COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING - COMMITTEE ON TRANSPORTATION AND PUBLIC UTILITIES - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, June 9, 2004, 4:30 p.m. - - - RESOLUTION 040298 - Resolution 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 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. PRESENT: COUNCILMAN DAVID COHEN COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN BRIAN J. O'NEILL COUNCILMAN FRANK RIZZO COUNCILMAN RICHARD T. MARIANO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN FRANK DI CICCO 2 Transportation - 040298 - 6/9/04 - - - P R O C E E D I N G S - - -
The Committee on Transportation and Public Utilities, scheduled for 2:00 p.m. is now in session. The Clerk of the Committee will read the Resolution. There's already been one hearing on this matter. Will Julia Chapman, the Clerk of the Committee, please read the Resolution and refresh everybody's memory.
The Clerk will continue with the reading of the Resolution. 3 Transportation - 040298 - 6/9/04
Resolution 040298, a resolution 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 Water Department, and in furtherance of such investigation, authorizing issuance of subpoenas to compel the attendance of witnesses and the production of documents, to the full extent authorized under Section 18 2-401 of the Home Rule Charter.
Is there any other material the Clerk of the Committee wishes to present to the Committee to begin?
There were additional written responses that were provided today from the Water Department that supplemented 4 Transportation - 040298 - 6/9/04 responses that had already been distributed to the Committee members. I will distribute copies to all the Committee members for their information. Thank you.
All right. The sponsor of the bill, Councilman Rizzo, is there any statement you want to make at the beginning of the second hearing? Do you want to make any statement at this point before we call the regular witnesses?
I appreciate everybody's patience today. As you know, this legislative session has been very, very long today; and we're going to try to keep this right to the point, short, and get everybody's testimony in that needs to be. And again, I thank everyone for their patience on this very, very important issue. Councilman O'Neill had to leave the chamber and hopefully will be back momentarily. 5 Transportation - 040298 - 6/9/04 Thank you, Mr. Chairman.
Okay. Thank you. The first witness is Phil Bartocci of the Community Legal Services. Mr. Bartocci, please come forward. While we appreciate everybody expediting the testimony, we want to make sure that everybody has a full opportunity to discuss whatever they want to say. So please be brief. Don't over repeat your statements, but move ahead. Thank you, Mr. Bartocci.
I'm going to be very brief because I've given you a letter today, on June 9th, summarizing the things that I had to say.
Well, could you read that, if it's important enough. My experience is that people listening retain 6 Transportation - 040298 - 6/9/04 much more than if they read a letter.
Mr. Chairman, excuse me. That letter was held and not read into the record because we knew that we would be recessing and having you here today. So, we have not heard that letter, so we'd appreciate you reading that letter that you provided because you couldn't attend last time.
Well, Councilman Rizzo, I'm glad to do that, but I think I'll present the letter. And I can summarize the letter.
It's easier to understand, and it's more interesting if you talk, rather than if you read a letter.
As long as you understood that it was not read at the last hearing.
Yes. I wanted to make sure that the letter was a part of the record. 7 Transportation - 040298 - 6/9/04 I'm the supervising attorney of the Energy Unit of the Community Legal Services. My name's Phillip Bartocci. Historically --
-- has served as a public advocate when water rate issues are at stake. And in this case the Water Department has filed for what is a huge water rate increase, just to give you an idea of the size of that water rate increase, compared to the last one. The last one was effective in July of 2001 and produced $120 million in increased revenue for the Water Department over three years. This one would become effective, if there had been a process, July 1, 2004, and 8 Transportation - 040298 - 6/9/04 would be for $312 million over four years. However, before anyone gets too disturbed, it's important to understand that no water or sewer rate increase can become effective until there is a process in which it is reviewed by a hearing examiner, and in which there are public input hearings in which a public advocate is pointed, evidentiary hearings also, and a full review by -- a full public review of the issues raised by the Water Department's filing. At this point no public advocate has been appointed. No hearing examiner has been appointed. We do not know when such appointments will be made. But until a process has been commenced, and a process that usually takes four to six months, there can be no 21 increase in water rates. It's probably no secret to you that as a public advocate, there has never been a water rate increase that I liked. And any delay in water rate increases is a 9 Transportation - 040298 - 6/9/04 savings to customers. So that I am not here to say that we really ought to get this under way. I am here to say that my general prejudice would be that most utilities can do without a rate increase, at least for some period of time, and especially the Water Department which is beginning with a rather large rate stabilization fund. I think that they have plenty of breathing room. So we're not here to push things forward. At the same time, I just want I want to say that we have not had the opportunity to really review their filing which is their filing that they made is a whole carton of documents. We generally, if appointed as a public advocate, we hire a consultant to help us analyze that material, and understand the issues that are involved. We do know that one portion of this water rate increase, about $80 million of the $312 million has to do with a program has to do with a program that has been 10 Transportation - 040298 - 6/9/04 proposed by the Water Department, but which has not been enacted as an ordinance which would take over responsibility by the Water Department for the repair of sewer service and laterals from the middle of the street and to the curb. And that's a very interest proposal. I think Mr. Haver will have more to say about it. But that is part of the reason that we see as large an increase as the Water Department is proposing. At this point we think, just preliminarily, that four years is a long time to set up a schedule of rate increases. The size of the rate increases is very, very large, and should be a concern to everybody in this room, especially under the circumstances where we've seen large rate increases by the Philadelphia Gas Works all the time. So, at this point I think this is sort of a status report. We know it's been filed. We know that Community Legal Services, on behalf of ourselves and on 11 Transportation - 040298 - 6/9/04 behalf of an individual client, has filed a report or an objection with the Department of Records, so that no increase can take effect until there are hearings. But the process has to be initiated. So those are the main things that I have to say at this time. And there will be more information as we --
Is there an advantage to our being informed in advance? Maybe we can stop it before it gets started.
