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Allegheny

Peoples CEO proposes partnership to improve water quality

| Tuesday, July 3, 2018, 9:15 a.m.
A rendering of a water treatment plant Peoples Natural Gas wants to build along the Allegheny River as part of a new water utility called Peoples Water.
Peoples Natural Gas
A rendering of a water treatment plant Peoples Natural Gas wants to build along the Allegheny River as part of a new water utility called Peoples Water.

Peoples Natural Gas President and CEO Morgan O'Brien wants to develop a public-private partnership that he said would spend more than $1 billion to improve the Pittsburgh region's water quality.

The partnership would include a newly created subsidiary of O'Brien's company called Peoples Water along with the city-owned Pittsburgh Water and Sewer Authority. Other water systems in Allegheny County would be invited to join as well, O'Brien said.

The partnership would be run by a board comprised of an equal amount of representatives from Peoples Water, PWSA and any other water systems that choose to join.

The centerpiece of O'Brien's plan, detailed in an open letter posted online Tuesday , would be building a new $350 million water treatment facility in O'Hara that would run on solar and hydroelectric power and create hundreds of new jobs.

The company also plans to spend $1 billion in private money on replacing all PWSA service lines, starting with the lead lines.

The new riverfront O'Hara facility — which could open in late 2020 under the Highland Park Bridge — would replace PWSA's five reservoirs and 11 tanks, O'Brien said.

Those properties would remain city-owned and could become a riverfront park with green stormwater mitigation or an affordable housing development, according to Peoples officials.

The creation of the partnership would require approval from the state's Public Utility Commission. PWSA and City Council also would have to sign off on any partnership agreement with Peoples.

To start that process, Peoples would need to submit an application with the PUC for a certificate of public convenience, PUC spokesman David Hixson said.

The company plans to submit the application this fall at the earliest, after gathering public input through the summer, O'Brien said.

After the PUC receives the application, any stakeholders, including the city or PWSA, could file protest documents, Hixson said.

The process normally takes months, Hixson said.

PUBLIC OFFICIALS' CONCERNS

O'Brien has been talking to Mayor Bill Peduto and PWSA officials for two years about the proposal, he said.

“From him, it's important whatever strategy Pittsburgh takes is an open and transparent one, so I think having this out in the public ... and listening to people, it'll either confirm this is a compelling business case and this is the right path forward or it won't,” O'Brien said.

City and PWSA officials were hesitant to support or oppose the plan without seeing more details.

Several expressed concerns.

Peduto said the city would consider proposals from private companies like Peoples, but only after the city and PWSA agree on a 12-year plan for creating a new water system, set to be done by the end of summer, and only if the PWSA system remains under public ownership.

He did not clarify whether the public-private partnership Peoples proposes would satisfy the second demand.

“It may be that replacing (PWSA) is a better option than repairing,” Peduto said. “We don't know, but until we have a baseline of what it would cost us to do it ourselves, we're not ready yet to look at other proposals. We want to compare apples to apples. They're going to have the same challenges as PWSA. For example, if PWSA keeps the employees and the employees stay union, then the other proposals would have to do that as well.”

All PWSA employees would keep their jobs and remain unionized under the plan, O'Brien said.

Peduto said Peoples is one of about a dozen companies that has expressed interest in providing water to the city.

No other companies have applied to the PUC to do so, Hixson said.

Gary Lobaugh, a spokesman for Pennsylvania American Water, which serves the southern areas of the city, said: “If city officials decide to sell the PWSA system, Pennsylvania American Water is interested.”

Paul Leger, chairman of PWSA's board, said he does not oppose or support the proposal because the board has not received it.

But Leger called the proposal a “slow private takeover,” saying when Peoples met with PWSA officials two years ago, they proposed a full takeover before switching to the public-private model.

PWSA Executive Director Robert Weimar also said he has not seen details about Peoples' “unsolicited proposal.”

“The progress made by our team of water professionals over the last year demonstrates that we're on track to be the drinking water, sewer and stormwater utility Pittsburgh expects and deserves,” Weimar said.

Allegheny County Executive Rich Fitzgerald said he supports the proposal in theory, but only if public officials are still setting the rates and cost structure, he said.

“I want to know how the rates are set and how the bonds are issued,” Fitzgerald said. “In concept, yes, I think it makes a lot of sense.”

Currently, PWSA board sets rates but they must be approved by the PUC. The board last month approved a 16.7 percent rate increase that is awaiting PUC approval.

O'Brien pledged no rate increases for three years.

PWSA'S LEAD PROBLEM

Peoples is already replacing all of its gas lines, so it would make sense to also replace water lines at the same time, O'Brien said.

“There's a strong business case that says while I'm tearing up a street, I could easily replace water and gas lines at the same time,” O'Brien said.

Peoples would start with the lead lines, O'Brien said.

PWSA water samples have been exceeding a federal lead threshold since summer 2016. Even the lines that are not made of lead are sometimes more than a century old and often break.

PWSA has so far replaced 1,380 of its 17,750 lead lines since July 2016, Pickering said. It plans to add orthophoshate to the water to decrease lead in early fall, Pickering said.

Peoples Water would replace all lead lines in five years, which is faster than the rate at which PWSA has been replacing them, O'Brien said.

In addition to issues with lead and aging infrastructure, PWSA has an overwhelming amount of debt and a history of billing issues.

State lawmakers last year passed legislation to place PWSA under the oversight of the PUC, which typically regulates private utilities.

If the partnership is created, it would remain under PUC oversight, Hixson said.

‘HUNDREDS' OF NEW JOBS

O'Brien said the partnership would create “hundreds of new, family-sustaining jobs” to build and operate the proposed system, and Peoples aims for one of every three new hires to be African-American.

“African-Americans haven't really been included in the success this region has had,” O'Brien said. “We're creating, hopefully, the hope and careers for people, not just jobs.”

O'Brien said he wanted the public to be heavily involved in the process.

“We're trying to tell a compelling story that starts with this clean, green technology and becomes a partnership instead of just fixing the old water plant,” O'Brien said. “We wanted to get out and start telling that story.”

The partnership also could attract Amazon and other companies to the region, O'Brien said.

Peoples plans to hold public meetings across the region in the coming weeks to share more details about the proposal, O'Brien said. People also can receive email updates about the project .

Former Pittsburgh Mayor Luke Ravenstahl, Peoples' vice president of sales and marketing, is not involved in the project, O'Brien said. Kevin Acklin, a former chief of staff to Peduto who now serves as Peoples' vice president and general counsel, is involved but has not attended the meetings with city officials, O'Brien said.

Theresa Clift and Bob Bauder are Tribune-Review staff writers. Reach Clift at 412-380-5669, tclift@tribweb.com or via Twitter @tclift. Reach Bauder at 412-765-2312 or bbauder@tribweb.com.

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