Arizona-American Water Company, Inc. - Paradise Valley Water District Rate Case

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


Case Information:


On July 3, 2005, Arizona-American Water Company, Inc. ("Arizona-American" or "Company"), a wholly owned subsidiary of RWE AG, filed an application 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 utility service by Arizona-American's Paradise Valley Water District. During the test year ended December 31, 2004 ("Test Year"), Arizona-American provided water service to an average of 4,717 Paradise Valley customers of which approximately 4,411, or 93.5 percent, were residential customers.

Arizona-American is requesting a total increase of approximately $277,980 or 5.48 percent more than the Paradise Valley Water District’s adjusted Test Year operating revenues of $5,070,680. In addition to the Company-proposed increase in revenues, Arizona-American is seeking approval for surcharges on both an arsenic cost recovery mechanism (“ACRM”) and a public safety (“PS”) surcharge mechanism. The ACRM surcharge will allow the Company to recover costs associated with meeting the U.S. Environmental Protection Agency’s revised arsenic standard of 10 parts per billion. The PS surcharge will allow Arizona-American to recover all capital related costs for $16 million in post-test year fire flow improvements that are scheduled to be completed before the Company’s next scheduled general rate case in 2010.

On July 18, 2005 ACC Staff filed a sufficiency letter informing the Company that its application had met the requirement of A.A.C. R-14-2-103, and that the Company had been classified as a Class A water utility1. RUCO filed a request to intervene in the case on Monday, August 1, 2005, and was granted intervenor status by the ACC's Hearing Division. On August 15, 2005, the administrative law judge ("ALJ") assigned to the case issued a procedural order scheduling the evidentiary hearing in the case for 10:00 a.m. on March 27, 2006 at the Commission's offices at 1200 W. Washington in Phoenix.

As agreed upon by the parties to the case, RUCO filed direct testimony on January 17, 2006 (the original filing date was delayed in observance of the 2006 MLK holiday). A comparison of Arizona-American's proposed revenue increases and RUCO's recommendations are as follows:




1Adjusted Rate Base$ 11,651,216$ 10,898,953

2Adjusted Operating Income (Loss)742,7691,045,440

3Current Rate Of Return (Line 2 / Line 1)6.38%9.59%

4Required Operating Income (Line 5 X Line 1)$ 913,455$ 773,826

5Required Rate Of Return7.84%7.10%

6Operating Income Deficiency (Line 4 - Line 2)$ 170,686$ (271,615)

7Gross Revenue Conversion Factor (Schedule RLM-1, Page 2)1.62861.6286

8Increase In Gross Revenue Requirement (Line 7 X Line 6)$ 277,980$ (442,361)

9Adjusted Test Year Revenue$ 5,070,680$ 5,070,680

10Proposed Annual Revenue Requirement (Line 8 + Line 9)$ 5,348,660$ 4,628,319

11Required Percentage Increase In Revenue (Line 8 / Line 9)5.48%-8.72%

12Rate Of Return On Common Equity12.00%10.00%


The Company filed rebuttal testimony on February 13, 2006. On March 6, 2006 ACC Staff and RUCO filed surrebuttal testimony as scheduled. Rejoinder testimony was filed by the Company on March 16, 2006. The evidentiary hearing on the matter was conducted from March 27 2006 through April 3, 2006. On May 5, 2006, RUCO and the other parties to the case filed closing briefs. Reply briefs were filed on May 26, 2006.


After weighing all of the evidence presented during the proceeding, the ALJ assigned to the case issued her recommended opinion and order ("ROO") on July 11, 2006. RUCO filed exceptions to the ROO on July 20, 2006. On Tuesday, July 25, 2006, the four sitting Commissioners2 adopted an amended ROO by a vote of 4 - 0. On July 28, 2006, the Commission issued Decision No. 68858, which approved the present rates for Arizona-American's Paradise Valley District and approved surcharges for arsenic removal costs and fire flow improvements.

During the Commission Staff Meeting held at the ACC's Phoenix office on Thursday, December 6, 2007, the five Commissioners elected not to reconsider Decision No. 68858 by a vote of 5-0. The vote came after approximately one hour of discussion on the matter.


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.

2 Commissioner Marc Spitzer had accepted an appointment to the Federal Energy Regulatory Commission and had resigned on July 21, 2006.





