A new $5 warranty charge on monthly bills from the Pittsburgh Water and Sewer Authority is drawing questions from ratepayers, elected officials and companies who are concerned that their customers are being charged for something some already have.
The $5 now tacked on to the authority's invoices is for water and sewer line protection, and it goes to Utility Line Security. ULS is a freshly minted Forest Hills company whose officials have long-standing relationships with water authority Executive Director Michael Kenney, briefly employed his daughter and are also involved with a politically connected management company.
The firm stands to get around $5 million a year from those water authority customers who don't fill out an "opt-out election form" included in their monthly bills. In other words, unless customers say they don't want it, the charge automatically is added to bills.
From that amount, ULS must pay for the repairs it guarantees and spend as much as $1 million separating peoples' gutters from sewer lines at no cost to the customer.
"It's a pretty good deal," said state Rep. Dan Deasy, a water authority board member. Property owners are responsible for the pipes that carry water from the main to their homes, and carry sewage from their homes to the line. Fixing those can entail a five-figure bill.
"For $5 a month, it's peace of mind," Mr. Deasy said.
"That's a bunch of crock," said Mary Bonach, of Squirrel Hill, the retired director of the University of Pittsburgh's book centers, who resented getting billed for insurance she already has from another provider. "I talked with a bunch of my friends yesterday, and they weren't even aware of it.
"I cannot believe that it is legal to add on a charge to a bill without explaining it prior to that."
The city code doesn't allow a private company to charge customers for something they haven't actively chosen, but includes an exception for governmental entities. The water authority -- which also just raised rates 5 percent to fix its leaky pipes -- had long had an "opt in" line warranty deal with Linebackers Inc., a Wexford firm.
Mr. Kenney said the arrangement with Linebackers didn't work very well, because few customers opted in.
Linebackers owner Stephen Graham countered that his company wasn't able to put its marketing materials into the authority's bills and had a tough time getting the authority to pass the $8.50 per month charged on to customers who opted into its line warranty.
In late June, the authority invited companies to send in proposals for offering water and sewer line insurance to around 130,000 households -- including the majority of city residents, to whom it provides water, and South Hills residents who get their water from Pennsylvania American Water Co., but get sewer bills from the authority.
Just weeks before that invitation went out, ULS was created, largely by executives from another firm, Resource Development and Management Inc. Politically connected RDM includes as its president former Allegheny County Development Director Joseph M. Hohman and executive vice president attorney James Dodaro, who is a Port Authority board member, former Allegheny County solicitor, and member of the Pennsylvania Turnpike Commission for 20 years.
RDM operates the Municipal Authority of Westmoreland County, for which Mr. Kenney worked as an assistant manager prior to taking his current post in 2008. Jacob Skezas, a ULS officer, is chief financial officer of both RDM and Municipal Authority of Westmoreland County.
"I know these people," Mr. Kenney said. "I know who they are. I know what they know. Did that have any role in the decision to move forward? I would say no."
Shortly after he came to the water authority, Mr. Kenney hired RDM to conduct a $100,000 study of his new agency's management structure.
Authority board member Patrick Dowd, a city councilman, said he thinks RDM got a look at the authority and "saw an opportunity to make some money" through line warranties. He said he learned Thursday of Mr. Kenney's past relationship with RDM.
"It was never made clear at any time that he had a past connection to a company" that was tied to ULS, Mr. Dowd said. "There was never any mention of this relationship between RDM and ULS."
Saying Mr. Kenney is trying "mightily to make this an authority and a good authority," Mr. Dowd nonetheless added that failing to mention his relationship with RDM in scores of conversations and e-mails "gives the appearance of impropriety."
Only two companies -- ULS and Linebackers -- sent proposals to the authority by the July 17 deadline.
"We would have loved to have been asked to do that. We were not asked, and we did not know about it," said Sharon Cameron, president of American Water Resources, which has 200,000 line protection customers in Pennsylvania, including thousands in the south Pittsburgh territory of its sibling firm, Pennsylvania American Water.
