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:
||(A) Company OCRB/FVRB AS FILED
||(B) RUCO OCRB/FVRB AS ADJUSTED
||Adjusted Rate Base
||Adjusted Operating Income (Loss)
||Current Rate Of Return (Line 2 / Line 1)
||Required Operating Income (Line 5 X Line 1)
||Required Rate Of Return
||Operating Income Deficiency (Line 4 - Line 2)
||Gross Revenue Conversion Factor (Schedule RLM-1, Page 2)
||Increase In Gross Revenue Requirement (Line 7 X Line 6)
||Adjusted Test Year Revenue
||Proposed Annual Revenue Requirement (Line 8 + Line 9)
||Required Percentage Increase In Revenue (Line 8 / Line 9)
||Rate Of Return On Common Equity
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.