DF 97-225
Pennichuck Corporation/Pittsfield Aqueduct Company
Petition for Approval of Merger Agreement
Order Approving Merger
R E V I S E D O R D E R N O. 22,843
January 30, 1998
APPEARANCES: Gallagher, Callahan and Gartrell by Denis
J. Maloney, Esq. on behalf of Pennichuck Water Works Company;
Sulloway and Hollis by Fred L. Potter, Esq. on behalf of
Pittsfield Aqueduct Company Inc.; Frederick Welch, Town
Administrator on behalf of the Town of Pittsfield; and Eugene F.
Sullivan, III, Esq. for the Staff of the New Hampshire Public
Utilities Commission.
I. PROCEDURAL HISTORY
On October 21, 1997, Pennichuck Corporation and its
subsidiary Pennichuck Water Works, Inc. (Pennichuck Water Works),
a regulated water utility in the State of New Hampshire,
(collectively, the Petitioners) jointly filed with the
Commission, pursuant to RSA 374:33, a Petition for Approval of
Acquisition of Capital Stock of Pittsfield Aqueduct Company
(PAC), a public water utility providing service to a portion of
the Town of Pittsfield.
If approved, the Petition provides that Pennichuck
Corporation would acquire all of the issued and outstanding
capital stock of PAC and other incidental property and rights
necessary to continue the uninterrupted operation of PAC as a
public utility water company pursuant to an Agreement and Plan of Merger dated September 19, 1997 (Agreement). PAC joined in the
Petition for the purpose of evidencing its consent to the
proposed acquisition.
The Agreement is conditioned upon the Petitioners'
receiving certain assurances from the Commission with respect to
rate base, rate of return, and level of rates. In particular,
the Agreement requires Order No. 22,327 (September 23, 1996) in
DF 95-016 to remain in effect following the acquisition and
merger.
On November 21, 1997, an Order of Notice was issued
scheduling a prehearing conference for December 8, 1997.
On November 29, 1997, the Town of Pittsfield
(Pittsfield or Town) voted pursuant to RSA 38:3 to purchase or
otherwise acquire the assets of PAC pursuant to the provisions of
RSA Chapter 38.
At the December 8, 1997, prehearing conference
Pittsfield moved for intervenor status in the proceeding, which
was granted without objection. Pennichuck, PAC, Pittsfield and
Staff stated their positions with regard to the filing for the
record. In addition, Rene Pelletier, Administrator of the Water
Supply Engineering Bureau of the Department of Environmental
Services (DES) explained safe drinking water problems in
Pittsfield and expressed his support of Pennichuck's acquisition
of PAC.
Pennichuck and PAC set forth positions supporting the
proposed merger. Staff also stated its support of the merger
with certain reservations. Pittsfield objected to Commission
consideration or approval of the proposed merger on the grounds
that the merger would interfere with, or undermine, its attempts
to acquire PAC under RSA Chapter 38.
By Order No. 22,820 (January 5, 1998), the Commission
scheduled a hearing on the merits of the petition for January 21,
1998. That hearing was subsequently rescheduled for January 26,
1998.
II. POSITIONS OF THE PARTIES AND STAFF
At the January 26, 1998 hearing, Pennichuck
Corporation, PAC and Pittsfield presented a Letter Agreement
resolving Pittsfield's concerns regarding the proposed merger and
providing that any successor corporation to PAC's assets would
take the name Pittsfield Aqueduct Company, Inc. until the Town,
within one year from the date of the Letter Agreement, either
completes or abandons its efforts to acquire the system. The
Letter Agreement provides that in consideration of Pittsfield's
support of the merger, Pennichuck Corporation shall not challenge
the validity or adequacy of the Town's vote to acquire PAC or the
Town's RSA 38:6 notice to PAC of the vote.
Staff did not object to the proposed merger.
III. COMMISSION ANALYSIS
The issue for our consideration is whether the proposed
merger is in the public interest. RSA 374:33; See also, RSA
374:30. Under the public interest or public good standard to be
applied by the Commission where an individual or entity seeks to
acquire a jurisdictional utility, the Commission must determine
that the proposed transaction will not harm ratepayers. Grafton
County Electric Light and Power Co. v. State, 77 N.H. 539 (1915);
Cf., Parker-Young Co. v. State, 83 N.H. 551 (1929)(application of
"net benefits" test where there are competing offers to acquire).
Pursuant to the Agreement, Pennichuck Corporation, the
parent company of Pennichuck Water Works, Inc., will acquire PAC
through a stock exchange. In the merger, PAC will merge into
Pennichuck Acquisition Corporation, a new corporation wholly
owned by Pennichuck Corporation. Pennichuck Acquisition
Corporation will subsequently be renamed Pittsfield Aqueduct
Company, Inc. and will remain a wholly owned subsidiary of
Pennichuck Corporation.
The testimony revealed that Pennichuck Water Works has
been operating and maintaining PAC's water treatment plant that
came into service on October 9, 1997. The testimony further
revealed that PAC does not have the technical expertise to
operate such a facility and has relied on the expertise of
Pennichuck Water Works.
The Pennichuck Water Works' employee currently
servicing the treatment plant would become the sole employee of
Pennichuck Acquisition Corporation and would handle all
operational matters on a day-to-day basis. Pennichuck Water
Works would provide all other services, such as billing, long
term planning and oversight, customer relations, financial
matters, etc.
Pennichuck testified that it would have greater access
to the financial markets than PAC, allowing it to significantly
reduce the cost of capital. Pennichuck would also have access to
a State Revolving Fund of low interest loans and grants for water
utilities for which PAC did not qualify.
Pennichuck testified that the cost of service and rate
base of the new Pittsfield Aqueduct Company would remain
substantially the same as reflected in PAC's current books of
account. Thus, Pennichuck testified there would be no need to
increase rates at this time. In fact, testimony indicated that
rates might decrease slightly to reflect the lower cost of
capital available to the new corporation.
As was noted by Pennichuck, we have recognized the
financial, managerial and technical expertise of Pennichuck to
operate a water utility on numerous occasions. See eg., Re
Pennichuck Water Works, Inc., 75 NH PUC 224 (1990). Based on the
testimony, we find that the acquisition of PAC by Pennichuck
Corporation will not only not harm ratepayers, but will be
beneficial to ratepayers. Thus, we will approve the acquisition.
Based upon the foregoing, it is hereby
ORDERED, that the proposed merger of Pennichuck
Corporation and Pittsfield Aqueduct Company, with the subsequent
creation of a new wholly owned water utility consisting of the
assets and liabilities of Pittsfield Aqueduct Company, is in the
public interest and is APPROVED; and it is
FURTHER ORDERED, that the Pennichuck Acquisition
Corporation, to be renamed Pittsfield Aqueduct Company, Inc., is
authorized to conduct business as a public water utility in the
Town of Pittsfield, New Hampshire; and it is
FURTHER ORDERED, that all orders of this Commission in
effect as of this date that apply to Pittsfield Aqueduct Company,
and all of the benefits and liabilities of those orders, shall
apply to Pennichuck Acquisition Corporation and, subsequently to
the newly renamed Pittsfield Aqueduct Company, Inc.
By order of the Public Utilities Commission of New
Hampshire this thirtieth day of January, 1998.
Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary