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Friday, December 2, 2011

Pennichuck scenario will be very unusual, maybe even unique

When Nashua finally takes over Pennichuck Corp. next year, as seems inevitable unless the financial markets collapse, it will create the oddest arrangement for many miles around: A private utility owned by a city and run by an independent board of directors yet still regulated by the state, which serves many customers outside the city – sometimes way, way outside.

During negotiations, this arrangement was sometimes called the only one of its kind in the country. But is it really?

“I’m not saying it’s unique, but it’s very unusual for a system of that size,” said Michael Deane, executive director of the National Association of Water Companies, a lobbying group for private water companies like Pennichuck. “Very unusual.”

“I don’t know how often that a city buys a private utility. More often than not, it goes the other way,” said Brian O’Hara, legislative director for water for the National Association of Regulatory Utility Commissioners. “This, I’ve not really heard happening at all.”

So it’s definitely unusual. Unique, though, is harder to say.

“The country has 52,000 water systems, and there are about 52,000 government structures. If any two are the same, it’s by accident,” said Deane, only half-joking.

Around the country, Deane said, about 85 percent of homes and businesses are served by water systems rather than private wells. (The figure is much lower in New Hampshire, where about 44 percent of all water comes from private wells, the third-highest figure of any state.)

Of customers on water systems, Deane said, 85 percent are served by a public utility that is usually run as a branch of local government, whether a city, county or regional authority. A local example is Milford Water Department, a department of that town just like the police department.

Nashua’s purchase of Pennichuck Corp., which owns Pennichuck Water Works as well as two other water utilities, got final approval Nov. 23 by the state Public Utilities Commission. The actual sale must await the end of a 30-day appeal period, and then the city must be able to sell up to $220 million worth of bonds to finance the purchase. That isn’t likely to be a problem, given the city’s AAA bond rating.

If the purchase goes through, Pennichuck Water Works won’t be like Milford Water Department. It won’t be run by city employees, but by a 12- to 15-member board of directors that includes Mayor Donnalee Lozeau but otherwise has no city employees. The board of aldermen will approve the bottom-line budget but otherwise the city swears it won’t interfere with operations, including future expansion plans.

Basically, Nashua will be the sole stockholder of a private company, which should continue to operate as it has for the past century. Although it’s not certain, it appears the only other place in the country with a similar situation is Louisville, Ky.

That city’s waterworks was chartered as a private company in 1854, but there wasn’t enough private investment so Louisville bought all the stock. Louisville Water Co. has been run as a stock-held company, in which all the stock is owned by the city, ever since, according to a spokesman.

There are plenty of differences with the future situation in Nashua, however.

In Lousiville, the mayor appoints the entire board of directors. The initial Pennichuck board will be appointed by the Board of Aldermen, but afterward will elect its own members, as is done with boards for private firms. The board will hire and oversee the company’s upper management.

The Louisville Water Co. returns 50 percent of profits as a dividend to the city budget. A major selling point in the Pennichuck purchase is that the company will no longer have to pay a dividend, thus reducing costs and hopefully rates.

Another difference, arcane to outsiders but important within the industry, is that Pennichuck will still be regulated by the state Public Utilities Commission, which among things will have to approve rate increases. Usually, private utilities are regulated by the state but city-owned utilities (including Louisville’s) are not. Milford can set its own water rates but Pennichuck needs PUC permission.

State oversight was a major selling point in the PUC allowing the purchase, since officials were concerned that Nashua would shift all the costs to non-Nashua ratepayers – in particular those of Pennichuck East, which serves 19 towns, and Pittsfield Aqueduct Co., which serves that north country town.

One aspect of a city-owned Pennichuck that seems odd – the fact that Nashua aldermen will approve the budget for water service in Pittsfield, two hours away – isn’t that uncommon. City water companies often have customers outside the city boundaries, Deane said.

This often leads to arguments over decision-making, he added, with outlying areas fretting they have no say in the vital

That’s certainly an area where Nashua is not unique.

The only objection to the final arrangement for the purchase of Pennichuck came from the town of Merrimack, which sought its own seat on the board of directors to balance out what it feared would be Nashua’s self-interest. The state PUC shot that idea down.

David Brooks can be reached at 594-6531 or