The Honolulu Board of Water Supply is anticipating an increase in its rates by about 12.5 percent over the next five years to meet its rising costs to provide service and deal with replacing all 2,100 miles of water pipes and other costs.

Specifics on how much more its customers in different categories will need to pay, and when, have yet to be determined.

A five-year financial plan is expected to be presented by BWS Manager Ernest Lau to the board and the public in March. No increases will take effect before July 1, 2019.

The board is looking at meeting its financial requirements through a combination of cash and bond financing. To just rely on cash would require a more significant rate increase for customers over the next five years, said David Ebersold of the consultant group CDM Smith.

Relying solely on cash revenues would require an increase in rates of nearly 115 percent, Ebersold said. “If we adjust the timing of the bond issuances to get as smooth of a set of adjustments as possible, then we’re able to have a five-year increase in revenue requirements of about 12.5 percent,” he said.

The board Friday voted to give its agency staff a broad series of policy guidelines on how to proceed with its rate plan.

Among the policy directives adopted:

>> Shift its residential rate structure for residential (both single- and multifamily) customers to create a new “essential needs tier” that would shield customers who use the least amount of water from being severely hit by the impending increases and, at the same time, encourage conservation among all users.

Under the current tiered rate structure, a single-family residential customer pays $4.42 per 1,000 gallons for the first 13,000 gallons, $5.33 per 1,000 gallons for the amount between 13,000 and 30,000 gallons, and then $7.94 for every 1,000 gallons used beyond that. (A similar structure exists for multifamily customers.) Under its proposed shift, the first-tier rate would be applied only to the first 6,000 or 9,000 gallons, and customers would need to pay a higher rate for any additional water used.

>> Adjust rates in a manner that would require residential customers to cover a larger percentage of the cost for their service. Ebersold said single-family home customers now cover 88 percent of the cost of service, with the rest of their tab subsidized by multifamily and so-called “nonresidential” customers, who pay 8 and 17 percent more, respectively, than their costs. (Agricultural, nonpotable and recycled water users also are heavily subsidized.)

>> Revise its monthly charge policy to require those with larger water meters to pay more than those with smaller meters. Currently, all customers pay a flat $9.26 per monthly bill, regardless of their meter size or level of use. The monthly charge comprises about 7 percent of BWS revenues and is supposed to cover the cost of customer service and billing staff, meter maintenance and repair, meter reading and bill processing and mailing.

>> Provide subsidies for builders of affordable housing, homeless shelters and fire sprinkler retrofitting. The amount of the subsidies is being studied by the agency and will depend largely on how much they would reduce revenues.

The board also directed its staff to:

>> Reject creating new assistance programs for customers who struggle to pay their bills. BWS already has several “affordability support” programs such as zero interest payment plans on a case-by-case basis and a rate structure that favors those who use less water.

>> Keep the rate structure for nonresidential customers such as commercial customers.

>> Increase the rate for those who use recycled and nonpotable water, but to do so slowly so as not to steer them toward using potable water.

>> Keep the rate of recovery for agricultural water users the same. Nalo Farms owner Dean Okimoto, a member of the board’s stakeholder advisory group, told the board that subsidized water is critical for many farms to survive.

Board Chairman Bryan Andaya said the policy directions, what BWS officials described as “guardrails,” are aimed at instituting a more equitable rate structure.

Lau, the board’s chief engineer, agreed. “We understand that everybody is having to do with increasing costs of utilities and other services they pay for each month, so we’re trying to balance the impact on their budgets, try to keep things affordable.”

The agency’s goal is to replace 21 miles of pipe a year over the next 10 years, which is roughly double the amount being replaced now, and then accelerate the program beyond that, he said.