< a href="http://gencourt.state.nh.us/rsa/html/III/38/38-mrg.htm" target="blank">RSA Chapter 38 sets forth comprehensive eminent domain procedures administered by the Public Utilities Commission (PUC) for a municipality to establish a public electric, gas or water system by acquiring the plant and property of a public utility operating in the municipality. The PUC determines whether acquisition is in the “public interest” and, if so, the “just compensation” the municipality must pay the utility.
Since 2002 the City of Nashua has been seeking to acquire the plant and property of Pennichuck Water Works, Inc. (PWW), the public utility that operates in Nashua, serving 21,700 customers. PWW’s Nashua core system also serves 300 customers in adjoining towns. PWW also owns and operates separate, smaller water systems in other towns, totaling 3,000 customers, and sells water wholesale to other customers. PWW is a wholly- owned subsidiary of Pennichuck Corporation, which also owns two other water utilities, Pennichuck East Utility, Inc. (PEU) and Pittsfield Aqueduct Co. (PAC). PEU and PAC own and operate small systems serving 7,000 customers in many towns around the state. The three regulated utilities have independent rate structures but share some staff, facilities and other overhead expenses.
RSA 38:6 allows the municipality to purchase utility plant and property lying outside the municipal boundaries if the public interest requires it. Given the structure of the Pennichuck companies, Nashua offered to acquire the assets of all three, reasoning that it would protect the public interest not to sever them. Pennichuck declined the offer and instead instituted unsuccessful litigation raising various constitutional claims in federal and state courts (see Pennichuck Corporation v. City of Nashua, 152 N.H. 729 (2005), Court Update, New Hampshire Town and City, January 2006, page 34). The City filed with the PUC for eminent domain, resulting in prolonged, extensive pretrial preparation and a 12-day hearing before the PUC.
In dealing with the issue of “public interest” the PUC first ruled that RSA Chapter 38 does not allow the City to acquire PEU or PAC because they do not operate in Nashua, but the statute does allow the City to seek to acquire all the systems owned by PWW. Under RSA 38:3 the local vote to proceed establishes a presumption that the acquisition is in the public interest. The City claimed that the presumption covers acquisition of all PWW assets, but the PUC ruled that it applies only to the plant and property within Nashua. As a result the Commission applied two distinct tests. For the portions of the water system within Nashua, the PUC ruled that “the opponents of municipalization have not rebutted the presumption that Nashua’s planned municipalization of Pennichuck Water Works as it applies to the customers within the municipal boundaries of Nashua is in the public interest pursuant to RSA 38:3.” As to the remainder of the Pennichuck systems, the Commission found that Nashua’s acquisition of PWW would be in the public interest only on certain conditions, including uniform rates, terms and conditions for service to all PWW customers; honoring the wholesale water contracts; and establishing a $40 million mitigation fund to offset increased costs to PEU and PAC caused by the loss of support from PWW.
In valuation cases, three appraisal methods to determine fair market value are recognized: comparable sales, capitalization of income and cost less depreciation. The City’s experts claimed that the cost approach is not reliable in this case, relying instead on the sales and income methods, yielding a fair market value of $139 million. PWW’s experts claimed that the sales method is unreliable and relied on the other two methods for a value of $273 million. The Commission agreed that the sales method is unreliable in this case because of the dearth of sales of comparable water companies and critiqued the experts’ opinions in various ways, arriving at a figure of $203 million as just compensation. Commissioner Below dissented on several valuation issues. He would set the value of PWW at $151 million.
Both parties have filed motions for reconsideration, and appeals are possible. If the City ultimately prevails, the acquisition will then be subject to ratification by the board of aldermen under RSA 38:13 in the form of a vote to issue revenue bonds for the acquisition.