May 8, 2018

Water utility bids raise concerns about control of CT's water resources

Photos | Contributed
Photos | Contributed
Killingworth Reservoir is among 253 in-state reservoirs and wells Connecticut Water Service Inc. taps to provide potable water to about one in 10 Connecticut residents.

With the battle for Connecticut Water Service Inc. (CWS) entering a new phase, questions are being raised about whether out-of-state ownership and control of Connecticut's most valuable natural resource is in the best interests of residents and its economy.

Clinton-based CWS, which serves consumers in Connecticut and Maine, has pending a $750-million buyout offer from SJW Group, a San Jose, Calif., holding company that owns a water utility and a commercial land-developer.

But Connecticut's biggest electric-water utility, Eversource, has burst onto the scene with a competing bid for CWS, citing its local ties and thirsty residents' growing reliance on it since last year's $1.8 billion buyout of Bridgeport water supplier Aquarion Water Co.

Eversource has urged Connecticut Water Service stockholders to reject the overtures of SJW, itself the target of a $1.9 billion buyout offer from another California water utility. Eversource contends it is well-equipped as a state utility to absorb Connecticut Water and to continue with tens of millions of dollars in annual investments in upgrades and expansions.

While that high-stakes corporate melodrama plays out, concerns are being raised among lawmakers and consumers about the concentration of ownership of Connecticut's water resources, particularly in the hands of an out-of-state player.

CWS itself has been an active acquirer in recent years, spending $60 million in 2017 to purchase two local water utilities: Southbury's Heritage Village Water and Avon Water Co. Combined, they serve about 104,000 metered customers in Connecticut, or a population of about 350,000.

"Conglomeration of water interests is a cause for concern, just like concentration of such resources in any industry,'' said state Rep. Jonathan Steinberg (D-Westport), who co-chairs the legislature's Public Health Committee. "We already have issues with powerful special interests in our country. I'm not saying it's a problem per se, but it does give me pause."

Whether or not Eversource prevails, the battle for control of a share of Connecticut's 2,500 public water systems that provide nearly nine of every 10 state residents with potable water comes at a crucial juncture.

A drought gripped parts of Connecticut in 2016, triggering some communities to limit certain water uses. That occurred amid ongoing concerns about the impact of climate change on historical and projected rain- and snowfall totals, which serve to recharge Connecticut's surface and below-ground water reserves.

Also pending right now is a 616-page draft of Connecticut's state water plan, which spells out for current and future water-drinkers this state's mission and ambitions for monitoring, using and conserving its vast water resources. Connecticut is renowned for some of the most protective water policies in the nation; it is the only state that mandates drinking water come from sources untainted by sewage discharge.

Just last week, Gov. Dannel P. Malloy attended the groundbreaking for a $54-million makeover of Groton's aging water plant serving residents and businesses, such as Electric Boat, and urged lawmakers to adopt the proposed state water plan for developing and conserving Connecticut's vast system of surface and underground water resources, water/sewer lines and related infrastructure.

Perhaps more importantly, Malloy told his Groton audience, the plan establishes water as a "public trust,'' one the state has a responsibility to protect.

That wording in the water plan, however, has drawn ire from, among others, the Connecticut Water Works Association (CWWA), a statewide lobby of 45 public and private water purveyors serving about 500,000 household and commercial customers, or some 2.5 million individuals.

The state's private and municipal water utilities, said CWWA Executive Director Betsy Gara, are concerned that labeling water as a public trust could limit the pool of water sources available to them. The Connecticut Business & Industry Association also is concerned for the broad, unresolved interpretations of a 47-year-old state statute that stipulated air, land and water as public trusts, said Eric Brown, a CBIA lobbyist.

Could, for example, the state prevent utilities from tapping certain Connecticut waterways if major and lasting droughts take hold in the state?

Environmentalists have lobbied strongly for the public trust language in the water plan, which Malloy also supports.

"The plan was drafted after an 18-month transparent and public process with extensive input from consumers, environmental advocates, and water utilities," Malloy said. "The idea that these same utilities are now trying to derail the entire process in order to protect their private interests and profits should be of concern to every citizen in our state."

Given a choice between Eversource, with joint Hartford/Boston headquarters and SJW Group owning Connecticut Water Service, Malloy said through his office spokesperson, "we would strongly prefer local ownership."

Merger battle

Eversource insists that its purchase of CWS would enhance the state's long-term water ambitions while benefiting customers. The utility says its forecasted capital investments at Aquarion will average $114 million a year from 2018 through 2022. By comparison, Aquarion pre-merger invested an average of $68 million annually in its water works.

Moreover, Eversource says its deal would "keep ownership of a Connecticut company in Connecticut.''

"We have proven to customers, communities and regulators that we are a trusted operator of water utilities through our ownership of Aquarion,'' Eversource spokesperson Caroline Pretyman said in an email.

SJW Group said its acquisition proposal provides better value to Connecticut Water Service shareholders: its deal is valued at $63.70 per share (or a bit higher) vs. Eversource's $63.50 per share offer. Meanwhile, Connecticut Water took a shot at Eversource's recent financial performance and customer service ratings, pointing out the Connecticut Public Utilities Regulatory Authority recently launched an investigation into a spike in Eversource energy customers being cut off from service.

"Eversource Energy is predominantly an electric and gas transmission and distribution company that is launching an unsolicited acquisition proposal and disruptive, costly proxy contest in an effort to distract from its record of chronic underperformance and poor customer service," Connecticut Water said in a statement.

San Jose Water, an SJW Group subsidiary, and Connecticut Water are about the same size and share reputations among their peers as efficient operators, with lean staffs, the companies added. A combination, they say, would create a water utility whose scale would allow it access to cheaper capital with which to increase investment in CWS' infrastructure in Connecticut and Maine.

Connecticut Water asserts the SJW deal is in the best interests of its customers and stockholders.

The proposed merger still needs approval from stockholders of both companies and regulators, including the state Public Utilities Regulatory Authority, which declined to comment on the deal.

Emotions run high

Ownership and use of Connecticut water is an emotional topic for many, said state Office of Consumer Counsel (OCC) Elin Swanson Katz, whose authority to protect them extends to investor-owned utilities like Connecticut Water and Eversource.

"Water, next to cable, is probably the hot-button issue for most people,'' said Richard Sobolewski, a supervisor of utility financial analysis at OCC who has had a hand in scores of utility-rate proceedings.

That was apparent two years ago, amid Bloomfield residents' uproar over Niagara Bottling's intent to build, using town tax incentives, a plant bottling daily up to 1.8 million gallons of water to be purchased at a discount from quasi-public regional water-sewer utility, The Metropolitan District (MDC). MDC serves more than a dozen Greater Hartford communities.

Ultimately, Niagara opened its plant, but consumers' outrage prompted MDC to revoke its water discount. It also triggered a failed effort in the state legislature to extend a regulatory hand into future sales of water by MDC or other providers. MDC and industry-affiliated lobbies opposed the measure as too intrusive.

MDC, by state statute, is barred from being sold to, or merging with, any public or private water-sewer utility, according to MDC Assistant District Counsel Christopher Stone.

The Niagara episode left "a really poor taste in everybody's mouth,'' said Valerie Rossetti, a retired anesthesiologist who is a member of Bloomfield Citizens and on the steering committee of its 2,800-member statewide offshoot, Save Our Water Connecticut.

Both groups, Rossetti said, find "alarming" the prospect of out-of-state ownership, someday perhaps even foreign control, of a large chunk of Connecticut's water resources.

"There is an inherent conflict of interest," she said, "having out-of-state or international corporations making decisions about public-water resources.''

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