Pursuant to Decision No. 71878 ("Decision"), dated September 14, 2010, stakeholders, including Staff of the Arizona Corporation Commission ("ACC" or "Commission") and Global Utilities, were ordered to conduct a series of workshops under an existing generic docket(opened on March 8, 2006) for the purpose of looking at how best to achieve the Commission’s objectives with regard to encouraging the acquisition of troubled water companies and the development of regional infrastructure where appropriate.
The Decision requires workshop participants to address whether Infrastructure Coordination and Financing Agreements ("ICFA's"), or other mechanisms, if properly segregated and accounted for, could be utilized to finance the actual acquisition of troubled water companies, and a portion of the carrying costs associated with the unused water and wastewater facilities or infrastructure determined to meet the Commission’s objectives in this regard.
The Decision requires Staff to notice and facilitate stakeholder workshops designed to address these issues, and make recommendations to the Commission on the issues discussed in the workshops, including whether it is appropriate to adopt the recommendations in the next Global Utility rate case, as well as other future rate cases.
Five workshops have been held at the Commission to date. The last workshop conducted on Friday, June 24, 2011, dealt with Infrastructure Coordination and Financing Agreements.
On Thursday, June 16, 2011, the Commission conducted a separate workshop that discussed the pros and cons of generalized cost of equity information for potential use in Class A, B, and C water and/or wastewater utility rate cases.
The sixth and final workshop was held on Friday, November 4, 2011 in Hearing Room #1, 1200 West Washington in Phoenix.
During the last meeting, attendees listened to presentations on generalized rate of return methods and and carrying costs as they relate to Infrastructure Coordination and Financing Agreements.
An ACC Staff Report containing recommendations on the various issues raised in the workshops was expected to be filed in early January or February of 2012.
On Thursday, January 12, 2012, ACC Staff filed a request seeking a 45-day extension for filing the Staff Report in order to allow time to include the findings of an independent audit firm's examination on ICFA's and related transactions.
On Friday, February 17, 2012, the Commission issued Decision No. 72891, which granted ACC Staff's request for a 45-day extension.
On Monday, March 19, 2012, ACC Staff filed its report recommending the following:
1. Consideration of authorizing utilities to record and defer depreciation and a cost of money using an Allowance For Funds Used During Construction (“AFUDC”) rate on qualified plant replacements for up to 24 months3 after the in-service date to mitigate the effects of regulatory lag.
2. Consideration of allowing acquisition premiums and/or a premium on the rate of return on a case by case basis and subject to certain conditions, in those cases where the impacts may be offset to some extent by the effects of operational improvements. If granted, acquisition premiums would be subject to review and re-justification in future proceedings.
3. Consideration of establishing a mechanism to recognize the effect of delays in the processing of rate cases when applicant is not culpable for those delays.
4. That monies received pursuant to Infrastructure Coordination and Financing Agreements (“ICFAs”) continue to be treated as Contributions in Aid of Construction (“CIAC”). This recommendation may be modified as a result of the pending review of Global’s ICFAs by an independent Certified Public Accountant firm.
On Wednesday, June 27, 2012, ACC Staff filed a supplemental report recommending that pass-through entities, such as S corporations and Limited Liability Companies, should not be permitted to recover income tax expense in rates.
On Monday, July 16, 2012, RUCO filed comments opposing the adoption of a policy submitted by ACC Chairman Gary Pierce on June 15, 2012, which would allow for the recovery of income taxes in rates and have the effect of increasing the existing rates for customers of Pima Utility Company, Johnson Utilities Company, Sahuarita Water Company, LLC, and a number of other water and wastewater companies in the state.
After several hours of discussion during the Regular Open Meeting held on Thursday, July 19, 2012, the five sitting Commissioners decided to delay consideration and possible adoption of the policy statement on taxes for pass-through entities submitted by Chairman Pierce.