Eversource Energy’s acquisition of Bridgeport-based Aquarion Water Co. will merge New England’s largest energy company with the region’s largest private water company, serving almost 4 million customers in three states.
Get Instant Access to This Article
Subscribe to Hartford Business Journal and get immediate access to all of our subscriber-only content and much more.
- Critical Hartford and Connecticut business news updated daily.
- Immediate access to all subscriber-only content on our website.
- Bi-weekly print or digital editions of our award-winning publication.
- Special bonus issues like the Hartford Book of Lists.
- Exclusive ticket prize draws for our in-person events.
Click here to purchase a paywall bypass link for this article.
Eversource Energy's acquisition of Bridgeport-based Aquarion Water Co. will merge New England's largest energy company with the region's largest private water company, serving almost 4 million customers in three states.
The $1.68 billion deal is the first acquisition of a U.S. water company by a large electric utility in recent memory, analysts say, though it's too soon to predict whether it will be a trend.
“One deal doesn't make a trend,” said Travis Miller, an analyst with Morningstar Inc.
Such deals are rare because most water companies (about 85 percent) are owned by governments or quasi-public entities, like Greater Hartford's Metropolitan District Commission, which means they don't trade hands very often, said Neil Kalton, managing director of utilities equity research at Wells Fargo Securities.
Aquarion for the last decade has been owned by New York-based Macquarie Infrastructure Corp., which operates and invests in infrastructure companies.
Some analysts suspect Eversource found the deal appealing because of the synergies between the two companies.Others have said it's simply a good business decision that will diversify Eversource's holdings and offset potential regulatory challenges its facing with other projects.
“Electric demand is experiencing some pressures that could slow growth opportunities, so we have seen utilities increasingly look for growth in their gas operations, and Eversource might be trying to find that growth in the water business as well,” said Miller, who added that Eversource is trying to get a few gas pipeline projects off the ground, but has faced hurdles doing so. For example, Access Northeast, which would expand the Algonquin Gas Transmission pipeline in New England and add liquified natural gas facilities, has faced consumer resistance and legal barriers.
Differing views
Research analysts who follow Eversource have various opinions on the main driver of the acquisition.
Miller said the deal is an opportunity to “drive synergies that benefit customers and shareholders.”
The ability to serve a greater number of customers with a minimal capital investment is a huge benefit and there aren't a lot of intrinsic differences between the water company and the gas and electricity company, he said.
“They're very similar businesses in terms of managing and operating,” Miller said.
The merger will give Eversource water customers in places where it has control over electricity and gas supply. Such overlapping service territories can often lead to cost savings and other strategic planning options, he said.
Kalton said the merger had less to do with leveraging synergies. While the combination could help lower financing costs and allow sharing between departments, a “unique set of circumstances”simply made it a good business decision, he said.
Kalton said Aquarion happened to be up for sale, and in Eversource's backyard, at a time when the electric utility needed to replace revenues from assets it is planning to sell in New Hampshire. Kalton said Eversource has to sell a coal power plant in New Hampshire, which was producing $30 million a year in earnings; buying Aquarion will replace those lost revenues.
“Eversource was looking for some earnings, it was plugging a hole,” Kalton said.
Kalton pointed out that this is a fairly small acquisition for Eversource, as Aquarion will represent about 3 to 4 percent of Eversource's annual earnings going forward. “Honestly, it took a lot of investors by surprise,” Kalton said. “Eversource had not telegraphed a pivot into water at all.”
Kalton added that both companies have similar growth profiles, with annual earnings expected to jump 5 to 7 percent annually.
Eversource spokesman Mitch Gross said there are many similarities between the two companies. “This is the bringing together of two companies that provide the critical infrastructure New England residents and businesses need to grow and thrive. Both companies are committed to safety and service, both are community focused as well as focused on environmental stewardship,” Gross said. “We already share service territory in Connecticut, especially in Litchfield and Fairfield counties, in addition to areas in Massachusetts and New Hampshire.”
Gross pointed out that Eversource CEO and Chairman Jim Judge noted in a June 2 announcement: “For Aquarion, becoming a part of Eversource ensures local ownership that is committed to providing the resources needed to make investments in the business to drive long-term success.”