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Friday, March 26, 2010

PUC ruling upheld in Pennichuck case

On the heels of Thursday’s New Hampshire Supreme Court decision, the city of Nashua has 90 days to decide whether it will take control of Pennichuck Water Works by eminent domain for $243 million, a price city officials have long said is too high.

The court upheld a state Public Utilies Commission ruling that allows the city of Nashua to seize the private water utility company, but rejected the city’s bid for a lower price.

The decision is both a victory and a loss for the city, which has attempted to buy of Pennichuck Water Works for eight years. The city wants to control its local water supply and protect the land surrounding the watershed, but says $243 million – which includes $203 million for the utility itself and another $40 million to mitigate damages to its sister companies – is an unfair price.

“I’m concerned about it,” Mayor Donnalee Lozeau said. “I’m concerned about the $203 (million). All of those do not constitute fair market value to me.”

“I guess it’s probably fair to say that there are probably some in the city that would say that it’s a win,” she said. “I’m disappointed that they didn’t revisit the value.”

The ruling is at least partially good news for Pennichuck Corp., as well, even though the company stands to lose its flagship subsidiary and 70 percent of its assets if the city buys Pennichuck Water Works. The $243 million price tag is favorable to the company, and likely more than it could negotiate in a private sale.

“On balance, we are pleased with this decision because it maintains both the $203 million asset valuation as of Dec. 31, 2008, and the $40 million mitigation reserve,” said Pennichuck CEO Duane Montopoli, reading from a prepared statement.

Montopoli declined to say if he believes the ruling is a victory for Pennichuck, and also declined to say whether he believes the city will pay that price.

“You have to ask them that,” he said.

Lozeau said the board of aldermen will hold a closed meeting next week to discuss the ruling and how to proceed. If the city opts to continue with eminent domain proceedings, a public hearing would be held on the $243 million bond before aldermen cast a final vote on whether to acquire the utility.

The bond would be paid over time with the money collected in water rates.

State eminent domain law gives the board only 90 days to make that decision. The clock started Thursday, unless one of the sides files a motion for reconsideration with the Supreme Court.

Thursday’s state Supreme Court ruling backed all of the PUC’s 2008 decisions, with the court finding the PUC was right to rule that the city could pursue eminent domain, and that its findings on the value of the utility and compensation fund were also correct.

Both the city and Pennichuck filed appeals with the state Supreme Court over the PUC’s decision. Pennichuck wanted the decision reversed, while the city wanted to see the price reduced. Oral arguments in the case took place Jan. 21.

According to Alderman-at-Large Brian McCarthy, president of the board, the decision basically means that nothing has changed. The question now becomes whether the city will choose to continue its efforts to acquire the utility at a $243 million price tag, he said.

“That’s a decision we’ll have to make,” McCarthy said, noting the price is “around the range” that the city has been looking at in various models.

McCarthy said that while the court unequivocally affirmed the city’s right to acquire the utility through eminent domain – a portion of the ruling reads, “In this case, unlike many other eminent domain proceedings, the public purpose of the taking is unassailable and undisputed” – that doesn’t mean it’s the best way to acquire the utility.

“It does not necessarily produce the best results for either side in the transaction,” McCarthy said.

Similarly, Lozeau said she believes that a private settlement is still in “everyone’s best interest.”

The city and Pennichuck have been battling for control of the local water supply since 2002, when Nashua officials initiated eminent domain proceedings after learning Pennichuck was poised to sell to an out-of-state company. The sale fell through but the city moved forward.

Recently, the city and Pennichuck held private talks in an attempt to negotiate an out-of-court settlement for purchase of PWW parent company Pennichuck Corp., a publicly traded firm that 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.

Pennichuck Corp. has never publicly proposed a sale price, but it’s single largest investor, billionaire Mario Gabelli, has floated $31 per share as a reasonable figure. The city, on the other hand, says $25 per share is more appropriate.

At Gabelli’s $31 per share price, the city could purchase all of Pennichuck Corp. for about $204 million, only slightly more than the PUC’s price for Pennichuck Water Works alone. Under that scenerio, it would also own all the land surrounding the watershed that it wants to protect from further development.

Reached Thursday, Gabelli said the ruling presents an opportunity for the two sides to finally agree on a price.

“I think this is just a catalyst for the mayor to have a major victory for the citizens of New Hampshire. I’m a little confused about why it has taken so long,” he said.

The Supreme Court ruling indicated that Pennichuck never had much of a chance of prevailing on appeal, no matter what the company argued. The 22-page decision said Pennichuck had the burden of proving that the PUC’s order was unlawful, unjust or unreasonable.

“The appealing party may overcome this presumption only by showing that there was no evidence from which the PUC could conclude as it did,” the decision read.

McCarthy said aldermen will likely hold several meetings in the near future to discuss all of their options.

Pennichuck Water Works is a privately owned water utility serving about 24,500 people in Nashua and 10 other towns, including Amherst, Bedford, Hollis, Merrimack and Milford.

Merrimack, which was granted intervenor status in the case, opposes a city takeover and urged the Supreme Court to side with Pennichuck.

The bulk of PWW’s customers are in Nashua.

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