In re Pennichuck Water Works, Inc.

• Citation: 160 N.H. 18,992 A.2d 740
• Decision Date: 25 March 2010
• Docket Number: No. 2009–274.,2009–274.
• Court: Supreme Court of New Hampshire
• Parties: Appeal of PENNICHUCK WATER WORKS, INC. and another (New Hampshire Public Utilities Commission).

160 N.H. 18

992 A.2d 740

Appeal of PENNICHUCK WATER WORKS, INC. and another (New Hampshire Public Utilities Commission).

No. 2009–274.

Supreme Court of New Hampshire.

Argued: Jan. 21, 2010.

Opinion Issued: March 25, 2010.

Upton & Hatfield, LLP, of North Conway (Robert Upton, II and Justin C. Richardson, on the brief and orally), and James M. McNamee, of Nashua, by brief, for the petitioner.

McLane, Graf, Raulerson & Middleton, P.A., of Concord (Thomas J. Donovan and another, on the brief, and Mr. Donovan orally), and Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., of Chattanooga, TN (Joe A. Conner and Misty Smith Kelley, on the brief, and Mr. Conner orally), for the respondents.

Ransmeier & Spellman, P.C., of Concord (John T. Alexander and Daniel J. Mullen, on the brief), for intervenor Anheuser–Busch.

Barbara A.M. Maloney, P.L.L.C., of Auburn (Richard J. Maloney, on the brief), for intervenor Business & Industry Association of New Hampshire.

Wadleigh, Starr & Peters, P.L.L.C., of Manchester (Stephen J. Judge and Pierre A. Chabot, on the brief, and Mr. Judge orally), for intervenor Merrimack Valley Regional Water District.

Boutin & Altieri, P.L.L.C., of Londonderry (Edmund J. Boutin, on the brief), for intervenor Town of Merrimack.

Mitchell Municipal Group, P.A., of Laconia (Laura A. Spector, on the memorandum of law), for intervenor Town of Pittsfield.

DALIANIS, J.

Respondent Pennichuck Water Works (PWW) appeals an order of the New Hampshire Public Utilities Commission (PUC) approving the petition filed by the petitioner, City of Nashua (City), in which the City sought to acquire PWW and its affiliates, respondents Pennichuck East Utilities (Pennichuck East) and Pittsfield Aqueduct, Inc. (Pittsfield Aqueduct) (collectively, the Utilities). In approving the City's petition against PWW, the PUC found that the Utilities had failed to rebut the presumption under RSA 38:3 (2000) that acquiring PWW's plant and property was in the public interest. The Utilities now appeal this determination and challenge the imposition of conditions to satisfy the public interest. The City has filed a cross-appeal, contesting the PUC's dismissal of its petition with respect to PWW's affiliates, as well as the PUC's determination of the fair market value of PWW's assets. We affirm.

I. Background

Before setting forth the facts relevant to the instant appeal, we first summarize the procedures contained in RSA chapter 38. See Pennichuck Corp. v. City of Nashua,

152 N.H. 729, 731, 886 A.2d 1014 (2005). RSA chapter 38 empowers municipalities, with PUC approval and at a value set by the PUC, "to take by eminent domain privately owned electric, gas and water utilities in order to maintain and operate them as publicly owned facilities." Id. ; see RSA 38:2, I, II (2000). A municipality may move forward with a plan to assume ownership of a privately-owned utility "after 2/3 of the members of the governing body shall have voted." RSA 38:3. This vote must then be confirmed by a majority vote of the municipality's qualified voters at a regular election or special meeting called for this purpose. Id. ;

Pennichuck

Corp.,

152 N.H. at 731, 886 A.2d 1014. A favorable confirming vote creates a rebuttable presumption that the acquisition is in the public interest. Pennichuck Corp., 152 N.H. at 731, 886 A.2d 1014.

Within thirty days of the confirming vote, the municipality must notify the utility and inquire if it is willing to sell the identified plant and property located within the municipality, as well as "that portion, if any, lying without the municipality which the public interest may require, pursuant to RSA 38:11 as determined by the [PUC]." RSA 38:6 (2000); Pennichuck Corp., 152 N.H. at 731, 886 A.2d 1014. The utility is given sixty days to respond. RSA 38:7 (2000). When, as in this case, the Utilities indicate their unwillingness to negotiate a sale, "the municipality may proceed to acquire the plant as provided in RSA 38:10." RSA 38:7. RSA 38:10 (2000), in turn, allows the municipality to take the property by condemnation if, after notice and hearing, pursuant to RSA 38:9 (2000), the PUC has determined that the taking is in the public interest. Pursuant to RSA 38:11 (2000), when determining whether the taking is in the public interest, the PUC "may set conditions and issue orders to satisfy the public interest." The PUC also determines the amount of just compensation that the municipality must pay for the assets in question. Pennichuck Corp., 152 N.H. at 731, 886 A.2d 1014; see RSA 38:9, I, III, : 10.

