 to do that? Have we been up front with people and told them that? COMMISSIONER BRUNWASSER: It's on 100 09/22/04 - TRANSPORTATION - RES. 040298 the web site.

But if we solicit them in the mail to do this in the water bill, I think we should say very clearly that there's a fee associated with that in our communications, that it's very clear that there's a charge for that.

I have just two more things that I would like to mention. I'm wondering as the world has moved away from a cost plus basis for pricing, if we ought to investigate that as a possibility as well. The utility industry was restructured. The electric utility industry was restructured to go away from cost plus to market pricing. Many of the changes in our society are away from cost plus to market pricing. When we decide how much we're going to charge wholesale customers in the surrounding areas, we are still relying on the cost plus mechanism. There may be great wisdom in that. I'm just wondering, if we started that 40 years ago, if maybe every 30 101 09/22/04 - TRANSPORTATION - RES. 040298 years or so we should rethink an assumption And there may be no advantage. There may be an advantage. I would just like to see us at least spend a moment thinking, why are we still using cost plus when many of the other utility industries are moving away from cost plus to market pricing And finally, I am always curious as to whether we can save money in our procurement by forming a buying cooperative with other municipally-owned utilities in the nation.

Not to interrupt you. That's a great idea. But I think within the government we don't do enough of that. The flashlight that the Water Department uses, I'll bet it's the same one the Streets Department uses and the Fleet Management uses. I think that's great idea. I think it's got to start in-house before we even expand outside of other water departments. That's been one of the things that I've vented on for years around here, that the same pair 102 09/22/04 - TRANSPORTATION - RES. 040298 of boots that our Water Department employee uses, I'll bet is the same pair of boots they have in the Streets Department. And I know from my 30-plus years in the utility business that when we got together and shopped smart the prices came down. Excuse me, Lance

I appreciate what you're saying. One of the advantages, though, of looking at PGW or the Water Department is both of them have the capacity to join national organizations. This is more directed at PGW. But while I have your ear, PGW is the largest municipally-owned gas utility in the nation, and therefore has a tremendous say in how the Municipal Gas Association goes forward. If we can start to think about that, how we can use the assets we have to lower the prices by combining procurement on a national basis, even if the model has to come first from PGW and the Water Department follows, that may work. I do want to just say that I am not in support of ending winter moratorium on 103 09/22/04 - TRANSPORTATION - RES. 040298 shut-offs. I think that the cost to the City when we turn someone off can be very great and that we have to look at that. Certainly we should stop people from gaming the system. People should not be allowed to enter into repayment plan after repayment plan after repayment plan. But even if someone pays nothing in the winter and then catches up, that's better than having their pipes burst or having no water and moving to the shelter system. I certainly thank you.

Thank you. I want to thank everyone for spending the time with us this afternoon. We're going to recess this hearing to Tuesday, October 27th, at 2:00 p.m. Again, thank you for your participation. (Council adjourned at 4:11 p.m.) - - - - 104 C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Wednesday, September 22, 2004, were reported fully and accurately by me, and that this is a correct transcript of the same. RE: COMMITTEE ON TRANSPORTATION AND PUBLIC UTILITIES _________________________ Lisa C. Bradley, RPR