As Eversource’s water subsidiary Aquarion looks to increase its rates by nearly 20 percent this year, state officials say the hike would give the company too large of a guaranteed return and would force customers to pay for unnecessary costs – including a suite for employees at a Bridgeport arena.
In Aquarion’s first rate case since Eversource acquired the water company in 2017, the company told regulators the company needs a rate hike that would raise the company’s rates by nearly 30 percent over the next three years to make up for “revenue deficiencies” it said are the result of spending more than $740 million to build up its infrastructure since its last rate case in 2013.
Attorney General William Tong and Consumer Counsel Claire Coleman both told PURA that Aquarion – which serves 59 towns and cities mainly in western Connecticut, including all of Fairfield County – can do more with less, and should only be allowed to raise rates by a much lower amount this year, and not at all the next two years.
Coleman and Tong both recommended cuts to Aquarion’s requested return on equity, as well as cuts to what the company has asked to recover from its customers.
Aquarion could not provide CT Examiner with an exact estimate of how much the proposal would increase customer bills, given that the company had increased the amount it was seeking after putting together preliminary estimates, and that the company is proposing to charge larger water users a higher rate.
But Coleman’s office estimated the company’s proposal would increase the average residential customer’s monthly bill by about $5.44 a month. Coleman’s trimmed down proposal would increase bills about $1.28 a month.
AQUARION TOWN MAP
In addition to limiting its return of investment, Coleman told PURA that Aquarion should not be allowed to charge its customers for about $11 million in expenses – including an estimated $20,983 in lobbying costs and $73,664 in community sponsorships that includes “donations” of customer money to the Beardsley Zoo and Connecticut Audubon Society.
“We believe that we are supporting not-for-profits in the communities that we serve, and the Beardsley Zoo is one of the only zoos in our service territory,” Lucy Teixeira, Aquarion vice president of customer and administrative services, told PURA during a November hearing, acknowledging that it would really be the customers who are supporting the zoo since it’s their money being donated.
Coleman told PURA in a brief the company should also not be allowed to charge its customers for $37,812 in “entertainment expenses” that include a suite at Total Mortgage Arena and seats at Hartford Healthcare Amphitheatre in Bridgeport that the company gives to employees who volunteer in the community – saying rewarding utility employees with customer-funded tickets to concerts and sporting events isn’t necessary to provide water service to customers.
“We think it’s important to push back on some of these smaller items, because they all add up, and ratepayers shouldn’t be paying for them,” Coleman told CT Examiner on Friday.
In the most recent water company rate case in 2021, PURA ended up approving about a quarter of the increase Connecticut Water asked for. The company asked to raise its revenue by about $20.2 million a year – which would increase customer bills by about $10.50 a month – PURA cut that down to $2.60 a month, instead raising the company’s revenue by about $5.2 million.
“We’re hopeful the record we develop will allow [PURA] to subject [Aquarion] to stricter belt-tightening standards, and require them to do what we’re all doing these days – which is more with less,” Coleman said.
Officials say Aquarion asking for too much for its shareholders
Tong told PURA in a brief filed Thursday that the 10.35 return on equity Aquarion requested for its shareholders would be the highest return for any utility regulated by PURA, which approved a 9 percent return for the state’s other major water company Connecticut Water in 2021.
“We felt that Aquarion’s proposal was excessive, and that when you look at their math, they had reached calculations for a proposed increase that were just unacceptable,” Coleman told CT Examiner. “Our job was to make sure that any rate increase that impacts customers is truly needed in order to provide service.”
Coleman told PURA that the ROE should be 9 percent, which alone would reduce Aquarion’s revenue increase by nearly $14 million. That is based on testimony from Penn State finance professor J. Randall Woolridge, who said utilities generally have a low cost of capital, and have little risk of losing money.
“There’s an adjustment mechanism every year to ensure that, if there’s an [infrastructure] investment needed beyond their revenue, there’s an adjustment that takes away some of that risk of potential loss for Aquarion,” Coleman said.
In its own brief, Aquarion argued Woolridge’s analysis was flawed because it understated the risk to the company’s investors given Connecticut’s regulatory environment. The company also argued that Coleman’s suggestion of a 9 percent return is too low because interest rates have increased since PURA approved the same return for Connecticut Water.
Aquarion also asked for an ROE bonus for its shareholders when it acquires small, “non-viable” community water systems – rewarding the company for taking over small, troubled systems, a consolidation the state has encouraged.
State lawmakers allowed that bonus in 2013 as a way to boost consolidation of small water systems that couldn’t support themselves, but Tong said PURA should still reject the premium because Aquarion already benefits from increasing its rate base and earning a return on its acquisitions.
“Aquarion’s ratepayers are already shouldering the additional costs of purchasing and restoring those systems to viability,” Tong wrote. “These systems will likely require substantial infrastructure investment at the expense of existing ratepayers. That should be enough.”
Aquarion argued the bonus is necessary, because if the company acquires a water system because it isn’t financially viable, it’s not guaranteed to earn an “adequate return” on that purchase.
Consumer counsel urges stronger low-income discount
When PURA approved Connecticut Water’s rate increase in 2021, it was the first utility to include a tiered rate that gives a 15 percent discount to households earning up to 60 percent of the state median income [$76,465 for a family of four] and additional fees for the largest residential water users.
Aquarion proposed offering the same 15 percent discount to its low-income customers, but economist Roger Colton, working as a consultant for Coleman’s office, told PURA the discount wouldn’t make water bills affordable for those customers.
For a three-person household earning below the federal poverty line – $23,030 – the discount would lower the burden of their water bill from 3.9 percent of their income to 3.3 percent, still higher than the 2 percent burden considered to be an “affordable” water bill, Colton said.
“We know that when a bill is affordable, customers are more likely to pay, and when they can’t pay they’re more likely to default,” Coleman told CT Examiner. “That ends up being an obligation of [all customers].”
Coleman told PURA that Aquarion should instead follow the model of the low-income electric discount PURA approved in October, which will offer a 10 percent discount on the monthly bills Eversource and United Illuminating customers earning less than 60 percent of the state median income and a 50 percent discount for customers earning up to 160 percent of the federal poverty guideline [$44,400 for a family of four].
That program, which the electric utilities won’t offer until 2024, was aimed at reducing the home energy burden of those customers below 6 percent of their income. Coleman said that, instead of copying Connecticut Water’s low-income discount, Aquarion should have to come up with a two-tier discount, like the electric companies, that would limit low-income customers’ bills to below 2 percent of their incomes.
Coleman told CT Examiner that since Aquarion said it was ready to go with its 15 percent discount, that PURA could let it go ahead with that while it starts to study a more effective program.