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OLR Research Report


August 5, 2010

 

2010-R-0333

CONNECTICUT WATER COMPANY RATES

By: Kevin E. McCarthy, Principal Analyst

You asked for a comparison of the rates charged by Connecticut Water Company (CWC) and other water utilities in the state and a discussion of why water rates are higher for some water utilities than others.

SUMMARY

CWC's rates vary widely within the company. While four of the company's systems or divisions have rates that are in the top five in the state, other CWC systems and divisions have rates that are below the state average for large water companies. Statewide, the rate for a typical residential customer ranges from nearly 0.9 cents per gallon for several of the systems in CWC's Eastern Division to less than 0.4 cents per gallon for Aquarion's Northern Division. The Department of Public Utility Control (DPUC) ordered larger companies such as CWC and Aquarion to acquire smaller, failing water companies, which include many of the systems and divisions with the highest rates.

Among the factors behind the wide range in rates are system size, whether developers in the company's service territory helped pay for the water distribution system, where the company gets its water, the degree to which the company's service territory is contiguous and its distribution systems connected with one another, and the topography of the service territory.

WATER RATES IN CONNECTICUT

Table 1 presents the water rates for large (Class A) water companies for a typical residential customer who uses 18,000 gallons per quarter (50 gallons per day) as of March 2010. The table also indicates when the companies last had a rate case before DPUC. Your district is within CWC's Main Division.

Table 1: Water Rates for Large Water Companies

COMPANY

(Division/system)

DATE

/

GALLON

$/

QUARTER

CWC (Eastern Division –

Pilgrim Hills, Pinewood and Redwood Farms systems)

04/01/08

0.898

$161.64

CWC (South Coventry system)

04/01/08

0.879

$158.35

Jewett City

02/16/07

0.804

$144.69

CWC (Eastern Division, except as described above)

04/01/08

0.796

$143.28

CWC (Main Division,

except as described below)

04/01/08

0.775

$139.51

CWC Hazardville

(Rye Hill system)

04/01/08

0.775

$139.51

United Water Connecticut

(except Bethel system)

03/13/08

0.729

$131.29

CWC (Gallup Division and

Main Division – Bay

Mountain, Mason's Island,

and SDC systems)

04/01/08

0.710

$127.77

Aquarion (Eastern &

Southern Divisions)

09/17/08

0.626

$112.64

Torrington

10/01/08

0.618

$111.30

Avon

05/17/06

0.605

$108.81

CWC (Crystal Division)

04/01/08

0.602

$108.37

CWC (Middlebury-

Heritage system)

04/01/08

0.551

$99.16

Valley Water Systems

04/02/07

0.518

$93.32

Hazardville (except Rye

Hill system)

12/23/09

0.507

$91.27

CWC (Unionville Division)

04/01/08

0.480

$86.24

CWC (Ellington Acres system)

02/15/06

0.473

$85.18

United Water Connecticut

(Bethel system)

07/30/09

0.464

$83.51

Aquarion (Western Division)

09/17/08

0.452

$81.35

Heritage Village

04/01/09

0.408

$73.39

Aquarion (Northern Division)

09/17/08

0.358

$64.48

Source: DPUC

DPUC does not regulate the rates of municipal and regional water utilities, notably the Metropolitan District Commission (MDC), which serves greater Hartford, and the South Central Connecticut Regional Water Authority (SCCRWA), which serves greater New Haven. These publicly owned utilities typically have lower rates than private water companies. The comparable bills for MDC and SCCRWA residential customers are $51.02 and $66.66 per quarter, respectively. Water companies and public water utilities also typically impose a flat monthly customer service charge to cover their billing and customer service costs.

As the table indicates, water rates vary significantly among companies and among different systems for individual companies. CWC has the systems with the highest rates in the state, but also has systems with below-average rates.

According to Jim Vacolina, head of DPUC's water unit, these differences are attributable to a number of factors. In many cases, DPUC has ordered larger companies such as CWC and Aquarion to acquire small companies that were at risk of failing. For example, DPUC ordered CWC to acquire the former Eastern Water Company, which now comprises its eastern division. Often the small companies had high rates as a result of diseconomies of scale. A number of major costs in providing water, including the costs of distribution systems and treatment plants and water testing, are more expensive on a per customer basis for small companies than for large companies. When DPUC ordered the acquisition of the smaller companies, it sought to avoid having the existing customers of the acquiring companies pay for the costs of the acquisition. As a result, the rates for customers of the acquired companies remained higher than average.

Another factor affecting rates, according to Vacolina, was the extent to which developers contributed facilities to the water company. For example, the Ensign Bickford Company developed and paid for much of the distribution system in Aquarion's northern division in Simsbury. Similarly, the developer of the Heritage Village complex funded much of the cost of the distribution system there. As a result, water company customers did not have to pay the capital costs of these systems and these costs are not reflected in their rates.

Other factors that affect water rates include: where the company or system gets its water (groundwater usually requires less treatment than surface waters), the degree to which a company's service area is contiguous and its systems connected with each other (contiguous territories require fewer staff to serve), and the service territory's topography (hillier areas are more difficult to serve since the water company must pump water uphill).

As noted above, public water systems typically have lower rates than comparable-size water companies. In large part this is due to the tax exemptions the public utilities enjoy and their lower cost of capital. In Connecticut, MDC and SCCRWA benefit from economies of scale as MDC has nearly 400,000 customers and SCCRWA has approximately 116,000 customers.

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