You asked for a summary of the laws governing disposition of water company land. Except as indicated in this report, “water company” includes municipal water utilities as well as private water companies.

SUMMARY

The sale, lease, or assignment of class I or II water company lands (primarily lands located within a watershed) or a change in their use requires a Department of Public Health (DPH) permit. A water company cannot assign or lease land closest to water supply sources (class I land), and can only sell such land to the state, a municipality, another water company, or, under limited circumstances, a conservation organization such as a land trust. 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. A DPH permit is not required for the sale or other disposition of class III land.

In addition, the approval of the Department of Public Utility Control (DPUC) is generally required to sell or otherwise dispose of land owned by a private water company. The law gives several types of entities a right of first refusal to buy the property, and specifies the priority of these rights. The law also establishes rules DPUC must follow in allocating the benefits of the sale between the company's shareholders and its ratepayers. These rules, in effect, give water companies an incentive to ensure that the land will be retained as open space. Regardless of the split between shareholders and ratepayers, a company must use the net proceeds of a sale for specified purposes.

INTRODUCTION

The statutes have several definitions of water company. This report primarily uses the one found at CGS § 25-32a, which defines a water company as a corporation, municipality, or other entity that serves two or more consumers or 25 or more individuals on a regular basis. Consumers include private homes, apartment buildings, and businesses.

By law, there are three classes of water company land (CGS § 25-37c), with different restrictions on the sale or other disposition of each class. Class I land is water company property that is closest to a supply source, e. g. , within 200 feet of a well, or that meets certain geological criteria, e. g. , having a slope of 15% or more. Class II land is other property that is (1) within a watershed or (2) off a watershed but within 150 feet of a reservoir or a stream that flows into a reservoir. Class III land is other off-watershed land.

AGENCY APPROVAL

Department of Public Health (CGS § 25-32)

By law, the sale, lease, or assignment of class I or II water company watershed lands or a change in their use requires a DPH permit. DPH can grant a permit for the sale of class I land to a state agency, municipality, or another water company. It can grant a permit for the sale of such land to a private land-holding organization (e. g. , a land trust) only if the water company that owns the land was denied a permit under CGS § 25-33k to abandon a well or other supply source that is not currently used or needed. In any case the purchasing entity must agree to maintain the land subject to provisions of the law and the permit. DPH can only grant a permit for the change of use of class I land if the applicant demonstrates that (1) the change will not significantly harm the purity and adequacy of the public drinking water supply and (2) is consistent with the company's water supply plan.

DPH can grant a permit regarding class II land subject to any conditions it imposes to maintain the purity and adequacy of water supply. DPH cannot issue a permit for a sale, lease, or assignment of class II lands unless:

1. the class II land is part of a larger parcel that also includes class III land and use restrictions will prevent the class II land from being developed; and

2. as a condition of the transaction, a permanent conservation easement is established to preserve the land in perpetuity predominantly in its natural condition for the protection of natural water resources and public water supplies while allowing for recreation consistent with such protection and the improvements needed to provide safe and adequate potable water.

The easement cannot allow the class II land to be developed for any commercial, residential, or industrial use. Nor can the land be used for recreational purposes requiring intensive development, such as golf courses, tennis courses, or ball fields. (CGS § 25-37i provides a narrow exception to the ban on golf courses. ) Motor vehicles other than water company vehicles and motorized wheelchairs cannot use the land, but trails can be established for pedestrians and non-motorized vehicles. The easement requirement does not apply when the class II land is needed to provide access to or egress from a parcel of class III land that has been approved for sale.

For all class II permit applications, including for a change of use, the applicant must demonstrate that (1) the proposed action will not have a significant adverse impact on the purity and adequacy of public water supply and (2) any DPH restrictions required as a condition of the permit can be enforced on subsequent owners of the land. To grant a permit, DPH must find that, given these restrictions, the proposed action will not have a significant adverse impact on the purity and adequacy of public water supply. By law, DPH is not bound by precedent in granting these permits.

These provisions do not bar the lease or change of use of water company land for recreational purposes that do not require intense development. The provisions also do not prevent improvements for water supply purposes, leases of existing structures, or the placement of radio towers or telecommunications antennas on existing structures, although zoning restrictions may apply.

Department of Public Utilities Control (CGS §§. 16-43, 16-50c)

DPUC must approve the sales or other disposition of any land owned by a company it regulates, including private water companies, if the land is needed or useful to the company in the performance of its duties. (A water company, for these purposes, is an entity that serves 50 or more consumers, other than municipal utilities or condominium or homeowners' associations. ) DPUC cannot accept an application from a private water company to sell watershed or water supply lands until DPH has issued its permit under CGS § 25-32.

The company must also publish a notice in a local newspaper both before and after applying to DPUC to approve of the disposition. DPUC must hold a public hearing in the municipality where the land is located if the acquisition cost is more than $ 50,000. It must issue a decision within 150 days of the application. If it does not, the transaction is considered approved.

RIGHT OF FIRST REFUSAL (CGS §§ 16-50C AND 16-50D)

Purchases

In addition to the requirements described above, by law, when a private water company intends to sell or otherwise dispose of three or more acres of land, it must notify:

1. DPUC, DPH, and the Department of Environmental Protection;

2. any other private water company or municipal utility that has a water supply source in the affected municipality or an adjacent municipality or that serves such a municipality;

3. the chief executive officer of the municipal where the land is located; and

4. the Nature Conservancy, the Trust for Public Land, the Land Trust Service Bureau, and certain other land-holding organizations.

The notice must go out at least 90 days before the company offers the land for sale, notifies any other potential purchaser, or begins negotiations with any other potential purchaser. 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)

The law gives the entities that received the notice a right of first refusal to buy land owned by a private water company, after DPUC has approved its sale, in a specified order depending on the acquirer and the subsequent use of the land. The priorities are acquisitions by:

1. another water company for water supply purposes;

2. the municipality where the land is located, for open space, recreational or water supply purposes;

3. the state, for open space or recreational programs;

4. a private nonprofit land-holding organization for such purposes;

5. a municipality for any public purpose, including educational uses, such as schools and related facilities; and

6. the state for any public purpose.

When a water company, a municipality, the state, or a land-holding organization notifies DPUC that it wishes to acquire the land, it must comply with the price, terms, and conditions that DPUC originally approved.

Acquisition by Eminent Domain Following Sale of Land

Within 180 days after DPUC has approved a land transaction, DEP or the chief executive officer of the municipality where the land is located may file a notice of intent to acquire the land by eminent domain. If more than one public entity seeks to condemn the land, the acquisition priority is as described above. The public entity must meet the price, terms, and conditions approved by DPUC unless it approves a modification.

ALLOCATION OF BENEFITS-PRIVATE WATER COMPANIES (CGS § 16-43)

By law, DPUC must allocate the benefits of a water company land sales between the company's shareholders and its customers if the land has ever been in the rate base, i. e. , ratepayers have paid at least some of its costs. Table 1 describes the rules for allocating these benefits.

Table 1: Allocations of Benefits of Water Company Land Sales

Table 1: -Continued-

Regardless of the split between shareholders and ratepayers, when a company sells land that has been in the rate base, it must use the net proceeds for (1) capital projects to improve or protect the water supply system, (2) acquisition of water supply sources, or (3) acquisition of land to protect water supply sources. For medium and large companies, the project or acquisition must be consistent with the company's water supply plan.

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