In 2012, Clinton’s Connecticut Water Service Inc. became the largest investor-owned water utility in Maine.
Its entry into Maine started with the $53.5 million purchase of former Aqua Maine (now Maine Water Co.) last January and finished with the $19.8 million purchase in December of the Biddeford & Saco Water Co.
The Maine acquisitions increased Connecticut Water’s overall customer base by 35 percent, making it one of the 10 largest publicly traded water utilities in the U.S. and No. 1 in New England. It now supplies water to nearly 400,000 drinkers in Connecticut and Maine.
But why is a Connecticut water company buying its way into Maine?
Michael Roomberg, vice president of equity research at New York City investment firm Ladenburg Thalmann & Co. Inc. and a water-industry expert, offers two reasons: It expands Connecticut Water’s customer base and therefore its revenues. More importantly, it does so in a different regulatory and geographic environment.
The benefit, Roomberg says, is a hedge. If the company is seeing less water usage in Maine because of a wet summer (for example, people aren’t watering their lawns as much), then Connecticut’s dry summer might be driving water usage up. Likewise, he says, one state’s regulatory commission might be slower or stingier in approving rate increases than the other’s.
For Connecticut Water, he says, diluting those risks by expanding into another state is the equivalent of not putting all its eggs in one basket. In Roomberg’s view, it’s a smart move that bodes well for its investors and its new customers in Maine.
“Connecticut Water is an extraordinarily well-run, investor-owned regulated water utility,” he says. “The company has been supremely skillful in balancing the interests of investors, customers, regulators and local officials.”
Gaining new customers through acquisitions, then, helps increase a larger utility’s revenue base, and that’s what leverages capital investments the smaller utility might not have been able to make on its own.
By employing economies of scale on a wide array of costs — from the chemicals used in the water treatment process to buying property and general liability insurance — Wallingford says Connecticut Water and its Maine subsidiaries should be able to lower the average cost of providing safe drinking water to customers. That has already happened with Biddeford & Saco customers, who saw a planned 2012 rate hike filing delayed until at least the second half of this year.
“Connecticut Water brings to the table its knowledge base, and that expertise can be shared with us here in Maine,” she says, adding that sharing best practices is a two-way street, citing the electronic billing system already at Maine Water as something both Connecticut Water and Biddeford & Saco will be able to emulate.
Roomberg says Connecticut Water’s strong market performance in recent years coincides with the arrival of Eric Thornburg in 2006 as the company’s chairman, president and CEO following a long career with American Water, the nation’s largest public fresh- and wastewater utility. He says the challenge Thornburg faces as Connecticut Water’s CEO is universal among water companies, large or small: How to pay for essential infrastructure upgrades involving underground water mains 50, 80 or even 100 years old.
Thornburg’s answer: Customer satisfaction.
“We’re determined to build the trust relationship between our company and our customers,” he says. “We know the rest will work out if we really focus on providing excellent service to our customers.”
Thornburg acknowledges that part of the appeal in entering Maine is a new state law that allows water utilities to assess a temporary surcharge to help pay for water infrastructure.
Connecticut has a similar program, which Connecticut Water tapped to help finance the replacement of 15 miles of pipe last year. For 2013, the company’s board of directors budgeted a $31.3 million capital spending plan that includes $15 million to replace unreliable, undersized or leaky pipes in Connecticut. Since 2007, the company has replaced more than 50 miles of aging water mains.
In December, a public stock offering of 1.7 million shares of common stock, priced at $29.25, raised $43.1 million, of which $17 million will be used to pay for part of the $53.5 million purchase of Aqua Maine.
Thornburg says the stock offering was the first in more than 20 years for Connecticut Water, and it offered a solid affirmation of the company’s performance in recent years.
Looking ahead, Thornburg sees the two Maine purchases as providing a “solid platform” for continued expansion.
“Additional size helps drive revenues,” Thornburg says, noting that he’s told investors and analysts the hub of the first circle of growth centers on Connecticut and Maine. The second concentric circle covers New England, and possibly would extend into New York. The final circle covers the Atlantic Seaboard.
Thornburg describes Maine’s PUC as “tough but fair,” with a “pretty short window on its rate cases” — adding that in both acquisition proceedings the reputation of Judy Wallingford and her team carried a tremendous amount of weight.”
Wallingford had been president of Aqua Maine and its predecessor companies since 1993.
“We’ve gone through this a few different times,” she says. “For me and my folks who’ve worked there for awhile, when the company changed hands, we said, ‘We know how to do this. We’re still here serving our Maine customers, and that’s what matters.”
Her to-do list as president of Maine Water includes setting up a new community advisory committee in the Biddeford/Saco area to increase customer outreach.
Wallingford says she shares Thornburg’s belief that good solid customer service is the key to success in the water industry. The blended company has a 92 percent customer satisfaction rate based on an independent annual survey by the Center for Research.
She said Connecticut Water will bring much-needed capital resources to both Maine subsidiaries, but especially Biddeford & Saco.
“We are essential for economic development,” she says. “We know this is the right long-term solution for the communities we serve.”
