Bryan Cohen Jul. 2, 2013, 6:47pm

HARTFORD, Conn. (Legal Newsline) - Connecticut Attorney General George Jepsen and Consumer Counsel Elin Katz announced a $10 million settlement Monday with Connecticut Water Co. to refund recovered tax dollars directly to customers.

Because of changes in the accounting regulations of the federal Internal Revenue Service, Connecticut Water stands to recover approximately $10 million it paid in taxes since 2010. Under the terms of the agreement, Connecticut Water will refund the money to customers over a two-year period using a credit on water bills for the total tax refund.

The agreement was filed with the Public Utilities Regulatory Authority on Monday. If the agreement receives the approval of the regulators, consumers would start receiving credits on their bills in April. The average residential customer would see water bills decrease by approximately 6 percent.

"I commend Connecticut Water for voluntarily coming forward and providing this consumer relief without being ordered to do so," Jepsen said. "I also thank the Office of Consumer Counsel for its work and partnership in this matter. Ratepayers fund capital expenses, like infrastructure maintenance and repair, and ultimately ratepayers should be the beneficiaries of changes in federal regulations that lead to savings. This is an excellent settlement for Connecticut Water customers who will not only see a reduction to their bill but also will see stability in their water rates for the near future."

Jepsen and Katz also filed a joint petition with PURA requesting an inquiry into the response of other Connecticut public utility companies to the new IRS changes. The petition argues the accounting changes could significantly reduce federal tax liabilities for the companies and PURA should make sure the companies are taking appropriate steps to give ratepayers the benefits of lower tax liabilities.

"The potential tax savings for Connecticut's regulated utilities as a result of these changes is substantial, and those savings should benefit Connecticut utility customers," Jepsen and Katz said.

In March 2012, the IRS issued new procedures that would allow some businesses to adopt an alternative method of determining how capital expenditures can be treated for federal tax purposes. Certain qualified capital spending related to the maintenance and repair of a utility plant can now be deducted as an expense, as opposed to being capitalized for tax purposes. The regulations enable the businesses to reach back for all taxes paid after Jan. 1, 2010.

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