You asked (1) about the procedure for converting water company lands to other uses, (2) which agency oversees such a conversion, (3) about the hearing process, and (4) whether people could comment or object to such a plan. You also asked what prevents the sale or transfer of the land owned by the Kelda Group.

SUMMARY

Restrictions on the sale, transfer, or abandonment of water company land depend on how it is classified by law. (Water company land falls into three classes, depending on its proximity to the water supply source and other factors. ) The sale or transfer of class I and class II land, which are nearest to water supply sources, requires Department of Public Health (DPH) permission. A water company does not need a permit to sell or transfer class III land (land off the watershed and more than 150 feet from a reservoir or stream that feeds it).

A water company cannot assign or lease class I 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 law is less restrictive with regard to class II land. If the DPH commissioner believes the proposed sale or transfer of class II land may significantly harm the company's water supply, he may ask it to pay for a consultant to review the application. Otherwise, the commissioner must refer the application to a professional review team with expertise in water supply and related fields. The commissioner must hold a public hearing if he finds, among other things, that the proposed sale or transfer may have a significant adverse impact on the present or future purity or adequacy of a drinking water supply. Anyone may petition to be a party or intervenor at such a hearing, and may appeal the commissioner's decision to Superior Court.

DPH also can reclassify Class I or II land 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.

In addition, the law gives the state, municipalities, and land conservation organizations, first refusal rights with regard to the transfer of unimproved land owned by a private water company. The Department of Public Utility Control (DPUC) must allocate the proceeds of such transactions between ratepayers and shareholders. We have attached OLR report 99-R-0975, which discusses DPUC regulation of all investor-owned utilities and of water companies in particular.

In March, 2002 the Department of Environmental Protection (DEP), together with the Nature Conservancy (TNC), purchased outright or acquired permanent conservation easements on more than 15,000 acres of unimproved land, most of it in Fairfield County, owned by the Bridgeport Hydraulic Co. (BHC), a subsidiary of the Kelda Group.

BHC supplies drinking water to more than one half million people in 29 cities and towns. Kelda, a British corporation, bought Aquarion, BHC's parent company, in 2000. TNC is an international not-for-profit conservation organization, with Connecticut offices in Middletown.

DEP and TNC now own all of BHC's class II and class III land (5,460 acres). In addition, there is a covenant that restricts how BHC can use an additional 900 acres of land on which it has water supply and service facilities. BHC still owns 9,025 acres of class I land. If it were to secure the necessary DPH approval to sell any of this class I land, the property would still be subject to conservation easements requiring it be used for open space and appropriate public recreational purposes.

DEPARTMENT OF PUBLIC HEALTH PERMITTING PROCESS

Classification System

All land owned by a private or municipal 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 where bedrock is less than 20 inches from the surface. Class II land consists of the remainder of the watershed owned by the company plus its other land that is within 150 feet of a reservoir or a major stream that runs into it. Class III consists of the remainder of the company's land (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 (CGS § 25-32).

Land Transactions and Changes of Use

The law requires 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). DPH can issue orders to carry out its permitting responsibilities. The permitting requirements do not apply to Class III land.

Class I 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 only change the land's use 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 a company. If DPH believes the proposal may significantly harm water supply, it may refer the application to an outside consultant for a detailed review, at the company's expense (CGS § 25-37d).

Class II Land

Somewhat less restrictive provisions apply to class II land. DPH can only 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 is not bound by its precedent.

In the case of the sale, lease, or transfer of land, DPH can only grant a permit if (1) the class II land is part of a larger parcel that includes class III land and (2) there are use restrictions that will prevent the class II land from being developed. In cases involving transactions with another water company, municipality, or a land conservation organization, DPH can only grant a permit 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 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, although not with regard to class II land needed to provide access to class III land that is part of a sale. It appears that this exception only applies 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 water supply. In doing so, DPH must consider the potential the proposal has for contaminating the water supply, the disturbance of vegetation, the company's future ability to control the land through devices such as easements or use restrictions, and several other factors.

PERMIT PROCESS

If the DPH commissioner believes the proposed sale or transfer of class II land may significantly harm the applicant's water supply, he may ask a consultant to review the application at the company's expense. It he does not refer the application to a consultant, the commissioner must refer it to a professional review team with expertise in water supply and related fields. The team must include representatives of the DEP, Office of Policy and Management (OPM), DPUC, DPH, a planner recommended by the town in which land is located, and public health experts (CGS § 25-37d). The team must evaluate the impact of the proposed sale, lease, assignment or change in use on (1) the purity and adequacy of the drinking water supply under the most severe climactic conditions and (2) its ability to meet current DPH drinking water standards.

The commissioner has 60 days from receipt of the application to decide whether to grant a permit (120 days to decide if a consultant or review team evaluated the application). The applicant can request a permit in writing if the commissioner fails to meet these deadlines, and a permit is deemed granted if the commissioner does not decide within 45 days of receiving the written request (CGS § 25-37e).

