Arizona-American Water Company, Inc. - Sun City Water District

Docket Number
Assigned Staff
M. Diaz Cortez
T. Coley
D. Pozefsky
W. Rigsby


Case Information:


On April 2, 2007, Arizona-American Water Company, Inc. ("Arizona-American" or "Company"), a wholly owned subsidiary of RWE AG, filed an application(link is external) and required supporting schedules with the Arizona Corporation Commission ("ACC" or "Commission") requesting approval of a determination of the current fair value of the Company's utility plant and property; and for increases in rates and charges based thereon for water utility service provided by Arizona-American's Sun City District. Arizona-American is seeking a revenue increase of $2,244,777 or a 29.20 percent increase over the Company's test year adjusted revenues of $7,688,479.

On April 30, 2007, ACC Staff issued a sufficiency letter(link is external) informing Arizona-American that its application met the filing requirements of A.A.C. R14-2-103. ACC Staff classified the Company as a Class A wastewater utility1

On May 7, 2007 the Administrative Law Judge ("ALJ") assigned to the case issued a procedural order which scheduled a public comment session for Wednesday, May 16, 2007. The public comment session gave Sun City ratepayers the opportunity to express their opinions regarding Arizona-American's proposed rate increase. The public comment session on the Company's water application was held at 10:30 a.m. at the Fairway Recreation Center Auditorium, 10600 West Peoria Avenue in Sun City.

On May 8, 2007, RUCO filed a motion to intervene(link is external) in the case with the ACC's Hearing Division.

On May 15, 2007 the Sun City Taxpayers Association, Inc. ("SCTA") filed a motion to intervene in the case with the ACC's Hearing Division.

On June 5, 2007, the ALJ issued a procedural order (link is external)that set the procedural schedule for the case and granted RUCO and SCTA requests for intervenor status.

On August 29, 2007, the Town of Youngtown filed a motion to intervene(link is external) in the case, in support of the Company-proposed fire flow improvement surcharge, with the ACC's Hearing Division.

On September 13, 2007, the Administrative Law Judge ("ALJ") assigned to the case issued a procedural order(link is external) which granted the Town of Youngtown's request.

After conducting an audit of the Company's plant and operating expenses and after performing a cost of capital analysis, to determine an appropriate rate of return on Arizona-American's investment in the Sun City Water District, RUCO filed direct testimony (on all issues but rate design) on Monday, October 15, 2007. Direct testimony was also filed by ACC Staff and the Town of Youngtown. RUCO's direct testimony recommended the following:



LINE                                                          COMPANY                        RUCO                          NO.      DESCRIPTION                             REQUESTED                   RECOMMENDED 

1          ADJUSTED RATE BASE              $25,961,898                       $25,340,359

2          ADJUSTED OPERATING                    693,412                              779,993                                  INCOME

3         CURRENT RATE OF RETURN              2.67%                                  3.08%                                 (L2 / L1)

4         REQUIRED RATE OF RETURN            7.98%                                  7.16%

5         REQUIRED OPERATING                2,071,759                              1,814,370                                 INCOME (L4 * L1)

6        OPERATING INCOME                     1,378,347                               1,034,377                                DEFICIENCY (L5 - L2)

7        GROSS REVENUE CONVERSION       1.6286                                  1.6287                                FACTOR

8       GROSS REVENUE INCREASE         $2,244,777                          $1,684,658

9       CURRENT REVENUES T/Y                  7,688,479                            7,690,323                             ADJUSTED

10     PROPOSED ANNUAL REVENUE          9,933,256                           9,374,981                             (L8 + L9)

11     PERCENTAGE AVERAGE INCREASE      29.20%                                21.91%



Direct testimony on rate design was filed on Monday, October 29, 2007. Arizona-American filed rebuttal testimony on Friday, November 30, 2007. Surrebuttal testimony from RUCO, ACC Staff and the Town of Youngtown was filed on Friday, December 14, 2007. RUCO recommended the following revenue requirement in its surrebuttal filing:




