Aquarion Water Company: A Look into the Challenges Facing Connecticut’s Largest Water Utility

The Aquarion Water Company (AWC) is Connecticut’s largest water utility (AWC, 2011).  Headquartered in Bridgeport, the company serves more than 580,000 people in 39 cities/towns throughout Connecticut as well as five in Massachusetts and three in New Hampshire (AWC, 2011).  Aquarion’s presence in the public water supply business is impressive.  Established in 1857, it remains “the largest investor-owned water utility in New England and among the seven largest in the U.S” (AWC, 2011).  Despite exhaustive research efforts, Aquarion Water Company’s “Capital Improvement Plan” could not be located.  This may be attributed to the company’s broad scope of operations which involves an abundance of communities across several states.  Detailed information regarding local infrastructure and improvement projects; however, is readily available.  This includes upgrades in various parts of Connecticut including Greenwich, Stoningham/Groton, and Brookfield.  These provide adequate insight into the company’s broad scope of impact in addition to investment and planning challenges posed by infrastructure improvements of the past, present, and future.

While Aquarion’s undergoing capital improvements are colossal and costly, they are absolutely necessary.  Given the scope of service and the amount of infrastructure and equipment involved, the company must satisfy its responsibility to provide a magnitude of customers with an ample supply of clean, potable water.  In consideration of the company’s aging infrastructure, the urgency for capital improvements is a matter of both public health and safety. As such, the replacement of aging infrastructure continues to be an integral part of the company’s capital project work.   Infrastructure improvements and expenditures are extensive, due in part by Aquarion’s recent growth via the acquisition of smaller water utility companies.

Acquisition expenditures resulting from the rehabilitation of a former company’s infrastructure assets are magnanimous.  Since 2008, Aquarion has invested $25 million to upgrade the Putnam Filter Plant in Greenwich, CT.  Following its purchase of Connecticut American Water Company in 2002, Aquarion immediately began prioritizing capital improvements to address critical infrastructure deficiencies.  The urgency was justified as the plant had not undergone any major improvements since the 1950s (AWC, 2011).   From 2002 to 2008, Aquarion invested $6 million to the Putnam facility, the town’s largest source of water, in order to rehabilitate filters, install stand-by power, and upgrade electrical service to ensure a supply of 20 million gallons of water a day for consumption and fire safety (AWC, 2008).  Improvements also included the replacement of a failing 1920s-era treatment clearwell to meet supply demands and comply with health department standards (AWC, 2008).

Aquarion’s responsibilities recently extended to Brookfield’s Greenridge water system.  On November 2, 2011, Connecticut’s Public Utility Regulatory Authority and the Department of Public Health approved Aquarion’s proposal to deliver uncontaminated water to the Greenridge district, whose previous supplier had filed to cease operations.  According to decision drafted by the Connecticut’s Department of Environmental Energy and Protection (DEEP), Aquarion’s estimated total cost for the proposed water main and associated improvements totaled $3.25 million including $564,000 in improvements made by United Water, the previous supplier (DEEP, 2011).  Aquarion also continues to upgrade its infrastructure in the Stonington/Groton, CT area where it began relining the 21 year old, 8-inch water mains at Lords Point this past August (AWC, 2011).  Aquarion’s capital improvements reflect its self-proclaimed commitment to ensuring the quality of its water systems and delivering uninterrupted service.

All across America, drinking water infrastructure is nearing or exceeding its life expectancy and systems are failing.  Connecticut is certainly no exception.  According to a 2008 survey conducted by the American Society of Civil Engineers (ASCE), “Connecticut’s drinking water infrastructure needs an investment of $653 million over the next 20 years” (2010).  Accordingly, Aquarion’s capital improvement spending is expected to considerably increase over the next few years to achieve the timely replacement of problematic water mains, flow-management valves, fire hydrants, meters and leak-detection equipment (AWC, 2011).  Aquarion’s spending has been recently amplified and accelerated due to the acquisition of smaller, less capable utilities starved of the funding necessary to manage, maintain, and replace their aging water infrastructure.  This poses new challenges as Aquarion must familiarize itself with the water main condition so as to facilitate leak detection and prevent breakage.

Buried infrastructure is especially vulnerable as maintenance and repairs are substantially expensive and disruptive.  The closure of a major intersection and a street lane in Bridgeport caused by a water main break on November 17, 2011 is one such example.  According to the Connecticut Post, “the intersection of State Street and Broad Street has experienced three water leaks in the past six weeks,” a clear indication of the challenges posed by the city’s aging infrastructure, comprised of pipes that are 90 years old (2011).  Bruce Silverstone, a company spokesman for Aquarion Water Company, commented:”It’s difficult, a very difficult area because of all the infrastructure that’s underground, there.  It is an unusual situation. When these breaks take place, we must replace them on kind of a piece-meal basis” (Craig, 2011). Since budget restrictions prevent total replacement, the company is combating problems as they arise. Experts argue; however, that “the ‘fix-on failure’ approach is no longer working” (Kinge, 2009).