Well, I would welcome intervention by City Council to prevent any rate increase from occurring this year. The Water Department has itself filed for this increase. And there is a process that -- which, barring action by City Council to prevent the increase from being -- being considered at this time, that process is likely to go forward. But it really depends upon the initiation of the process. And it's the City administration that has to be begin that 12 Transportation - 040298 - 6/9/04 process, if they want to.
With whom did the Water Department file their requests?
They filed it first with City Council, and then 30 days later with the Department of Records. And that's according to the regulations. The request was filed with the Department of Records at the end of February 2004. So, there's been a period of time in which there has been no move to appoint either a public advocate or a hearing examiner or to begin to even process this request.
This would be the -- This seems to be a mystery that would be good to continue, rather than to find out what's happening. We hope we're not reawakening something that's already dead.
All right. What is your initial reaction? I'm sure Community Legal Service has a position on 13 Transportation - 040298 - 6/9/04 this.
Well, the initial reaction would be... is what you would expect. It's not based on an analysis of what has been filed. But our experience is that all utilities ask for rate increases before they really need them, and that it's usually good to deny a rate increase and push the utility to tighten its belt and to find more efficient ways to do what it has to do.
Well, we'd like to see that done. When Councilman O'Neill introduced his bill dealing with laterals, it had the support of, I think, nearly everybody in City Council because we didn't understand why a homeowner ought to be responsible for a condition he doesn't cause. And the lateral goes from the center of the street to the house. Am I right on that or wrong?
Yes. And we're generally supportive. We're generally 14 Transportation - 040298 - 6/9/04 supportive of idea of the Water Department taking over the responsibility for the maintenance of laterals and for the services. However, the price tag that is attached to it and the means of financing it is something that really has never been publicly vented at all. And we're not ready to say that that should cost $80 million over the next four years to customers in rates. There may be different ways of handling that. But that's something that -- You know, frankly, I mean, I can't sit here and say I have the expert knowledge that's necessary to figure out a way to take over that responsibility for less money. For that I need some expert help. And I think that that's something that will be coming at some point. But I think also that that's something that probably requires a City ordinance, in order to have that as part of the rate base. And right now there's no ordinance I 15 Transportation - 040298 - 6/9/04 know of sitting before City Council on that particular aspect of this rate increase.
Councilman Rizzo, did you have any questions of Mr. Bartocci? (No response.)
None at this point? All right, then. Is there anything else you wish to add to your testimony?
All right. Thank you very much, Mr. Bartocci. The next witness will be the consumer advocate Lance Haver. Is Mr. Haver in? Lance Haver is the consumer advocate that's in a relatively new position appointed by Mayor. How long ago, Mr. Haver?
The appointment was in September, and I started in October of last year.
All right. Well, we welcome you in your capacity. Philadelphia has long needed a 16 Transportation - 040298 - 6/9/04 consumer advocate. And I couldn't think of a better choice the Mayor could possibly have made other than you. So we're very pleased to have you here today?
Let me try and read it, and if I run too long, please let me know.
Good afternoon, Mr. Chairman, Councilman Cohen and members of the Committee. My name is Lance Haver.
