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Friday, January 22, 2010

Pennichuck case gets day in court

CONCORD – It took 18,000 pieces of paper to get here, but the fate of Nashua’s water company finally lies in the hands of the state’s highest court.

The New Hampshire Supreme Court heard arguments Thursday in the city’s long- running attempt to seize private utility company Pennichuck Water Works by eminent domain. It’s a case that has burned through a lot more than trees, despite enough court papers, if placed side by side, to stretch 2.4 miles.

“This has been a long, complicated, expensive process, but our position is simple,” said Tom Donovan, a lawyer for Pennichuck. “The PUC overstepped its jurisdiction.”

In 2008, the Public Utilities Commission ruled Nashua could take Pennichuck Water Works for a price of $203 million, plus a $40 mitigation fee for damages to the utility’s sister companies.

The city disagreed with the price, and Pennichuck wanted the decision reversed, so both filed appeals to the Supreme Court. The hearing Thursday came nearly eight years after the fight for control began. It could be a few months or more than a year before a decision is reached.

The city claimed $203 million is an artificially inflated price for Pennichuck, but reaffirmed its argument that a city-owned water utility would better serve the residents than a private, for-profit company.

“Over 80,000 people in the city of Nashua have never been in control of their drinking water supply,” said city lawyer Justin Richardson, of the Upton & Hatfield law firm. He noted a controversial 1980s PUC decision that allowed Pennichuck to sell the land surrounding the water supply for development and keep the profits.

Pennichuck argued that the PUC erred by simply assuming a takeover was in the public interest and failed to consider the interests of a more than 150-year-old company.

“On behalf of the hundreds of employees of Pennichuck, which is the oldest private company in the state, we ask the court to reverse and dismiss the petition,” said Donovan, of the Manchester-based firm McLane, Graf, Raulerson & Middleton.

The company also claimed it was undervalued by the PUC and that regulators went beyond their authority in imposing conditions on the city of Nashua’s purchase. By state law, Donovan said, the PUC cannot regulate a municipality the way it does a utility company.

The disagreement over price is complex. There are multiple ways to go about setting a value for a private company, and it is no surprise the two sides can’t agree on one.

To put it in perspective, imagine you owned a semi-restored 1967 Mustang and decided to put it up for sale. How much is it worth: the price a dealer is willing to pay, the Kelley Blue Book value or the price you could get if multiple people were interested in the car and bidding for the highest price? The answer would depend on whom you ask.

The analogy doesn’t translate perfectly, but there also were three methods the PUC could have used to put a value on Pennichuck Water Works. The commission relied heavily on the one that assumed municipalities other than Nashua would be interested in competing for the chance to buy Pennichuck, which would drive up the price.

Pennichuck says that is the fair way to set a price for a private company, but the city argues the method is based on a hypothetical because it is highly unlikely that a competitive bidder would emerge. The company serves about 24,000 customers, primarily in Nashua but also in surrounding communities like Merrimack, Hollis and Amherst.

One of the three public utility commissioners, Clifton Below, disagreed with the competitive-price methodology and issued a dissenting opinion placing Pennichuck’s value closer to $151 million. The city is now asking the Supreme Court to side with him.

Until recently, the city and Pennichuck were holding private talks in an attempt to negotiate an out-of-court settlement for purchase of PWW parent company Pennichuck Corp., which also owns two other water utilities, a water management company and Southwood, the real estate development firm.

Those talks eventually fell through due to a standoff on price. The city’s consultants valued the company at $25 per share. Pennichuck did not disclose what it thinks the company is worth, but the company’s single largest investor, billionaire Mario Gabelli, has floated $31.

The parties also held failed settlement talks throughout much of 2007. Former Nashua Mayor Bernie Streeter revealed after he left office that the city offered a price “very similar” to the $31 figure back then.

In a recent letter to the editor published in The Telegraph, Pennichuck CEO Duane Montopoli invited city officials to break the silence and reveal that number, which can’t be done without his permission. That has yet to happen.

The fight between Pennichuck and the city of Nashua began in 2002 after the city learned an out-of-state company was poised to buy Pennichuck. The city wanted to keep control of the water supply local, and protect land surrounding the watershed from further development.

The sale later fell through, but the city forged on. The city put the issue out to vote in 2003, and Nashua residents said they wanted the city to pursue buying Pennichuck Water Works.

Even a Supreme Court decision may not be the end of this eight-year saga. It is possible that the court could send the case back to the PUC for further review.

Ashley Smith can be reached at 594-6446 or asmith@nashuatelegraph.com.