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Pennichuck defends increase in Nashua water rates

Union Leader Correspondent

January 16. 2013 10:48PM

NASHUA - Pennichuck Corp. is telling city officials that despite an increase in customer surcharges, the company's three-year capital plan is a wise strategy.

"Pennichuck continues to anticipate that under city ownership, water rate increases by (Pennichuck Water Works) and its sister utilities will be lower than the rate increase would be under the prior ownership," company officials wrote in a letter to the board of aldermen last week.

Last month, Alderman Arthur Craffey, Ward 4, asked his fellow board members to summon the Pennichuck board of directors and chief executive officer to the aldermanic chambers to discuss a potential increase in customer surcharges by a maximum of 2 percent.

"The citizens of Nashua, as well as the other customers and town officials, were told that their water rates would grow at a slower rate and be lower with (Pennichuck) under the city of Nashua control," Craffey said previously. "This now appears to be incorrect with (Pennichuck's) current board of directors and senior leadership seeking an emergency rate hike less than a year after the acquisition."

The City of Nashua acquired Pennichuck at a cost of $220 million at the beginning of 2012. Craffey has expressed concerns about the requested infrastructure improvements and whether they were revealed during acquisition negotiations.

According to Pennichuck, the company's filing of a three-year capital budget plan, as required under the Water Infrastructure and Conservation Adjustment program, along with the request for a limited WICA rate surcharge to recover costs of approved capital projects, is part of a process that has been approved by the Public Utilities Commission and is consistent with the economic projections presented to the mayor and aldermen before the acquisition, according to Pennichuck's letter.

"Under the WICA program, a water utility is allowed to request rate surcharges to recover ongoing costs of replacing aging infrastructure, such as mains, valves, services and hydrants," says the letter signed by Pennichuck CEO John Patenaude and Thomas Leonard, chairman of the board of directors. "The benefits of such a program are that it increases cash flow to the utility, provides for more consistent placement of aging pipes and other infrastructure, which in turn increases reliability and ultimately mitigates rate shocks to customers by permitting limited recovery of costs between rate cases."

Pennichuck officials also assured aldermen that WICA rate surcharges, under this process, are not automatic. In addition, the surcharge may not exceed a rate increase of 2 percent per year and 7.5 percent overall between rate cases. The company is predicting that customer rates will increase about .85 percent in 2013, or result in an estimated 39 cents a month hike, arguing that under prior ownership the rate increase would be closer to 1.29 percent.

Pennichuck also said this is not a new, unanticipated or emergency rate surcharge.

"The lower cost to customers under city ownership is due to the fact that the company's cost of capital is lower than what the former private owners would have been allowed to charge," says the letter.

In response to recent concerns from aldermen, Pennichuck is reviewing its communication process between the company and its sole shareholder, and has formed a committee to address the issue, according to the letter.

"Both Pennichuck Corporation's board of directors and management team support efforts to have a positive and open relationship with the city," the letter states.

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