Bar Harbor, Maine, to acquire water company

By SHAWN O'LEARY

BAR HARBOR, Me., Oct. 6, 2000 (Bangor Daily News)—Hoping to prevent sale of the town's water company to a buyer with out-of-state ties, the Town Council has decided to condemn Bar Harbor Water Co. and acquire the utility through eminent domain.

Ultimately, the town's water rates may increase by as much as 60 percent.

Town Manager Dana Reed said councilors approved the plan Tuesday - about a month after Bar Harbor was notified that the water company was considering a sale to a larger company. Bar Harbor Water also invited the town to make its own purchase, initially for $4.7 million.

Bar Harbor Water Co. serves 1,700 customers from downtown to the Kings Creek region at the head of Mount Desert Island. According to a feasibility study drafted by the town, the water company had about $268,000 in annual sales in 1999 and approximately $253,000 in 1998.

Reed said the water company at first had not disclosed the suitor that made an offer to buy, but Reed said he was able to confirm that the offer came from Consumers Maine Water Co., a subsidiary of Philadelphia Suburban Corp.

Bar Harbor Water on Wednesday released a statement announcing its intent to merge with Consumers Maine. A letter of intent has been signed between the two companies, but the purchase and sale agreement has not been formalized.

Philadelphia Suburban is an investor-owned utility that has launched more than 60 acquisitions or ventures since 1992, according to its Web site. It reported more than $257.3 million in operating revenue and $36.2 million in net income in 1999.

Its subsidiary, Consumers Maine, owns or manages 14 water systems, serving 16,700 customers in Maine.

Reed said the Bar Harbor council approved the move to condemn the water company and acquire it as is because, under municipal control, the water company would be directly responsible to residents and operate with less cost because of lower interest rates and no property taxes.

Eminent domain is the right of the government to take private property for public use as long as just compensation is given to the owner.

Reed also said the condemnation process would be held against either Bar Harbor Water or any company that buys it.

And while the council has given the go-ahead to begin the process, Reed said, the plan cannot be acted upon until voters approve the amount agreed upon as a reasonable price for the water company.

Reed said the board of Bar Harbor Water on Aug. 30 offered to sell the water company to the town for $4.7 million and told him that the town had one month to consider the purchase.

"It was the $5 million question," Reed said.

He said the town couldn't agree to such a large purchase without first securing financing and getting voter approval to borrow the money. So he brought the information before the council, which instructed him to assemble a number of advisers to assess the value of the company and the feasibility of buying it.

Then, in late September - and one week from the deadline - the water company raised its asking price to $5.5 million. Reed said the water company blamed the increase on an error while assessing the value of the company.

Reed said the town's feasibility study, with the new asking price taken into account, forecast the current quarterly water rate of $40.22 per 2,000 cubic feet of water would be increased by as much as 66 percent under town ownership. That figure, Reed said, reflects a worst-case scenario, but would be lower than the water rates in Ellsworth, Mount Desert and six of the Maine water companies owned by Consumers Maine.

In a best-case scenario, Reed said, the town could see rate increases of 25 to 58 percent.

The discrepancy in the scenarios, Reed explained, comes from a disagreement between Bar Harbor Water and the town. The water company, Reed said, has factored in an anticipated $600,000 capital gains tax penalty into the asking price.

The town has said the company should be paid $4.9 million because the capital gains tax could be avoided if the company reinvests the proceeds of the sale into similar stock and doesn't offer a distribution after the sale.

In a letter dated Monday, Bar Harbor Water Vice President Richard Collier notified Reed that the board had opted to discontinue negotiations with the town.

Among the board's concerns, Collier wrote, was the lengthy amount of time for the sale to be reviewed by the town's consultants, the time needed to conduct a special town meeting where voters might reject the sale, and the immediate tax consequences that the water company's shareholders would suffer from a sale to the town.

"While we regret any sale to the town is not feasible," Collier wrote, "we believe the pending sale to be the most advantageous to our stockholders to whom we are legally bound."

The offer from Consumers Maine, according to Collier's letter, is based on an exchange of the Bar Harbor Water Co.'s outstanding stock for shares of Consumers Maine. Existing Bar Harbor Water shareholders, Collier wrote, would also be included in the exchange of stock between the two companies.

"Each stockholder would then have the option of holding on to their new shares of stock with no immediate tax consequences until this stock was sold," Collier wrote.

He also wrote that the sale had to be expedited because there are proposed changes to tax law that would not make such a sale favorable to the stockholders.

No date has been set for a special town meeting. Reed said the town's advisers are still working on what they consider to be a reasonable price for the water company, and the town attorney will have to consult with the town before it can move forward.

Among the positives of town ownership of the water company, Reed said, are better fire protection through adequately pressurized fire hydrants, local control of all water company expansions and ventures, and coordination with city road and sewer projects.

The negative effects, he said, would include repair of an antiquated system, loss of about $8,000 in revenue due to the net effect of the loss of property taxes, and the addition of another supervisor in the town's public works department.

Contacted Wednesday, Collier said he was still awaiting formal notice from the town on the decision to take the water company through eminent domain. "We haven't been notified of anything," Collier said, "so it's a little premature to comment."

Meanwhile, both water companies hope to finalize the sale by the end of the year. Both the Maine Public Utilities Commission and the Bar Harbor Water Co. shareholders will have to approve the sale before it can be made final.