Customers Face 400% Cost Hike After Miami Beach Water Co. Acquisition


TwitterFacebookCopy LinkPrintEmail

OLD LYME – Residents of Miami Beach, a small chartered beach community on Long Island Sound, could see their charges for water increasing as much as 400 percent, after Connecticut Water takes over the Miami Beach Water Company, and customers are assessed a 6-year $92-a-month surcharge to pay for the takeover and needed improvements.

Like many of the approximately 500 small water providers across Connecticut, the Miami Beach Water Company has struggled, particularly with current state health guidelines. The takeover and surcharge would only affect customers of the Miami Beach Water Company, not residents of the beach community who use private wells.

State utility regulators are proposing an immediate six-year, $92-a-month surcharge on water customers despite calls by the company and other state officials to wait for a clearer picture of what it will cost to bring the system into compliance.

Even without a surcharge the 62 year-round and 52 seasonal customers of the Miami Beach Water Company in Old Lyme will see their rates increase significantly after the state’s second-largest water company takes over their small system. With the $92 a month surcharge on top of the rate hike, customers will see their costs increase by as much as 400 percent. 

In testimony, Connecticut Water argued that PURA should wait to impose a surcharge until the company has a better understanding of what work needs to be done to bring the Miami Beach water system into compliance – an approach advocated by the Office of Consumer Counsel and Department of Public Health.

In a draft decision, PURA argued that waiting to impose a surcharge could lead to the rest of Connecticut Water’s customers subsidizing a larger portion of the costs to improve the Miami Beach water system, or could push the surcharge onto people who buy those houses in the next few years.

The change to Connecticut Water rates and the surcharge will combine to increase the yearly water cost for Miami Beach customers from $406 to $2,039 for year-round customers, and from $333 to $1,631.68. 

Seasonal customers receive service seven months out of the year, but will pay the surcharge every month of the year since the surcharge pays for infrastructure improvements, not monthly service.

The company would then install meters for the Miami Beach customers and transition to a metered rate, with a monthly cost of $13.35 plus $11.423 per thousand gallons for the first 18,000 gallons, and $12.423 per thousand gallons beyond that. 

PURA estimated that the metered cost would amount to annual charges of about $491.39 for a year-round customer, based on average consumption. With the additional surcharge of $92 a month, that would add up to about $1,595 a year for the six years the surcharge is in effect.

Connecticut Water had asked for more time to evaluate its options after taking over the Miami Beach system before imposing a surcharge. The company told PURA that needed capital investments could cost anywhere from $300,000 to $5.8 million depending on what work the system ends up requiring.

Regulators based the $92-a-month charge on lower-end cost estimates of $1.6 million – estimates which account for potential savings if the work can be coordinated with an effort to extend sewers to the beach communities.

In its draft decision, PURA said that while the costs of the improvements and the takeover would be too high for Miami Beach customers to shoulder alone -- Connecticut Water customers will subsidize a portion of those costs -- the state regulator argued that customers benefiting from infrastructure improvements should pay for part of the work – and, according to PURA, that’s especially true for Miami Beach customers who have paid relatively low rates.

PURA Chair Marissa Gillett said during a hearing on the acquisition plan that waiting to impose a surcharge could leave someone who buys a house five years in the future on the hook for a surcharge they didn’t expect.

Applying the surcharge immediately also reduces the amount of the project that other Connecticut Water customers would have to subsidize. PURA estimated that the $92 a month surcharge would cover about half of the estimated $5.59 million “net cost of service” that Connecticut Water would take on between the acquisition and necessary improvements to the Miami Beach water system.

That would leave the rest of Connecticut Water’s 105,000 customers to subsidize the remaining $2.8 million cost of the acquisition through their own rates – amounting to roughly $26.60 per customer.

Acknowledging the wide range in possible costs needed to bring the Miami Beach system up to current health standards, PURA proposed a review of the situation after five years. Regulators could then re-evaluate the surcharge based on the actual costs of the capital improvements.

Miami Beach requested the takeover by Connecticut Water, in an effort to bring the system into compliance, and both the Department of Public Health and PURA endorsed the move. But they split on the surcharge – with the department siding with Connecticut Water on a wait-and-see approach.

In testimony, the department stated that the distribution system doesn’t need to be replaced immediately – a project Connecticut Water gave a “worst case” cost estimate of $3.245 million, and could cost significantly less if coordinated with the sewer project.

According to department officials, the only necessary immediate improvement is to connect the Miami Beach system to the Sound View system, at an estimated cost of $300,000.

“[The department] is in agreement that it will be prudent to replace the aged system, and that there will be significant cost savings if it is scheduled concurrently with the Town’s planned sewer project,”  the department wrote to PURA. “But given the many unknowns regarding costs and the scheduling of the sewer project, DPH is proposing that the surcharge related to the distribution system replacement be put on hold until more definitive information is available.”

Connecticut Water spokesman Dan Meaney said the company will follow PURA’s order, but it continues to advocate for a “wait and see” approach to adding surcharges, and Meaney said the company’s arguments are in line with those of the Department of Public Health and Office of Consumer Counsel.

“While the parties recognize that investment will be required to ensure a reliable supply of high quality water, the timing and amount of these investments will not be known until Connecticut Water has had time to gain experience operating the system,” Meaney said.

PURA is expected to make a final decision on June 8.