The chief executive officer of Aquarion Water Co. made an attempt July 9 to explain why the utility needs to raise rates some 23% for users in Shelton and elsewhere over the next three years.
Charles Firlotte’s presentation raised more questions than answers in the eyes of elected leaders and the public, and appeared not to sway opposition to the proposed increase.
The Connecticut Public Utilities Regulatory Authority (PURA), as requested during an earlier hearing at Fairfield’s Sullivan Independence Hall, convened a second public comment session July 9 at Fairfield Warde High School. While the crowd had spilled out of a small conference room and into the halls on June 18, only a few dozen took seats in the large auditorium July 9. The public hearing was open to people from the region, including Shelton.
Aquarion Water Co. serves 47 towns in Connecticut, including much of the southwestern part of the state.
Aquarion: System upgrades needed
Before to the public comment period, Aquarion President and CEO Charles Firlotte gave a PowerPoint presentation, providing general information on the company.
Firlotte referred to a federal 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.
“It seemed to raise more questions than answers that it provided,” Fairfield First Selectman Michael Tetreau later said. “There was a slide that showed reduced [Aquarion employee] headcount by 21%, vs. the overall increase in wages and benefits was up 17% to 30%. That doesn’t jibe.”
Firlotte stated that the proposed increase “has to do with capital improvements” and that over the last three years, $143 million — $103 million of that in Fairfield County — was spent on investment in mains, hydrants, information technology and communications. There was no detail given on how much was spent and where. He mentioned five miles of new pipeline, and showed “before and after” photos of facilities that had been renovated.
Seeking ‘transparent’ justification
Many in the audience 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.”
Marpe, a candidate for first selectman in Westport, 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,” Marpe said.
He also questioned whether reduced revenues might be driving the increase.
“It has been suggested that consumer water and conservation efforts have resulted in reduced revenues for Aquarion,” Marpe said. “Consumers should be applauded and rewarded, not punished, for these efforts.”
Larger rate hikes elsewhere?
Gaylord Meyer, a member of the Fairfield RTM legislative body, 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.”
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 now under consideration by PURA.
Bud Morten of Fairfield said that comparisons between Fairfield County and cities such as Atlanta, San Diego and Sioux Falls, S.D., may not be relevant, as more information was needed, and each water system and infrastructure is unique.
Tetreau, the Fairfield first selectman, 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.”
Average daily cost is 26 a day
Firlotte offered what he called an “apples to apples” comparison using various cities such as Atlanta, where customers pay $529 for 72,000 gallons with a five-inch meter.
“That’s roughly where Aquarion is, pre-increase,” he said.
With Aquarion’s proposed increases 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.”
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.”
Corporate hierarchy questioned
Morten had researched the water company and its numerous parent companies, which he called “seven veils,” which he said must be lifted in order to correctly understand the situation. He listed the holding companies in the Aquarion family, the top of which is the Australian-based Macquarie Bank.
He said the rate of return equity in some of these companies might be higher than the allowed 9.5%. “It is likely that there are many fees and charges from this multi-layer ownership cake that are costing Connecticut water companies more than they would have to pay if they were simply one operating company,” Morten said.
Morten also 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.
Company debt levels
Richard Maher of Fairfield said internally generated funds could cover the infrastructure improvements through increased depreciation rates and by Aquarion’s current debt equity ratio of 60/40 rather than the current 48/52, which could possibly save $3.5 million.
Tetreau and several others stressed the need to understand the impact of the federal tax law changes.
“It seems other utility companies are able to pass those savings on to ratepayers or avoid increases,” Tetreau said, adding he was surprised that Firlotte did not mention it in his presentation.
“In the slideshow we just got,” Tetreau said, “there was no mention of that tax law change, what the impact is, and why they haven’t addressed it or are not able to pass that on, or if they are able to pass that on, when they will be doing that.”
Role of tax credits and changes
State Rep. Brenda Kupchick, a Fairfield Republican, said Connecticut Water — which serves 56 towns in the state — was lowering its water rates by $10 million during a two-year period using tax credits. She requested that PURA delay action on Aquarion’s rate increase request until Aquarion addressed the tax credit issue.
The state offices of the attorney general and Consumer Counsel petitioned PURA on July 1 to investigate the response of Connecticut’s public utilities to new IRS regulations, as well as the Taxpayer Relief Act of 2013.
The new IRS regulations, which PURA 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.
The petition requested that PURA “should 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.
Charity-giving vs. customer rates
Rob Fernandez of Fairfield questioned Aquarion’s donations to charities. “It’s not the role of a utility company to enhance their image by redistributing our dollars,” he said.
“It’s not the role of a utility company to be charitable, unless you want to consider charity toward its customers through a lower rate,” Fernandez said. “They are supposed to be efficient with their dollars.”
‘We’re dealing with a monopoly’
Bob Eick of Fairfield said, “Everyone here just needs to know why. How does it work? Why isn’t there debt? … so every dollar that I pay Aquarion where does that go? How does that get distributed?”
He appealed to the PURA panel, which included Betkoski, Commissioner Michael Caron and attorney Thomas Caruso. They 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.”
Aquarion is the public water supply company for more than 625,000 people in 47 municipalities throughout Connecticut, and also serves customers in Massachusetts and New Hampshire. Based in Bridgeport, the company has been in the public water supply business since 1857 when it was known as Bridgeport Hydraulic.