Municipal Authority of Westmoreland County officials said Wednesday customers should expect to see another 7 percent hike in water rates next year even as revenues jump by $1 million through royalties earned from natural gas wells near the Beaver Run Reservoir.
“Our plan is in place. Any money we get from royalties will go back into the system,” authority manager Michael Kukura said.
Authority board members in 2016 authorized a three-year rate hike of 39 percent . That increase was broken into three separate hikes, 25 percent the first year and an additional 7 percent in 2017 and 2018.
The rate hikes were designed to help pay for a $140 million loan finalized last year for capital improvements to the water system that serves more than 120,000 customers in five counties as well as nearly 25,000 sewer customers.
Natural gas royalties, which are now projected to exceed $3 million this fiscal year, will not be used to offset the future rate hike, authority business manager Brian Hohman said. When crafting the current $96 million budget, officials anticipated money from natural gas royalties to bring in about $2 million this year.
“This just provides more money to be reinvested into the system,” Hohman said of the additional $1 million in gas money.
The authority has 52 deep wells drilled by private energy companies on its property and earns royalties on the natural gas produced at the sites.
The wells are providing more revenue because of higher gas prices and the drilling of three additional deeper wells about 12,000 feet below the surface, assistant manager Jack Ashton said.
The deeper wells, which extract gas from the Utica shale seam, are in addition to Marcellus shale wells that drill some 6,800 to 8,000 feet underground.
Water quality is not expected to be affected by deeper gas wells, Ashton said.
The authority hired researchers with Indiana University of Pennsylvania to test water quality at the Beaver Run Reservoir four times a year. According to the last analysis in June, the continued drilling and deeper wells have had no negative impact on drinking water, Ashton said.
“The latest result saw no change in the water quality,” he said.
Meanwhile, officials said the increased revenue from those wells might not be sustainable and is dependent on gas prices that were dramatically lower a year ago.
The authority earned as much as $6 million in revenues from wells in 2014, when natural gas sold for nearly double its current price.
Rich Cholodofsky is a Tribune-Review staff writer. Reach him at 724-830-6293, [email protected] or via Twitter @RichCholodofsky.