You asked (1) about the state policy on protection and preservation of class I and class II water company lands and (2) whether there is a distinction in the land transfer requirements for private, public, and quasi-public water companies.

SUMMARY

By law, class I and II water company land is protected and preserved to safeguard the state's water resources. Current law severely restricts transactions involving class I and limits transactions for class II land. These are lands located closest to water supply sources and require a Department of Public Health (DPH) permit to transfer or change their use. This requirement does not apply to class III land, which is land outside the watershed and more than 150 feet from a reservoir or stream that feeds it.

All water company land (whether private or publicly owned) falls under the three-tier classification system. Additional provisions regulate transfers of any unimproved land owned by a private water company. The law gives the state, municipalities, and land conservation organizations first refusal rights with regard to such land. The Department of Public Utility Control (DPUC) is responsible for allocating, between shareholders and ratepayers, the proceeds of such transactions. This allocation must favor the preservation of open space.

Several pending bills affect water company land.

WATER COMPANY

For land classification purposes, a "water company" is any individual, corporation, municipality or other entity (or lessee thereof), that manages or uses any body of water, distributing plant, or system to supply water to two or more consumers or to 25 or more persons on a regular basis. If any one entity owns 80 per cent of two or more water companies, these companies are considered as one company for the purposes of this provision (CGS § 25-32a).

WATER COMPANY LAND CLASSIFICATION SYSTEM

By law, all land owned by a water company or acquired from it through an involuntary transfer falls into three classes. Class I includes watershed land nearest to water supply sources, (e. g. , within 250 feet of a reservoir, 200 feet of a well, or 100 feet of a watercourse). It also includes certain environmentally sensitive lands, such as those that are steeply sloped or where bedrock is less than 20 inches from the soil surface. Class II land is (1) on the public drinking supply watershed but not included in class I and (2) completely off the watershed but within 150 feet of a reservoir or a major stream that runs into it. Class III consists of the rest of the company's land. DPH regulations establish criteria and performance standards for the three classes (CGS § 25-37c).

DPH can reclassify Class I or II land only if it determines that the land no longer meets the statutory criteria due to the abandonment of a water supply source or a physical change in the watershed boundary. A DPH permit is required to abandon a water supply source. A company seeking to sell an abandoned, current, or potential water supply source must first offer it to other water companies (CGS § 25-32, 33k and l).

LAND TRANSACTIONS AND CHANGES OF USE

The law requires a water company to obtain a DPH permit to (1) sell, lease, assign, or otherwise dispose of Class I or Class II land or (2) change the use of such land except under limited circumstances related to recreational uses (CGS § 25-32). The permitting requirements do not apply to Class III land.

The law severely restricts transactions involving Class I land. The company cannot lease or assign such land and can only sell it to the state, a municipality, or another water company. The buyer must agree to maintain the land subject to the restrictions in the law and those imposed by the DPH permit. The buyer cannot sell, lease, assign, or change the use of the land without a permit.

In addition, the company can change the land's use only if it demonstrates that the change (1) will not harm the purity and adequacy of water supply, now or in the future and (2) is consistent with a DPH-approved water supply plan filed by the company. If DPH believes the proposal may significantly harm the water supply, it may refer the application to an outside consultant for a detailed review, at the company's expense (CGS § 25-37d).

Somewhat less restrictive provisions apply to class II land. DPH can grant a permit for a transaction involving class II land or a change of its use if the company demonstrates that its proposal will not significantly harm the purity and adequacy of water supply and that any use restriction DPH imposes can be enforced against subsequent owners, lessees, and assignees. In considering the impact on water supply, DPH considers each case individually and is not bound by its precedents.