Aquarion also faces water supply challenges posed by stream flow regulations required to be developed by Section 26-141b of the General Statutes.  Passed in 2005 by the Connecticut General Assembly, the act requires the DEEP to collaborate with the Department of Public Health and stakeholders to “update standards for maintaining minimum flows in rivers and streams” so as to achieve a balance in water usage that respects river and stream ecology, wildlife, and recreation while providing for public health and safety, industry, agriculture, water supply, and other lawful water uses (DEEP, 2011).  While Aquarion recognizes its responsibility for “conservation and natural resource management,” George Logan, its Director of Capital Planning, testified that the proposed regulations “did not adequately provide for public water supply” (Testimony, n.d.).  According to Logan, “more than nine million gallons per day would have been lost, approximately 10% of our total water supply” (Testimony, n.d.).  Company costs would have also been markedly affected, requiring approximately $100 million to modify its facilities, an investment equivalent to 3 years of total capital spending (Testimony, n.d.).  This would divert monetary allocations from necessary infrastructure improvement.  Logan warns that that the investment “would result in an incremental rate increase of approximately 10%, at a time when personal and municipal budgets can least afford to pay it” (Testimony, n.d.).  Added to a lack of infrastructure funding is the elevated price of electricity as Connecticut has the second highest electric rates in the country (McCarthy, 2008).

To finance its capital investments, Aquarion initiated a customer surcharge in April of 2009 which has steadily increased since its inception (AWC, 2011).  The surcharge bill, referred to as Water Infrastructure and Conservation Adjustment (WICA), was approved in 2007 by the Connecticut Legislature to help fund the timely replacement of water distribution pipes and related infrastructure that have either reached the end of their useful life or threaten water quality or service (AWC, 2011).  As of July, 2011, the current WICA surcharge is 0.32% (AWC, 2011).  The company recently applied for a surcharge increase to 0.35% which will take effect on April 1, 2011, if approved (AWC, 2011).  The WICA is subject to change throughout the year pending infrastructure improvements and approval by Connecticut’s Public Utilities Regulatory Authority (AWC, 2011).

In an interview conducted by Global Water Intelligence (GWI), Frank Firlotte, Aquarion’s CEO, justifies the rate increases, attributing them to the company’s rising opex.  According to Firlotte, an excess of $100 million has been invested in Connecticut alone with 40% of the hike related to capital investment, another 40% to escalating operating expenditures, and the remainder to falling volumetric sales (GWI, 2010).  Since Aquarion currently operates on the basis of a 45/55 debt to equity ratio and a Return on Equity (ROE) of approximately 10%, the utility is able to handle additional debt to fund investment in the rate base (GWI, 2010).  Although Firlotte is hopeful that the Connecticut Department of Utility Control will award Aquarion an ROE above 9.75% in favor of his company’s “efficiency,” “service delivery,” and “operational metrics,” he acknowledges that the system of regulation is not based on performance as it is in other countries (GWI, 2010).

The former director of Yorkshire Water in England, Firlotte is frustrated by the reluctance of local government to relinquish water provisions (GWI, 2010).  As the company sets its sites on continued expansion, it must gain appropriate regulatory approval and acquire adequate infrastructure improvement capital.  In the era of failing water infrastructure, Aquarion is destined to encounter an increasingly challenging process.  As a nation that dedicates only 2.4% of its GDP to infrastructure, a continued lack of financial commitment will further compromise capital improvements, the economy, the water supply, and the public health of a bustling American population (ASCE, 2011).  Comprehensive assessment, planning, and funding over time are the most prudent solutions to this pressing issue.

 References

American Society of Civil Engineers (ASCE). (2010). Report Card for America’s Infrastructure. (2010). Retrieved from http://www.infrastructurereportcard.org/state-page/connecticut

Aquarian Water Company (AWC). (2008). Aquarion Water Co. to invest $25 million in Greenwich filter plant to improve aging structures, water quality, public health, and safety. (2008). [Press release]. Retrieved from http://www.aquarion.com/pdfs/Release%20-%20Putnam%20Press%20Release%20REVISED.pdf

Aquarion Water Company (AWC) (2011). Website. Retrieved from http://www.aquarion.com

Craig, Anne. (2011, November 17). Bridgeport water main breaks for third time. Connecticut Post. Retrieved from http://www.ctpost.com/news/article/Bridgeport-water-main-breaks-for-third-time-2274303.php

Kinge, Hamida. (2009). What’s on tap: America’s failing water infrastructure. Next American City Magazine, 24:32-35. Retrieved from http://www.metcalfinstitute.org/dl/whats_on_tap.pdf

McCarthy, K.E. (2008, August 5). Office of Legislative Research Report: Factors behind Connecticut’s high electric rates.  Retrieved from http://www.cga.ct.gov/2008/rpt/2008-R-0452.htm

Logan, G.S. (n.d.) Testimony regarding SB-1020, an act concerning water resources and economic development. Retrieved November 25 from http://www.cga.ct.gov/2011/CEdata/Tmy/2011SB-01020-R000224-Aquarion%20Water%20Company-TMY.PDF

n.a. (2010, August). Aquarion looks for double digit growth. Global Water Intelligence, 11(8). Retrieved from http://www.globalwaterintel.com/archive/11/8/general/aquarion-looks-for-double-digit-growth.html

State of Connecticut:  Department of Energy and Environmental Protection (DEEP). (2007). Proposed stream flow regulations. Retrieved from http://newtown.patch.com/articles/draft-greenridge-decision-favors-aquarion

State of Connecticut: Department of Energy and Environmental Protection (DEEP): Public Utilities Regulatory Authority (PURA). (2011, October 14). Joint investigation of

PURA and DPH regarding Greenridge tax district’s request to cease operations as a public water supply company – Improvement cost review (Docket No. 07-04-11RE01). New Britain, CT. Retrieved from http://www.brookfieldct.gov/docs-forms/announcements/Greenridge%20Draft%20Decision%20101411.htm