Investigations determined a California utility attempting to buy Connecticut Water Co. overcharged its customers for 30 years.
Investigations by the California Public Utilities Commission initiated after a customer complaint in 2017 revealed evidence that San Jose Water Co. has over billed customers since 1987 and double billed customers for service charges for the past seven years.
“Utility Enforcement Branch’s investigation confirmed that SJWC failed to properly prorate its service charge on its customers’ bills for at least 30 years,” concludes a report by CPUC’s Consumer Protection Enforcement Division. “In doing so, SJWC overcharged its customers over $4 million.”
The report found the double billing practice, which began in 2011, resulted in nearly $5 million of additional overcharges.
Connecticut Water has 300,000 customers throughout the state, including customers in Beacon Falls, Naugatuck and Prospect.
Connecticut Water announced on Oct. 2 it is soliciting shareholder votes to merge with SJWC’s parent company, San Jose Water Group, the same company with which it sought to merge last spring before a bitter contention from Eversource Energy nearly derailed the process. It did not inform its shareholders of the investigations, according to Connecticut Water spokesman Dan Meaney.
The shareholder vote is scheduled for Nov. 16. The state’s Public Utilities Regulatory Authority is expected to rule on the merger by Dec. 17.
“As soon as SJW was informed about a potential billing issue in early 2017, we took immediate voluntary actions to investigate and review our billing policies and we subsequently updated our billing practice to better serve our customers, with our new billing policies retroactively effective as of Jan. 1, 2017,” said SJW in a press release dated Sept. 17.
Jayme Ackemann, director of corporate communications at SJW, said Connecticut Water’s leadership will remain in place to oversee operations in the state.
San Jose Water offered in June of last year to provide a $1.7 million credit to customers affected by the predatory billing practices but the offer was rejected by the California’s Water Division, which recommended the state conduct a more thorough investigation, according to a report by CPUC’s Utility Enforcement Branch.
Besides the CPUC investigation, SJW has faced 22 lawsuits since 2012, according to documents filed during testimony in front of PURA. The lawsuits, which SJW disclosed at the request of Eversource Energy, include 11 separate suits alleging bodily injury and one alleged wrongful death due to asbestos exposure. Ackemann said all the cases are in litigation.
“We believe them to be meritless and we continue to mount a vigorous defense,” she said. “We’re confident that our safety practices will be in line with those of Connecticut Water.”
Eversource Energy contested a merger of equals agreement that SJW and Connecticut Water agreed to last May and submitted several unsolicited rival offers.
The initial investigations into SJW began after Rita Benton approached San Jose Water in January 2017 about whether service charges were prorated when a charge change occurred during a billing period. She also inquired as to whether the company had double-billed its service charge when converting from billing in advance to billing in arrears.
Benton said she began paying attention to her rates after SJWC implemented a drought surcharge on single-metered homes that sent their bills skyrocketing despite reduced consumption.
“Our rates were still going through the roof — $400, $800, $2,000 bills were common,” she said. “We started examining our water bills and discovered that SJWC had increased its rates 73 percent over three years.”
Ackemann said the company raised its rates 19.6 percent over that time and said the average SJW customer pays $77.87 per month for their water.
She said that SJW serves “extremely low income to extremely wealthy communities” and noted that wealthier customers with larger homes or pools likely have higher water bills.
Benton filed a formal complaint with the utilities commission on April 17, 2017, on behalf of herself and 69 other SJW customers. She has formed an advocacy group called Water Rates Advocates for Transparency, Equity and Sustainability.
The matter was eventually investigated by the Utility Enforcement Branch of the Consumer Protection and Enforcement Division at CPUC, which found evidence supporting Benton’s claims. The report found that SJW was in violation of rules set forth by CPUC.
On Sept. 14, CPUC announced a formal investigation to determine the extent of the overbilling, the amount owed to customers and if punitive measures are warranted.
The maximum penalty for proven offenses that occurred before 2012 is $20,000 per offense, per day. For offenses that occurred after Jan. 1, 2012, the maximum penalty is $50,000 per offense, per day.
Meaney said shareholders were not informed of the investigation because the merger is a buy-out of Connecticut Water shareholders at $70 per share.
Shareholders were also not informed of the erroneous billing practices in an S-4 filing last spring, when the two companies sought to combine in a merger of equals that offered to keep Connecticut Water shareholders aboard in a share-for-share swap.
Connecticut Water initially said shareholders weren’t informed because the formal investigation into SJW’s billing practices didn’t begin until Sept. 14. However, the Utility Enforcement Branch investigation began on Aug. 22, 2017.
Ackemann said that in May, when the original merger agreement was announced, the investigation was still part of the company’s general rate case which was disclosed to Connecticut Water shareholders.
“Connecticut Water believes that it has provided all relevant, material information regarding the transaction to its shareholders,” Meaney said.