Opportunity for a Public Hearing

The commissioner need not hold a public hearing if he finds that the proposed action will not significantly harm the present and future purity and adequacy of the public water drinking supply. In that case he must issue a written decision in 60 days, giving his reasons for granting the permit with or without conditions (Conn. Agencies Regs. § 25-37d-3). If he finds the proposed sale or transfer does or may cause significant harm he must appoint the review team and hold a hearing (Conn. Agencies Regs. § 25-37d-4). The hearing officer must submit written findings and recommendations within 30 days of the hearing (Conn. Agencies Regs. § 25-37d-7).

The commissioner may appoint a hearing officer to conduct an inquiry and preside at the hearing. The hearing officer may require any party or other participant offering substantive, technical or expert testimony to submit it in advance. Such testimony will be admitted as if stated orally if (1) the witness is present at the hearing, (2) adopts it under oath and (3) can be cross-examined. The hearing officer may subpoena witnesses and require the production of records. He must give all parties an opportunity to respond, present evidence and argue all issues involved (Conn. Agencies Regs. § 25-37d-4).

Designation of Party or Intervenor

Any person other than the applicant who seeks to be admitted to the hearing as a party or intervenor must petition in writing at least 15 days before the hearing date. He must state:

1. his name and address;

2. how he is substantially and specifically affected by the proceedings;

3. his contention concerning the application;

4. whether he seeks admission as a party or intervenor;

5. how and to what extent he intends to participate in the hearing; and

6. the nature of the evidence, if any, he intends to present.

The commissioner or the hearing officer may deny the petition, or grant it with or without conditions, after considering whether the petitioner's participation is necessary or will help him in deciding whether to grant the application. If the commissioner permits someone to participate, it does not mean the commissioner believes the participant will be aggrieved if the permit is either approved or denied. The commissioner or hearing officer may allow people who do not meet the petition deadline to participate if their participation would help resolve the matter (Conn. Agencies Regs. § 25-37d-5).

Appeals

Any person aggrieved by a DPH order may appeal to the Superior Court in the district where the water supply source is located. If the source is located in more than one judicial district, the appeal must be heard by the court containing the part of the source nearest the mouth of the river or stream forming the main portion of the water supply source (CGS § 25-36).

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, DEP, the municipality where the land is located, certain private and municipal water utilities, 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 company land sales are subject to DPUC approval. Within 100 days after DPUC grants approval of 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).

KELDA LANDS

On March 28, 2002, in the largest conservation land purchase in state history, DEP and TNC bought outright or acquired permanent conservation easements on more than 15,000 acres of land owned by BHC, Aquarion and the Kelda Group.

More than 13,500 acres of the Kelda lands are in Fairfield County, with the rest in Litchfield, New Haven and Hartford counties. (A map of the property is on the DEP website at http: //www. dep. state. ct. us/whatshap/press/2002/dg0328. htm )

The state paid $ 80 million, and TNC an additional $ 10 million for the land.

According to attorney Bill Rock the total amount of land involved (including land on which the state has a purchase option) is approximately 18,316 acres. Of this:

1. 9,025 acres are class I lands BHC still owns subject to the conservation easements;

2. 5,470 acres are class II (4,477 acres) and class III (994 acres) lands purchased outright by DEP and TNC;

3. 889 acres are "improved lands" BHC still owns, subject to a restrictive covenant; and

4. 2,931 acres are beneath BHC reservoirs, on which the state has a 20-year purchase option.

BHC's "improved lands" are property on which BHC has housing, dams, pumping stations, and other water supply or service facilities. Rock says that the agreement requires BHC to get the necessary state approvals if it wants to stop using this land for these purposes, and BHC must give the land to the state if the state requests it.

In addition, BHC still owns 13 acres of business properties in Bridgeport, Westport, Monroe and Simsbury in which the state has no interest.

By law, the DEP and TNC-owned lands must be permanently preserved for the protection of natural resources and appropriate recreational uses. This is also true of the BHC lands on which the state, alone and with TNC, has easements (PA 01-7 and 01-9 of the June special session). Permissible recreational uses include hiking, fishing, and hunting.

The parties signed a Natural Resources Management Agreement (attached), also available on the DEP web site at http: //dep. state. ct. us/rec/openspace/nrma. pdf, in which BHC, DEP and TNC agree to jointly manage the land, consistent with BHC's obligation to provide a safe and reliable water supply. Management goals include permanently preserving the land as open space, promoting forest growth, clean air, diverse animal and plants habitats, and appropriate recreational opportunities.

The agreement creates a conservation land committee, including one representative each of DEP, TNC and BHC. BHC must notify the committee in writing of any change in use of the property, or the construction of any roads, installation of any water utility lines or other improvements at least 15 days before making the change or seeking the necessary regulatory approvals.

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