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Thursday, November 24, 2011

Utility deal gets last OK

NASHUA – State regulators have approved the city of Nashua’s acquisition of Pennichuck Corp. and its water utility, creating an arrangement regulators say may be unique in the nation: a municipally owned private water utility.

The New Hampshire Public Utilities Commission ruled Wednesday that it is in the public’s interest to let Nashua buy all the stock of Pennichuck Corp. in a $152.1 million deal, ending a decade-long saga of Nashua vs. Pennichuck.

Since 2002, Nashua had been trying to purchase Pennichuck Corp. and its subsidiaries, including Pennichuck Water Works, to control the future of the region’s water supply. Pennichuck didn’t always agree with Nashua’s groundwork, as executives clashed in actions, counteractions, a takeover attempt and a lawsuit, before finally agreeing to settle their differences in the merger.

After a regulatory hearing in October that seemed to serve more as a coronation, the decision to approve the Nashua acquisition hardly came as a surprise to many.

“I think the whole team feels good about the outcome. Everyone worked really hard to get to a place, to get to a settlement, that we thought addressed all the issues that were raised,” Mayor Donnalee Lozeau said. “We had hoped, because we had everybody in essence – with the exception of one community – signed on, that the outcome would be positive.”

As part of its ruling, the PUC rejected efforts by the town of Merrimack to have more say in running the water utility. Merrimack wanted a seat on the 12- to 15-member board of directors that will oversee the utility, to prevent what they feared would be excessive control by Nashua of Pennichuck decisions, particularly those concerning future expansion.

“Personally, I’m a little disappointed, but I can’t say that I’m surprised,” Finlay Rothhaus, Merrimack Town Council chairman, said of the approval. “We’ll see how things go moving forward, and hopefully, things will go smoothly, and they’ve suggested they will.”

In his testimony at an earlier regulatory hearing, Rothhaus had asked the PUC not to agree to the sale unless Merrimack was given a board seat.

“It is what it is,” he said. “We do want it to work for all parties.”

The approval of Nashua’s acquisition of the watershed, which came less than a month after a final hearing before the commission, should give the city time to start selling municipal bonds before Dec. 31, locking in current, very low, interest rates.

Wednesday’s decision by the state regulators was the last step needed in the city’s purchase.

“I’m ecstatic,” said Alderman-at-Large Brian McCarthy, who has been closely involved with the city’s involvement with Pennichuck.

McCarthy, also president of the Board of Aldermen, said he expects the city to close the purchase at the beginning of next year.

The city will pay $29 a share of Pennichuck stock. That’s $137.8 million for 4,682,276 shares, $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, making the total acquisition bill $152.1 million.

An aldermanic subcommittee recently approved mayoral negotiations with various bonding firms to sell up to $220 million worth of bonds, a move city officials will want to start as soon as possible to take advantage of low interest rates.

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.

The bonds will be paid with Pennichuck revenue, in large part through water rates that will be set by regulators.

In Merrimack’s testimony against the acquisition, it said it had more stake in Pennichuck than other non-Nashua communities served by Pennichuck Water Works because Merrimack has 60 percent of the remaining watershed owned by the utility and 10 percent of the utility’s consumption is delivered to Merrimack.

Pennichuck serves the bulk of Merrimack’s industrially zoned land, and some town officials cited concerns that a Nashua-dominated utility would favor Nashua’s industrial zones when deciding on connections or service.

Lozeau said in her testimony that Nashua opposed a Merrimack seat in fear that the holder would represent only the town rather than the whole company, which includes utilities that service customers from Pittsfield to Exeter.

The PUC, after reviewing Merrimack’s arguments, found the public interest didn’t require a seat on the board to be specifically designated for Merrimack and denied the town’s request.

The agreement does reserve one seat for the Merrimack Valley Regional Water District, which despite the name, does not include the town of Merrimack. The district was formed earlier in the Nashua-Pennichuck deal when it looked like the city was going to take Pennichuck Water Works by eminent domain, leaving outlying utilities owned by Pennichuck Corp. without a governing body. Merrimack declined to join the district, fearing Nashua would control it. The district includes Nashua, Amherst, Litchfield, Bedford and five other towns.

With the acquisition approved, Lozeau said the next step is to get the bonds squared away and issued.

“The market is so volatile, you never know what the rates might be, and we specifically requested that they get the decision done in November,” Lozeau said. “The challenge is the holidays. We want to make sure we get the best rate we can. If that’s before the holidays, we’ll look at that.”

The parties involved in the acquisition say water rates in the city, as well as other small utilities owned by Pennichuck throughout the state, will eventually go down despite the city having to pay back the money it borrows.

This is possible partly because Nashua’s AAA bond rating means it can borrow money more cheaply than the cost of equity capital used by private Pennichuck Corp., and partly because shareholders won’t get a cut of future earnings.

“As we said all along, the important thing about this was protecting a lot of resources and managing the future rates,” Lozeau said. “All the rate payers, not just the city of Nashua, should be pleased to know their rate increases will be less than they would’ve been under private ownership. I think that’s certainly in everybody’s best interests.”

Under the arrangement, the Board of Aldermen will have final say on Pennichuck’s budgets but operations will be handled by the same management and field staff who currently work there – roughly 100 employees total – overseen by a board of directors of between nine and 12 people, none of whom is an elected official or city worker.

Lozeau said interviews for the board of directors have taken place. A group of people has been nominated for personnel/administrative affairs interviews that likely will take place in December.

“I hope that the board is seated before the closing so we’ll be ready,” Lozeau said. “It would be nice if they have an opportunity to meet ahead of time and hit the ground running.”

The PUC’s order is subject to appeal for a 30-day period following its issuance. If no appeal is filed, it becomes final.

Under the agreement, Nashua has 90 days after the PUC order becomes final to complete the financing, which puts the merger’s anticipated completion in the first quarter of 2012.

“While the order is subject to a 30-day appeal period, we anticipate that Nashua will complete its bond issue as soon as practicable, allowing the transaction to close early in 2012,” Duane C. Montopoli, Pennichuck’s president and CEO, said in a statement.

“I guess I would say I would be pretty disappointed if someone filed an appeal,” Lozeau said. “From my perspective, that’s a very costly delay, and I can’t imagine the end result being different.”

Staff writer Albert McKeon contributed to this story. Maryalice Gill can be reached at 594-6490 or mgill@nashuatelegraph.com. David Brooks can be reached at 594-5831 or dbrooks@nashuatelegraph.com.