September 24, 2013
PURA Renders Decision on Aquarion Water Rate Request
Decision Calls for 8.6% Overall Increase
Company Sought 17% Increase
Connecticut's Public Utilities Regulatory Authority (PURA) today ruled on the Aquarion Water Company of Connecticut's (Aquarion) rate increase proposal, trimming almost $13M off the requested $26.9M increase.
In its March 28, 2013 rate filing, Aquarion proposed spreading the increase over a three-year period. Aquarion supported its 17% increase request by noting substantial recent investment in infrastructure improvements and utility plant, as well as depreciation expense increases related to those capital investments. According to Aquarion, declining end user consumption and cost increases outside its control also precipitated the rate filing.
PURA's ruling scales back proposed inflation-related expenses, increases Aquarion's sales forecasts, and cuts requested acquisition and pension costs. The ruling also makes cuts in proposed director and officer liability insurance costs, disallows ratepayer recovery of charitable contributions, and halves Aquarion's proposed employee bonus plan expenses. The PURA lowered to 9.63% Aquarion's request for an allowed return on equity of 10.6%.
Regulators rejected Aquarion's three-year rate proposal, instead approving an 8.6% overall increase ($13,915,886), which includes a 2% infrastructure surcharge previously approved as an add-on to customer bills. The approved rate design moves Aquarion's company-wide rates closer to statewide equalization and will become effective following regulatory review of an October compliance filing.
PURA deferred ruling on the impact new IRS tax regulations may have on Aquarion's rate structure, pending the outcome of a separate proceeding. Aquarion will maintain a regulatory liability account for tax benefits resulting from any election made under the IRS rule change for federal tax filings for years beginning 2012.
Aquarion is a subsidiary of Aquarion Water Company, the largest investor-owned water company in Connecticut and in New England. It provides water services through 79 systems to more than 185,000 customers in 47 towns and cities throughout Connecticut. For the fiscal year ending December 31, 2012, Aquarion had operating revenues of $156.8 million and net utility plant of $769 million. As with its predecessor company, the former Bridgeport Hydraulic Company, Aquarion has been acquiring smaller water companies in Connecticut since 1984. Aquarion has recently purchased 57 separate systems, adding more than 10,000 customers in Connecticut.
The evening public comment hearings PURA held were well attended. Many of Aquarion's customers testified against the rate proposal, and more than 500 customers wrote to PURA, almost unanimously opposed to Aquarion's rate request.
At a public meeting finalizing the case, PURA Vice-Chairman John W. Betkoski, III, expressed concern regarding Aquarion's pace of investment whereby recent capital improvement spending increased by approximately 50% over average annual spending between 2008 and 2010. Since PURA's last 2010 ruling on Aquarion rates, the company reports completing approximately $61.9M in utility plant additions through 2012, with another $55.5M in utility plant additions scheduled for completion by September 30, 2013. Today's ruling cautioned Aquarion that near-term construction and budgeted capital improvement projects should be undertaken only if essential to future operations. PURA also encouraged Aquarion to better coordinate right of way excavations with municipal paving schedules to control cost and minimize disruption.
Betkoski stated that under Aquarion's ownership operational decisions for all acquired systems are now made centrally, which has streamlined problem solving and operational efficiencies. Betkoski noted that Brookfield's Greenridge water district was plagued with uranium and other pollutant contamination for years, but post-Aquarion consolidation, a plan was developed to provide Greenridge plentiful potable water from a nearby Aquarion wellfield. Betkoski, who is also Chairman of Connecticut's Water Planning Council, commented that centralization of water resource and infrastructure planning has led to efficiencies in regional water planning, and identifying, prioritizing, executing and coordinating projects, which ultimately helps ensure safe delivery of water to new and existing customers.
PURA Chairman Arthur H. House and Commissioner Michael A. Caron each noted that today's ruling is the first one in which PURA is implementing a revenue adjustment mechanism recently made into law. The mechanism - commonly known as "decoupling" - is intended to reconcile the difference between authorized and actual sales, thereby encouraging water conservation and prudent infrastructure investment. The ruling also acknowledges in its rate of return analysis Aquarion's acquisition of non-viable water systems, also required by recently passed legislation.
The decision is undergoing final technical revisions and edits, and is expected to be publically available no later than September 25, 2013.