           DESCRIPTION                          (A)                                              (B)                                                                                               COMPANY                                 RUCO                                                                                           REQUESTED                            RECOMMENDED

1       ADJUSTED RATE BASE             $25,961,898                               $25,357,295

2       ADJUSTED OPERATING                   693,412                                      730,275                           INCOME

3       CURRENT RATE OF RETURN              2.67%                                        2.88%                           (L2 / L1)

4      REQUIRED RATE OF RETURN              7.98%                                       7.36%

5      REQUIRED OPERATING                  2,071,759                                  1,866,297                          INCOME (L4 * L1)

6      OPERATING INCOME                       1,378,347                                  1,136,022                          DEFICIENCY (L5 - L2)

7     GROSS REVENUE CONVERSION         1.6286                                      1.6287                           FACTOR 

8     GROSS REVENUE INCREASE          2,244,777                                $1,850,205

9     CURRENT REVENUES T/Y                7,688,479                                  7,690,323                          ADJUSTED

10   PROPOSED ANNUAL REVENUE       9,933,256                                 9,540,528                         (L8 + L9)

11   PERCENTAGE AVERAGE INCREASE    29.20%                                     24.06%


The Company filed a final round of rejoinder testimony on Friday, December 21, 2007.

The evidentiary hearing on Arizona-American's request for rate relief began as scheduled at 10:00 a.m. on Monday, January 7, 2008 at the ACC's Phoenix office at 1200 W. Washington. The Sun City Taxpayers Association withdrew its request for intervenor status at the start of the hearing because the association did not have legal representation for its organization. During the hearing's public comment session, ratepayers from Sun City and the town of Youngtown expressed their opinions on the Company's request for rate relief and a proposed surcharge to fund future fire-flow infrastructure improvements before four of the five ACC Commissioners. The hearing concluded on Friday afternoon, January 11, 2008. RUCO's three expert witnesses faced a total of eight hours of cross examination from attorneys representing Arizona-American, the Town of Youngtown and ACC Staff. RUCO's witnesses also responded to questions posed by the ALJ assigned to the case and from ACC Commissioners Kris Mayes and Mike Gleason. Witnesses for Arizona-American, the Town of Youngtown and ACC Staff were cross-examined by RUCO's attorney over the course of the five-day hearing.

RUCO filed schedules presenting its final position on Tuesday, January 22, 2008. The first round of closing briefs, by the attorneys who represent the parties to the case, were filed on Wednesday, February, 13, 2008. A final round of reply briefs were filed on Wednesday, February 27, 2008.

After weighing all of the evidence presented during the proceeding (including correspondence and public comment from concerned ratepayers), the ALJ assigned to the case issued a recommended opinion and order(link is external) ("ROO") on Thursday, April 17, 2008.

On Monday, April 28, 2008, RUCO filed exceptions(link is external) to the ROO dealing specifically with the ALJ's fire flow surcharge and working capital recommendations.

On Wednesday, May 7, 2008, the five Commissioners adopted (by a vote of 5-0) an amended ROO which rejected the ALJ's recommendation for a fire flow cost recovery mechanism.

On Wednesday, June 4, 2008, the attorney for the Town of Youngtown filed an application seeking a rehearing on the fire flow cost recovery mechanism which was rejected by the Commission in Decision No. 70351. The Commission rejected the Town of Youngtown's request by operation of law. The Town of Youngtown subsequently filed an appeal.

On Friday, June 26, 2009, the Arizona Court of Appeals affirmed the Arizona Corporation Commission's decision to reject a fire-flow surcharge for Arizona-American Water Company's Sun City Water District. The ACC decision adopted arguments made by RUCO during the Sun City Water District rate case proceeding.


1 Based on the Company's requested increase over Test Year Revenues. Under the Commission's time clock rules, a decision on the Company's request for rate relief would have to be made within 360 days of the issuance of a letter of sufficiency (depending on the length of the evidentiary hearing).UES T/Y ADJUSTED