December 21, 2018

CT Water, SJW sweeten $1.1B deal for state regulators

Photo | Contributed
Photo | 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.
PHOTO | Connecticut Water Service
Connecticut Water CEO and President David C. Benoit.

Connecticut Water Service Inc. and the California company attempting to acquire it for $1.1 billion recently offered a new slate of commitments to state regulators, who preliminarily denied the proposed combination earlier this month.

The Connecticut Public Utilities Regulatory Authority (PURA) in a Dec. 3 draft decision denied SJW Group's proposed buyout of Connecticut Water arguing it would weaken the Clinton utility both financially and managerially.

PURA also said the deal lacks public benefit and other binding commitments to protect Connecticut Water's Clinton headquarters and its many jobs across the state.

A final decision on the deal from PURA was expected Dec. 12, but an extension was granted to allow the companies to convince regulators the deal offers widespread benefits to the utilities and the public.

In a joint letter to PURA Executive Secretary Jeffrey R. Gaudiosi, the companies on Dec. 14 rolled out several new commitments to ease concerns raised by state regulators.

New pledges ensure base rates will remain unchanged for customers of Connecticut Water and its two local subsidiaries -- Avon Water Co. and Heritage Village Water Co. -- through 2020, according to the letter signed by SJW CEO Eric W. Thornburg and Connecticut Water CEO and President David C. Benoit.

A full-year rate credit will also be offered to Connecticut Water customers equal to 2 percent of the revenue requirement set by PURA, they said.

The executives also promised to deliver new guarantees to maintain Connecticut Water's minimum employment levels, regional headquarters and management team in Clinton.

SJW, which has assets of $1.5 billion, also said it mitigated its financial risk after raising $410.5 million from a public stock offering Dec. 3 and Dec. 5.

Other commitments include doubling Connecticut Water's annual charitable contributions to $120,000 a year and strengthening open space protections.

These pledges, the letter says, will be ensured through development of a new local board, in addition to adding another Connecticut Water official to SJW's board of directors.

An annual customer satisfaction survey will also be distributed and filed with PURA to prove the company's commitment to serving Connecticut customers and communities, the letter says.

"Taken together, these new developments and additional SJW commitments –which we intend to be made legally binding – address the vast majority of concerns articulated in the proposed final decision," the letter says.

Workforce backing

Connecticut Water employees also submitted written testimony to state regulators in support of the proposed combination.

Karen B. Maines, director of employee relations and talent management at Connecticut Water, said its entire workforce supports the SJW buyout because it will allow the Clinton utility to expand its operations through new new technology and buying power. The deal would also offer new job opportunities, Maines told regulators.

"We were all counting on this to move forward and remove our uncertainty," she said.

David Connors, the utility's director of service delivery, also echoed Maines' sentiments in a letter to PURA. Connors said Connecticut Water employees are growing "more excited" about the proposed combination because it provides access to new technologies, methods in water conservation, and asset and data management.

But not all of the newly submitted testimony revered the proposed $1.1 billion acquisition.

Michael Blomquist, a member of Water Rate Advocates for Transparency, Equity and Sustainability in California, thanked PURA for criticizing the "grossly inflated, self-enriching" and "ill-conceived" proposal.

Blomquist also claimed SJW prevents its shareholders from voting on the "direction of their investments," including seizing their rights to vote on a merger offer from San Jose's California Water Service Group. He also forecasted additional costs to ratepayers under the proposed combined companies.

"Please help insure the captive consumers in Connecticut are not charged the enormous costs associated" with the proposal, he said.

PURA has not set a date to issue its final decision on the proposed deal, a spokesman said Friday.

In March, SJW and Connecticut Water originally agreed to a $750 million merger before SJW raised its offer in August to fend off competing bids from Eversource Energy and California Water.

Connecticut Water shareholders last month overwhelmingly approved SJW's all-cash, $70-per-share proposed buyout of its outstanding shares.

Connecticut Water and its subsidiaries -- including the Maine Water Co. -- provide water service to over 450,000 people in Connecticut and Maine, and wastewater service to more than 10,000 people in Connecticut.

This story has been updated to include comments from PURA

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