A Competitive Bidding Process Would Help Pittsburgh Determine How to Fix Its Troubled Water Infrastructure
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A Competitive Bidding Process Would Help Pittsburgh Determine How to Fix Its Troubled Water Infrastructure

The idea that Pittsburgh’s water system needs an update is no shock to locals, but the city should get multiple bids from companies interested in public-private partnerships.

Public policy always impacts our lives, but some effects even run right through our faucets. Water-related issues are close to everyone’s hearts, and for good reason. The quality of drinking water has profound effects on citizens and their children. If managed poorly, waterborne diseases and dangerous chemicals can become health concerns.

This issue of drinking water quality has long been on Pittsburgh’s radar, but it recently took center stage after Peoples Natural Gas came forward with a proposal to replace and update the city’s aging water lines.

The idea that Pittsburgh’s water system needs an update is no shock to locals. Just since last March, Pittsburgh has seen nine water main breaks. The breaks led the authority to order one boil and flush advisory so far in 2018, and at least five in 2017.

The most pressing water problem the city faces is high lead levels, thanks to thousands of aging lead water lines corroding throughout the city. After lead levels in June of 2016 tested at 22 parts per billion (ppb), exceeding the safety cutoff of 15 ppb, the Pittsburgh Water and Sewer Authority (PWSA) committed to replacing seven percent of their lines every year.

Pittsburgh’s problems did not go unnoticed by companies in the area. Peoples Natural Gas first officially approached PWSA in March to declare their interest in leasing the system, although they had reportedly been talking with members of city council since the previous September. More details emerged in June, and then in July, an official proposal appeared in the form of an open letter from Peoples president Morgan O’Brien.

Regardless of the plan’s finer points, PWSA should pause before committing to Peoples’ or any other offer—at least not until they’ve opened up the process for competitive bidding.  Through a managed-bidding process, Pittsburgh could compare proposals to make sure they’re getting the best offer, rather than trying to fit their needs to one available proposal. And, thanks to the city’s size, it should have no shortage of offers.

Under the proposal, Peoples would lease the city’s water infrastructure—under a new subsidiary called Peoples Water—and replace all the water lines at the same time as they replace gas lines.

With the convenience of having water and gas lines in the same locations, Peoples surmises they can finish revamping the system in as soon as five years, significantly faster than the approximately 14 years PWSA would take if they can stick to their yearly seven percent replacement rate plan. It should be noted, though, that even though PWSA had issues meeting their line replacement quota in 2017, they met and surpassed their goals for 2018, meaning that the replacements could take significantly less than 14 years.

Though, Peoples Gas does have an interesting advantage over PWSA. The situation seems mutually beneficial and relatively cost-efficient: Peoples digs once and fixes twice. But there are some issues to keep in mind.

There’s no guarantee that all lead water lines are actually in the same locations as the gas lines. PWSA hasn’t finished mapping out all the lines that need to be replaced, so it’s too soon to assume they will all “line up.” Even if all of Pittsburgh’s water and gas lines are located alongside each other, PWSA and Peoples may have very different opinions on what replacement work needs to be prioritized, meaning Peoples may seek to replace water lines in an order that reflects Peoples’ gas line needs, not the PWSA’s water line needs.

Though, the proposal does not stop with just replacing all the water lead lines at an estimated $10 billion cost. Additionally, Peoples would:

  • Build a $350 million water treatment plant powered by hydroelectricity and solar power;
  • Pay off PWSA’s $1 billion debt;
  • Freeze water rates for three years, in addition to providing “generous payment plans” for lower-income customers;
  • Build a green infrastructure park by the Allegheny River to help offset the flow of stormwater;
  • And create a new customer service center and an improved billing system.

While freezing rates sounds nice in the short-run, it’s not always a great plan in the long-term if it means starving the system of needed maintenance and capital expenditure dollars. Instead of asking how to keep rates as low as possible for as long as possible, the real question is: How do you handle rates to avoid deferred maintenance issues and ensure future users do not suffer from unrealistically high and volatile bills?

Unlike the water lines they would replace, Peoples Water would own the water treatment plant it would build. While Mayor William Peduto and PWSA might not like the idea of a private water treatment plant, a decision on the proposal may not have much bearing on the plant’s existence. Peoples expressed its intentions to follow through with the construction of the plant even without a partnership with PWSA, as it expects to form partnerships with other, smaller companies in the area.

Despite its many components, the proposal also raises many questions: Who is responsible for complying with federal regulations? Who handles future repairs to the lines? Who covers the construction cost risk, paying for damages if things go wrong during the building process?

While questions about various risks associated with infrastructure projects typically get addressed in public-private partnerships, the Peoples proposal does not give us enough detail to be sure about the answers. Giving a proposal careful consideration includes finding answers to questions concerning risk management—losses of operations, construction cost overruns, regulatory compliance, and deferred maintenance issues—questions Pittsburgh would be wise to address before even considering moving forward with any offer.

The Peoples proposal focuses on the drinking water system but does not address the sewer and stormwater systems. Peoples Water’s offer of a green infrastructure park is a gesture to sweeten the contractual pot. Peoples’ president Morgan O’Brien said something to this effect himself. While PWSA technically funds their drinking water and sewage systems separately, money from the drinking water system can go toward sewer projects if the need arises. If drinking water payments go to Peoples Water, the PWSA would be out of a source of income. To combat this objection, Peoples suggests that paying off the $1 billion debt would free up more funds for PWSA to spend on the sewers.

The city could benefit from private assistance with their drinking water system, but it may benefit even more from a contract that covers both the city’s water and wastewater systems.

Good or bad, taxpayers and city leaders need to see this for what it is: an unsolicited proposal. As such, taking the first offer they receive might work for the city, but it would give up the possibility of receiving other offers—one that better answers the risk management questions surrounding infrastructure projects and might even include the sewer system.

Mayor Peduto has already stated that the city will not be acting on the offer, at least not until PWSA formulates its own plan for the future with a list of improvements. Peduto is right to wait and show a willingness to listen to more proposals. Pittsburgh should use Peoples’ proposal as an opportunity to seek proposals from other entities, using a competitive bidding process to improve the chances of a successful partnership.

If Peoples Water truly means for its proposal to benefit Pittsburghers, the company should be willing to wait and compete with other bids to ensure there’s a deal that is fair to taxpayers, the city and the company.

Janelle Cammenga is a policy intern at Reason Foundation.