You asked for a description of the statutes and regulations governing the disposition of excess utility property.

SUMMARY

In most cases, any sale or other disposition of utility property requires the Department of Public Utility Control's (DPUC) approval. The law establishes notice requirements, gives several types of entities a right of first refusal to buy the property once DPUC approves the disposition, and specifies the priority of these rights. There are separate provisions for property owned by water companies and other utilities.

The law also establishes rules DPUC must follow in allocating the benefits of water company land sales between the company's shareholders and its ratepayers. These rules 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.

The sale, lease, or assignment of class I or II water utility lands (primarily lands located within a watershed) or a change in their use also requires a Department of Public Health (DPH) permit. A water utility cannot assign or lease land closest to wells or other water supply sources (class I land), and can only sell such land to the state, a municipality, another water utility, or, under limited circumstances, a conservation organization such as a land trust. These provisions apply to municipal and regional water utilities as well as water companies. In the case of a water company, the company must obtain the DPH permit before it can apply to DPUC for approval of the disposition.

GENERAL PROVISIONS

CGS § 16-43 requires DPUC approval for most utility property dispositions. The requirement applies to the sale, lease, assignment, or other disposition of property that is necessary or useful to the company in its public service duties. A water company with 500 or more customers can dispose of property worth less than $ 50,000 without DPUC approval, if it is not watershed or water supply land. DPUC approval is also not needed for dispositions by other utilities of (1) improved property worth $ 250,000 or less or (2) unimproved property worth $ 50,000 or less.

The municipality where the land is located is a party to DPUC proceedings involving the land. Among other things, this means that the municipality can cross-examine the water company and other parties and can appeal DPUC's decision.

The disposition of property that is not necessary or useful to the company in its duties generally must be by auction or other public sale. A notice of the auction or sale must run in local papers once each week for two weeks before the auction or sale. DPUC can authorize an alternative sales method for good cause shown.

Conn. Agencies Regs. § 16-43-1 et seq. provide further details regarding these requirements. Among other things, the regulations specify the factors DPUC must consider in determining whether property is necessary or useful to the company in its public service duties and the information that must be included in the application for DPUC approval.

Under CGS § 16-50c, DPUC must approve or disapprove the disposition within 150 days after it receives the application and failure to act within this period is considered an approval. DPUC must hold a hearing on all transactions costing more than $ 50,000. The hearing must be held in the municipality where the land is located. If the land is located in more than one municipality, DPUC must determine in which municipality the hearing must be held.

CGS § 16-50d gives various entities, including municipalities and the state, a right of first refusal to acquire property after DPUC has approved the disposition. The rules governing this right are different for land owned by water companies and other utilities. But, in all cases the acquiring entity must:

1. agree to pay the same price as was approved by DPUC,

2. agree to the previously-approved terms and conditions, and

3. acquire the property within 15 months of notifying DPUC that it intends to exercise its right of first refusal.

PROVISIONS THAT APPLY TO WATER COMPANIES

DPUC Proceedings

Notice. In addition to the requirements described above, under CGS § 16-50c, when a water company intends to sell or otherwise dispose of three or more acres of land, it must mail a notice to:

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

2. any other 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 municipality where the land is located; and

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

The notice must be mailed at least 90 days before the company offers the land for sale, notifies any other potential buyer, or begins negotiations with any other potential buyer. In addition, the company must publish notice in a local newspaper, once 45 to 30 days before it files its application with DPUC and again within 30 days after filing the application. The notice must be published in a display form in at least 10-point type size (this is 10-point type).

Any nonprofit land-holding organization that is considering acquiring the land must notify DPUC and the company by certified mail within 90 days after the company applies for DPUC approval.

Options and Purchases by Third Parties. Any recipient of the mail notice that obtains an option on the land must pay reasonable consideration for it with due regard for the land's market value. The

consideration must be credited, without interest, against the purchase price if the option is exercised. The consideration is non-refundable unless DPUC disapproves the disposition of the land.

If any recipient of the mail or newspaper 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 notice period, the company can offer the land to anyone.

Right of First Refusal. CGS § 16-50d gives the entities that received the mail notice a right of first refusal to buy land owned by a water company, after DPUC has approved its sale. The entity must notify DPUC of its intent to acquire the land within 100 days of DPUC's approval of the disposition.

The priority of the acquisitions depends 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 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.

If DEP or a municipality acquires the property by eminent domain, it must follow the same procedures as redevelopment agencies. OLR Report 2006-R-0357 describes these procedures.

Allocation of Benefits from Land Sales. Under CGS § 16-43, DPUC must allocate the benefits of a water company land sale between the company's shareholders and customers if the land has ever been in the rate base, i. e. , customers have paid at least some of its costs. OLR Report 2006-R-0597 describes the rules for allocating these benefits. 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. The proceeds must be used for (1) capital projects that improve or protect a water supply system or (2) the acquisition of water supply source or land to protect a water supply source.

DPH Permits

Under CGS § 25-32, the sale, lease, or assignment of water utility lands located within a watershed or a change in their use requires a DPH permit. (This and related laws apply to regional and municipal water utilities as well as water companies. ) Under the statute, a water utility can only sell or otherwise dispose of land closest to water supply sources (class I land) to the state, a municipality, another water utility, 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, but in all cases, including changes of use, DPH can only grant a permit if it finds that the proposed action will not significantly harm the purity and adequacy of public water supply. A DPH permit is not required for the disposition or change of use of class III land. OLR report 2007-R-0504 provides additional information about the DPH permitting process.

PROVISIONS THAT APPLY TO OTHER UTILITIES

Notice

Under CGS § 16-50c a utility other than a water company must notify various agencies before disposing of unimproved property in most cases. The company must notify DPUC, DPH, DEP, and the chief executive officer of the municipality where the land is located if (1) the property consists of all or part of a parcel of three acres or more and (2) the disposition is to an entity other than a municipality, the state, or the federal government. DPUC can waive these and related requirements in the case of transfers of land between utility companies if the disposition is related to a DPUC-approved divestiture plan or corporate reorganization.

Right of First Refusal

The municipality and the state agencies that receive the notice have a right of first refusal, under CGS § 16-50d, to acquire the land. The municipality's chief executive officer or DEP commissioner taking advantage of this provision must give written notice by certified mail to DPUC and the company within 180 days of DPUC's approval of the sale. The state's right to acquire the land is secondary to that of the municipality. The municipality or the state must accept the terms, conditions, and price of the DPUC-approved transaction unless DPUC approves a modification.

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