Chaparral City Water Company - 2007 Rate Case

Status
Prior
Docket Number
W-02113A-07-0551
Assigned Staff
T. Coley
W. Rigsby
M. Wood

 

On September 27, 2007 Chaparral City Water Company ("Chaparral" or "Company") filed an application for a permanent rate increase ("Application") with the Arizona Corporation Commission ("ACC" or "Commission"). According to the Company’s Application, Chaparral provides water service to a total of 13,500 customers in portions of eastern Maricopa County including the Town of Fountain Hills.

Chaparral’s current rates were approved in Decision No. 68176, Dated September 30, 2005(link is external), and have been in effect since October 1, 2005. The Company’s sole shareholder is American States Water Company, a California-based utility holding company which acquired Chaparral’s stock from MCO properties, Inc. The transaction was approved by the Commission in Decision No. 62909 in October 2000. The Company's local office address is 12021 North Panorama Drive, Fountain Hills Arizona 85268. Chaparral’s request for rate relief is based on a test year ended December 31, 2006.

Chaparral is requesting an increase in annual revenues of $3,063,400 or 41.6 percent over adjusted test year revenues of $7,364,411. The reasons cited by the Company for the requested increase in rates included higher operating expenses, the recovery of new plant additions and Chaparral's inability to earn its authorized rate of return on investment.

The Company is requesting that the basic monthly service charge for residential customers (using a 3/4-inch meter) be increased from $13.60 to $18.56. Chaparral is also proposing that the current 3-tiered metered commodity rate structure be retained for residential, commercial and industrial customers. Under the Company's proposal, the first tier commodity rate (for the first 3,000 gallons) would increase from $1.68 per 1,000 gallons to $2.292 per 1,000 gallons. The second tier commodity rate (3,001 gallons to 9,000 gallons) would increase from $2.52 per 1,000 gallons to $3.438 per 1,000 gallons. Finally, the third tier commodity rate (any consumption over 9,000 gallons) would increase from $3.03 per 1,000 gallons to $4.134 per 1,000 gallons.

Chaparral's primary source of water is supplied through the Central Arizona Project ("CAP"). The Company is proposing that an additional CAP allocation purchase, which will occur outside the Company's test year, be given rate base treatment and be recovered in rates. The Company is also proposing that it's authorized rate of return be applied to it's fair value rate base (an issue raised during Chaparral's prior rate case proceeding that is the subject of an Arizona Court of Appeals Decision that has been remanded back to the ACC for further action), which will result in higher rates to Chaparral's customers.

On October 26, 2007, ACC Staff docketed a sufficiency letter(link is external) informing Chaparral that the Company's application met the sufficiency requirements of A.A.C. R-14-2-103 and that the Company had been classified as a Class A water utility1.

On November 19, 2007, RUCO filed a request for intervention(link is external).

On November 30, 2007, the Administrative Law Judge ("ALJ") assigned to the case issued a procedural order(link is external) that granted RUCO's request for intervention and scheduled a date for the evidentiary hearing on the matter. On Friday, December 21, 2007, The ALJ issued an amended procedural order that rescheduled the evidentiary hearing for 10:00 a.m. on Monday, July 21, 2008.

On Thursday, January 3, 2008, ACC Staff filed a motion with the ACC's Hearing Division requesting a suspension of the time clock rules on the Company's rate request until a final decision is issued on Chaparral's remand hearing case that is also pending before the Commission. On January 8, 2008, the Company filed a response in opposition to ACC Staff's motion. On January 14, 2008, ACC Staff filed a reply to the Company's response which defended its request for suspension of the time clock.

On January 22, 2008, the ALJ assigned to the case issued a procedural order(link is external) that suspended the proceeding and further ordered that the proceeding continue as soon as practicable following the Commission’s final order in Docket No. W-02113A-04-0616 (the remand proceeding on the application of an appropriate rate of return on the Company's fair value rate base).

On June 30, 2008, after weighing all of the evidence presented during the remand proceeding on Docket No. W-02113A-04-0616, the ACC's Chief Administrative Law Judge ("CALJ") issued a recommended opinion and order(link is external) that recommended a modified version of the methodology recommended by RUCO witness Dr. Ben Johnson in that proceeding. The CALJ reduced the cost of equity capital awarded in Chaparral's prior rate case by an inflation factor of 200 basis points (i.e. 2.00%). The resulting 6.40 percent weighted average cost of capital was then applied to Chaparral's fair value rate base to arrive at an appropriate level of operating income for the Company (the revised annual operating figure provides the company with an additional $12,143 more than what was originally authorized in Decision No. 68176. The CALJ also recommended that the recovery, if any, of Chaparral's legal expenses incurred during the appeal and remand proceedings be considered in the Company's pending rate case proceeding.