In November 2002, by a vote of fourteen to one, the City's board of aldermen decided to establish a municipal water works system and to acquire all or part of the privately-owned water works system serving the City's residents. Pennichuck Corp., 152 N.H. at 732, 886 A.2d 1014. This resolution was approved by the mayor in December 2002 and confirmed by City voters in January 2003. Id. In February 2003, the City notified the Utilities of its intent to acquire them to establish a municipal water works system. Id.

PWW is a privately-owned public utility that serves approximately 24,500 customers in the City and ten other municipalities in southern and central New Hampshire, including: Amherst, Bedford, Derry, Epping, Hollis, Merrimack, Milford, Newmarket, Plaistow and Salem. It is the largest investor-owned water utility in the state. Pennichuck East provides water service to approximately 4,900 customers in twelve municipalities in southern and central New Hampshire, including: Atkinson, Bow, Derry, Hooksett, Lee, Litchfield, Londonderry, Pelham, Plaistow, Raymond, Sandown and Windham. When Pittsfield Aqueduct received the notice from the City, it served customers in Pittsfield; it has since expanded to serve customers in Barnstead, Conway and Middleton. PWW, Pennichuck East and Pittsfield Aqueduct are separate corporate entities; only PWW is engaged in the sale of water in the City.

The City and the Utilities entered into negotiations concerning the terms of a possible sale of some or all of the Utilities' assets. Pennichuck Corp., 152 N.H. at 732, 886 A.2d 1014. On November 30, 2003, the City made a formal offer to purchase the Utilities' assets for $121 million. Id. The Utilities rejected this offer in December 2003 and terminated negotiations in January 2004. Id.

The Utilities, thereafter, filed suit in superior court, seeking a declaratory judgment to terminate or limit the City's condemnation efforts. Id. The superior court rendered its decision in August 2004, granting summary judgment in favor of the City. We affirmed the trial court's decision. Id. at 730–31, 886 A.2d 1014.

Approximately one month after the Utilities filed their declaratory judgment action, the City filed a condemnation petition with the PUC, asking it to find that the condemnation of the Utilities' assets was in the public interest and to determine damages. Id. at 732, 886 A.2d 1014. On January 31, 2005, the PUC dismissed the City's petition against Pennichuck East and Pittsfield Aqueduct, ruling that the City could not condemn the property of these utilities because they did not provide water service to City residents. The PUC ruled, however, that the City could continue its condemnation proceeding against PWW. In so ruling, the PUC emphasized that it had not yet determined whether condemnation of any of PWW's assets was in the public interest.

After the parties engaged in extensive discovery and motion practice, the PUC heard the merits of the City's petition over two days in January 2007 and ten days in September 2007. On July 25, 2008, two of the PUC's commissioners, Thomas B. Getz and Graham J. Morrison, issued a lengthy order: (1) finding that PWW had failed to rebut the presumption that the taking of its property within the City's borders was in the public interest; (2) finding that the City had demonstrated that the taking of PWW's property outside of the City's borders was in the public interest provided that the City continues to operate the entire PWW system according to a unified rate structure and provides all customers with the same quantity and quality of water; (3) determining that the fair market value of the assets in question was $203 million as of December 31, 2008; and (4) conditioning approval of the City's petition upon the City fulfilling nine conditions, including the creation of a mitigation fund of $40 million to reimburse customers of PWW's other subsidiaries for the loss of the affiliation with PWW. A third PUC commissioner, Clifton C. Below, concurred with respect to the other commissioners' public interest determinations and imposition of conditions, but dissented with respect to their valuation of PWW's assets. The third commissioner calculated the fair market value of PWW's assets as $151 million plus the addition of $40 million for a mitigation fund for impacts to the customers of PWW's affiliates.

The Utilities and the City moved for rehearing. On March 13, 2009, Commissioners Getz and Morrison denied these motions for rehearing. Commissioner Below stated that he would have granted rehearing on the issue of whether the PUC erred by using the price a hypothetical not-for-profit municipal buyer would pay for PWW as a foundation for its valuation determination.

In their appeal, the Utilities argue that: (1) the conditions imposed by the PUC exceed its statutory authority because enforcing them requires it to exercise jurisdiction over the City in violation of RSA 362:4 (2009); (2) by imposing conditions, the PUC violated PWW's procedural due process rights; (3) the PUC failed to weigh the benefits and burdens of the proposed taking, as required by the New Hampshire Constitution; (4) the PUC failed to set forth its methodology; and (5) although the evidence supports the need for a mitigation fund, it does not support a finding that $40 million would be sufficient to generate the necessary revenue. In its cross-appeal, the City contends that the...