Federal tax-law changes will enable Connecticut Water Service Inc. to lower water rates by $10 million during a two-year period starting next April and to delay by six months its next rate-increase request, Attorney General George Jepsen and Consumer Counsel Elin Swanson Katz announced today.

Connecticut Water, which serves local communities including Old Lyme, Old Saybrook and Stonington,said it won't seek a general rate increase until 2015 after a settlement with the state over changes in IRS accounting rules. Meanwhile, current rates will be reduced by about 6 percent starting next year.

Jepsen and Katz petitioned the Public Utility Regulatory Authority today to investigate the state's public utilities, including Aquarion Water Co., Connecticut Natural Gas Corp. and Connecticut Light & Power Co., to ensure that federal tax refunds would be returned to ratepayers. Potential savings could be substantial, officials said, especially considering the costs associated with CL&P cleanup efforts after a series of severe storms over the past two years.

"This is a real win for Connecticut Water's customers," Katz said in a statement. "I look forward to discussions with the rest of Connecticut's utility companies on these issues."

Jepsen commended Connecticut Water's proactive approach to consumer relief, announcing reduced rates before being ordered to do so.

"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 said.

The IRS now allows some capital spending to be deducted as an expense, rather than being taxed as a capital improvement. The new rule allows companies taking advantage of the regulatory change to reach back as far as Jan. 1, 2010, to recoup taxes paid under the old regulations.

"Customers and communities have been hit hard by a challenging economy and economic uncertainty," said Eric W. Thornburg, Connecticut Water's president and chief executive, in a statement. "We believe it is our responsibility as a regulated utility to continuously seek ways to reduce our operating costs to mitigate the impacts of rates on our customers."