Court upholds PUC: Nashua may acquire Pennichuck Water Works

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Appeal of Pennichuck Water Works, Inc. et al.
Appeal of Pennichuck Water Works, Inc. et al.
No. 2009-274
Thursday, March 25, 2010

By David Connell, legal services counsel with the New Hampshire Local Government Center’s Legal Services and Government Affairs Department


Since 2002, the City of Nashua has been seeking to acquire by eminent domain the plant and property of Pennichuck Water Works, Inc. (PWW), the public utility that provides water service in Nashua and some adjoining towns. RSA Chapter 38 prescribes eminent domain procedures for municipalities to acquire water, gas and electric utilities by petition to the Public Utilities Commission (PUC). Pennichuck Corporation is the holding company for PWW and two other regulated water utilities, Pennichuck East Utilities (PEU) and Pittsfield Aqueduct, Inc. (PAC), which own and operate small systems in many towns in New Hampshire. PWW, PEU and PAC share some staff, facilities and other overhead items in common, which holds down expenses and rates for the PEU and PAC customers.

After Pennichuck’s unsuccessful constitutional challenge to the process, Pennichuck Corp. v. Nashua, 152 N.H. 729 (2005) (Court Update, New Hampshire Town and City, January 2006, p.34), lengthy PUC proceedings ensued. The PUC’s task was to determine if the “public interest” would be promoted by the City’s acquisition of PWW’s assets and, if so, the assets’ market value, which the City would have to pay as just compensation. The City also sought to acquire PEU and PAC, if necessary to protect the customers of those small water systems from large rate hikes. In July 2008, the PUC ruled that it is in the public interest for Nashua to take PWW’s assets, subject to several conditions, for $203 million. The PUC ruled that the City could not legally acquire PEU and PAC under RSA Chapter 38, but the PUC did require the City to establish a $40 million mitigation fund to offset increased costs to PEU and PAC customers caused by the loss of support from PWW. (See Court Update, New Hampshire Town and City, October 2008, p.37, for a more detailed discussion of the PUC proceedings.) Both parties appealed the Supreme Court. In appeals from decisions by State administrative agencies such as the PUC, the Court reviews the agency’s decision under a deferential standard. RSA 541:13.

PWW challenged the PUC’s finding of public interest. In an RSA Chapter 38 proceeding, there is a presumption that the acquisition is in the public interest. “RSA 38:3 reflects the legislature’s significant policy objectives in favor of allowing municipalities to take over an existing water distribution system….” PWW failed to rebut the presumption. Its argument that the entire state would suffer from loss of the largest investor-owned water company was “merely speculative.” The Court also rejected PWW’s claim that the PUC lacks the authority to enforce the conditions it imposed on the City’s acquisition. Although the City will not operate as a regulated public utility under RSA Chapter 362, the Court held that the PUC has ample authority under RSA Chapter 38 to impose and enforce conditions.

The City challenged the ruling that it could not take PEU and PAC but was, nevertheless, responsible to protect them through the mitigation fund. The Court upheld the PUC ruling. The Court interpreted RSA Chapter 38 to deny eminent domain authority over utilities not actually providing service in the municipality, such as PEU and PAC. However, the Court upheld the mitigation fund, based on the PUC’s power to determine damages caused by “severance” of the plant and property of PWW from PEU and PAC.

The City also claimed that the $203 million in damages was excessive. Noting “the extraordinary difficulties in placing a fair market value on the property of a regulated utility,” the Court declined to disturb the PUC’s analysis of the expert opinion evidence and the award of $203 million. A key issue was the PWW expert could properly consider a hypothetical unregulated buyer (a municipality) when valuing the water utility. The Court observed that nothing in RSA Chapter 38 would preclude two or more municipalities from competing to acquire a water utility at the same time.

The Court upheld the PUC order in all respects. Under RSA Chapter 38, the City has 90 days to decide whether to issue the revenue bonds necessary to fund the acquisition of PWW.