Connecticut Water customers are expected to save $10 million over the next two years as part of a recent settlement agreement between the water supplier and the state of Connecticut.

State officials explained that recent changes were made in the Internal Revenue Service's accounting regulations, and as such Connecticut Water Company stands to recover approximately $10 million for taxes paid since 2010. As part of a settlement agreement with the state Attorney General's Office and the Office of Consumer Counsel, Connecticut Water will pass along the savings to customers over the next two years.

Under the settlement, Connecticut Water will provide a credit to its customers on water bills for the total tax refund and the company agreed it would not apply for a general rate increase to go into effect prior to October 2015. Consumers should begin receiving credits on their bills in April 2014.

Typical residential customers will likely see their bills decrease by about 6 percent, according to state officials.

"In a time of ever increasing demands on utility customers' wallets, I am very pleased that we have been able to work together with the Attorney General's Office and Connecticut Water to reduce bills for these customers," said state Consumer Counsel Elin Swanson Katz. "[Customers] will save millions on their bills because of the company's proactive efforts to address this new tax law. We could also see millions more in savings for other utility customers, as we consider the implications of this new tax law for each of our gas, water and electric utilities."

In March 2012, the IRS issued Revenue Procedures 2012-2019 and 2012-2020, which allow businesses — including Connecticut's public service companies — to adopt an alternative method of determining how capital expenditures can be treated for federal tax purposes.

The IRS now allows certain qualified capital spending associated with the repair and maintenance of a utility plant to be deducted as an expense, rather than capitalized for tax purposes. The regulation further allows the companies the benefit of reaching back for all taxes paid after January 1, 2010 to recover the taxes paid under the prior regulations.

"I commend Connecticut Water for voluntarily coming forward and providing this consumer relief without being ordered to do so," Attorney General George Jepsen said in a statement. "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."

The settlement between Connecticut Water and the state of Connecticut was filed with the state Public Utilities Regulatory Authority (PURA) and is awaiting formal approval from their regulators in order to take effect. Katz and Jepsen also filed a joint petition with PURA asking for an investigation into the response of other public utility companies that operate in Connecticut with regard to these tax law changes.

Katz and Jepsen argue that these accounting changes may substantially reduce federal tax liabilities for these companies and that PURA should investigate to ensure that the companies are taking the appropriate steps to provide taxpayers with the benefits of lower tax liabilities.

Katz and Jepsen have further asked PURA to address this issue in several rate proceedings currently before PURA regulators, including proceedings involving Aquarion Water Co., Connecticut Light & Power and United Illuminating.

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

Assisting Katz in the Office of Consumer Counsel was Victoria Hackett, staff attorney; Richard Sobolewski, supervisor of technical analysis; and Dave Thompson, utilities examiner.

Assisting Jepsen in the AG's Office were Assistant Attorneys General John Wright and Michael Wertheimer along with Associate Attorney General Joseph Rubin.