Case Name:  Arizona-American Water Company, Inc. - Paradise Valley Water District Rate Design Agreement

On June 3, 2005, Arizona-American Water Company ("Arizona-American" or "Company") filed with the Arizona Corporation Commission ("ACC" or “Commission”) an application for a rate increase for its Paradise Valley Water District (“District”). The application requested approval for the District of a public safety surcharge for investments by the Company related to improvement of fire flow facilities; an Arsenic Cost Recovery Mechanism for investments required by the Company to comply with federal water arsenic reduction requirements; and approval of a conservation surcharge that would be imposed for usage in the highest consumption block.

On July 28, 2006, the Commission issued Decision No. 68858, approving the Company’s requests, including a public safety surcharge (to fund the aforementioned fire flow facilities) and a high block surcharge. Since that time, there have been numerous filings in this docket regarding the surcharges.

On January 16, 2008, The Town of Paradise Valley ("Town"), through its Town Manager, filed a letter and a rate design agreement dated January 4, 2008 (“Rate Design Agreement”). The Rate Design Agreement is intended to resolve certain inequities associated with the rate design and public safety surcharge which were approved in Decision No. 68858. The proposed Rate Design Agreement attached to the Town’s letter includes signature pages signed by representatives of the Town, Sanctuary on Camelback Mountain, the Camelback Inn, and the Scottsdale Renaissance (collectively, “Resorts”). The signature pages also appear to be signed by representatives of Clearwater Hills Improvement Association, Camelhead Estates II HOA, and Finisterre HOA. The January 16, 2008, letter from the Town encourages the Commission to reopen Commission Decision No. 68858 and modify the District’s rate design consistent with the Rate Design Agreement.

At a Commission Staff Meeting noticed for and held on February 27, 2008, the Commission voted to reconsider Decision No. 68858 pursuant to A.R.S. § 40-252 for the limited purpose of reviewing the Rate Design Agreement.

On February 28, 2008, a Procedural Order was issued setting a procedural conference for the purpose of allowing the parties to Decision No. 68858 an opportunity to discuss an appropriate procedural schedule for reconsideration of Decision No. 68858, which was reopened for the limited purpose of reviewing the proposed Rate Design Agreement.

On February 29, 2008, the Resorts jointly filed a Motion to Intervene.

On March 4, 2008, the Town filed a Motion to Intervene.

No objections were filed to the Motions to Intervene filed by the Town and the Resort.

Because RUCO was a party to the original Arizona-American rate case proceeding, as were Arizona-American and ACC Staff, there was no need for RUCO to intervene.

On March 10, 2008, a procedural conference was held as scheduled. With the exception of, the Paradise Valley Country Club, all parties to Decision No. 68858, including Arizona-American and ACC Staff, appeared through counsel.

Counsel for the Resorts and the Town also appeared. As there were no objections to the Motions to intervene filed by the Town and the Resort, the requested interventions were granted.

On March 14, 2008, the Administrative Law Judge ("ALJ") assigned to the case issued a Procedural Order that established the dates and times for an evidentiary hearing on the matter and the filing of written testimony.

The evidentiary hearing on the matter was scheduled for 10:00 a.m. on Thursday, May 15, 2008, at the Commission's Phoenix offices at 1200 W. Washington.

Written direct testimony and associated exhibits from the Town and the Resorts in support of the proposed Rate Design Agreement was filed on March 28, 2008.

Written direct testimony and associated exhibits from RUCO, Arizona-American and ACC Staff regarding the proposed Rate Design Agreement was filed on April 25, 2008.

Written rebuttal testimony and associated exhibits from all parties to the instant proceeding was filed on Friday, May 9, 2008.

During the evidentiary hearing, held on Thursday and Friday May 15th and 16th, 2008, attorneys for RUCO, the Town, Resorts, ACC Staff, and Arizona-American cross examined the expert witnesses that filed written testimony in the case. Witnesses for the Company, the Town and the Resorts also responded to questions posed by ACC Commissioners Bill Mundell and Kris Mayes on the first day of the hearing.

Closing briefs from the attorneys for the parties to the case were filed on Friday, June 13, 2008.

After the filing of the closing legal briefs, the ALJ assigned to the case will weigh all of the evidence presented during the proceeding, including public correspondence and comment from ratepayers, and write a Recommended Opinion and Order ("ROO"). The ROO will then be voted on at a scheduled open meeting by the five ACC Commissioners. The Commissioners can either accept, reject or amend the ROO in order to arrive at a final decision on the proposed Rate Design Agreement. Because the proceeding is not subject to the Commission's time clock rules, RUCO has no estimate as to when the ROO will be voted on as a final decision.