Incidentally, if I may interrupt you, Councilman Nutter, who is the Chairman, is expected back here around four-thirty or a quarter of five. And if so, at that point I will yield the Chair to him, obviously. We're hoping he gets here in time. Thank you. Mr. Haver, proceed again. 17 Transportation - 040298 - 6/9/04
Let me start off by saying the obvious. No one wants a water rate increase. Consumers in Philadelphia have already been hit with higher PGW bills and the skyrocketing price of gas at the pump. Milk prices have gone up by 41 percent. Philadelphians, like the rest of the nation, have seen our net worth and buying power eroded. And now the Water Department wants to raise rates not for one year, but for four years in a row. Unfortunately, simply being against a rate increase is not enough. We must honestly look at what is driving the rate increase and offer alternatives. Because the hearings on the proposed rate increase have not yet been scheduled, all I will be able to do this afternoon is help explain some of the problems that the Water Department faces, raise some questions, and make some suggestions that have yet to be vetted. The challenge for all of us: 18 Transportation - 040298 - 6/9/04 Council, consumers, the Water Department and the Water Revenue Department, is to find ways to be more efficient, develop innovative solutions to providing necessary services, and collect what is owed. 2 million people and a large industrial base. As the City shrinks and the industrial base leaves, for whatever reasons, the cost of the infrastructure falls on fewer and fewer shoulders. Based on the changes in population alone, the cost of maintaining the system would have to increase by 27 percent on each rate payer. When you calculate how many manufacturing plants have left the City, that number, based on rough estimates, jumps to 37 percent. The average rate payer has to pay 19 Transportation - 040298 - 6/9/04 approximately 37 percent more of the fixed costs to cover the costs of those that have left and factories that have shut down. Those left to pay the higher burden are less able to pay than ever before. Not every senior or low income family that cannot keep up with the rising costs is a deadbeat. V. and a cell phone, as some people would like to believe. One out of four Philadelphians, 15 percent, live at or below the poverty 16 level. I doubt that any of us in this room 17 could make ends meet and support a family 18 of four if our income was below $18,400 a 19 year, the Federal poverty level. I know 20 that I could not. 21 On top of that, the City, like the 22 rest of the nation, has lost jobs. There 23 has been a net reduction in the City of 24 19,500 jobs in the last two years.. 25 Realistically how can anyone expect 20 Transportation - 040298 - 6/9/04 people living in poverty without jobs to pay utility bills. On top of the loss of population and familys' inability to pay, the Water Department also faces problems from the Federal and state government. The Federal Government continues to change the nation's water regulations. The Water Department, quite rightly, operates a pilot plant research center to test possible solutions and keep the costs of the necessary improvements as low as possible. I believe it may be possible to make greater use of this asset. I believe we should examine the possibility of teaming with one of the local universities to use this research center as a revenue source, seeking grants, developing patentable technologies, and selling our solutions to other water and sewer systems that do not have a similar research center. If PGW can develop a patentable collection technique, the Water Department 21 Transportation - 040298 - 6/9/04 should be able to patent and sell the technologies they develop. In the post 9/11 environment, the Water Department has had increased costs for security. I believe before the Water Department attempts to increase rates to cover these costs, it should make every attempt to get a fair share of the money allocated to Pennsylvania to cover security. On a state level, Pennsylvania has ended its 50 year-old Clean Streams Grant Program. As a result, the Water Department will lose $8 million a year.
Before that amount is included in a rate increase, I believe the Water Department should investigate if there are any similar grant programs that would cover the costs that weren't covered by the Cleans Streams Program. The other major component of water rates that is out of the hands of the Water Department is the success or failure of the Water Revenue Bureau. 22 Transportation - 040298 - 6/9/04 As this Council is aware, the City of Philadelphia has a difficult time collecting what it is owed. Part of the problem is the level of poverty, but that is only a part. I believe Council is correct to investigate the successes and failures of our attempts to collect what is owed to the City. As I have said in earlier testimony before Council, I believe we should combine the meter reading, billing and collections of the Water Revenue Bureau and PGW to both cut costs and improve efficiencies. We must find ways to collect from people who can pay and to help people who cannot. As Council weighs the options and considers appropriate steps, I want to ask that Council consider not only how much is collected but also how much it costs to collect. I fear that the focus on what percentage is collected is misleading. If it costs 50 cents to collect one dollar of 23 Transportation - 040298 - 6/9/04 what is owed, it appears that a hundred percent has been collected, but the Water Department only receives 50 percent of what was owed on that debt. As you focus on this important issue, please consider not only how much is collected but how much of what is collected is received by the Water Department. While it is true that there are some things that are out of the Water Department's control, there are many things they do control. It appears that the Water Department continues to hold over $100 million in reserves, in what they call the Rate Stabilization Fund. It seems strange to me that a municipally-owned utility would seek a rate increase with over a hundred million dollars in reserve. There may very well be a reason why they are doing so. However, I would like to ask, how many other municipal utilities have a Rate Stabilization Fund? 24 Transportation - 040298 - 6/9/04 Why can't the money in the fund be used to make the increase unnecessary while we find ways to improve our collection efforts? There may be steps the Water Department can take to lower the cost of its materials. Would it be possible for the Water Department, PGW, and other municipally-owned utilities to form a buying co-op to keep the price of supplies down? Is it possible to issue RFP's for the lowest cost ways of making routine repairs, and bringing in the best and brightest engineers and the most advanced technologies so that we may save money? What would be the downside of trying to be more aggressive in keeping our costs down? Perhaps the Water Department fears that if a pilot program fails, Council will disparage their attempts. That is why I am suggesting that Council consider resolutions urging the Water Department to do what it can to keep 25 Transportation - 040298 - 6/9/04 costs down. On the issue of what the Water Department should be charging for wholesale water and sewers, I believe there are several things to consider. First I believe we must ask the Water Department consultants if they also offer services to some of the entities that the Water Department is selling to. If so, I think we must ask the Water Department to reconsider its decision to use such consultants. Second, if we are going to sell on a cost plus basis, we must include all costs, not just the theoretical costs. I believe the way the costs are currently calculated ignores the very real costs of the collection and leakage that is built into the rate base for industrial and consumers in the City. Why should wholesale consumers outside of the City not have to pay these costs as well?
