Nashua advances its case for utility
NASHUA – Leaders in City Hall made their strongest arguments to date in filings with the state Public Utilities Commission in the effort to take over Pennichuck Water Works and other subsidiaries of Pennichuck Corp.
One of the main advantages to a takeover of the private company would be lower increases in water rates in the future, according to the city’s consultants.
Engineering consultant George Sansoucy said he’s projecting water rates with Pennichuck Corp., through 2015, would increase 77 percent, while under city ownership, the increase would be about half that figure.
Pennichuck CEO Don Correll, however, said those projections are just speculation.
The city’s filing details how Nashua would transfer the assets to the Merrimack Valley Regional Water District. Other highlights from the filing include:
– All communities with Pennichuck assets would receive payments in lieu of taxes equal to Pennichuck’s tax bill now and in the future.
– The city intends to hire a qualified management firm to operate and maintain the water system. Eleven firms have expressed interest, including Pennichuck Corp.
The filings with the state panel are the next step in a lengthy process that started in late 2002. The city is leading an effort to take over Pennichuck, the city’s water company, and the PUC will determine if the acquisition of Pennichuck is in the public interest.
City officials at a press conference Monday said municipal ownership would save money that could be passed to water users through lower rates than with Pennichuck.
The savings would largely come from three factors: an exemption from income tax, which is about $5 million in 2005 for Pennichuck; paying roughly 2 percentage points less in interest on borrowed money in an industry that relies heavily on borrowing money; and removing the pressure to raise water rates to increase investor dividends.
Starting in 2006, Sansoucy said he believes Pennichuck officials could raise rates nearly 50 percent and then ask for rate increases every three years to ensure investors are rewarded. After the predicted rate spike in 2006, the rate increases would be about 11 percent, 8 percent and 9 percent, he claimed.
Rates also would increase for the other regulated water utilities, Pennichuck East and the Pittsfield Aqueduct Co., but not by the same amounts, Sansoucy said.
Correll said the future rate increases suggested in the city’s filings are only hypothetical.
Rate increases are based on investments made in the water system, and there are no plans to seek increases in 2005, 2006 or 2007 beyond what the company has already requested, Correll said.
“I can’t predict at what timeframe they would be,” he said.
Earlier this fall, the PUC approved a temporary 8.94 percent increase in water rates for Pennichuck. The water company also has a pending request for a permanent rate increase of 19.4 percent, and hearings on that issue are scheduled for March. Pennichuck had not had a rate increase in more than two years.
Correll said the broader question of whether water utilities are run better with private or municipal control can only be determined case by case.
City lawyers presented written testimony to the PUC from five witnesses Monday, including Sansoucy, aldermanic President Brian McCarthy, and experts from the Palmer & Dodge law firm and First Southwest Co., a financial adviser.
Monday was the deadline for the city to file the testimony with the PUC. The next hearing on the case is scheduled for Dec. 9 in Concord.
The city of Nashua aims to acquire Pennichuck Water Works, along with Pennichuck East and the Pittsfield Aqueduct Co., both subsidiaries of Pennichuck Corp.
City officials have estimated the price for Pennichuck Water Works and the two subsidiaries to be $81 million, by comparing the company to similar water utilities in New England. Sansoucy said the figure is based on a market rate of $2,700 per customer, and Pennichuck has about 30,000. A year ago, the city offered to buy the company for about $121 million.
But Correll said Pennichuck strongly disagrees with both figures. In the past, Pennichuck has promoted its value at upward of $200 million.
If the city were successful, the company would be purchased with so-called revenue bonds. The revenue from water users repays the bond.
Streeter said he remains confident about an eventual successful outcome, although no one would guess when the issue would be resolved.
“We have won every legal battle to date and we expect to be successful in the future,” he said.
Nashua is the only city in New Hampshire without its own water supply company, he said, adding a municipal company ensures that control would stay in local hands.
In his testimony, McCarthy said he believed the company stalled in its early negotiations with city leaders. The company set meetings with an eye toward last year’s mayoral election when one candidate was opposed to the takeover, he said.
However, Correll said the company cannot be accused of stalling the process compared to the city’s actions.
The filing Monday comes nearly two years after the Board of Aldermen approved the voter referendum on acquiring Pennichuck, a year since the city made an offer to buy the company, and several months after the city first petitioned the PUC.
Correll predicted it would be another 18 months before the issue is resolved.