Troubled utilities can be profit-makers

protect the public, employees while increasing capital investment,” he wrote in the email.

Mr. Peduto had made it clear he wasn’t interested in privatizing the authority, so Peoples drafted its proposal in the format of a public-private partnership. Peoples offered to pay off all of the PWSA’s outstanding debt and then inject it with private capital to rehab the system.

Mr. Acklin recalled that the proposal, submitted last year, would maintain the annual payments to the city, valued at more than $7 million, and would contain a “certain level of pricing control” to keep rates from ballooning. He said the new capital would come from a combination of newly issued debt and equity.

While the PWSA board has been responsible for setting customer rates, the Pennsylvania Public Utility Commission plans to take over that function later this year. That means it will approve the rates of return on debt and equity.

Other regulated water utilities in Pennsylvania — several of which Mr. Acklin said expressed interest in PWSA — have realized average rates of return on equity between 8 percent and 13 percent since 2011, according to the latest data available from the PUC.

The PUC also has a separate mechanism to speed up pipeline replacements. Instead of spending the money to fix the system and then folding those costs into the next rate case, utilities are allowed to recover that investment as they go — through a customer surcharge. The permitted rate of return on that is 9.75 percent.

Ms. Doerr noted that while rates do often rise after a private company takes over a public system, that’s offset somewhat by cost-cutting on the operations side and faster system improvements.

The idea of a natural gas utility getting into water isn’t unprecedented, she said, ticking off recent examples in Oregon and Connecticut.

“The business model is very similar. The regulator is similar. And the pipe replacement cycle is very similar,” she said.

Mr. O’Brien said the same this week.

“I’ve got my call center. I’ve got my billing processes already in place. Every customer of PWSA is a customer of mine,” he said. “Not only that, but I’m tearing up streets replacing gas lines. [On] those same streets, we could be replacing gas and waterlines at the same time.”

While the conversations with the mayor’s office had stopped last summer, Peoples is “absolutely” still interested in a deal, he said.

“I’m sitting on the sidelines hoping they reach the right conclusions.”