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Monday, October 24, 2011

Nashua purchase of Pennichuck nears end of line with state hearing

NASHUA – The city’s long quest to buy Pennichuck Corp. has played out like a Tolstoy novel.

For nearly a decade, city officials and Pennichuck executives have entangled in actions, counteractions, a takeover attempt and a lawsuit before finally agreeing to settle their differences in a $152 million merger.

But before they can clink glasses of water in a toast, the two sides must obtain the approval of state regulators to finalize what would have seemed like an unlikely union nine years ago.

On Tuesday, the state Public Utilities Commission will review evidence and hear testimony from city and Pennichuck officials and possibly other parties before deciding whether Nashua can acquire the company and its water supply.

Since 2002, Nashua has laid the groundwork to purchase Pennichuck Corp. and its subsidiaries, including Pennichuck Water Works, to control the future of the region’s water supply. Pennichuck, of course, didn’t always agree to that groundwork.

The PUC will issue a ruling no later than year’s end, but both sides hope it comes soon so they can dot and cross letters on the final contract before the start of 2012.

“I’m pretty excited we’re getting there. It’s been creeping along at a glacial speed,” said Alderman-at-Large Brian McCarthy, who has participated in the many city meetings and talks with Pennichuck over the years.

Last week, the city and Pennichuck reached a settlement with the various entities that had at some point intervened in the transaction, including Anheuser Busch – the utility’s largest customer – the town of Milford, Merrimack Valley Regional Water District, and resident Fred Teeboom.

The city will pay $29 per share of Pennichuck stock. That’s $137.8 million for 4,682,276 shares.

Throw in $2.2 million for severance packages for outgoing Pennichuck executives, $5.3 million in legal and other fees, $5 million for a water rate stabilization fund, and $1.8 million in bond issuance costs, then the total acquisition bill is $152.1 million.

That’s a tall glass of water. But advocates of the purchase contend the deal will pay dividends.

By controlling the water utility and running its operations at a lower cost than Pennichuck did, the city will eventually save customers money with lower rates, they say.

The city, which will borrow to pay the acquisition cost, could potentially bond an additional $60 million in outstanding Pennichuck debt that it will assume upon purchase. Aldermen have approved the borrowing of as much as $220 million.

If the PUC approves the deal, the bonds will be paid with Pennichuck revenue, in large part through water rates that will be set by regulators.

Bond rates are favorable right now, McCarthy said. Once the acquisition is final, aldermen can review those rates and decide how much Pennichuck debt it will pay off through bonds, he said.

Two other parties that intervened didn’t sign the recent settlement agreement. The state Office of Consumer Advocate won’t sign it but also won’t object to a PUC approval, McCarthy said. The town of Merrimack also won’t sign the agreement, but it is unknown if officials there will object, he said.

Teeboom said he “somewhat reluctantly signed the settlement agreement” last week.

When he decided to intervene, it was based on the city not providing information to voters, he said. And Teeboom says city officials misinterpreted a 2003 vote by residents to “study” a purchase of Pennichuck and instead acted as if it was a public green light to buy the company.

Teeboom also wonders why Mayor Donnalee Lozeau and city officials settled for $29 per share of Pennichuck stock and not the $25 per share price that a banking firm assessed in 2009. Pennichuck had floated a $31 per share cost.

But the agreement is the “best balancing of what the PUC wants to do, what ratepayers want it to cost … and it protects taxpayers,” Teeboom said.

The settlement also erased the $5 million cost of the city’s eminent domain action, which started in 2004 and lasted about six years, that would have otherwise been part of the bond, Teeboom said.

Another reason why city officials have advocated buying Pennichuck is to stop the company from selling watershed acreage.

Starting in the 1920s, Pennichuck acquired land at little to no cost, and in the mid-1980s began selling, for considerable profit, some 1,500 acres the company deemed could be developed without environmental harm. The real estate deals shaped the landscape of north Nashua and southern Merrimack with a bevy of housing and commercial developments.

The issue has resonated lately with a commercial developer about to buy Pennichuck property on Concord Street for $2.2 million with the intent of building an 85-unit elderly housing complex on 33 acres. Opponents claim the project will harm the watershed, but Pennichuck officials say the complex’s water runoff will flow away from a nearby pond and won’t damage the watershed.

The parcel is the last bit of developable Pennichuck land left untouched in Nashua. Critics such as Teeboom contend that if the city can’t stop Pennichuck from developing the last parcel of land, then it might not meet the challenge of running a water utility.

But city officials have pointed to how Pennichuck has had an agreement to sell the Concord Street property since 2007 and Nashua had no authority to intervene. Moreover, by buying Pennichuck, the city can stop the company from selling about 400 acres of developable land in Merrimack, McCarthy said.

Last week’s settlement agreement saw the inclusion of Pennichuck’s real estate subsidiary, Southwood. The merger agreement that Nashua and Pennichuck signed last year did not include any reference to Southwood.

Resident Geoff Daly, who has led the public opposition to the Concord Street development, last week pointed to the exclusion of Southwood in the initial merger agreement, and said the absence of the subsidiary could have posed a legal challenge. McCarthy, however, said the acquisition of Southwood was implicit in the fact that Nashua is buying Pennichuck Corp.

The PUC hearing represents the culmination of years of talks, legal action and negotiations. McCarthy can’t believe the moment has finally arrived.

Nearly a decade ago, Nashua stepped into the middle of Pennichuck’s pending sale to a Philadelphia company by offering to buy the company. The offer sent the Philadelphia company packing, and the city then pursued an eminent domain takeover. Pennichuck retaliated by suing the city.

Finally, the two sides started to warm to one another. Pennichuck started offering its shares, while the city refused the offers and considered further takeover options. They eventually came to an agreement.

The PUC hearing starts at 9 a.m. Tuesday in room 103 of the PUC office, Suite 10, 21 S. Fruit St., Concord. The hearing could extend to Wednesday and Thursday.

Albert McKeon can be reached at 594-5832 or amckeon@nashuatelegraph.com. Also check out McKeon (@Telegraph_AMcK) on Twitter.