Hartford Avenue, Old Lyme (Credit: CT Examiner/Stroud)

Impending San Jose Water and Connecticut Water Service Merger Raises Questions

in In the Region

The Public Utilities Regulatory Authority (PURA) could approve a long-delayed and previously-rejected merger of San Jose Water (SJW) and the Connecticut Water Service (CWS) and its subsidiaries, after receiving over 80 commitments to protect the public interest, and placing additional conditions on the merger.

CWS currently serves about 325,000 Connecticut residents and 56 towns across the state, including Old Lyme, Old Saybrook, Clinton, Deep River, Essex, Chester, Madison, Guilford and Stonington.

The merger has raised some concerns about the status of commitments to install updated water service to the Sound View neighborhood of Old Lyme.

Regulatory hurdles

According to the August 23 final draft proposal of the merger, PURA previously rejected the “shareholder-centric” transaction in part because of the applicants’ “failure to meet their statutory obligation to consider and protect the public interest in negotiating and structuring the deal.”

“Although these commitments, in theory, substantially improve the allocation of benefits and risks as between shareholders and the public, the Authority remains concerned that, in execution, ratepayers will bear certain financial risks,” read the draft’s introductory summary.

During the initial application waiting period, San Jose Water and Connecticut Water Service revised the merger agreement to include a “go-shop” provision that would permit active solicitation of competing bids, allowing other merger partners. As a result, PURA rejected the initial application as “not ripe for review” on June 18, 2018. The two companies withdrew the application the next day.

The companies refiled on July 18, 2018, but PURA rejected the application due to the “applicants’ failure to allay concerns to meet the burden of proving the change of control was in the public interest or promoted local control.”

On Dec. 14, 2018, the companies filed a motion to reopen the record and extend the schedule to admit new evidence but the authority denied the motion on Jan. 4, 2019.

On April 3, 2019, the applicants submitted the current proposal that included 72 commitments. Public hearings were held on April 29, May 22, May 24, June 6 and July 26 at PURA’s offices.

On July 3, the companies filed a settlement agreement among themselves, the Department of Energy and Environmental Protection and the Officer of Consumer Counsel. The agreement modified some of the 72 commitments and added eight more for a total of 80.

Wide coverage of Connecticut’s towns

According to the company, after a series of acquisitions the CWS serves about 325,000 people and approximately 56 towns across the state, including Old Lyme, Old Saybrook, Clinton, Deep River, Essex, Chester, Madison, Guilford and Stonington.

Connecticut Water Service’s subsidiaries include The Connecticut Water Company, The Avon Water Company and the Heritage Village Water Company

In addition, CWS owns the Maine Water Company, serving about 32,000 customers in 21 Maine towns.

Public Comment

PURA received a total of 54 letters and emails both for and against the merger. The majority expressed support, including “numerous Connecticut businesses and municipalities and a few San Jose business and municipal customers” as well as several mayors, First Selectmen, fire departments and the Shenipsit Lake Association.

Rivers Alliance of Connecticut, Inc., opposed the merger, stating that the proposal did not recognize “the importance of linking responsible water management to the environmental health of the waters in or connected to water-supply areas.”

Paul Zagorsky, a volunteer with Protect our Watersheds CT, spoke in support of the need for water to recognize water as a public trust.

Save Our Water CT questioned the motivation of the merger, asking whether it was for the shareholders’ benefit and the expansion of San Jose’s footprint.

Potential resolution for Old Lyme

Much of the correspondence came from members of Sound View Beach Association, who expressed concerns about delays in upgrades to piping infrastructure.

Dennis Melluzzo, a longtime Sound View Beach resident who was president of the beach association for 23 years, said Thursday a state mandate from the Board of Health had been in place since at least the 1990s to upgrade seasonal water lines for year-round service.

A depth of five feet is required for year-round water pipes whereas 18 inches to two feet is required for seasonal pipes.

The year-round pipes laid by Sound View Water Company are still intact but about 2,400 linear feet (about 1/2 of a mile) of seasonal piping needs to be upgraded, he said.

According to Melluzzo, the issue goes back to 1984 when Connecticut Water Company purchased Sound View Water Company but did not subsequently perform the upgrades. He said he filed complaints with the state Board of Health and PURA in 2013 and the Connecticut Water Company promised to complete the work by December 2015.

Melluzzo also said CWS installed water meters in 2008 so that all customers could be billed by usage instead of seasonally.

“Fast forward to 2018 — I’ve given them more than enough time and in the interim, they were in contact with the town regarding installing water lines when the sewer lines came in,” said Melluzzo.

In 2018, Melluzzo filed another complaint with PURA and had a concern that “starting in Sept of 2018 they were under eye of San Jose Water Company for acquisition.”

He said he attended all of the public hearings for the merger, and served to represent Sound View as an intervener, including five pages of petitions from Sound View residents and businesses, asking Connecticut Water to “finish what they were supposed to do 20-plus years earlier.”

Melluzzo said he received an official letter stating the work would be completed by December 2019, but in the draft agreement, under Commitment #74, the date of completion is December 31, 2020.

The document states that improvements will be done under the Water Infrastructure and Conservation Adjustment (WICA) program, “an interim rate adjustment that covers the costs of replacing existing water system infrastructure. These small, semi-annual adjustments will improve service to customers and lessen the impact on customers’ rates.”

The cost of upgrades for Sound View

How the costs of the upgrades will be paid for, remains a question. Town officials have emphasized that the improved water service will come at “no cost” to residents and property owners.

“While the road will be under construction to install the system, CT Water Company will take advantage and upgrade their water main lines at no extra charge to the town or residents,” said Rob McCarthy, member of the Old Lyme Water Pollution Control Authority (WPCA), according to the town’s Board of Finance minutes from June 18.

A July 2019 WPCA presentation states that “it makes sense” to install the upgrade of Connecticut Water’s main lines while the roads are opened up during sewer construction, which has not been officially scheduled.

But commitment #74 in the draft final merger agreement reads that “The deadline may require CWC to complete the improvements without the benefit of coordinating the construction with the town’s sewer project … This would potentially result in a loss of cost savings for the project.”

In addition, the agreement states that PURA will review the timing and cost of the project to “ensure the achievement of the December 31, 2020 deadline is prudent and that “any lost savings resulting from Commitment No. 74 may not be recoverable in rates.”

Reached by phone Thursday, David Benoit, president and CEO of Connecticut Water Service, said his company would honor the terms of the agreement in making the upgrades in Sound View.

“I can’t speak to what the current items under construction or under discussion are but as part of our docket with the merger with SJW, they were an intervener in that case, as part of the draft decision, we are doing everything we committed to do and we will continue to do it.”

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