Will ending PURA oversight mean higher water rates?

By Joe Kelly

Aquarion Water Company—and by extension Norfolk’s public water system—may be about to undergo a massive shift in ownership.

Eversource Energy, which purchased Aquarion in 2017 but put it up for sale a year ago amid regulatory tensions and reversals in its wind energy investments, announced on Jan. 27 that it had accepted a $2.4 billion bid originated by the New Haven-based South Central Connecticut Regional Water Authority (RWA).

Assuming the transaction clears all regulatory and political hurdles, it would convert Aquarion from the private, investor-owned utility it has always been into the quasi-public, non-profit Aquarion Water Authority (AWA). That would also make Aquarion no longer subject to the rate-setting oversight of Connecticut’s Public Utilities Regulatory Authority (PURA), which in recent years has taken a hard line on water rates.

Instead, the cost of water in Norfolk and other communities would now be set by a board known as the Aquarion Regional Water Authority Representative Policy Board (RPB), consisting of representatives from the 59 municipalities (like Norfolk) that are its customers. Each community would have one representative on the RPB, but votes would be weighted using a formula based on the number of customers and the amount of property the water authority owns in the community.

The makeover of Aquarion, as proposed, would represent one of the largest deprivatizations of an investor-owned utility anywhere in the U.S. It also marks the fourth time Aquarion has changed hands in the last 25 years.

Fears that the change in ownership and lack of PURA oversight will cause water bills to rise have already generated political heat with Fairfield County legislators. Sen. Ryan Fazio (R-Greenwich) and Rep. Tracy Marra (R-Darien) have introduced legislation to block the sale.

Under the proposed sale, the newly established AWA would be a standalone entity but would operate alongside the RWA to deliver economies of scale. Rochelle Kowalski, chief financial officer of the RWA (she would hold that same position at the AWA), said current water rates for Aquarion customers would remain in effect and that there is no intention to “blend” the rates of the Aquarion operation with the existing New Haven system. She said the deal is being structured to prevent the carrying costs of the acquisition from impacting rates.

Aquarion customers are unlikely to notice any difference, according to Kowalski: “The day-to-day operations are going to remain exactly the same. You will be dealing with the same people you deal with today.” As to whether previously planned infrastructure investments in municipal water systems (Norfolk has been expecting water main work on Shepard Road, for example) should remain on schedule, she said, “I am not aware of any reason this transaction should impact anything that was already planned.”

Aquarion is by far the largest provider of drinking water in Connecticut; it also serves a number of towns in Massachusetts and New Hampshire. Founded in the mid-19th century as the Bridgeport Hydraulic Co. and rebranded as Aquarian in 1996, it has grown by regularly acquiring smaller water companies.

Aquarion remained a private, investor-owned water utility operating out of Bridgeport until it was sold in 2002, for $596 million, to the United Kingdom’s Kelda Group PLC and again in 2006, for $860 million, to Australia’s Macquarie Bank Ltd. and an affiliate. In 2017, Eversource brought the ownership back to the U.S., paying $1.67 billion. The current $2.4 billion transaction—a quadrupling of the sales price since 2002—will be financed using tax exempt bonds issued by the newly established authority.

John Batten, a Norfolk resident who follows the water industry as Global Cities Director for Arcadis, an international design and consultancy firm, said he viewed the proposed deal positively, noting that “it could change the way rates are set, but it doesn’t change the regulatory oversight of water quality.”

The issue of regulating water rates hangs over the transaction. PURA awarded Aquarion its last full rate increase (8.6 percent) in 2013. In 2022, when Aquarion went back to PURA seeking another rate hike, it wasn’t just rebuffed—PURA both denied Aquarion’s request and ordered the company to charge less.

Over the years, Aquarion has increased rates on a reduced scale using surcharges tied to specific improvements allowed under Connecticut’s Water Infrastructure and Conservation Adjustment (WICA) program. Aquarion’s 800+ Norfolk customers can find the WICA surcharges on their monthly bills.

A comparison of Aquarion and RWA’s rates shows that consumers in the New Haven area served by RWA currently pay more for water than Aquarion customers. RWA charges 21 percent more than Aquarion for consumption ($5.229 versus $4.335 for the first 100 cubic feet of water) and about 77 percent more for delivery ($22.83 versus $12.89). A household served by RWA that consumes 7,000 gallons of water monthly pays about $72, compared to $54 for an Aquarion consumer. The 33 percent difference nets out to $216 over a year.

Critics such as Fazio and Marra argue that the higher rates RWA charges today, plus elimination of PURA’s oversight, will mean bigger water bills for consumers in the future. Their bill to overturn the legislation that allowed the transaction and would derail the sale now sits with the Committee on Planning and Development, where it awaits a public hearing.

Kowalski noted that rates are determined by a range of factors—the age of the infrastructure, customer mix, source of supply, water quality—and there is no reason to assume that the rates charged by RWA in New Haven today offer any guidance for the rates that will be paid by Aquarion customers in the future.

While the deal would end its oversight role, PURA must still approve the sale, together with the Massachusetts Department of Public Utilities and the New Hampshire Public Utilities Commission. The Federal Trade Commission and the Department of Justice’s Antitrust Division also get to weigh in.

Kowalski said that paperwork is being prepared, with the goal of acquiring all the necessary approvals for the sale this year.