Housatonic —Typically, when a company offers a product that consumers are not happy with, they can simply take their business elsewhere. Such is not the case with a water company.
Whether municipal or private, the water company essentially has a monopoly on water service since it would be impractical to have competing companies running competing lines down the same street serving the same homes and businesses.
So when customers are dissatisfied, as they were July 26 when the private Housatonic Water Works (HWW) held an informational meeting, they can’t switch providers — or in the case of a municipally owned system — go running to their elected officials and demand action.
About 25 customers showed up at the Unitarian Universalist Church on Main Street. Most were concerned about the discoloration of the water. Both Housatonic Water Works treasurer Jim Mercer and state regulators insist the water is safe to drink but customers cannot tolerate the brownish color.
In an interview, Mercer, whose family has owned the company since 1984, said the so-called “roily water” is caused by disturbances such as hydrant usage and water main breaks. The resulting commotion in the lines causes the aging cast-iron pipes to shed and the iron flakes discolor the water.
This problem is made worse, he said, because the state Department of Environmental Protection has required the company to increase chlorine levels, which tends to add to the corrosion; so does warmer water and the increased usage associated with the summer months.
“We were required to increase amount of chlorine in the water,” Mercer explained. “It reacts with metal and creates rust … Once we get permission from DEP to lower chlorine levels, we think it will get better.”
Mercer has initiated another corrosion control program that involved introducing a “buffer” ingredient to the water. The substance coats the pipes and helps to control the roily water.
Mercer emphasized that private water companies are regulated not only by the DEP but by the state Department of Public Utilities and the U.S. Environmental Protection Agency.
“All private water companies are regulated much like public utilities,” Mercer said. “They need to meet the same standards. The water is regularly tested and disinfected … There are state and federal regs that we all must meet. Plus, we always publish our notifications.”
The company was granted a 30 percent rate increase two years ago, in part to fund upgrades because the system has had some issues with water quality monitoring over the years.
HWW has worked to replace some of the company’s 16 miles of water mains, about 80 percent of which are over 100 years old. Some, Mercer said, are “original issues from 1888,” when the water company was founded to service the mills that had sprung up in the village. The company draws its water from nearby Long Pond, which functions as a reservoir for the village.
And there have been questions raised about whether the HWW fire hydrants are up to the task. Great Barrington Fire Chief Charles Burger, whose department rents the hydrants from HWW, has complained that the Housatonic hydrants have a water-flow problem.
Recent water main replacements include Grove, North and Wyantenuck streets last year, along with about 1,000 feet of line from the Park Street bridge to the Housatonic fire station. But there are many miles remaining that need upgrading.
As for further replacements, Mercer said the state Department of Public Utilities rejected his plans because the resulting rate increase would have been unacceptable to state regulators. That puts Housatonic Water Works between a rock and hard place.
In addition, infrastructure improvements for private water companies are more expensive than they are for government-owned utilities. Private companies are not eligible for most of the grants and low-interest bonds that government utilities enjoy. And private companies have shareholders to satisfy. In layman’s terms, that means they must also make a profit.
That raises the inevitable question of the sustainability of a small undercapitalized water company whose infrastructure improvements would result in debt service that could push rates to punishing levels.
There have been whispers among town officials and the rank-and-file alike that the town should simply buy out HWW and absorb it into the Great Barrington Fire District, which functions as the municipal water department in Great Barrington. That way, any debt incurred for infrastructure improvements could be spread out over more ratepayers.
The fire district serves almost 1,700 customers and 300 fire hydrants. Housatonic Water Works, which serves the Housatonic section of Great Barrington, as well as small adjoining portions of Stockbridge and West Stockbridge, serves roughly half that many.
Walter “Buddy” Atwood III heads the fire district’s Prudential Committee and has sat on that panel since 1998. He agreed that the fire district has much easier access to capital than a private water company. Click here to see the district’s annual report for 2016, the most recent available on its website.
“Because we’re taxpayer funded, there are a wider range of state and federal grants for us,” Atwood explained. “And we’re looking for them all the time.”
But the amount of the grants is probably less than most people think. For example, during the Main Street reconstruction project that concluded in 2015, the district spent $650,000 to replace water mains in the core of downtown, but only was able to secure grants totalling about $150,000. The balance of $500,000 had to be borrowed and paid back over 40 years at 2 percent interest.
The district is currently in the early stages of replacing 6,000 linear feet of water mains on Route 7 and 23 between the St. James Place intersection and the cross-country line from the Green River pump station on Maple Avenue (Route 23). Construction began July 30, and is expected to end by Dec. 15.
Another key difference between the fire district and HWW is that the district has taxing authority. Persons owning property in the district must pay an annual assessment and, if they are connected the system, they must pay a metered rate on top of the standard assessment.
Both Mercer and Atwood agreed that this is the reason why HWW’s rates appear to be higher: the company does not have taxing authority and cannot impose a standing annual assessment, so its consumption rates must more accurately reflect the cost of running the company.
