HAWAI'I KAI — Seven parks, four schools, a fire station, a public library and Lunalilo Home have received free sewer service for 44 years as a result of an agreement struck between the city and Kaiser Hawai'i Kai Development.

Hawai'i-American Water Co., which provides sewer service to the community, is now asking the Public Utilities Commission to end that agreement and direct the city and state to pay sewer fees.

If the commission declines and upholds the agreement, the company wants the commission's permission to raise the fees for Hawai'i-American Water's 11,000 customers in Hawai'i Kai and parts of Kuli'ou'ou.

The sewer company estimates that it has lost $176,000 in revenues since 2004, when it began tallying bills for the state, the city and a trust that owns Lunalilo Home, said Rodney Jordan, senior financial analyst with American Water Co., which owns Hawai'i-American Water Co.

In 2003, when the commission last approved a rate hike, it opened the door to ending the 1961 agreement by counting the parks and other government facilities as potential revenue sources, said Lee Mansfield, Hawai'i-American Water's manager. At that time, the rates for homes, condominiums, apartments and businesses in Hawai'i Kai increased 3.47 percent.

Under the company's current proposal, sewer fees would increase 16.47 percent for single-family homes if the commission decides to uphold the agreement between Henry J. Kaiser — the original developer of Hawai'i Kai — and the city, Jordan said. In dollars, that means rates would go from $50.14 a month now to $58.40 a month. Other customers also would see their rates increase. (See chart below for ratepayers.)

The amount that customers are charged is set by the commission, which guarantees the company a certain rate of return on its investment.

Hawai'i-American Water is now drawing a 5.84 percent rate of return. Approval of either proposal would increase the rate of return to 8.85 percent, Mansfield said. The company maintains that higher fees are needed to cover rising costs for energy, chemicals and insurance matters.

Some residents are puzzled by those arguments.

"It's a monopoly," said Murray Luther, a resident of Hawai'i Kai. "The company has a helluva deal here. This is a large company. Shouldn't they have put money aside for improvements?"

Area resident Shu Yuan Hsieh said the company should continue providing the sewer service to the public agencies without any extra surcharges.

"It is the Public Utilities Commission's duty to make the company retain this agreement and not charge the rest of us extra," Hsieh said.

Hawai'i Kai residents pay sewer fees separately from water bills. The sewer fees are based on a flat fee, compared to city sewer rates, which are determined based on the amount of water used.

A typical single-family O'ahu household served by the city water and sewer system pays about $42.85 a month.

Last month, the commission held a public hearing on the company's request for a rate increase. The next step will involve a consumer advocate going before the commission with a recommendation, followed by another hearing. In addition, the commission plans to separately consider the company's claims over the validity of the 1961 agreement. A public hearing may be held on that matter during which the city and state would present their positions and the state Consumer Advocate would represent ratepayers.

John Cole, Division of Consumer Advocacy executive director, said, "My position is if the PUC decision is to keep the agreement in effect, then the ratepayers shouldn't be required to pay for these entities receiving free service."

He added, "The company knew about this agreement when it bought the facility."

Reach Suzanne Roig at sroig@honoluluadvertiser.com.