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Letter: Water Rate Request an 'Unjustifiable Financial Hardship'

In a joint letter to the secretary of the state Department of Public Utilities, state Sen. Richard Moore and state Rep. John Fernandes oppose a rate increase of 83 percent.

Editor's Note: the following letter by state Sen. Richard T. Moore (D-Uxbridge) and state Rep. John V. Fernandes (D-Milford) was sent to Mark Marini, secretary of the state Department of Public Utilities, concerning a request for a water rate increase of 83 percent filed by the Milford Water Company.

Dec. 12, 2012

Dear Secretary Marini:

The purpose of this letter is to formally advise you of our opposition to the proposed rate increase of approximately eighty-three percent (83%) sought by the Milford Water Company in the above referenced petition. This Petition comes on the heels of a recent rate increase of approximately thirty-three percent (33%) that was approved in 2011. We find the current proposal outrageous and know that it will have severe consequences on ratepayers throughout the Town of Milford.

We strongly oppose the Petition on the basis that these two rate increases back-to-back will place an unjustifiable financial hardship upon residents, municipal government and businesses alike. Resident ratepayers hit hard by the most recent economic recession, especially those on fixed incomes, cannot afford such a drastic increase to their monthly water bills. The town government itself will incur increases it simply cannot afford. To the extent these rate increases impact businesses, they will undoubtedly be passed along to consumers, especially through heavy water users like the International Power plant located in Milford, or Saint-Gobain, the last remaining bottle manufacturer in New England. Undoubtedly, the higher rates will have a chilling effect on much needed town, and even regional, economic development.

This rate request appears to reflect a longstanding pattern of behavior by the Milford Water Company ownership of keeping rates low while not adequately maintaining and repairing waterworks infrastructure. Failure to properly reserve for major capital expenses, such as the Milford Water Company's new $20 million treatment plant, drives this request. The Milford Water Company should not be rewarded for these planning deficiencies. There is no credible business that can possibly justify back-to-back increases in pricing of 33 percent and 83 percent in less than two years and expect to remain in business.

Finally, the Milford Water Company's rate increase is inclusive of, and based in part upon a regulation permitting a return on equity that is unrepresentative of the current market. The Massachusetts Code of Regulations, 220 CMR 3.01 through 31.03, provides a formula to determine a fair return on equity for a water company. Pursuant to that formula, a water company is entitled to an allowed return on equity equal to the U.S. thirty (30) year Treasury bond interest rate, plus 3 percent. Surprisingly, however, the regulation in a closing "except" clause sets a presumptive floor at 11.5 % as a return on equity, while the current U.S. thirty (30) year Treasury bond rate (or its equivalent) is running below three (3) percent, thus warranting only a 5-6 % return.

This regulation, apparently written long ago when Treasuries were running much higher, should be modified by the DPU or if not, then the Legislature in that the "except" clause providing for the 11.5 % floor when the formula would return a much lower rate essentially renders the formula meaningless. This reality should be factored in the decision in this case since you have discretion to set a different rate of return.

Once again, we would like to express our strong opposition to the Petition submitted by the Milford Water Company for an 83% increase.

Very truly yours,

Richard T. Moore, state Senator, Worcester & Norfolk District

John V. Fernandes, state Representative, 10th Worcester District

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