The news surprised me, in the way I would be surprised if OceanGate Expeditions raised ticket prices. I read The Berkshire Edge news alert and then read it again, not due to subpar reading skills (English is like a second language to me). I was simply having difficulty wrapping my mind around the chutzpah it would take for Housatonic Water Works’ (HWW) current management to seek an enormous rate increase at this time.
HWW has requested the Department of Public Utilities (DPU) approve a 112.7 percent revenue increase, which would more than double the average yearly customer’s water bill to $1,641.48, up from $746.40. That is average. You really don’t want to be considered above average in the HWW service area. If DPU approves the rate application, it will not be since Michael Jordan was cut from his high school basketball team that we will have witnessed such an extreme example of failing up.
Without question, HWW needs capital improvements. We know from AECOM’s 218-page report from June 2021 that the system requires a (pre-inflation) $31 million investment for improved filtration, deeper water intakes, pipe replacement, and myriad other improvements detailed in the report. We got here due to HWW’s underinvestment in its filtration system and slow-rolling pipe replacement. One could argue that HWW ratepayers avoided the real cost of clean water delivery for years and that the chickens have come home to roost. But it was HWW’s management’s failures to make incremental changes along with seeking incremental rate increases that are the real root of the problem.
It was always going to be the case that HWW improvement costs would fall largely on the ratepayers’ shoulders. Outside of the public-health crises presented by Flynt, Mich. and Jackson, Miss., Congress does not rain down funds for a town’s water treatment facility. Capital improvements are regulated by the DPU—that is, the DPU assesses ratepayers the costs of improvement and provides investor-owned utilities with a modest return on investment. Outside of unusual grants, that is simply the formula for regulated utilities. Although the Commonwealth is generously offering to write a $54 million check to replace Monument Mountain High School, we should not expect such largess to fund repair of HWW. The ratepayers are largely on their own.
The fact is, HWW management should never have permitted the system to fall into disrepair. Just as Exxon Valdez Captain Hazelwood was stripped of his command for turning water black, HWW’s management should be stripped of its duties for turning its water brown. And while we are counseled to give second chances, we are years into a crisis and far beyond second-chance consideration. AECOM’s conclusion that HWW requires tens of millions in capital upgrades establishes that the hole HWW management has dug is simply far too deep.
The rate application has pushed the question of who should guide HWW’s improvements to the fore. Just as it is inconceivable that one would vote to elect for president a twice impeached person subject to multiple indictments, it would be unwise to leave to HWW’s management the responsibility for cleaning up a mess of its own creation. When someone has caused a wreck, prudence dictates we take the keys away.
Let’s agree that the filtration system needs to be replaced, that the cost will fall largely on ratepayers, and that some entity needs to plan and implement the improvements. Let’s also agree that HWW management’s breach with its customers is too severe to permit it to lead the effort. Management knows the system and certainly can consult on the work, but it should not be driving the train.
In fits and starts, the Selectboard has been attempting to address the HWW crisis for some time. Unless progress is occurring in Executive Session that we cannot see, it is fair to say that the Selectboard’s public letter writing campaign has not made a material difference. If the Selectboard has a timeline for dissociating HWW ownership from HWW prior to implementing system changes, it just got substantially advanced. As Mike Tyson notes, everyone has a plan until they get punched in the mouth. HWW’s current management’s rate application was just that: a punch in the mouth.
As has been suggested previously, there is an obvious way to manage this situation: HWW’s owners should turn over the keys to a to-be-named public entity. Despite what might be suggested by the February 2023 draft appraisal commissioned by HWW’s owners, the utility has no sale value given the $35 million, inflation-adjusted, long-term capital costs it is facing. The to-be-named public entity can commit to a lengthy consulting agreement with HWW’s owners, thereby compensating them for their depth of knowledge, but not for their underwater utility. The public entity gets the owners’ expertise, and the owners can continue to earn a reasonable income during the early years of the transition.
Once HWW is a public entity, something magical happens. With the Commonwealth’s cooperation, the post-HWW entity can access capital at favorable municipal rates unavailable to private utilities, although the magic is constrained by the ratepayers’ appetite for debt. Ratepayers might appreciate that bond sales can spread the cost over years to avoid being hit time and again with enormous rate increases.
There is an old joke about the number of psychiatrists it takes to change a light bulb. As you probably know, the answer is “none,” as the light bulb has got to be willing to change itself. And that is precisely where we are with Housatonic Water Works. To move forward in the absence of eminent domain (once bitten, twice shy), we need a willing seller and a willing buyer, and nothing suggests we have a willing seller. All we can do is hope, reason with, and suggest to HWW’s owners that it has got to be willing to change itself. Turning over the keys is the right thing to do. No other conclusion suggests itself.
