Hartford Business Journal

8 Hartford Business Journal • July 24, 2017 www.HartfordBusiness.com Why did New England's largest electric utility diversify into water? By Karen Ali Special to the Hartford Business Journal E versource Energy's acquisition of Bridgeport- based Aquarion Water Co. will merge New Eng- land's largest energy company with the region's largest private water company, serving almost 4 million customers in three states. The $1.68 billion deal is the first acquisition of a U.S. water company by a large electric utility in recent mem- ory, analysts say, though it's too soon to predict whether it will be a trend. "One deal doesn't make a trend," said Travis Miller, an analyst with Morningstar Inc. Such deals are rare because most water companies (about 85 percent) are owned by governments or quasi- public entities, like Greater Hartford's Metropolitan Dis- trict Commission, which means they don't trade hands very often, said Neil Kalton, managing director of utilities equity research at Wells Fargo Securities. Aquarion for the last decade has been owned by New York-based Macquarie Infrastructure Corp., which oper- ates and invests in infrastructure companies. Some analysts suspect Eversource found the deal appealing because of the synergies between the two com- panies. Others have said it's simply a good business decision that will diversify Eversource's holdings and offset poten- tial regulatory challenges its facing with other projects. "Electric demand is experiencing some pressures that could slow growth opportunities, so we have seen utilities increasingly look for growth in their gas operations, and Eversource might be trying to find that growth in the water business as well," said Miller, who added that Eversource is trying to get a few gas pipeline projects off the ground, but has faced hurdles doing so. For example, Access Northeast, which would expand the Algonquin Gas Transmission pipeline in New Eng- land and add liquified natural gas facilities, has faced consumer resistance and legal barriers. Differing views Research analysts who follow Eversource have vari- ous opinions on the main driver of the acquisition. Miller said the deal is an opportunity to "drive synergies that benefit customers and shareholders." The ability to serve a greater number of customers with a minimal capital investment is a huge benefit and there aren't a lot of intrinsic differences between the water company and the gas and electricity company, he said. "They're very similar businesses in terms of manag- ing and operating," Miller said. The merger will give Eversource water customers in places where it has control over electricity and gas sup- ply. Such overlapping service territories can often lead to cost savings and other strategic planning options, he said. Kalton said the merger had less to do with leverag- ing synergies. While the combination could help lower financing costs and allow sharing between depart- ments, a "unique set of circumstances" simply made it a good business decision, he said. Kalton said Aquarion happened to be up for sale, and in Eversource's backyard, at a time when the elec- tric utility needed to replace revenues from assets it is planning to sell in New Hampshire. Kalton said Ever- source has to sell a coal power plant in New Hampshire, which was producing $30 million a year in earnings; buying Aquarion will replace those lost revenues. "Eversource was looking for some earnings, it was plugging a hole," Kalton said. Kalton pointed out that this is a fairly small Q&A Waste digestion gains momentum in CT If Connecticut is going to reach its goal of diverting 60 percent of its municipal waste away from incinerators and landfills, a technol- ogy known as anaerobic digestion is likely to play an important role. Anaerobic digestion, which is relatively new to Connecticut, is a bio- logical process that breaks down food waste and other materials into combustible methane gas. Quantum Biopower's 1.2-megawatt plant is now up and running and another (1.4-megawatt plant developed by Turning Earth) is under construction. Both are in Southington. This Q&A asks Department of Energy and Environmental Protec- tion Commissioner Rob Klee about the future of anaerobic digestion in the state. Q: Quantum and Turn- ing Earth together will be able to pro- cess approximately 90,000 tons of organics per year, which is about 18 percent of the total food waste gener- ated in Connecticut annually. How many more anaerobic digestion plants does the state need to reach its envi- ronmental goals? A: Connecticut's 2016 Comprehensive Mate- rials Management Strategy estimates that the state needs a minimum of 300,000 tons per year of new capacity for organ - ics (including food waste). That's the equivalent of five to 10 anaerobic diges- tion facilities around the state, depend- ing on their size. It's important to note that anaerobic digestion is not the only option. Food-waste reduction and composting, which recycles organic materials into soil, are preferred options. Q: It took about three years for Quantum Biopower to develop and build its South- ington plant, which opened this spring. A new law, Public Act 17-218, seeks to make the permitting process easier for future plants. How does it ease the process? A: Quantum was the first facility of its kind to be devel- oped in the state, and thus, there was a learning curve for both our permitting staff and the project developers. It may have taken longer than some had hoped, but we are thrilled with the outcome. The new law opens up a new pathway for the permitting of waste conversion technologies. In the past, the only realistic way for an anaerobic digestion project to get a permit was if a facility could qualify as a composting facility (like Quantum was able to), which processes organic materials (like food waste) into compost. If a facility couldn't prove it could generate a usable compost at the end of its process, we had to treat it like a combustion waste-to-energy facility, which has a much longer and more expensive process to get a permit. The law provides a new option for facilities that take a mix of feedstocks. Even if DEEP can't allow the residual material to be used as a compost, the anaero- bic digestion process may still be benefi- cial in extracting the maximum energy value from the mate- rial prior to it being incinerated or going to a landfill. This change also opens up possibili- ties for waste to fuel and other emerging technologies. Q: Do you see anaerobic digestion as a viable replace- ment to burning waste? What does an ideal mix look like? A: Our ideal mix would follow the waste hierarchy. It's a set of preferences we've established that seeks to minimize the envi- ronmental impact of waste. Thus, our first focus is on waste reduction, reuse and recycling. Connecticut has a well-established recycling infra- structure that could actually handle more recyclables than are currently being collected at the curbside. So our focus there is on helping residents recycle more — and recycle right. We recently launched RecycleCT.com to pro- vide information about how to become a better recycler. With respect to food scraps, composting is recycling, and we support both home composting and the development of commercial facilities. Next on the list, for material that is not reduced, recycled or composted, we want to see tech- nologies that extract the maximum energy value, or convert waste into usable materials. Waste combus- tion recovers energy, but there are newer promising technologies that should phase in over time. The worst option is landfill- ing, because it tends to have the ROB KLEE Commissioner, Department of Energy and Environmental Protection FOCUS GREEN BUSINESS Aquarion Water Co. workers lay new water lines. P H O T O | C O N T R I B U T E D P H O T O I L L U S T R A T I O N | S E R G E Y N I V E N S , S H U T T E R S T O C K . C O M Continued Continued

• Cover