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Hingham, firm at odds over cost of water system

Now that Hingham is moving ahead with plans to buy the regional water system from Aquarion Water Co., town and company officials have stepped up the debate over the costs and the effect on ratepayers in three towns.

Last week, Hingham selectmen accepted a study group’s recommendations to buy the system serving Hingham, Hull, and North Cohasset from Aquarion. The purchase price was not disclosed.

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The decision was designed to give ratepayers more for less, selectmen said. “The fundamental saving is we don’t have to pay certain things they have to pay,” said Bruce Rabuffo, chairman of the Board of Selectmen.

But John Walsh, vice president of Aquarion operations for Massachusetts and New Hampshire, questioned the town’s calculations. He also said his company can provide better service because it is focused on providing high-quality drinking water and is not distracted by the other priorities of town government.

“We’re experts at what we do,” Walsh said. “We have experts in all aspects of the business, including water quality . . . water treatment, infrastructure planning, design and construction, and also operations.”

According to the town’s cost model, Hingham would eliminate several budgetary items by switching from private to municipal ownership, such as state and federal income taxes, the need for an annual return on investment for shareholders, and legal fees for court cases in other towns.

“Out of the $12.3 million that the [state] Department of Public Utilities has allowed Aquarion to charge the customers in Hingham, Hull, and Cohasset, we’ve identified $5.3 million in lower costs. . . . It’s costs that would be eliminated through municipal ownership,” said Ed Siegfried, a member of the town’s Water Study Acquisition Committee, which recommended the purchase.

‘The ongoing repairs to the system, maintenance, and capital reinvestment are things thatcould be better handled bya municipally owned utilitythan by the current model inplace.’

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While those savings might be fully realized in the long term, in the immediate future a portion of the money would be earmarked for paying off the loan that Hingham would require to purchase the water system, Siegfried said.

Another portion of the money would be used for capital needs.

Over a 22-year period, the net savings would work out to be between $70 million and $90 million, Siegfried said.

What that means for ratepayers is not certain.

“The rates will stay the same as they are right now,” Rabuffo said. “Once we assess the condition of the system, and are able to refinance some things, rates would start to go down.”

He noted, however, that one uncertainty is the condition of the infrastructure.

If all the savings go to infrastructure updates, it would be more than the $1 million to $1.8 million Aquarion has spent on infrastructure in the town annually, officials said.

Those upgrades could happen faster and more efficiently, Rabuffo said, as could repairs.

“Like we are with [Hingham Municipal] Lighting Plant . . . we’re faster. To wit, the storms we went through, our power’s stayed on and Norwell’s went down. That’s the control issue we have. That’s where the customer will be better off,” Rabuffo said.

Walsh, however, said that despite the town’s assertions, he had yet to see a cost model breaking down the $5.3 million estimate of savings.

Even with those projections, he said, Hingham officials do not fully understand what they are eliminating.

“We talked about cost models with them back in the fall. . . . After we worked through the assumptions, the end result was the model showed it would cost the town more money to own the system,” Walsh said.

Walsh also said that under the Department of Public Utilities’ oversight, rates have increased an average of 1.8 percent a year since Aquarion purchased the system in 2002, compared with 5 percent for other water utilities in Massachusetts.

If the purchase takes place, officials have not determined how a town-owned utility would operate. But Hingham would provide all of the upfront cost of buying the water system, and the debt repayment would be covered by ratepayers from the three towns.

Like Hingham, Hull gets all of its water from Aquarion. Officials in Hull, which accounts for about one-third of Aquarion’s customers in the region, fully agreed with Hingham officials.

“We’re obviously in support of [Hingham’s] decision,” said Hull’s town manager, Philip Lemnios. “For many years, people have had concerns about the cost, the escalation in costs over time for what is essentially a public utility.”

Rates were increased 23.4 percent in 2009, 10 percent in 2011, and decreased 8.2 percent in 2012 due to the restructuring of some debt.

Lemnios also said customers have been unhappy about Aquarion’s limited capital investments, which have led to a poorly maintained system.

“The ongoing repairs to the system, maintenance, and capital reinvestment are things that could be better handled by a municipally owned utility than by the current model in place,” Lemnios said.

Officials from Cohasset, which has only about 300 Aquarion customers (2.5 percent), could not be reached for comment.

Before Hingham can start to manage the system, it must settle on a purchase price.

The town has opened with a bid that Walsh called unrealistic. Though officials will not disclose the figure, Aquarion has calculated the cost for the system to be $184 million.

Walsh would not say whether the $184 million was negotiable.

If Aquarion does not negotiate, Hingham officials have said they are prepared to litigate under the water system’s charter, which governs how much the system is worth.

If any purchase is to occur, the price would have to be low enough to garner some savings to the town, Siegfried said.

“On the finance side, it makes enormous sense at the right purchase price,” Siegfried said.

“My own personal view is, if the numbers worked out to be break-even over a 22-year period, it wouldn’t make sense to do it.”

Jessica Bartlett can be reached at jessica.may.bartlett@gmail.com.
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