Connecticut Towns Face Water-Fee Hikes as Bonds Finance Buyout

Dozens of towns in the state known for its hedge funds and Wall Street commuters are about to feel the impact of a rare type of leveraged buyout.

(Bloomberg) — Dozens of towns in the state known for its hedge funds and Wall Street commuters are about to feel the impact of a rare type of leveraged buyout. The Aquarion Water Authority — a local agency created by Connecticut’s legislature — on Tuesday is planning a $2.4 billion bond sale, the biggest in the state’s history, to pay for the water company it’s buying from Eversource Energy, an investor-owned company.

The move marks a relatively rare takeover by a government agency, which in recent decades have often moved to sell off assets to raise cash or outsource services to for-profit companies. It also pushes the new agency into the role typically played by corporate raiders, with some of its 220,000 customers angered by its plans to push up rates 60% over the next decade to help cover the cost of its debt and pay for needed construction work. “We’ve actually had pretty well controlled water rates for quite some time, and we’re worried that we’re going to see a lot bigger increases,” said Town of Darien First Selectman Jon Zagrodzky.

“We’re already having to deal with electricity costs, not to mention taxes.” The buyout has been in the works since mid-2024, when a bill passed during a special session of the legislature included a provision to create an authority empowered to purchase Aquarion, which serves nearly 60 municipalities, including Greenwich, Stamford and Westport. Eversource, which had previously said it planned to sell Aquarion to shore up its finances after struggling with investments in offshore wind farms, announced the deal with the authority in January 2025.

It was approved by regulators in March and closed at the end of June. The change of control will remove Aquarion’s rates from the oversight of state regulators, who rejected many of the fee increases it has proposed over the past 15 years. Instead, a board made up of 59 municipal officials from towns in Aquarion’s service area — and one gubernatorial appointee — will set the rates and ensure they’re high enough to cover all of the utility’s costs, including its payments on the new bonds.

S&P Global Ratings assigned an A- rating to the authority’s $1.83 billion senior bonds and a BBB+ rating to $547.2 million of subordinate debt. “We view positively the willingness of the representative policy board to apolitically approve raising rates when necessary,” S&P said in a rating report. The utility’s customers haven’t had their base rates increased in more than a decade while costs have increased significantly, according to Aquarion.

It says the last requested increase in 2022 was shot down. But that’s set to change next year, when rates will jump a little over 8%, according to the authority’s change of control application to Connecticut’s Public Utilities Regulatory Authority. That would be followed by annual increases of more than 6% through 2035.

An Aquarion spokesperson declined an interview request, citing a quiet period before the bond sale. In its filing with regulators, Aquarion said converting to a public entity would benefit ratepayers by allowing the utility to finance infrastructure using lower-cost tax-exempt bonds. And as a nonprofit, it won’t have to pay shareholder returns or corporate income taxes.

It estimated customers will ultimately save $366 million over the first 10 years. It is planning to invest $2.4 billion between 2026 and 2036 to replace more than 150 miles of pipes, modernize treatment plants and comply with federal regulations targeting “forever chemicals.” Aquarion’s CEO and management team won’t change and the same employees will continue operating and maintaining the system.

The bond sale comes after a run of outperformance in the municipal-bond market, which has gained nearly 2% this year even as US Treasuries and investment grade corporate debt have been little changed. “This will be generally well received,” said Andrew Clinton, chief executive officer of Clinton Investment Management. “Because it’s a new name not known to everybody, our hope is that it won’t be as aggressive as some of the more recent Connecticut deals.”