By allowing consultants, who may Transportation - 040298 - 6/9/04 have a conflict of interest, to decide that when calculating costs we don't calculate all the costs, we may be putting a greater burden on Philadelphia rate payers. We must also begin to see our water system as an economic development tool. Because our water prices are less expensive than in other parts of the region and other parts of the nation, we should use this advantage as a tool for bringing industry back into the City. If the Water Department is not regularly included in discussions with PIDC has with potential businesses, I believe it should be. Another driving force behind the proposed rate increase is the increased borrowing projected in the five-year plan. 5 percent interest rate when there is a hundred million dollar surplus. Perhaps it would make more sense for the Water Department to borrow from itself 27 Transportation - 040298 - 6/9/04 at a lower interest rate and avoid the additional rate burden of the coverage ratio. If we can find ways to lower the need to borrow and/or lower the interest rates, we will lower the need for the rate increase. I hope that when the hearings on this rate case are held, alternatives such as this will be considered. There is one part of the rate increase that I do support, and that is as Mr. Bartocci was talking about, what's necessary for the Water Department to take over the repairs to the laterals and the inlet pipes. The system as it is now is blatantly unfair. We blame homeowners who have the misfortune of living in parts of the City where the streets have been eroded. It doesn't make any economic sense to redo a street that would then cause further erosion, and then go back and have the homeowner have to dig up street that was newly paved and redo the work. 28 Transportation - 040298 - 6/9/04 So that part I do recommend that be added to the rates. However, whether we do it out of the Capital Budget or we do it out of the Operating Budget is really an empirical question that we should get the answer to during the rate hearings, and that we should simply run it through a spreadsheet to find out which way saves consumers the most money. With that I'd be happy to answer any questions. I don't want to read the rest of the testimony because you've been kind enough, and I know it's been a long day.
We would expect that -- It's an interesting statement, but we would expect... Can you hear? My light is red, not green. I would expect that the Water Commissioner does not himself have the authority to raise rates or to announce that there will be no increase, whatever it is or even to cut rates. The decision has to be made by the Mayor. Isn't that accurate? 29 Transportation - 040298 - 6/9/04
We talk about the Water Commissioner; but, in fact, it's the Mayor, isn't it, that's going to make to decision?
Well, I believe that is true. I mean, ultimately, the Home Rule Charter gives the Water Commissioner the power to make the decision. If you're asking me about the reality of the politics, well, you certainly know better than I. And I would never second guess you.
Can you give us any picture of what the administration's thinking is as to time?
I can not do so. I do not know. I am not here representing the Mayor's position. The Mayor has given me a tremendous amount of latitude, and I have come here representing myself, and saying that I believe that there are solutions that make a rate increase of this size unnecessary. 30 Transportation - 040298 - 6/9/04 As I said, I don't see the wisdom in holding a hundred and some odd million dollars in the bank and telling water consumers they have to pay more.
Well, Mr. Haver, I want you to know -- and I'll speak for myself. Over the years, I think the people of Philadelphia have learned to trust you, as they did Max Weiner, as somebody that's truly representative of consumers. Seems to me it could be helpful if you could participate very fully in this process and come out with your own recommendation, not a recommendation, you know, compelled by a City position but your own recommendation. Because to us it looks like we've been complaining about the Gas Works rate increase. And the Water Department, if it goes ahead with this one, seems to be raising the rates as much as the Gas Works. Would I be accurate in that conclusion?
The water rate increase is larger. 31 Transportation - 040298 - 6/9/04
Is a larger increase. And Councilman, I will guarantee that I will tell you what I believe truthfully and honestly. At this point I see no reason to raise rates. There may be some explanation. But I would have to hear why the Water Department wants to hold a hundred and some odd million dollars in the bank and tell the rest of the City that they're not collecting enough money. It's counter intuitive. Anyone who has a hundred and some odd million dollars in cash reserve doesn't need any more money. But they do have a right to go before a hearing examiner and make their arguments.
Well, I think that's sound advice. You're telling us in more pleasant words to be on our guard. Councilman Rizzo. 32 Transportation - 040298 - 6/9/04
Mr. Haver, in your opinion, could you tell us the delay? I understand that there's been a delay in the process, even moving forward, for the implementation of a rate increase. Could you comment on the process and the lack of that process?
I cannot give you any real information. My understanding of why there has been no appointment of a hearing examiner is meaningless. No one has told me why they have not made that decision.
And again, who would make that, so we ask the right question?
But there's obviously a process that starts that request.
The Water Department starts the request by filing for a rate increase. 33 Transportation - 040298 - 6/9/04
They have filed for the rate increase. The hearing examiner and the public advocate have not been appointed. Because I work for the Mayor, it would not be correct to expect me to be the public advocate. I will do the best I can. But for people to have faith, there has to be independent public advocate who the Mayor can't fire if he doesn't like their recommendations. So I don't want to mislead you. It would be misleading for me to suggest that I could do what an independent public advocate could do. But I will tell you again, at this point there needs to be legislation passed by City Council to take care of the laterals and the inlet pipes, and there needs to be very hard questions about why, 34 Transportation - 040298 - 6/9/04 when we calculate the cost, when we sell the water to the suburban counties, we allow them to escape the cost of collection, the cost of leakage. Again, it makes absolutely no sense why only Philadelphia businesses and Philadelphia consumers have to pay all the costs.
You're aware that I'm the one that asked that question.
At the last hearing. And also, a concern of mine are the exhibits that were handed out today which I'm going to be interested to hear what the Water Commissioner thinks, after he's looked over the documents, about contractors and others that use our City water for a fee, for a permit, and take thousands and thousands of gallons, from what I understand, in tank trucks back to the suburbs. So I'm interested to hear about 35 Transportation - 040298 - 6/9/04 that, along with the wholesale rate of water. But I understand your position on the rate increase, that the rate increase has been filed but we're waiting for the President of City Council and the Mayor to sign on.
