Aquarion: Customers question rate hike

drinking waterAs outcry continues against a proposed rate increase for Greenwich and surrounding communities, the chief executive officer of Aquarion Water Company made an attempt to state the company’s point of view.

At a public hearing July 9 in Fairfield, Aquarion President and CEO Charles Firlotte explained the proposed close to 23% increase, that would raise customer rates by $33 million over three years, and how it related to the company’s infrastructure improvements. But customers at the meeting said they were not swayed. The hearing was mandated as part of the review process for the fee increase by the Connecticut Public Utilities Regulatory Authority (PURA). These are the only area hearings for the fee increase.

No hearings were scheduled for Greenwich on the increase, but town officials have expressed skepticism over the increase. Now, Connecticut Attorney General George Jepsen has added his voice to the issue, saying his office opposes Aquarion’s plan.

Mr. Jepsen said this week that he has asked PURA to reject Aquarion’s application, claiming the company failed to meet its burden of showing that such a large rate increase is necessary or appropriate.

“Utility companies are, by law, allowed to charge customers rates that are just and reasonable,” Mr. Jepsen said in a statement. “Aquarion’s proposed rates far exceed levels that could be considered just and reasonable and are unwarranted at this time. I have asked that PURA reject this rate application and spare ratepayers an unnecessary and excessive increase to their water bills.”

Aquarion has requested a rate increase of $27.2 million in the first year of a 3-year rate period, with additional increases of more than $3 million per year in the second and third years. The rate increase would average more than 17% across its service area in the first year, with a total increase of more than 23% over the three-year period. Aquarion has also asked for an increase in its return on equity (ROE) to 10.6%.

Aquarion is the largest water company in the state, serving more than 625,000 people in 47 municipalities, and it has acquired 57 new water systems since its last rate case in 2010, Mr. Jepsen said. It was granted a $15 million, or 11%, rate increase in the 2010 case.

“The company’s rates have increased steadily since 2007,” Mr. Jepsen added.

A final decision from PURA in the rate case is expected in August. The public hearings have also provided PURA with plenty of opinions against the hike.

While the first public hearing in Fairfield on June 18 packed in an audience so large it spilled out into the hallways on Independence Hall, this second hearing at Fairfield Warde High School attracted far fewer people. The second hearing was mandated due to the large response at the first one.

On July 9, Mr. Firlotte gave a PowerPoint presentation, providing general information on the company. He referred to an Environmental Protection Agency report suggesting that the water industry in the United States required $384 billion in upgrades “to bring the water system in this country to an acceptable standard.”

It was not clear whether Aquarion was meeting that standard, or what improvements might be needed to meet it.

Mr. Firlotte stated that the proposed increase “has to do with capital improvements” and that over the last three years $143 million was spent, with $103 million of that in Fairfield County, on investment in mains, hydrants, IT and communications. There was no detail given on how much was spent and where, but he mentioned five miles of new pipeline, and showed “before and after” photos of facilities that had been renovated.

Many questioned the increase, saying that they already been paying for capital improvements, as water bills already include a water infrastructure and conservation adjustment charge.

“How can this surcharge suddenly be so inadequate?” asked Jim Marpe of Westport. He requested that PURA insist on a “thorough and more transparent justification of any further increase requests and that they be related directly to specific operations.”

Mr. Marpe asked that PURA deny the rate increase, as the additional cost burden would make the state less attractive to both business and residents.

“Connecticut citizens already pay some of the highest electricity rates and gasoline taxes in the U.S., and live with one of the highest cost of living indexes in the country,” Mr. Marpe said.

Gaylord Meyer, a member of the Fairfield Representative Town Meeting, called the rate request a “shock and awe” proposal, saying, “It would appear that they are attempting to borrow money from the ratepayers to finance these projects, rather than raising capital through debt and equity.”

Mr. Firlotte’s presentation cited an article in USA Today listing water rate increases (many in the 150% range) in various U.S. cities over a 12-year period, saying that Aquarion’s rates for the same period rose only 62.2%, including the proposed increase.

Mr. Firlotte offered what he called an “apples to apples” comparison using various cities such as Atlanta, Ga., where customers pay $529 for 72,000 gallons with a five-inch meter.

“That’s roughly where Aquarion is pre-increase,” he said.

With proposed increase of 18.3% in 2013, 1.8% in 2014 and 1.9% in 2015, Firlotte said, “The increased cost per day is about 26 cents and the cost of one gallon of water is still less than a penny, The best value of any utility, I would argue.”

Fairfield First Selectman Michael Tetreau looked at the data in a different way: “After an increase that’s half of what’s been experienced around the country, those consumers are still paying less for water than we are here. We’ve been paying more for longer.”

Mr. Tetreau said Aquarion’s presentation “didn’t really address the big question, which is what’s driving the need for 20% not only now, but from this point forward.”

Fairfield resident Bud Morten suggested that PURA look at Aquarion’s financing of debt, salaries of senior executives, wages, employee benefits and pension plans, noting that administrative and general salaries were up 17% in 2012 at Aquarion.

State Rep. Brenda Kupchick (R-132nd) said that Connecticut Water, which does not have customers in Greenwich, was lowering its water rates by $10 million during a two-year period using tax credits. She requested that PURA delay until Aquarion addressed a new tax credit issue.

The new IRS regulations, which Vice Chairman John Betkoski III said PURA was examining with regard to Aquarion, reduce tax liability of public utilities and provide for tax refunds over a three-year look-back period.

A petition has requested that PURA “open this investigation to ensure that Connecticut’s public service companies are taking sufficient steps to ensure that their ratepayers will receive the full benefits of these refunds and the decrease in future tax liabilities.

It specifically mentions Aquarion. “Aquarion, for example, may not have considered the potential benefits the tax code changes could provide for its customers.” The petition also requested that PURA schedule additional hearings and further investigate Aquarion’s rate case.

Bob Eick of Fairfield urged the panel to take action to benefit customers. Under the law, PURA will review the case and approve the whole increase, some of it or none of it.

“We’re dealing with a monopoly. It’s not like we can choose another water supplier,” Eick said. “We depend on you and our elected officials to make sure that you protect and work in our interest so that we can live our lives knowing that you guys have our backs.”

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