Miami Beach Faces Uncertain, Possibly Astronomical Costs With Purchase by Connecticut Water

OLD LYME – Connecticut Water is asking state regulators to approve its takeover of the small and troubled water system that serves the Miami Beach community, without resolving how much it will cost to bring the system up to par, and how the company will charge for the work.

Miami Beach Water Company, launched in 1974 and today serving 65 year-round and 52 seasonal customers in the Miami Beach Association, has agreed to let Connecticut Water take over its operations to bring them back into compliance with state health regulations that have restricted some of its wells for being too close to neighboring septic systems.

Connecticut Water told regulators it could cost between $300,000 and $5.8 million to do that, depending on what work is actually required. In the best case – if the company can find a way to work with existing wells – there may not be any surcharge for Miami Beach customers, depending on PURA’s decision. 

But “worst-case scenarios” that require expensive capital projects like reopening wells and replacing water mains would require surcharges estimated between $95 to $3,000 a month, Connecticut Water told the Public Utilities Regulatory Authority. The surcharge depends on how much capital projects cost, how much of those costs are passed on to customers outside of Miami Beach, and how quickly Connecticut Water starts to recover its costs.

Given the wide range of possible costs, the company asked PURA to approve the acquisition without surcharges, and then let the company return later to recover those costs once the company decides on the best way to move forward. The Connecticut Office of Consumer Counsel testified that PURA should approve that plan to avoid saddling customers with unnecessarily high surcharges.

The surcharges likely won’t be determined for over a year, but Miami Beach customers will see an immediate rate increase after Connecticut Water takes over the company – tentatively set for June if PURA approves – as the company will charge them the same flat rate it charges Hawk’s Nest customers until it can install meters.

Currently, Miami Beach customers pay $406 a year for full-time residents, and $333 for seasonal residents of the beach community. The Hawk’s Nest rates are $935.16 a year for year-round residents, and $527.68 for seasonal residents – so the change will amount to a 130 percent increase for full-time residents and 59 percent for seasonal residents.

“We provided extensive information in the proceeding on recommended capital improvements to ensure that residents of Miami Beach Water Company have a safe and adequate water supply, and options on how those could be supported by rates and/or surcharges,” Connecticut Water spokesman Dan Meaney said. “We are awaiting a decision from our regulators which will authorize the investments and the rates for MBWC.”

Officials for the Miami Beach Association and Miami Beach Water Company did not respond to requests for comment.

Coastal regulations leave uncertainty in cost

Connecticut Water said it would connect Miami Beach within three months of the takeover to the existing Sound View system the company acquired in 1995 at a cost of about $300,000. The lowest-cost option would be simply to connect the two systems, and then install a new treatment system for the existing Miami Beach wells, Connecticut Water Vice President of Service Delivery Craig Patla told regulators.

But a local zoning ordinance in Old Lyme prohibits any “newly constructed or substantially improved” water infrastructure within a FEMA flood zone, because of the risk that wells or pump stations could be flooded and damaged or contaminated. The town has issued variances around that ordinance, but declined a variance to Miami Beach.

“Having done a fair amount of work out there in the given area, I think that we can overcome that,” Patla said.

Patla said Connecticut Water hasn’t dealt specifically with the floodplain regulations in Old Lyme, but in other areas it’s been able to build up around the well so that its opening is above the flood zone, and move treatment outside of the flood zone. In Miami Beach, the company would just have the wells pump raw water to a single treatment facility on the Sound View system.

“The nature of the game is, when you’re seeking water, it’s typically in areas of water, and it’s often within those FEMA flood zones,” Patla said. “So there are opportunities to design your way through those while maintaining compliance.”

If Connecticut Water can’t get around the flood zone restrictions and use the existing wells, the remaining options are more expensive. The company would need to re-activate shuttered wells in the area. Reactivating a Hawk’s Nest well to supplement the system’s water supply would cost $2 million, the company told PURA.

Even if the company is able to get a variance to install a treatment system for the existing wells, the company said it may still need to re-activate another well just to have enough supply to meet peak demand.

The “worst case scenario” where the company has to reactivate several wells and replace water main in the first five years comes with cost estimates of as much as $5.8 million in capital projects, and a gross cost of service of $25 million over the 63-year lives of the infrastructure. 

The company told regulators it was hopeful it could work around flood zone regulations to achieve the cheapest solution. Patla said Connecticut water would explore any option that cost the least.

“If we end up with [a new treatment system] there may not be a need for a surcharge,” Connecticut Water Director of Rates and Regulation Troy Dixon told regulators.

Who should pay, and when?

The consumer counsel said it was clear that Miami Beach customers don’t know the full scope of what’s being proposed. Having received only vague notices that the water company was requesting that Connecticut Water acquire it, and that it could lead to a surcharge that could “range from a minimum of $95 and be orders of magnitude higher,” some customers had written to PURA asking for more details.

The Office of Consumer Counsel said PURA will effectively have to choose something between putting all of the cost on Miami Beach customers with a $2,982 monthly surcharge to Miami Beach customers for five years, or charging the rest of its customers as much as $234.54 to cover the cost of improvements.

“Any scenario where the surcharge burden upon [Miami Beach] system customers seems reasonable would require shifting the burden upon [other Connecticut Water] ratepayers – the vast majority of whom, as [Connecticut Water] directly acknowledged, would derive no benefit from the improvements whatsoever,” Office of Consumer Counsel attorney Tom Wiehl wrote.

If PURA does agree to let the acquisition go forward, and the company to come back later to address what capital projects are needed, the consumer counsel said customers need the opportunity to fully participate in finding the “best and most affordable path” to resolving issues with the system, Wiehl wrote.

During a hearing, where regulators questioned Connecticut Water officials, PURA Chair Marissa Gillett asked how adding a surcharge after the fact would impact customers. If it takes the company a year to identify a solution, and several more years to complete whatever improvements are needed and charge a surcharge to recover those costs, it could cause problems for customers, she said.

“If we’re talking five years from now after the acquisition, I could just see customers being like, ‘Wait a second, I didn’t buy this house knowing there was going to be a $100 surcharge,’” Gillett said. 

Patla said they expected about a year for determining what steps to take, and then another year for designing and implementing those steps. It will be important for Connecticut Water to get better data on peak usage during the summer, because its generic data shows that it would be able to meet only the demand on an average day with the existing supply of water.

“Ultimately the water business in Old Lyme is always in search of that next increment of supply,” Patla said.

PURA expects to issue a draft decision on May 18, then vote on a final decision at its meeting on June 8.