PAWTUCKET –– Water rates could rise 17.6 percent, or $63 per year, for the average residential customer, as a result of an agreement between the state agency that reviews requests for rate increases and the city department that sells water to Pawtucket, Central Falls and part of Cumberland.

The agreement, which still requires the approval of Public Utilities Commission, settles the rate case that the Pawtucket Water Supply Board brought before the PUC five months ago.

It was worked out during the summer by Water Supply Board officials and the Division of Public Utilities and Carriers, and unveiled yesterday at a hearing in Warwick before the PUC.

The PUC is expected to reconvene to vote on the settlement at a meeting later this month.

If the PUC approves the settlement, effective Oct. 1, the cost of water for the average household in Pawtucket, Central Falls and the Valley Falls section of Cumberland will rise from $358 to $421 a year.

That’s $28 per year less than the Water Supply Board sought in March, when it filed its original request for a rate increase. But it’s still too much, according to Donald R. Grebien, a Pawtucket city councilor who is running for mayor.

“Any rate increase at this point people just can’t afford, and the PUC needs to look at that,” Grebien said.

As he did in April, after the council learned the Water Supply Board had filed for what was then a 25.5 percent rate increase, Grebien said a sale of the Pawtucket water system should be explored.

Mayor James E. Doyle, whom Grebien will be opposing in the election, couldn’t immediately be reached for comment.

In an interview yesterday, Grebien said Doyle’s response to his proposal that the city look into selling the water system was “lukewarm.”

When it put in for the rate increase, the Water Supply Board said it needed an additional $3.1 million in revenue.

In negotiations with the Division of Public Utilities and Carriers, the board agreed to settle for $1.9 million.

Part of the money will cover a 30-percent increase in the annual cost of board’s contract with Earth Tech, the company hired to design, build and operate the new water-treatment plant.

The water-treatment plant, which was built behind the Water Supply Board headquarters on Branch Street, went into operation in March. Before that, Earth Tech was operating the Water Supply Board’s former plant, on Mill Street in Cumberland, which was antiquated but cheaper to run.

Earth Tech received $1,260,000 from February 2007 to February 2008 to run the former plant, Robert E. Benson, the Water Supply Board’s chief financial officer, said yesterday.

Under its contract to operate the new plant, Earth Tech is entitled to an additional $459,000, Benson said.

The increase wasn’t a surprise, according to James L. DeCelles, the Water Supply Board’s chief engineer and general manager. The technology that enables the new water-treatment plant to meet tough new federal safe-drinking water standards also makes the plant more expensive to operate, DeCelles said.

The technology includes using ultraviolet light to disinfect the water drawn from the city’s three reservoirs. DeCelles said the UV light treatment uses a lot of energy and thus costs more.

Even without the new UV system, the Water Supply Board has been confronted with skyrocketing energy costs. According to Benson, if the Water Supply Board is granted the rate increase, energy costs will consume $390,000 of the additional $1.9 million in revenue. Increased labor costs will absorb $465,000. Debt service on the bonds issued to rebuild the Pawtucket water-system accounts will use $537,000 of the $1.9 million. In addition, $141,000 is being placed in an operating system reserve.

The reserve will be used, Benson said, to cover revenue shortfalls and unexpected increases in expenses.

In recent years, the Water Supply Board has been beset by both.

Water sales are measured in hundreds of cubic feet (HCF).

Over the past eight years, water sales have dropped from 6.2 million HCF to 4.6 million HCF, resulting in a sharp decline in revenue.

At the same time, there has been a steep rise in the cost of electricity. The Water Supply Board cited both factors when it applied for the rate increase from the PUC.

jcastell@projo.com