Facing public opposition to the deal, Aquarion Water Authority (AWA) and its partners have outlined a set of concessions they say they’re willing to make to advance their proposed $2.6 billion sale of Connecticut’s largest water utility from Eversource Energy to a new public authority.
The concessions include a $10 million contribution to an interest-bearing rate stabilization fund and $16.8 million in annual rate credits, in perpetuity, to help offset future rate increases.
Eversource, AWA and its sister water utility in New Haven — the South Central Connecticut Regional Water Authority (RWA) — filed an offer of compromise with the state Public Utilities Regulatory Authority on Oct. 1.
Eversource currently owns Aquarion Water Co., which it plans to sell to AWA under the proposed deal. RWA and AWA would share executive leadership and AWA’s board would include RWA representatives.
The compromise addresses concerns raised by municipalities and consumer advocates during months of contested proceedings over a joint application for PURA to approve Aquarion Water Co.’s change of control.
The change means that residents of 59 Connecticut municipalities currently served by Aquarion Water Co. will get their water from the quasi-public nonprofit AWA after the deal closes. Advocates have raised concerns that the deal will result in higher rates for customers and less regulatory oversight.
According to AWA, converting the company into a nonprofit will reduce financing costs for investments by $350 million over the next decade.
PURA retains ultimate authority to approve or deny the application and is expected to issue a draft decision before the end of October, with a final decision in November.
Eversource confirmed Monday that it expects the transaction to close by the end of 2025.
The applicants’ compromise offers specific financial commitments and consumer protections as conditions PURA could attach to approval:
- Eversource would contribute $10 million to a rate stabilization fund held in an interest-bearing account before closing. The funds would be used exclusively to offset future rate increases for AWA customers.
- AWA would maintain $16.8 million in annual rate credits in perpetuity, including $7.6 million in excess accumulated deferred income tax credits and $5.7 million from the 2017 Tax Cuts and Jobs Act.
- Rates would remain frozen for at least six months after closing, with AWA rates kept separate from RWA rates.
- AWA guarantees payments in lieu of taxes to municipalities would never fall below current property tax levels.
Following the sale, enforcement of these conditions would shift from PURA to the AWA Representative Policy Board, composed of one representative from each of 59 municipalities in the service territory, plus one gubernatorial appointee. The board would function as a regulator, reviewing budgets and approving rates.
Conditions would also be enforceable through the Superior Court.
Widespread opposition
Despite the proposed concessions, multiple intervening parties oppose the compromise offer. The Connecticut Office of Consumer Counsel, Office of the Attorney General, Connecticut Water Co., Save the Sound and multiple municipalities including Fairfield, New Canaan, Ridgefield and Westport all opposed the settlement terms.
Attorney General William Tong dismissed the offer’s significance.
“There is nothing here that fundamentally changes the fact that this transaction is a costly loser for Connecticut families that will result in higher rates and less oversight,” Tong said.
The state Department of Energy and Environmental Protection and Department of Public Health took no position.
The opposition follows extensive testimony against the deal.
Charles V. Firlotte, former CEO of Aquarion from 2003 to 2019, testified on behalf of 25 municipalities through the Connecticut Metropolitan Council of Governments and Western Connecticut Council of Governments.
“The potential acquisition of one public utility by another should be examined on the basis that the acquisition should bring a net benefit to the customer base and/or minimally, should do no harm,” Firlotte testified in July. “In both instances the proposed acquisition under examination by PURA in this docket falls egregiously short.”
Firlotte highlighted that Aquarion Water Co. has a rate base of $1.37 billion, meaning the proposed deal includes an acquisition premium approaching $1 billion that would be financed through debt and recovered in customer rates.
“If rates include charges for something other than either use of the water system or capital invested in water utility service, they are not just, reasonable or equitable,” he said.
Firlotte’s testimony presented data showing Aquarion Water Co. customers currently pay 30% less than RWA customers. Over the past decade, RWA’s Representative Policy Board approved rate increases totaling 45%, while PURA allowed Aquarion’s rates to rise 8.5%. Aquarion’s last general rate increase was in 2013.
Also, Firlotte noted that RWA’s operating and maintenance expenses of $74.5 million are comparable to Aquarion Water Co.’s $70 million, despite it being nearly twice RWA’s size in terms of customers served.
Governance structure
A central objection involves AWA’s proposed governance structure.
Under the original plan, the AWA Board would have 11 members: six appointed by the RWA Representative Policy Board and five appointed by the AWA Representative Policy Board, giving RWA appointees voting control.
Based on the offer of compromise, the board composition would remain 11 members with the same split: six appointed by the RWA Representative Policy Board and five appointed by the AWA Representative Policy Board.
However, the compromise proposes a significant change to voting authority.
During the transition period (at least 3 years), all 11 board members would vote on all matters and RWA appointees would maintain voting control with their 6-5 majority.
After the transition period, the same 11 board members would remain, but voting would be “bifurcated.”
That means only the five AWA-appointed members would vote on AWA matters pertaining to capital budgets and rate filings. At the same time, only the six RWA-appointed members would vote on RWA matters pertaining to capital budgets and rate filings.
That addresses one of the key governance concerns raised by municipalities and in Firlotte’s testimony: that RWA appointees from outside the Aquarion service territory would control decisions affecting Aquarion customers.
Questions about PURA
The proceeding unfolds as questions arise about PURA’s future.
Last month, PURA Chair Marissa Gillett announced her resignation, effective Oct. 10.
Gov. Ned Lamont will have to make at least one appointment to PURA before Gillett’s departure to guarantee the authority a quorum of three members to issue final decisions in pending cases, according to CT Mirror.
An Eversource spokesperson said the company is monitoring developments at the agency.
“The conduct of agency leaders, including the chair, remain significant issues in Connecticut state courts,” the spokesperson said. “The circumstances in recent weeks are unique and are unfolding as critical decisions affecting gas, water, and electric customers are being adjudicated before the agency. It is important that this work continues.”
The spokesperson said Eversource is “ready to collaborate and discuss resolutions to these matters, including negotiated resolutions, in order to avoid additional litigation and to move the state forward.”
The municipalities Firlotte represents have requested PURA deny the application entirely, arguing substantial changes would be needed to cure harms inherent in the proposal and that future compliance with any conditions cannot be assured because PURA would lose enforcement authority after the transaction.
“Denial of the application is necessary because even if PURA attached terms and conditions to approval of a modified proposal, future compliance with any such terms and conditions is not assured because PURA will no longer be able to enforce them,” Firlotte testified.
The applicants requested PURA approve the transaction with only the conditions outlined in their compromise offer.