In the case of the sale, lease, or transfer of land, DPH can grant a permit only if (1) the class II land is part of a larger parcel that includes class III land and (2) use restrictions will prevent the class II land from being developed. When a transaction is with another water company, municipality, or a land conservation organization, DPH can grant a permit only if there is a permanent conservation easement on the land. The easement must preserve the land in perpetuity, with most of it remaining in its natural condition. The easement must protect natural resources and water supply, while allowing for appropriate recreational uses and the development of improvements needed to provide for or protect the water supply. The land cannot be developed for residential, commercial, or industrial purposes, or for specified recreational purposes such as golf courses. Starting January 1, 2003, this last condition applies to all transactions, except for class II land needed to provide access to class III land that is part of a sale. It appears that this exception applies only if the land is sold to an entity other than a water company, municipality, or a land conservation organization.

In approving class II land transactions, DPH can subject the permit to conditions or restrictions it considers necessary to safeguard the water supply. In doing so, DPH must consider the potential the proposal has for contaminating the water supply or disturbing vegetation, the company's future ability to control the land through devices such as easements or use restrictions, and several other factors. Pending legislation, sSB 535, An Act Concerning Existing Dwelling Houses on Class II Land, allows the sale or assignment (under certain conditions, including consideration of the water supply) of existing single-family residences on class II water company lands that are not part of a larger parcel that contains class III land. The bill subjects sold property to restrictive covenants that limit expansion of the existing structure and restricts future activities that would significantly adversely affect the public water supply.

PRIVATE WATER COMPANIES

Several additional provisions apply to land owned by private water companies. At least 90 days before offering land for sale, the company must notify DPUC, DPH, the Department of Environmental Protection, the municipality where the land is located, certain private and municipal water companies, and certain land conservation organizations. The notice must describe the location and acreage of the land. If a recipient of the notice buys the land, the closing must take place within 12 months. If no recipient buys the land or takes an option on it during the 90-day period, the company can offer the land to anyone (CGS § 16-50c).

Private water company land sales are subject to DPUC approval. Within 100 days after DPUC approves a water company land sale, any of the entities that received the original notice can inform DPUC of their desire to acquire the land. The entity then can acquire the land, at the price and under the conditions DPUC approved, within the next 15 months. Municipalities and the state can also acquire the property by eminent domain after filing notice within the 100-day period. The law provides a priority list if more than one eligible entity seeks to acquire the land (CGS § 16-50d).

DPUC must allocate the proceeds of water company land sales equitably between the company's shareholders and ratepayers. If at least 25% of the land will be preserved as open or recreational space, DPUC must allocate the proceeds substantially in favor of the shareholders. If all of the land will be used for open space or recreation, DPUC can

allocate all of the proceeds to the shareholders. In any case, the company must use the net proceeds from the sale for (1) capital projects that improve or protect water supply or (2) acquire land to protect water supply sources (CGS § 16-43).

PENDING BILLS

AN ACT CONCERNING LAND AND OPEN SPACE - sSB 563 (File No. 281)

Water Company Land Lease

This bill, among other things, allows water companies to give an easement, declaration of covenant, or a declaration of preservation to the state to preserve land (through the Connecticut Historical Society or any state agency) when leasing an existing structure. The lessee must honor preservation restrictions to qualify for state grant-in-aid programs that allow for a maximum of 50% of available federal money for the restoration and maintenance of historical structures. The bill allows a water company to grant the state a lien on such leased structures to secure repayment of any grant-in-aid when the lessee fails to fulfill the terms of the grant.

AN ACT CONCERNING CERTAIN LAND RECORDS - SB 556, (File No. 251) as amended by Senate "A" and "B"

The bill, as amended by Senate "B" and among other things, prohibits adverse possession claims to Class I or Class II land owned by investor-owned water companies. But it specifies that this prohibition does not affect any adverse possession right in or to the land acquired before October 1, 2002.

Adverse Possession

Adverse possession is a method of acquiring title to real estate, accomplished by an open, visible, and exclusive possession uninterruptedly for a period of 15 years (CGS § 52-575; Whitney v. Turmel 180 Conn. 147 (1980)).

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