At a special open meeting held on July 17, 2008, the CALJ's recommendations on Docket W-02113A-04-0616 were adopted by the ACC Commissioners by a vote of four to one.

After the resumption of the time clock, RUCO filed direct testimony on September 30, 2008. Surrebuttal testimony was filed on November 20, 2008 in response to the Company's rebuttal testimony.

During the evidentiary hearing, attorneys representing Chaparral, RUCO and ACC Staff cross examined the expert witnesses that filed written testimony in the case.

After the hearing the attorneys for the parties to the case filed final schedules stating their positions. Two rounds of legal briefs were filed on the required revenue issues in the case and two rounds of legal briefs were filed on the cost of capital issues that were raised during the proceeding.

After weighing all of the evidence presented during the proceeding, including public correspondence and comment from ratepayers,

 the ALJ assigned to the case issued her Recommended Opinion and Order(link is external) ("ROO") on Wednesday, September 23, 2009.

 

On Friday, October 2, 2009, RUCO filed exceptions to the ROO. RUCO took issue with the ALJ's recommended treatment of the Company's additional allocation of Central Arizona Project water, the fifty-fifty sharing of settlement proceeds from the Fountain Hills Sanitation District ("FHSD"), and the recovery of legal fees associated with Chaparral's appeal of Decision No. 68176.

At an Open Meeting held on Thursday, October 8, 2009, four of the five ACC Commissioners passed an amended ROO which adopted RUCO's recommendations to provide Chaparral's ratepayers with 100 percent of the FHSD settlement proceeds and to deny the Company recovery of legal fees associated with the appeal of Decision No. 68176.

On Friday, October 21, 2009 the ACC issued Decision No. 71308(link is external) which established interim rates for Chaparral pending an ACC Staff report on a California Public Utilities Commission ("CPUC") investigation that could impact the Company's rates.

On Tuesday, December 8, 2009, the Commission issued Decision No. 71424(link is external) which corrected errors in Decision No. 71308 in order to insure that the rate design adopted by the Commission generated Chaparral's authorized level of revenue.

In response to a motion for rehearing(link is external) filed by Chaparral on November 10, 2009, The Commission voted to rehear the issues related to the ratemaking treatment of the Fountain Hills Sanitary District settlement proceeds and the recovery of legal fees associated with the Company's appeal of Decision No. 68176.

A procedural conference was convened on Wednesday, January 27, 2010 for the purpose of discussing a procedural schedule for the rehearing.

On Tuesday, February 9, 2010, the Administrative Law Judge ("ALJ") assigned to rehear the Chaparral rate case issued a procedural order(link is external) that scheduled an evidentiary hearing on the matter.

On Thursday, March 4, 2010, the ALJ assigned to the case issued another procedural order(link is external) that continues the evidentiary hearing on the matter for 10:00 a.m. on Monday, April 12, 2010 at 1200 W. Washington in Phoenix.

On Wednesday, March 31, 2010 the ALJ assigned to the case issued a Recommended Opinion and Order(link is external) which recommended that the interim rates be made permanent based on ACC Staff's report(link is external) on its review of the CPUC investigation.

Direct testimony was filed by RUCO on Monday, April 5, 2010. The evidentiary hearing was concluded on Monday, April 12, 2010. Attorneys for the parties to the case cross examined expert witnesses and presented their positions on the two issues being reheard.

A late filed accounting exhibit, showing various required revenue scenarios requested by the ALJ, was filed by ACC Staff on Wednesday, May 12, 2010.

Initial closing legal briefs were filed on Monday, May 24, 2010. Reply legal briefs were filed on Tuesday, June 22, 2010.

On Friday, February 11, 2011, the ALJ assigned to the case issued a Recommended Opinion and Order(link is external) ("ROO") recommending that the ACC adopt Chaparral's positions on the ratemaking treatment of Fountain Hills Sanitary District settlement proceeds and the recovery of legal fees associated with the appeal of Decision No. 68176.

RUCO filed exceptions(link is external) to the ROO on Tuesday, February 22, 2011.

During the Regular Open Meeting held on Tuesday, March 1, 2011, the five ACC Commissioners agreed to postpone their vote on the matter until more information could by obtained from the parties to the case.

On Tuesday, March 8, 2011, Commissioner Brenda Burns filed a letter(link is external) in the docket asking a number of questions related to the rehearing issues.

On Wednesday, March 23, 2011, RUCO filed its responses to Commissioner Burns' letter dated March 8, 2011.

During the Regular Open Meeting held on Wednesday, March 30, 2011, the five sitting ACC Commissioners voted to increase rates for Chaparral City Water Company customers by adopting the recommendations contained in the ALJ's ROO.

 

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 (depending on the length of the evidentiary hearing) of the issuance of the letter of sufficiency.