Forbes.com- Large water company buying smaller Conn. firms

BY STEPHEN SINGER, ASSOCIATED PRESS

HARTFORD, Conn. — Aquarion Water Co., the largest investor-owned water utility in New England, has been on a buying spree in Connecticut, purchasing dozens of water systems and several small companies in the last few months.

It’s joining numerous others as the industry consolidates, eliminating small operators that don’t have the capital to repair pipes and meet increasingly costly government mandates.

Since April, Aquarion Water Co. of Connecticut, which serves more than 580,000 customers in 39 cities and towns, announced plans to purchase water systems serving a few thousand residents “with the goal of unifying fragmented operations” and preparing for future development, the company said.

The most recently announced acquisition was Meckauer Water Co., which serves 49 customers in Bethel. Terms of the deal were not disclosed.

Steve Polizzi, president of Meckauer, said the company was established about 40 years ago to provide water to a development. In the past, a water company built a system for a development rather than dig wells, he said. When zoning rules changed, requiring larger parcels of 2 acres or more, the increased distance between homes required more water mains to supply homes, Polizzi said.

Bruce Silverstone, a spokesman for Aquarion in Bridgeport, said smaller water companies cannot always meet standards set by the Department of Health.

“Not that they don’t have good water, but it’s increasingly difficult to continue meeting standards and do what’s necessary,” he said.

Tim Winter, an analyst at Gabelli & Co., said pipe replacements are the “real driver” in the cost to run a water company.

“It doesn’t make sense for a 500-customer water system to build a treatment plant, but it would for a 100,000-customer company, he said.

Michael Dean, executive director of the National Association of Water Companies, said as many as 54,000 community water systems in the 1990s now number about 43,000 as smaller companies are bought by larger ones. Each serves fewer than 3,300 customers on average, Dean said.

“It’s slowly going down, that’s the trend,” he said.

Increasingly stringent standards, new technology and cost advantages to running a larger enterprise help explain the industry consolidation, Dean said.

Catherine C. Milbourn, a spokeswoman for the U.S. Environmental Protection Agency, said costs include energy, which can account for 30 percent to 40 percent of a water system’s operating expenses, a certified operator to maintain the system, chemicals and – for some systems – significant and costly water loss.

Smaller water systems would have to significantly increase rates to pay these costs, she said.