To appoint the hearing examiner, and then set up a process where a public advocate is appointed. And then we'll really have an opportunity to go into some of the questions you've raised. Some of the questions have to be done through a simple spreadsheet, and we will have that opportunity at a real rate hearing. It is disappointing for me to have to tell you there are questions I have that I have no answers to and cannot answer any place short of a rate hearing.
Everybody has to have the opportunity to have their questions answered. 36 Transportation - 040298 - 6/9/04 Why does Philadelphia seem to have so much trouble collecting bills owed to it? You know, usually people have trouble collecting either because they give bad service or they don't know how to collect money. It seems to me that's a real question the City's got to answer. It ought to be very efficient in collecting money because basically it's unfair to make others pay for deficiencies of still other citizens. And second, we've got to take care of those situations in which, frankly, there's no ability to pay. Somehow in those areas we've got to find the answers. We thank you very much, Mr. Haver.
If not, thank you very much for your answers. Thank you. The next witness will be the acting Water Commissioner, Bernard Brunwasser. 37 Transportation - 040298 - 6/9/04 Mr. Brunwasser, we've given you a breathing spell to prepare yourself for the answers. We're very glad to see you. We welcome you to your post, but don't welcome any part of this increase.
Commissioner, does that mean water in German, your name?
Spring water. Brunwasser. Braun is brown in German, and Brun is well or spring.
My name is Bernard Brunwasser. I'm the acting Water Commissioner. And since this is a continuation of a prior hearing, I have no 38 Transportation - 040298 - 6/9/04 formal testimony this time around, but I'm available for all your questions.
Well, could you help us with... One of the first questions that came up, what's happening? Can we assume that the water increase proposal is dead? We'd love to be able to assume that. That would solve one of our many budget problems.
I believe the decision to choose a hearing officer, an independent hearing officer and the public advocate rests with the Mayor, the President of City Council, and the City Controller. And as far as I know, unless corrected, the request is still in the Mayor's Office. And we did file properly and appropriately. Back in January we sent our filing to Council President Verna. 39 Transportation - 040298 - 6/9/04 And I think on February 26th, 30 days later, we filed with the Department of Records, giving anyone an opportunity to come in and take part in the rate hearings.
All right. So we can't say that you came from somewhere else, and therefore need time to learn more about it. You've been there. Can you tell us why you feel such an increase is needed? Or can you give us advice as to how we can change things, make the government more efficient so that no 18 such increase is, in fact, needed?
See, the easy answer always is, let's raise rates. Then we don't have to worry about being efficient because the rate payer can always be compelled. The rate payer needs water; therefore, you feel -- a person can feel 40 Transportation - 040298 - 6/9/04 that the rate payer is going to have to pay whatever it is, and it makes for less efficiency. Now, is that the case?
Well, I think a mark of our efficiency is that we're the lowest-priced water and waste water utility in this whole region. And for water, we are less than half the price of most suburban -- that most suburban customers have to pay. Those are customers of Aqua Pennsylvania or Pennsylvania American. Their water bills, water only, are more than twice our bills. So, as far as efficiency, I think we're there. For instance, the concern that Councilman Rizzo has said about a tank truck filling up with our water from one of our hydrants, you know, under our permit program, the good news about that is, even if someone comes with, let's say, a 5,000 gallon truck and fills that up completely and leaves for the suburbs, that person has just left with less than $10 worth of water 41 Transportation - 040298 - 6/9/04 because that's -- that's how cheap our rates are. So, we're starting from a very inexpensive place, in relation to other water and sewer utilities.
Point of information. My 19-year-old son likes to take a whole lot of showers when I force him to. Can I get that rate for him, 5,000 gallons for 10 cents? What is it?
It's a dollar -- The highest rate that we charge which is the lowest block, the one the residents use first, $1.88 per thousand gallons. That is the rate.
So why is my bill so expensive if he's not showering?
Is for handling and all -- 42 Transportation - 040298 - 6/9/04
Let me say, about 60 percent of the bill is the waste water side of the utility. On waste water we are also cheaper than the suburbs, but it's difficult to measure against all the suburban customers, simply because most of that charge in the suburbs is buried in their real estate tax.
But those that we can measure against, we are cheaper. And they're all customers of ours, so --
Do they buy the same rate that I buy from you or do they get a discount because they buy in bulk?
It's wholesale. And one of the answers to the questions of May 20th are in the package that we provided. There are a lot of services that we provide to inside City customers, retail customers, that we do not provide to outside City customers. I think Mr. Haver mentioned storm 43 Transportation - 040298 - 6/9/04 water and infiltration, and why don't we get that from the suburbs? The facts -- The fact is, yes, we do get that from the suburbs. It comes in through their connections. And we treat that waste water. We measure the flow, and we charge them on the basis of flow and strength. And so we capture all of those costs.
Is that job open? Not for me; but, I mean, there's a couple other Council people that need some things to do. No one in this room.
I don't know what 44 Transportation - 040298 - 6/9/04 the status of it is right now. I think as a cost-cutting measure we actually --
Down the sewer? Down the drain? All right. Thank you.
Commissioner, I know you're trying to make light of a potential abuse of a contractor or -- At least my impression was that when you said it's only $10 worth of water, again, I think you were just making light of that --
-- a permit that's there for a purpose, not a person that says they have a great idea. We'll get one of those permits from Philadelphia. We'll go to the City limits, put 3,000 gallons of water in a truck, and then go 45 Transportation - 040298 - 6/9/04 water their lawn at their company. That's not what the purpose of the permit is. And I would hope either the Inspector General or -- Because I'm going to send this stuff all over to him --
-- to see if there's any abuse of a system that's supposed to be a legitimate permit. I don't want to see anybody take $10 worth of our water, if they don't deserve it.
Absolutely. I think the more important purpose of the permitting system, because our rates are so low, the most important aspect of the permitting system, I think, is for the safety of our own water system, because there was an incident in South Philadelphia about... I don't know... 10, 15 years ago when somebody was hydro seeding. And there was a back flow when something was done improperly. He hooked into one of these -- into 46 Transportation - 040298 - 6/9/04 one of our hydrants, and seeds -- all these seeds, actually, got sucked into the system, and then was distributed within a group of homes. And really it ruins -- it ruined some fixtures that we had to replace.
Commissioner, what I'd like to hear from you today is that -- You did a lot of good work here pulling together the permits, the active, the expired, et cetera. But I would want -- And this is one little piece of this whole hearing. It annoys me when I think people are getting over on us. And when we allow them to get over on us, that really makes it even worse. I would like to hear you say today that this permit program is going to be for real; that if a person gets a permit to take water from our distribution system, that they deserve to take it; that they're not taking it across the bridge, that they're not taking to it Montgomery, Bucks, 47 Transportation - 040298 - 6/9/04 Chester County, to use for -- to avoid buying the water in the municipality that they operate in. So, I would like to make sure -- Again, I'll hold off. But I'm going to ask the Inspector General to take a look at this. But I'd like to hear from you that before I do that, that you're confident that everyone on this list is legit.
Right. I hope so. I hope that's the case. I don't -- I can't speak --
I can't speak to each of the contractors, but that is our purpose. And we do police this.
And I would hope the scrutiny of who asks for these permits and where they're from, and how long their job is -- And I don't want to belabor this, but I really need you to really focus and 48 Transportation - 040298 - 6/9/04 make sure that is done right.
And that's where on him I want to take that there. How much -- What do you got to do to get this permit? You just show up and say you're a contractor? Do you have to show a business privilege license? Because just -- And hold on a minute. Just on the respect of terrorism, if they can back feed something into the system, imagine... We're going to have Eddie Trezyansky (phonetic) here. Imagine what could go on if someone back feeds the wrong thing in to Philadelphia's water bureau --
When they come to apply, do you check them out to make sure they're legitimate Business Privilege Licensed people in the City of Philadelphia? Because I saw one in here was for watering the flowers at Lowe's -- at Lowe's 49 Transportation - 040298 - 6/9/04 down the street. I mean, Lowe's couldn't go inside and get a water thing and run a hose from there? They had to use.
Could you describe the permit process and what it costs to get a permit?
Well, I -- I -- I know I think I mentioned the proposed new rates. These rates are going up quite a bit, and certainly that would act as a disincentive, but I don't -- (Councilman Rizzo's microphone was not on; the first part of what he said is not reportable.)
I'm going to have to check to see if someone from my staff knows the answer to that.
Because we don't have an approval for a rate increase. We 50 Transportation - 040298 - 6/9/04 learned that just about a half hour ago.
We'll get you a fuller answer. I mean, we'll have to get back to you with the process.
And Commissioner, not just to -- 'cause the whole process, how we check these people out, who they are.
I mean, I wasn't even -- Commissioner, I wasn't even thinking about that until Councilman Mariano said, you get some person that wants to create havoc... You can imagine pulling up with a 2,000 gallon tank truck and hooking up to a hydrant system and doing what you just described, contaminating the system. That could be really a devastating situation. So, I would hope that we are real careful who we allow to use our hydrants. But I guess in that respect, if anyone even -- No one that would do that would 51 Transportation - 040298 - 6/9/04 probably go get a permit to hook up to the hydrant.
Thank you. Could I ask one question about the impact of a change in budget procedure? It's my understanding, and it's confirmed by our fine recorder here, Julia Chapman, that the Water Deposit Fund of about $125 million was planned to be used for economic development purposes. And plans have changed. It's not being used for that purpose. Is that going to have an impact on the request for rate increase by lowering that request?
Councilman, it won't have an impact on the current rate request because that current rate request 52 Transportation - 040298 - 6/9/04 went in before we knew any -- We -- We... We didn't -- This $125 million sinking fund reserve money was not part of the equation at the time. So, basically the request, as it went in in January, and the request as it is today is the same. In other words, all of this discussion happened in the intervening period and has not come to pass. So, the status is the same. The rate request counted on that full sinking fund reserve being there.
I ponder that. Let me ask this: What is the relationship between the storm water charge and the water charge. Is there any relationship between the two items?
