Eversource Energy (ES.US), one of the largest utility providers in the northeastern U.S., saw its shares drop more than 12% on Wednesday. The decline followed Connecticut's utility regulatory authority voting down the company's proposed $2.4 billion sale of its subsidiary Aquarion Water to a newly established quasi-public entity.

While the regulatory panel acknowledged the transaction met financial and technical feasibility requirements, it ultimately rejected the deal due to "structural issues and deficiencies in local control" that failed to meet governance suitability standards.

Had the deal proceeded, Aquarion Water—Connecticut's largest water utility serving 230,000 customers—would have been spun off from publicly traded Eversource Energy and transferred to a nonprofit entity modeled after the South Central Connecticut Regional Water Authority in New Haven.

Opponents, including Connecticut Attorney General William Tong, warned the transaction could lead to higher household utility costs, reduced local tax revenue, and weakened oversight of water rates. Eversource Energy had planned to use the sale proceeds to reduce debt and reinvest capital in its core electricity and natural gas operations.