WATERBURY — The state Public Utilities Regulatory Authority is poised to deny a proposed merger between Connecticut Water and San Jose Water Group.
On Monday, PURA released its preliminary decision on the application. However, it is accepting commentary from relevant parties until Thursday at 4 p.m. and will produce its final decision Dec. 12.
Connecticut Water stated Monday night that it will respond to PURA’s proposed decision by the deadline.
The PURA decision read: “The Applicants have not met their burden of proving that the proposed change of control is in the public interest or that it serves the statutory mandate to maintain local control. Accordingly, the Authority hereby denies the Joint Application for control.”
PURA also cited in its decision an ongoing investigation by the California Public Utilities Commission into SJW Group, the California-based water utility with which Connecticut Water has sought to merge since May. The California commission’s Utility Enforcement Branch published a report in August asserting that SJW had overbilled its customers for at least 30 years and double-billed its customers for the past seven. The two billing transgressions resulted in overcharges of $9 million.
Connecticut Water has 300,000 customers throughout the state, including in Beacon Falls, Middlebury, Naugatuck, Plymouth, Prospect, Thomaston and Waterbury. Its shareholders approved the merger Nov. 16, but their votes will be voided if PURA goes through with the denial.
Dan Meaney, CT Water’s director of corporate communications, said in October that its shareholders were not informed of the investigation because the merger is a buy-out of their shares.
CT Water’s statement Monday read: “SJW Group and Connecticut Water are confident that the combined company will have the financial strength and managerial suitability to provide safe, adequate and reliable service and that the combination is in the public interest. SJW Group and Connecticut Water have committed to protect customers in Connecticut and Maine and provide additional benefits through the combination.” Included among these benefits are no layoffs or job cuts and no changes in customer rates.
San Jose Water Group’s March announcement that it was pursuing a merger of equals with Connecticut Water came four months after former Connecticut Water CEO Eric W. Thornburg resigned his position to become president and CEO of SJW Group, the holding company that includes San Jose Water Company and water utility SJWTX.
The March announcement was met by a bitter contention from Eversource Energy, which submitted an unsolicited rival proposal for CT Water and accused executives there of favoring the SJW proposal to preserve their own executive positions at shareholders’ expense. However, Eversource did not compete with SJW’s final offer, a $70-per-share buyout of CT Water shareholders.
PURA’s draft statement expressed worry that the merger was made in shareholders’ interest at the expense of the public interest. It also found that CT Water could not guarantee that its leadership would remain local, something the utility had assured throughout the merger process.
“The risks to Connecticut customers presented by this transaction are serious and readily apparent,” said PURA.
“CTWS leadership should have ensured that the public interest was balanced with shareholder interests in negotiating this transaction. Instead, it proposes to turn over its governance of CTWS to SJWG at significant risk to customers in exchange for shareholder benefits.”
PURA’s statement also noted a “go-shop” period that resulted from Eversource’s opposition to the original merger agreement, during which CT Water solicited merger offers from other companies. A Connecticut Water representative said that, although the company directly contacted 50 parties with potential interest, no rival offers came in by the June 13 deadline.
Moreover, PURA found that CT Water failed to set fair terms during the “go-shop” period that might have enticed a rival offer, reflecting a complaint Eversource made last summer. Calling the terms of the process “onerous,” the statement called the bungled go-shop period “a lost opportunity for CTWS to balance the interests of its shareholders with the public interest.”
