Company to return benefit of recent IRS tax law change to its customers
Connecticut Water has reached an agreement with the Office of Consumer Counsel and the Attorney General of the State of Connecticut to voluntarily return the benefit of an IRS tax law change to customers through a rate reduction over a 2-year period starting April 1, 2014 and to delay the filing of its next general rate case. The Settlement Agreement, in which the Connecticut Water, the Consumer Counsel and the Attorney General determine there is a "clear benefit to customers," was submitted on July 1, 2013 to the Public Utilities Regulatory Authority (PURA) for approval.
This agreement provides a rate reduction for customers and means the company will not seek a general rate increase until 2015. It also provides greater financial stability for the company, which allows for continued investment in the infrastructure and the vital water resources that serve customers and communities.
The company requested consideration of a strategy to provide for the rate reduction to reflect the adoption of a recent change in the federal IRS code that allows utilities to take an immediate deduction of qualified capital spending that otherwise would have been deducted in small increments over many years. The Repair Tax Deduction Credit (RTDC) has provided Connecticut Water the opportunity to file for a refund of federal tax payments going back to the year 2010. The company estimates the tax refund as a result of the RTDC that it will share with its customers over a 2-year period will be approximately $10 million.
Eric W. Thornburg, Connecticut Water's president and CEO, explained the company's desire to take advantage of the RTDC to reduce customers' rates:
"Customers and communities have been hit hard by a challenging economy and economic uncertainty. We believe it is our responsibility as a regulated utility to continuously seek ways to reduce our operating costs to mitigate the impacts of rates on our customers and communities, while still delivering quality water and service. We believe that taking advantage of the RTDC and returning that benefit to customers in the form of a rate reduction is the right thing to do. We are pleased that the Consumer Counsel Katz and Attorney General Jepsen supported our proposal and joined with us in this agreement." Thornburg noted that rates for municipal accounts will also be reduced, so this will result in savings for local budgets.
In addition to the rate reduction, Connecticut Water has agreed to “a stay out period” and delay its next general rate case filing to provide greater certainty for customers. As a result, there will be no rate increase from a general rate case before October 2015. The company's last general rate increase took effect in July 2010, so with the inclusion of the stay out provision, the company will not have implemented a general rate increase for customers for more than five years.
The company has also agreed to postpone for six months the filing of its Water Infrastructure and Conservation Adjustment (WICA) application that was planned for January 2014, delaying the recovery for those WICA projects until October 2014. The company will, however, continue to invest in WICA eligible pipe replacement at current levels to enhance water system reliability, public fire protection, and conservation of water, power and treatment chemicals.
In conjunction with the planned rate changes in April 2014, the company will establish a Revenue Adjustment Mechanism (RAM) as authorized by a recently enacted Connecticut law. The RAM removes the financial disincentive for water utilities to develop and implement effective water conservation programs and allows water utilities to recover the difference between the actual revenues in a calendar year and the revenues that PURA approved at the time of their last rate general rate proceeding. Implementing the RAM provides greater financial stability for the company, allowing it to continue to make investments and provide quality service to customers and communities during the “stay out” period established by the settlement.
Under the Settlement Agreement, the rate changes to apply the benefit of the RTDC credit and the implementation of the RAM will take effect on customers' bills on April 1, 2014. Connecticut Water estimates that the amount credited to customers over 2 years from the estimated $10 million tax refund will exceed any increase associated with the RAM, so customers can expect to see a net reduction on their water bills starting on April 1, 2014 as a result of the Settlement Agreement.