Atwood, who recently concluded a long stint on the town Finance Committee and served two years as chairman of the Board of Selectmen in the 1990s, said the idea of the town or the fire district taking over HWW has been floated before. He said he did not think the proposition would pass at a town meeting.
“The takeover discussion has happened numerous times,” Atwood recalled. “The difficulty is if the town buys it and they borrow $25 million to fix the system, the fire district people will feel like they’re paying twice for water.”
In an interview, Selectman Ed Abrahams said that, while he is not advocating for the fire district to take over HWW, there would surely be some savings since fewer employees would be required to maintain a unified system.
Abrahams said he has seen the idea of town takeover of the HWW discussed on social media but it has not come up formally in Town Hall.
“I’m open to discussing anything but I must admit I have no idea what it means in terms of cost,” Abrahams said. “The problem is any money spent on upgrades goes into rates. On one level, spreading it out over more customers does make sense.”
The costs for the fire district water operations and debt service are covered by an enterprise fund, which means only ratepayers and those with property in the district pay the costs, not town taxpayers outside the district who have private wells.
“If it comes up, we would consider it but I have heard no details,” Abrahams added.
There is precedent for municipal takeovers of private water companies in Massachusetts. Aquarion Water Company, which was recently acquired by the electric utility behemoth Eversource, has been the object of multiple lawsuits from towns such as Hingham and Oxford. The litigation was largely related to disagreements on a purchase price.
Closer to home, the Hutchinson Water Company, a tiny and troubled operation that serves about 100 homes in the Hutchinson Acres development in Cheshire, has actually asked the town to take control of it. But that has led to objections on the part of one selectman who said of that water company, “They want us to take over their problems.” The matter has been referred to the Cheshire water department for review.
Even closer to home, the former Sheffield Water Company, a private company which serves about 500 customers and was acquired by the Connecticut-based Mountain Water Systems last year, wants to increase rates by 58 percent. As you might expect, the proposed increase has caused concern, but no talk of a town takeover.
According to the DPU, there are 18 private water companies serving Massachusetts. They range from one-well operations serving a handful of customers to Aquarion, which serves almost 20,000 customers in the eastern and central parts of the state. Click here to see the list. Aquarion also serves several towns in the northern part of neighboring Litchfield County, Conn., including Canaan, Cornwall, Salisbury and Norfolk.
According to Food & Water Watch, a nonprofit group that supports public ownership of water companies, investor-owned companies moved to buy or manage public water departments in the ‘80s and ‘90s when cash-strapped municipalities were facing enormous capital improvement costs. That trend has started to reverse itself, said Mary Grant, who directs the water campaign for Food & Water Watch.
“From 2007 to 2014, we saw a shift to more people being served by public water companies,” Grant said. “Private companies grew slightly in places like New Jersey, Illinois and Pennsylvania. Interestingly, conversion from private to public was most common in the South where there is much municipal growth.”
Using numbers from the EPA, the group estimated that between October 2007 and October 2011, the number of Americans served by private water companies declined by 16 percent. During that same period, the number served by public ones rose by 8 percent.
“There are lots of benefits of consolidation under a public entity,” Grant said. “One entity can achieve economies of scale, which reduces purchasing costs.”
Grants said the cost of borrowing is typically 10 percent higher for the private sector because investor-owned companies cannot borrow on the less expensive municipal bond markets.
“Government borrowing is much cheaper,” Grant explained. “Plus, private companies must pay taxes.”
Though such does not appear to be the case in Housatonic and Great Barrington, water-use rates in the private sector are typically higher. The main drivers, as Grant sees it, is the need for infrastructure improvements and “access to capital.”
If a municipality thinks a private water company is not serving the community well, “the only recourse is to seek public purchase of the system,” Grant added. Or in some cases the state can put poorly run systems under receivership, though that is a extreme measure taken only when the company becomes insolvent or public health is threatened — neither of which is the case in Housatonic.
Grant’s organization “encourages companies to come to the table voluntarily,” even as eminent domain is a last resort. Grant said smaller companies are more likely to negotiate a sale price in good faith and that eminent domain is far more likely against a large company.
For example, when the South Shore town of Hingham moved to acquire the private system from Aquarion, the town said the system was worth $49.9 million, while Aquarion insisted it was “worth at least $96.1 million and perhaps as much as $144 million,” according to the Patriot Ledger of Quincy. The town lost the resulting lawsuit on appeal and the water system remains in private hands.
Longtime HWW ratepayer Fred Clark, an architect and former Berkshire Hills Regional School Committee member, said there would be pros and cons to a town takover. On the one hand, HWW owns what Clark calls “a tremendous water reservoir, Long Pond.”
“This would give the fire district a great reserve that they do not have now — that is, Housatonic Water has excess capacity and of high quality,” Clark said in an email. “The downside is that the fire district would inherit an aging distribution system. The main storage and filtration plant has had a lot of upgrades, so the liability is in the distribution pipes.”
As for whether he is open to selling HWW, Mercer was playing his cards close to his vest: “We’re a private company. By statute, they have right to buy us out for fair market value, but we’re not actively looking to sell anything.”
