Say what you will about the Post Office, it has its payment model worked out. Pay first or your package won’t be delivered. (Of course, you can pay first and your package still won’t be delivered, a discussion for another day.) Laramee Cleaners also has a well-considered payment plan. Laramee doesn’t require upfront payment when you drop off an item for cleaning because the item is in hock. Laramee knows that if you care enough to clean it, you care enough to pay for it. Unlike Goodwill, there have been no reports of large-scale clothing donations to Laramee, so I think its model works well.
I mention this with just a tinge of jealousy as someone in the service industry without natural payment assurance. For a fee, I provide advice to clients with an expectation of later payment, expectations which are sometimes unrealized. There is the occasional client who does not like the advice provided or me, or, for an unarticulated reason, is less than interested in paying the invoice that arrives about a month after the advice was provided. Let’s just say there can be a gap between an expectation of payment and actual payment. So, an imperfect business model.
It is against this backdrop that I can say without reservation that the owners/officers of Housatonic Water Works (HWW) have devised, solely from a compensation standpoint, a truly admirable payment system. HWW has a captive clientele forced to pay for its product, water, whether delivered clear, brown, or haloacetic acid (HAA5) laced. The average monthly HWW water bill, at $46 per month, is currently $11 more than the state average, which is problematic given that it occasionally provides drinking water exceeding the state’s HAA5 Maximum Contaminant Levels (MCLs). HAA5 is decidedly not good for infants, pregnant individuals, and senior citizens, who are advised to drink bottled rather than HWW water. For that extra $11, HWW provides its ratepayers with what you might refer to as “mineral-enriched water” and, occasionally, an increased risk of HAA5-related cancer. Fair to say that HWW customers get more than just pure H20 out of their faucets, whether they like it or not.
Generally, one drinks water for increased hydration, so increasing the risk of cancer is decidedly subpar purely from a “best practices” service industry perspective. Of course, HWW’s product is not only for ingesting, but when running with elevated manganese levels, as happens in warmer weather, HWW customers avoid using the water to wash dishes, clean clothes, or bathe, although one could use it to wash a car in a pinch. Still, let’s agree that HWW’s water isn’t living its best life. The same cannot be said of HWW’s owners.
Here is where I marvel at the HWW owners’ ingenuity. HWW’s owners have what I will refer to as a “double secret compensation” plan. The two owners were paid $114,148 each in 2022. The Department of Public Utilities (DPU) hasn’t balked at these amounts to date, so let’s assume they are in line with other private utilities providing brownish, HAA5-infused water to a mere 850 customers, assuming such comparable entities exist. But the owners’ compensation was “double secret” because it appears both the DPU and Housatonic ratepayers were unaware of delayed compensation above the $114,148-per-year salaries. From what I can tell, HWW did not disclose the deferred compensation liability on its balance sheet, the logical place to disclose such information.
While the DPU did not question salaries of $114,148 per year, will it balk at HWW’s owners’/officers’ request to have ratepayers pay them an additional $2 million in “delayed compensation” in connection with HWW’s current efforts for a 120 percent rate hike? In its submission to the DPU, HWW stated that in recent years “management[‘s] commitment to provide safe, adequate, and quality service has received priority over the compensation” of officers of the company, a ratepayer liability approaching $2 million. One might reasonably quibble with that statement, as there have been hundreds of complaints lodged with the DPU contesting the suggestion that HWW provides safe water and quality service. It is notable that HWW invested only about $5,000 in 2022 on additional water filtration while its ratepayers invested far more than that for their own filtration systems. DPU might want a bit more color on precisely what HWW means by “safe, adequate and quality service.”
The $2 million payment is one factor driving HWW’s average customer’s annual cost of water from $746.40 to $1,641.48, with a requested monthly minimum service charge of $98.38. For the sake of comparison, the average water bill in the state is $35 per month, and the highest average water bill in the country is West Virginia’s at $91 per month. Not sure HWW should promote that it could be number one! Considering that the 2021 median income in Massachusetts was $89,026, and far less, at $45,197, in Housatonic, having an average monthly bill nearly three times higher than the state average means Housatonic ratepayers are having to dig far deeper into their pockets to pay for an essential element of life.
From a compensation standpoint, the double secret compensation is a marvel. The owners of HWW not only set their disclosed compensation, but they also get to set their future double secret compensation. If you don’t need a boat now, but perhaps would like one in a few years, you can use your delayed compensation to pay for it when the need arises. That cruise you have been eyeing? Double secret compensation. Saves on current pesky income taxes too. Paid in a lump sum this way, it looks a bit like a bonus, but companies generally don’t bonus officers for subpar service.
It would be fair for one to have misgivings about the double secret compensation request. For one, let’s say you just bought a home in HWW’s service area. You could not have known that the home came with a $2,350 liability for services not rendered on your behalf. Or perhaps you are one of the more than 250 ratepayers that have lodged written objections with DPU concerning HWW’s service and would have liked to know that HWW’s owners were getting paid exponentially more than publicly disclosed. Or maybe you are simply offended that one could be secretly compensated while HWW failed in its mission to provide clean water and adequate pressure at Housatonic fire hydrants.
While the request for about $2 million in delayed compensation really sticks in the craw, there is much to dislike about HWW’s proposed rate increase. Some have suggested that the enormous rate increase—and very healthy cashflows that will go with it—will cause HWW’s enterprise value to jump dramatically. If HWW expects to be sold in the near future, perhaps through an eminent domain proceeding or otherwise, the entity’s fair market value will be assessed in part on its far higher projected income. If eminent domain is to be considered, better it be considered before HWW inflates its valuation substantially.
HWW should have been forthright with its ratepayers about its owners’/officers’ compensation. On top of every other failing, springing a secret $2,350 on each ratepayer is too tough a pill to swallow. For these reasons, DPU should deny HWW’s request for delayed compensation. The denial will notify HWW and other utilities that if the compensation is not disclosed at the time it is earned, it will not be approved. Unlike HWW water, DPU’s message will be clear.