September 12, 2000
SOUTH WINDSOR WATER ISSUES
By: Kevin E. McCarthy, Principal Analyst
1. how were the South Windsor service territories of the Metropolitan District Commission (MDC) and the Connecticut Water Company established;
2. whether the boundaries for these territories have changed over time, and if so, why; and
3. what has the legislature done to address the disparity in rates between the area served by the MDC and the area served by the company.
The legislature authorized Connecticut Water Company to serve South Windsor in 1957. The MDC was authorized to serve certain towns outside of the district, including South Windsor, in 1977. The areas served by the two utilities grew towards each other over time, affected by population growth and the cost of serving new areas. The exclusive service territories of the two utilities were established in 1989 using the process provided by law. There have been no substantial changes in the territories since 1989.
The legislature has considered the issue of the split in service territories in South Windsor and the disparity in rates on several occasions but has not enacted legislation changing the rate structure. In 1987, it established a task force that specifically addressed South Windsor issues. The task force did not make recommendations regarding these issues, although a minority report did. In 1993, the legislature's Program Review and Investigations Committee studied a variety of issues, including variations in rates charged by water utilities. In 1994, the legislature passed PA 94-219, which allowed customers of large companies (such as Connecticut Water Company) to petition the Department of Public Utility Control (DPUC) to investigate the company's rates to determine whether they are excessive. In 1999, the legislature held hearings on two bills, one that would have permitted competition between the two utilities to address the rate disparity and a second that would have required DPUC to study rate disparities. In 2000, the legislature considered, but did not pass, a bill establishing a Water Policy Council. The council would have been charged to study a wide range of issues, several of which would have been relevant to South Windsor's situation.
Special Act 325 of 1957 amended Connecticut Water Company's charter to allow it to serve South Windsor and East Windsor. But it barred the company from serving customers in these towns who were already served by another water company or municipality without its consent.
In 1977, SA 77-62 amended MDC's charter to allow it to supply water to non-member towns, part or all of which were within 20 miles of the state Capitol. (South Windsor meets this criterion.) MDC was barred from supplying water in these towns in competition with existing water utilities except by mutual agreement. MDC was required to charge the same rates in these towns as it charged within the district.
Originally, there was no formal delineation of the areas served by the two utilities. The areas served by both utilities grew over time, determined by population growth in the town and the cost of serving new areas. The cost of service is affected by population density and terrain, among other things. In general, it is more expensive to serve areas with lower population densities and hillier terrain than other areas.
The service territories were formalized in 1989 under the Water Utility Coordinating Committee (WUCC) statutes (CGS § 25-33c et seq.).
This process, which involved negotiations between MDC, the Connecticut Water Company, and other interested parties, established exclusive service territories for utilities in the Upper Connecticut River Valley. Areas that were unserved by any utility at that time were allocated among the utilities based on their willingness and ability to serve these areas. There have been no substantial changes in service territories since 1989.
1987 Task Force
SA 87-110 established an 18-member task force to study the consolidation of water service in towns served by publicly- and privately-owned water utilities. Although there were 49 such towns at that time, the study notes that the legislation was brought about by the disparity of rates charged by the Connecticut Water Company and the MDC in South Windsor and by concerns regarding water quality in the company's service area. The task force included residents and local officials from South Windsor as well as representatives from the industry and state agencies. At the time of the study, the company's rates in town were 2.4 times higher than the rates charged by the MDC.
The legislation directed the task force to:
1. determine the feasibility, advantages, and disadvantages of having the publicly-owned entity acquire the private company;
2. examine methods of determining a fair purchase price;
3. assess the impact of such consolidations on the state's long-term water management plan;
4. determine the short- and long-term effects of consolidation on the company's customers; and
5. study other issues the task force found relevant.
The task force issued its report on February 3, 1988 (copy available in the Legislative Library). It developed a list of factors that should be addressed when consolidation is considered.
It found that consolidation may be feasible and advantageous in some cases, but that each case must be considered individually.