The Manchester Group, based in Ohio, has some line warranty customers in Pittsburgh and would have bid if it knew of the opportunity, said its president, Bill Thomas.
ULS got the contract by proposing the same premium that Linebackers had levied, but agreeing to pay a larger finder's fee to the authority, Mr. Kenney said.
ULS then began to market to authority ratepayers, and got a few thousand takers.
That wasn't enough, said Mr. Dowd, adding that aging water and sewer pipes are "a ticking time bomb in front of everybody's yard" that most homeowners don't even know they own. He's had constituents call and say that a sewer line break was decimating their life savings. "This insurance program is a way to defuse that ticking time bomb."
The authority board approved a renegotiated contract with ULS on Dec. 11. It lowered the fee to $5 a month, eliminated the finder's fee to the authority and included a new benefit for customers.
For every 5,000 customers that stayed in the program, ULS would spend $50,000 removing customers' storm drains from sanitary sewers -- something the water authority must compel property owners to do under consent agreements with state and federal regulators. That work will be done for free until ULS meets its spending commitment.
Most importantly, it obligated the water authority to bill all of its customers for the warranty, putting the onus on ratepayers to cancel by June to get a full refund. That allowed the authority and ULS to "drop the price, increase the coverage, and provide for the customers," said Mr. Kenney.
"I would never have thought any government entity would have used such an unscrupulous tactic," said city Councilman William Peduto, who questioned Mr. Kenney on the process at a council meeting last week. "We're just taking $5 out of everybody's pocket every month and giving it to a private company without most people even knowing it."
The authority operates as an agency separate from city government, but Mayor Luke Ravenstahl appoints its board members.
Just prior to the authority board's Jan. 15 meeting -- and 17 days after the revised contract with ULS was signed -- Mr. Kenney told the board that due to a conflict of interest he would not be participating in any discussion of, or administration of, the ULS contract. He said Friday that was because the firm hired his 28-year-old daughter, Ashley, who had recently moved back to the area for family reasons.
"It really got to be problematic," Mr. Kenney said. "It was not going to work." So he asked his daughter to quit, which she did after two weeks with the firm.
He maintains that ULS offers a good product.
Its coverage has no limits, but it has 20 exceptions, including unusually large lines, damage from natural disasters and water line clogs or blockages.
ULS President Chris Kerr said that in January alone, his firm fixed 37 leaking, broken or clogged water and sewer lines and started work on removing 50 residents' storm drains from sanitary sewers. He said his price is half that charged by others.
"I don't believe there's any plan in existence anywhere that gives [homeowners] the benefit of covering pre-existing conditions, unlimited cost of repair, and a six-month opt-out option," he said.
American Water Resources charges $12 a month for coverage up to $5,000 for water line problems and $8,000 for sewer issues, and argues that its 92 percent customer satisfaction rating makes it worthwhile. Its president said its city customers who suddenly find themselves with duplicate warranties have been largely opting out of the ULS product.
The Manchester Group charges $7 a month and caps water line claims at $4,500, sewers at $8,000.
Why is ULS cheaper? Mr. Kerr said it negotiates bulk discounts with the plumbers it hires to make repairs.
Mr. Thomas of The Manchester Group said ULS's charge is "lower than market price for one reason: They have taken their plan, and given it to everybody." The ability to grab tens of thousands of customers without any marketing costs allows the lower price, he said.
Mr. Dowd said he thinks the ULS warranty is a good deal, but urges ratepayers to figure out if they already have a line protection program, and if so, which one is better.
City Councilman Doug Shields said he wants to "make sure that this was all done appropriately and properly. ... Any time government starts mandating stuff, there's usually somebody on the other end benefiting in a very specific way."
Rich Lord: firstname.lastname@example.org or 412-263-1542