Philadelphia City Council members want to sell you a warranty.
District council members have signed letters to residents promoting a private company’s financial product: a water- and sewer-line warranty from American Water Resources (AWR), a subsidiary of the Camden-based utility giant American Water.
The letters bear the city’s official seal and a City Hall address, and stem from a new public-private partnership between American Water Resources and the Philadelphia Energy Authority. The arrangement allows the company to use the authority’s logo and Water Department’s customer mailing list to market protection plans to Philadelphia homeowners, according to the contract.
In exchange, the authority gets 20 percent of the sales revenue plus an annual payment of $100,000, funds that will support staffing costs and programs at the authority, said Emily Schapira, the authority’s executive director. The authority, which was formed in 2010 to address energy affordability and sustainability, is expecting $500,000 annually from the concessions payment starting in November 2019. In addition, American Water Resources will set aside $25,000 per year to pay for service line repairs for poor residents
Council members and authority officials note the deal offers discounted protection plans to city homeowners who could otherwise be on the hook for expensive service-line repairs.
“You could be left having to pay a bill costing thousands of dollars,” said one letter signed by 1st District Councilman Mark Squilla. “By enrolling in AWR’s protection program, you can take the responsibility of paying for service line repairs off your shoulders.”
The letter, paid for by AWR, did not disclose the financial benefits for the authority. All 10 district council members signed letters to residents, Schapira said.
In a statement, American Water Resources president Eric Palm said Philadelphia City Council and Energy Authority logos were used to “allay any concerns about the legitimacy of the program and American Water Resources as the provider.”
“Philadelphia residents received educational postcards and letters detailing their responsibility for service line repairs, if issues should arise, from their city council member,” Palm said.
The official-looking letters from City Hall that advertise a private company’s warranty have made some residents wary.
“I don’t know why councilmen would promote this product,” said Jonathan Kleinbard, a retired vice president at the University of Chicago who lives in Society Hill. “It’s probably an unnecessary insurance, so it’s an added cost to the homeowner.”
It’s actually not insurance at all, and therefore not regulated by the Pennsylvania Insurance Department, a department spokesperson said. The product is considered a home service warranty that covers repair and replacement costs resulting from normal wear and usage.
Proponents of the program note that homeowners are responsible for the maintenance of water and sewer lines that run underneath their land. Homeowners’ insurance policies typically don’t cover these costs, experts said. What’s more, the city has an old housing stock with aging pipes and a large impoverished population that may struggle to pay for repairs.
“You have homes here that were built in the 1880s moving up to homes built in the 1950s. And in each of these periods there were different materials used, different construction methods, and different lengths of time these pipes would last,” said Howard Neukrug, former city water commissioner. “It’s a good time in the history of the city to recognize there’s going to be a lot of issues with the water and sewer pipes."
In Philadelphia, costs for water- and sewer-line repairs can reach $3,500, with full sewer-line replacement potentially costing upwards of $6,000, according to AWR.
The Energy Authority secured a monthly rate of $7.98 for both water and sewer protection as part of the partnership, lower than the $12.49 previously charged by AWR, which serves roughly 20,000 Philadelphia households.
There is at least one other company that offers the service in the area. HomeServe, based in the United Kingdom, typically charges $5 to $6 a month for water-line coverage and $10 to $12 per month for sewer-line protection. The company serves 11,000 city homeowners, a company spokesperson said. HomeServe also bid for the Energy Authority contract but offered more expensive monthly rates for consumers and 10 percent sales commission for the authority.
There are no deductibles or service fees and no limit to the amount the company will pay for repairs, according to AWR’s terms of service. The warranty covers problems that are the subject of a Water Department notice of defect. There is a 30-day waiting period before coverage takes effect.
“This was an instance where there is no other way of consumers to get this level of consumer protection and this affordable of a price other than for government to step in and create this public-private partnership,” Schapira said.
Consumer experts say home service contracts are, generally, not always smart investments.
“Home service contracts and other types of extended warranties can have many gotchas, relying on contract fine print to deny coverage for almost any reason,” said Margot Gilman, money editor for Consumer Reports. She said consumers should consider saving the money they would pay monthly for warranties. “If something needs repair or maintenance, pay for it with the money you saved, without having to negotiate any fine-print limitations or other nonsense,” she said.
The terms and conditions for the AWR protection plans include a long list of restrictions. For example, the company won’t repair any damage caused by you, a third party, natural disasters, or by improper design or installation. The company also won’t allow consumers to hire their own contractors. (The agreement with the authority requires AWR to hire local and diverse contractors.)
American Water Resources would not disclose what percentage of its customers file claims for repairs or replacements.
The Water Department also offers its own option to homeowners: a zero-interest loan for customers who receive a notice of defect and need repair work, or for customers replacing water-service lines made of lead, a department spokesperson said. The department’s Homeowner Emergency Loan Program (HELP) provided roughly 1,200 loans during fiscal 2017 for repairs of private water and sewer service lines, out of 480,000 customers.
Consumer advocate Lance Haver said the Water Department should take responsibility for the lateral lines and not force homeowners to pay for the repairs.
“Unlike every other utility, including cable, the Water Department says the home owner is responsible for infrastructure the home owner does not have access to, cannot examine, and for which there is no appropriate up keep,” Haver wrote in an email.
Schapira said the authority’s partnership with AWR will provide energy benefits by helping reduce wasted water through leaky lateral lines. The severity of that problem is unclear. The Water Department said it is difficult to quantify how much pre-revenue, pumped-and-treated water is lost through private service lines.
Councilman At-Large Derek Green, who pushed for bringing the program to Philadelphia, said he heard about the idea from the National League of Cities, an advocacy group that serves the interests of 19,000 cities, towns, and villages across the nation.
The public-private partnership is not unusual. Hundreds of cities around the country, including Cleveland, San Diego, and Phoenix, have similar deals with home service companies, according to the National League of Cities.
The marketing of some of those warranties has drawn scrutiny.
In San Diego, some residents were so suspicious when they saw their city’s logo on advertisements that they assumed it was a scam. In Dallas, the city council canceled a contract with Canonsburg, Pa.-based Service Line Warranties just two months after it allowed the use of its letterhead in mailers, citing residents' “concerns with the use of the city’s name and logo by outside vendors." Memphis residents complained about a similar deal last year and weren’t sure if the mailings were legitimate.