Not really. Not really. Storm water occurs whether a person uses water or not. And the storm water system is approximately $90 million of cost to the Water Department on an annual basis. 53 Transportation - 040298 - 6/9/04 And what we've done over the past three years has been to lower the storm water costs to the residential customer. We allocated storm water on the basis of the land use of the City of Philadelphia. And based on a study that we did in the 1990's, we actually lowered the service charge where storm water shows up in the person's bill. Over each --
Suburban groups do not pay specifically for storm water; but the storm water that comes, in that infiltrates into their pipes that they send -- from where they send us their flow? We -- We capture -- We capture all of that volume, and we charge them for it. We -- We indirectly are charging them for storm water. We're charging them for sanitary waste water and for storm water. Anything that comes down the pipe 54 Transportation - 040298 - 6/9/04 into Philadelphia, we -- they get fully charged for. Now, we can't charge them for the -- for the storm water on their own property out in the suburbs. They have to deal with that. The suburban customer deals with that. But once -- once that flow comes into Philadelphia, we charge them a hundred percent for that.
Well, it seems to me -- and I've heard the charge made many times -- that people who live in Philadelphia pay much more for storm water than the people who live outside the City who use Philadelphia water. Now, I don't know how it's been computed on the outside. How do we have a basis of comparison, if you don't charge them on the same way you charge Philadelphia businesses and people? How do we know whether we're getting a big bargain or whether we're cheating them, by the method now use? 55 Transportation - 040298 - 6/9/04 But the feeling is that people are cheating the City of Philadelphia, and that for some reason or another the City, maybe for political reasons, goes out of its way to sell water very cheaply to suburban areas.
I understand that there's a feeling to that effect, but it's --
Can you produce any set of facts to show to the contrary?
Storm water... Storm water in most jurisdictions, most jurisdictions in this region, in the suburbs, do not know how much they spend on storm water. They don't know. They don't get charged storm water separately. Many jurisdictions don't get charged for sanitary waste water separately. Some do. They have some kind of a fee. 56 Transportation - 040298 - 6/9/04 But it's much different in Philadelphia. Philadelphia, we have very sophisticated set of rates. We know so much about our charges. And we allocate. We have to allocate properly inside the City and outside the City. There's no 8 incentive --
Is there any way you can make that allocation clear to us so that us ordinary mortals who don't work for the Water Department can understand that? Because frankly, very few people believe it. And I've assumed that if the Water Department had a simple story to tell, they would tell it. But they're not telling it; and therefore, I'm among those who have great difficulty believing it to be so. I think if you had a story to convince Philadelphians that they're not being shortchanged by special rates being given to suburban customers, that you could find a way to tell it. Don't you think that could be done? 57 Transportation - 040298 - 6/9/04
One of our responses that we sent forward to the May 20th hearing is a discussion of retail versus wholesale and what's included in retail, what's included in wholesale is part of that discussion. Here is absolutely -- There would be no motivation for me as Water Commissioner --
Well, if there would be motivation or not, do you have anything that simply explains it so that we can get that material, understand it ourselves, and send it to Philadelphia residents? If this is not true, why should we suffer having people believe it is true? Let's get an explanation.
I agree. I agree. But it's a little bit of a -- It's somewhat complex. It's somewhat complex, and we did explain it. And one of the... It's in this package. And maybe somebody from the staff 58 Transportation - 040298 - 6/9/04 can help point it out, but...
Before the next hearing take place, that that be done. And see what you can do. And then we'll meet together and try to work out something. Because if what you say is true, then there's no reason to bash the Water Department. But if it's not true, then let's tell people that it's not true, and tell them why it's not true in a way that they can check it out themselves.
May I give you an example, a simple example that we have? We have... In the City we have 27, 28,000 fire hydrants inside the City of Philadelphia. We have about 75,000 inlet -- sewer inlet catch basins that we clean for the City of Philadelphia. We meter and bill 475,000 customers 59 Transportation - 040298 - 6/9/04 inside Philadelphia. Those costs are not attributable to the suburbanites. They're not attributable to suburbanites. They have costs, and we recapture all of their costs, plus we charge them ten percent over all the costs that we accrue from them.
How much money is that? What does the ten percent add up to?
Approximately... From all the suburban customers, water and waste water, we're approaching $30 million a year annually in revenue, plus they pay for their capital. Most of them pay for their capital up front. We've received over $90 million in capital payments for construction at the plants and the water lines or sewer lines that service their flow. So we've received that over a number of years. So we capture all of the costs, and we charge an additional ten percent.
Mr. Brunwasser, 60 Transportation - 040298 - 6/9/04 your explanation is along the line of trust me; we're telling you we're covering everything; we're charging them properly. But you can't prove it. And I don't believe that it can be that complex. I'm asking the Water Department to reconsider, and to begin to find a way to make this clear. Because otherwise you're taking a bad licking, and people don't understand why suburbanites seem to them to get a much better deal. Is there any other question?
Commissioner, I just want to follow up briefly on that. With the proposal, the potential of a rate increase, tell me what you've done with the water that's already contracted out, the all perk sale. How will that go? Will that also increase simultaneously?
I believe the wholesale water customers of Philadelphia are going to see 40 percent increases over the next four years.
They will also 61 Transportation - 040298 - 6/9/04 receive an increase.
