Great Barrington — On January 23, the Massachusetts Department of Public Utilities (DPU) approved a request from Housatonic Water Works (HWW) for two loans that the company states are necessary to finance the completion of a manganese filtration plant.
In July 2024, the DPU approved the company’s rate increase request, allowing a 90 percent increase to customer rates over five years. The approval of the rate increase included a settlement filed by both the Office of the Attorney General and HWW.
The settlement includes a capital project list, including the construction of a manganese filtration system, an interconnection with the Great Barrington Fire District, a new water storage tank, and a main replacement.
On September 12, HWW Treasurer James Mercer wrote to the Massachusetts Department of Environmental Protection (MassDEP) that the company was anticipating delays in the construction of a manganese treatment plant.
On September 30, HWW filed an application with the DPU requesting the approval for two loans that the company deems necessary to fund the completion of the plant.
The first loan, $155,089 at 3.75 percent interest, was already obtained in 2020 under the Small Business Administration’s (SBA’s) COVID-19 Economic Injury Disaster (EID) program.
The company filed a financing petition with the DPU indicating that it intends to amend prior annual returns to reflect the reclassification of the SBA loan.
The company also sought to obtain a second commercial loan for $1 million at an interest rate not to exceed eight percent from CoBank ACB out of Denver, Colo., a cooperative bank and member of the Farm Credit System.
On January 8, the DPU held a public hearing on the requests which lasted for 15 minutes due to a lack of public discussion.
The department’s decision on January 23 was co-signed by Chair Jeremy McDiarmid, along with Commissioners Staci Rubin and Elizabeth Anderson.
In the decision, the DPU found that HWW’s proposed loan agreement with CoBank to finance construction of the manganese filtration system for up to $1 million is a “legitimate utility purpose” by state General Law under the section “Proceedings to determine necessity of issue of stock, bonds, coupon notes or other evidences of indebtedness.”
The DPU also had a similar finding for the previously obtained SBA loan:
… although the EID loan was intended to meet cash working capital needs during COVID-19 and the company did, in fact, use the funds for such purpose, the company proposes to attribute the SBA loan proceeds to the manganese filtration system project for ratemaking purposes.
The department will not address the proposed attribution of the SBA loan proceeds here. Instead, we will consider how to treat any outstanding balance of the SBA loan proceeds in Housatonic Water’s capital structure in the company’s next rate case.
In the interim, the company should book the SBA loan proceeds as long-term debt. Issues concerning the prudence of the Company’s capital program have not been raised in this proceeding, and the department’s decision in this case does not represent a determination that these projects are economically beneficial to the company or its customers.
The Department’s determination in this order shall not in any way be construed as a ruling relative to the appropriate ratemaking treatment to be accorded any costs associated with the proposed financing.
In the decision, the DPU notes that HWW “will have an obligation to demonstrate with adequate evidence that the costs of the manganese filtration project were reasonable and prudent. Such review will occur in conjunction with the department’s review of the Company’s applicable compliance filing related to the project.”
The DPU also notes several public comments made during the approval process:
One commenter expressed general concerns with the company’s water quality, cost of service, and the prudence of its business decisions. The manganese filtration system that is the subject of this financing petition is designed to address the water quality concerns in the company’s service territory. The department will address the prudence of the actual investments in this system in conjunction with our review of the compliance filing applicable to the project.
The department will address the prudence of other capital investments, as well as the company’s cost of service, as part of the Company’s next rate case.
A second commenter suggested that the company should be required to comply with all applicable competitive bidding and prevailing wage laws. Because Housatonic Water is a private company, it is not required to comply with the competitive bidding and prevailing wage law requirements otherwise applicable to municipal corporations.
While the department has not mandated that water companies engage in competitive bidding processes for construction activities, we have repeatedly stressed the importance of utilities conducting thorough analyses of all major expenditures, including those deemed necessary and non-discretionary, through analytical techniques such as a cost-benefit analysis.
Moreover, the Department has emphasized that competitive bids serve as an important part of a company’s overall strategy to contain costs. Accordingly, while the competitive bidding and prevailing wage law requirements referenced by the commenter are not applicable here, the company must present adequate evidence at the time of its next rate case that all costs it seeks to recover in rates are reasonable and prudent.
The manganese treatment plant was originally scheduled to be completed and operational by March 1.
However, in the monthly report to MassDEP sent by HWW on February 16, the company states that the plant would be operational by June 1. The company states that HWW “continues to make steady progress on the project” and that it is “awaiting confirmation from its bank regarding scheduling the loan closing.”
HWW also notes that it signed a contract on January 14 to construct a building to house the greensand filtration equipment, though the contractor was not specified in its report.
Meanwhile, back on November 21, Town Manager Liz Hartsgrove announced that Great Barrington made a formal offer to purchase HWW. Despite a request for more information from The Berkshire Edge, Hartsgrove would not give specific details about the offer, including a purchase price.
Nearly three months after the announcement, there have been no updates from the town on the offer.
