State survey finds higher rates among for-profit companies
State survey finds higher rates among for-profit companies
Private water companies in New Hampshire generally have higher rates than their public counterparts and their rates are going up at a faster rate — according to a New Hampshire Business Review analysis of a state survey of water rates.
The survey shows that privately held Pennichuck Water Works has the highest rates of any system serving more than 25,000 people. The Merrimack-based firm’s rates doubled in a decade and have climbed 53.8 percent in the last three years. By contrast, the rates among the seven other largest systems rose 38 percent, while the average increase of water rates among all state water companies increased less than 15 percent over the last three years.
The figures were culled from a rate survey — scheduled to be released in its entirety next month — that is conducted periodically by the Department of Environmental Services. It may not be welcome information to Pennichuck Water Works’ parent company, Pennichuck Corp., which currently is fighting a proposed eminent domain takeover of its water systems by a municipal consortium led by the city of Nashua.
Pennichuck is currently asking the state Public Utilities Commission for another 11 percent increase on top of the 8 percent temporary increase it received last year.
Pennichuck’s rates were only $10 above the state average in 2004, which was $350-a-year based on residential usage of 275 gallons per day. (Actual typical usage varies geographically, but DES selected such a standard usage for rate comparison purposes.)
However, “rates are usually lower with larger systems, because the base rate is spread out over a larger number of rate payers,” said Richard Skarinka, the DES engineer in charge of the survey.
Pennichuck officials agreed, but argued that the company - the second largest system of the state - serves a number of smaller municipalities, several of which are scattered throughout the state as well as Nashua. Thus, they argue, Pennichuck’s rates are not really comparable with water utilities that just serve one city and perhaps a surrounding area.
In addition, some of these smaller systems were “basket cases” before Pennichuck took them over, said Don Ware, senior vice president of operations at Pennichuck.
That led the utility to invest in the acquisition’s infrastructure, which was partly subsidized by Nashua ratepayers, Ware said.
Such investments are one of the reasons Pennichuck’s rates have gone up, Ware explained. Municipal officials have to face the voters every few years and are reluctant to spend the money needed to maintain a system, he argued.
“We have kept on top of aging infrastructure that most communities ignore,” said Ware. “That’s why our rates have gone up. We have stepped to the plate and attempted to keep up with improvements.”
Larry Bingaman senior vice president of Aquarion Water Company of New Hampshire, which runs the Hampton Water Works System, echoes that view.
“The rates generally reflect how much is invested in the system,” said Bingaman, who cites national studies that show that public water systems don’t invest enough.
Keeping up with infrastructure maintenance is the very reason Manchester Water Works cites for its rates, which are less than two-thirds that of Pennichuck.
“Manchester probably took a long look at investing in preventative maintenance than many other systems, so we have a better maintained system,” said Tom Bowen, director of Manchester Water Works.
Manchester’s water rates have increased slightly more than half as much as Pennichuck’s during the last three years.
That’s not to say that the Queen City hasn’t seen an increase in water rates. Manchester is in the midst of a four-year increase that started in 2002 to pay off bonds for a new water treatment plant. Before that, the last increase in Manchester’s rates was in 1991.
Higher rates are not limited to Pennichuck. The rates of other private water companies tend to be higher than their counterparts. The rates of Aquarion Water Company of New Hampshire, which serves the Hampton area, were $453 (based on the standard average usage), far higher than the average for a system that size. The Tilton-Northfield Aqueduct Company — at $712 — is one of the highest in the state. Water users in the towns of Tilton and Northfield have recently voted to acquire that system.
Pennichuck’s other systems serving such communities as Pittsfield and Pelham — outside the core of the Nashua-based water works — also have rates far higher than the state average.
Indeed, the only private water system serving a municipality whose rates are comparatively low is Hanover Water Works, a utility that is managed by the town itself.
Some public municipal water systems also have higher-than-average rates. Berlin’s, for instance, is a whopping $714 — the highest-priced larger system in the state — and Rochester is at $450 and Dover at $358.
Dover’s rates might be higher because it has a flat rate for usage: no differences between commerical and residential rates nor cheaper rates for big users, said Jeff Harrington, Dover’s finance director. But these tend to be the exception to the rule.
One reason municipalities have lower rates is that they don’t have to pay property taxes. Pennichuck, for instance, pays $1.1 million in property taxes in its core area, according to Bonnie Hartley, vice president of administration at Pennichuck.
“If we didn’t pay it, somebody else would,” she said. In other words, whatever a ratepayer may save in his or her water bill, would be offset by a higher property tax bill, she said.
The other major difference is that private companies are entitled to a profit. Nashua attorneys have argued before the Public Utilities Commission that if some of that money that goes to shareholders and other private ventures were plowed back into the infrastructure, rates — in the long run — would go down.
Other Pennichuck critics echo that view.
“No matter how you cut the numbers, you take stockholders’ profits out of the equation, it will be cheaper for ratepayers,” said state Rep. Mary Ellen Martin
Ware, however, argued that too much is made of the profit that goes into shareholders’ pockets, comparing it to the interest that municipalities pay on the debt for capital improvement on the systems. Profits do amount to more, Ware admitted, but only by a slight amount.
It isn’t profits but efficiency that most private companies tout when comparing themselves to municipal systems.
“Profit is what drives private companies to be more efficient,” said Bingaman of Aquarion. “Studies show that private investor water companies have fewer employees and are more efficient.”
However, according to Hudson Town Administrator Steve Malizia, private companies can be inefficient as well. Hudson took over its water works from the Consumer NH Water Company in 1998 because its rates was among the highest in the state, and it was poised for another 30 percent increase, Malizia said.
The reason, said Malizia, was that the company made a number of poor management decisions, spending hundreds of thousands of dollars to expand the system for only a few customers. The town bought the system, cut the rates by 10 percent, and while rates were still very high — $571 based on standard usage — they haven’t gone up since.
Malizia blames the high rates on the debt service on the purchase, which includes paying for some of the mistakes the company made in the past.
Hudson is now watching with interest the battle between Pennichuck and its neighbor to the east. The town doesn’t take sides. Indeed it hires Pennichuck to take care of its wells. And so far nobody, including those on both sides of the dispute, has approached the town to discuss its experience in going from a private water supplier to a publicly owned one.
This article appears in the April 29 2005 issue of New Hampshire Business Review