Yes. In fact, they will receive an increase, regardless of our hearing situation. Their increase goes into effect July 1, since they are under contracts and not under this other process.
They're one-year deals? How long are the deals with the wholesale?
These are long-term -- very long-term deals, but we changed the rates. What we're doing is similar to what we're doing inside the City, what we're proposing to do. We're increasing their rates each of the next four years, and we've noticed them of that. And...
Is Nancy Kammerdeiner here, Revenue Commissioner? Would you come forward?
He was. But unfortunately, he had to catch a plane. He 62 Transportation - 040298 - 6/9/04 had to leave about 4:30, just about when we were starting.
This is the last witness. Nancy Kammerdeiner, we welcome you here. You hear us discussing questions about costs. Can you shed any light? And could you tell us why there's such a high delinquency rate among the payments made to the Water Department? And apparently your record of payment exceeds or exceeds in forfeitures or failures to pay even the bad record of the Gas Works. And we wonder why.
I'm Nancy Kammerdeiner, Revenue Commissioner. And I would first off like to correct a misconception that you and some others may have, in terms of our collection rates. During our budget hearing a couple of months ago, when the question of 63 Transportation - 040298 - 6/9/04 collection factor came up, we reported accurately that our current year collection factor was 85 percent. What we did not know at that time was that you were comparing that to information from the Gas Works, about their collections over time. When you look at our collection rate over time, when you go out five years and even ten years, you find that we're collecting 97 to 98 percent, in fact, 98.5 percent of what was billed. And so, when you compare apples to apples, in terms of the collections over time, our collections are far more favorable than those that you were comparing them to with PGW. And so, I think we need to start out with a correction of the record before we look at it. Am I satisfied with collections at the rate that they are and getting the money in quickly? No. We're constantly working at finding ways to identify groups 64 Transportation - 040298 - 6/9/04 of delinquent rate payers who we can address with different ways to get to them, in order to get collections. We use collection agencies. We lien their properties. We have the Law Department file judgments in court against the individuals. And we are working with them to increase the number of executions on those judgements. One of the big problems that you have, and one of the reasons for the delinquency rate that we have, is that we have been putting water and sewer charges on properties that we're now finding are vacant. And many of them are abandoned and. And when I say that, and distinguish between vacant and abandoned, I'm really referring to properties where there is no 21 viable owner, you can't find anyone who's willing to pay. And we find that our rates for nonpayment on real estate tax and water and sewer are very similar, and they generally 65 Transportation - 040298 - 6/9/04 relate to properties where there's no 3 viable owner.
Well, could you -- Who gave us the data on which the conclusion was founded at the last hearing that the rates were as bad as they seemed to be at that hearing?
The staff in the Water Revenue Bureau correctly gave the rate for the current collection factor at 85 percent. That was being compared -- unfortunately, being compared to PGW collection factors over time. If we had compared our collection rate over time to PGW's, which I believe was mentioned at that time as being 92 percent, ours over time is 98 percent, which is better.
-- below what it had been before -- 66 Transportation - 040298 - 6/9/04
I don't know what PGW's current year collection rate is.
85 to 87 percent, depending upon the year. But you have to remember that when you look at the current year collection, the way we calculate that, we could have billed in June and not had more than 12 days to collect on that. 13 And when you look at our payment 14 patterns over time, the 30-, 60-, 120-day 15 collections, and you look at that over the 16 last ten years, we're actually collecting 17 faster in the more recent years than we 18 were eight to ten years ago. 19 The other thing that confirms that 20 is that the amount of penalty that we 21 collect that's added to a bill when its 22 delinquent is going down, in relationship 23 to the collections which would be another 24 confirmation that we are collecting the 25 money that we collect more quickly. 67 Transportation - 040298 - 6/9/04 Our accounts receivable isn't going up in the same time period that the rate increases have taken place. If we were collecting less, our accounts receivable would rise, instead of staying level or going down.
Do you have a question, Councilman? Councilman Nutter suggested that we recess... Do you have a question you wanted to raise? Do you want to recess? Your suggestion is to recess to September 22nd at 2:00.
Could we ask in the meantime that both your departments work together and get this clarity that is lacking. We ought to have on the record a correction, you know, to your testimony if one is required from the last hearing. And so Council stands recessed on this matter until September 22nd, at 2:00, when the Committee on Transportation and 68 Transportation - 040298 - 6/9/04 Public Utilities will resume on this subject. We thank both Commissioners for their attendance. And we hope that your consultant for Black & Veach will be able to make it at the next hearing. All right. Thank you all for attending. I'm going to recess this hearing now so that the next hearing which is at 3 o'clock, scheduled hearing of the Committee of the Whole, can proceed to take place because they have very important legislation to consider yet. So, thank everybody for their testimony, their patience. And those that are here for the 3:00 hearing of the Committee of the Whole which I understand is going to deal with the KOZ problem, will take place shortly. Thank you. (Hearing concluded at 5:30 p.m.) 69 CERTIFICATE I HEREBY CERTIFY that the proceedings and evidence are contained fully and accurately in the stenographic notes taken by me upon the public hearing of The Philadelphia City Council, taken on June 9, 2004, and that this is a true and correct transcript of same. _____________________________ DAVID A. DEIK, RPR and Commissioner of Deeds (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)