The study made no generic recommendations regarding the feasibility of consolidation.
The task force's five South Windsor members submitted a minority report, which urged the legislature to adopt legislation enabling a municipal referendum on consolidation. The minority argued that the law did not provide adequate provisions to protect consumers against companies that charge excessive rates or provide inadequate service.
1993 Program Review Committee
In 1993, the legislature's Program Review and Investigations Committee studied the DPUC's regulation of water companies. Among other things, the study addressed the variation of rates among the state's water utilities, including the disparity in rates in South Windsor between the MDC and the Connecticut Water Company. It noted that private water companies are required to pay taxes that publicly owned utilities are not subject to, and that the private companies are authorized to earn a return on their investments. It identifies several options to reduce the variation in rates, including mandatory regionalization of water utilities and measures to promote the voluntary consolidation of utilities.
The study made several recommendations, including the amendment of CGS § 16-10a(b) to allow DPUC to investigate whether the rates charged by any water company, rather than just those with fewer than 5,000 customers, are so excessive as to inhibit economic development in the company's service area. Under CGS § 16-10a, if DPUC determines that the company is unable or unwilling to provide service at a reasonable cost, it can issue orders to remedy the situation or revoke the company's franchise. The report also recommended extending the gross earnings tax to publicly owned utilities, to help finance the acquisition of failing water utilities by healthier utilities.
The Program Review Committee subsequently introduced HB 5500 to implement the study's recommendations. The committee held a hearing in South Windsor, where town officials, local residents, and business owners spoke in favor of the bill.
Their testimony focused on the excessive rate provision and the disparity in rates in the town. Representatives of the Connecticut Water Company did not object to the extension of CGS § 16-10a to larger water companies, but recommended changes to the circumstances under which an investigation must be conducted, and the factors that must be considered in such an investigation.
The committee subsequently held a hearing in Hartford, where virtually all of the testimony dealt with the tax provision.
The Program Review, Energy and Public Utilities, Public Health, and Planning and Development committees reported the bill favorably. The House amended the bill to incorporate the company's suggestion regarding the circumstances under which an investigation must be conducted. The bill was adopted as PA 94-219.
In 1999, the legislature's Energy and Technology Committee heard HB 5595 and HB 5596. The former would have allowed competition between the MDC and the Connecticut Water Company in South Windsor to address the rate disparity. The latter would have required DPUC to compare discrepancies in rates among water companies. Several officials from South Windsor spoke in favor of the bills, stressing the disparity in rates charged by the MDC and Connecticut Water Company. The company's representative, Maureen Westbrook, opposed both bills. She noted that the company had invested more than $60 million in its plant in South Windsor, i.e., more than $15,000 per customer. She stated that a substantial part of the rate disparity was due to MDC's tax-exempt status. The committee took no further action on the bills.
Water Planning Council (2000)
SB 504 of the 2000 session would have established a Water Planning Council, which would have been required to convene a task force of interested parties to study a variety of water resources issues. The issues included the financial viability, market structure, reliability of customer service and managerial competence of water companies, fair and reasonable rates, protection and appropriate allocation of the state's water resources, and the adequacy and quality of the state's drinking water. While the bill did not specifically address the South Windsor situation, several of these issues were relevant. The bill specified the council's membership, which would have included the leaders of three legislative committees and relevant agency heads.
Under the bill, the council would have been required to report its findings and legislative recommendations, based on information provided by the task force, by January 1, 2003 to the appropriate committees. The report would have addressed issues involving water companies, water resources, and state policies regarding the future of the state's drinking water supply. The bill would have appropriated $100,000 for the study.
At the public hearing before the Energy and Technology Committee, the bill was supported by the water industry, affected agencies, environmental groups, and Rep. Kerensky. The bill was favorably reported by the Energy and Technology, Environment, Public Health, and Appropriations committees. However, funding for the study was not included the FY 2000-01 budget, and the bill died in the Senate.