On August 24, 2004, Chaparral City Water Company ("Chaparral" or "Company") filed an application for an increase in the Company's rates and charges with the Arizona Corporation Commission ("ACC" or "Commission"). On September 30, 2005, the Commission issued Decision No. 68176 which granted a rate increase to Chaparral. Following the Commission's decision on the matter, the Company filed an application for rehearing which the Commission took no action on. Chaparral subsequently filed an appeal with the Arizona Court of Appeals, Division One ("Court of Appeals"). The Company's appeal claimed that Chaparral was denied a fair rate of return on its invested capital as a result of the Commission's established method of calculating a level of operating income based on the Company's fair value rate of return. On February 13, 2007, Judge Lawrence F. Winthrop of the Court of Appeals issued a Memorandum Decision which Affirmed in Part, Vacated, and Remanded Decision No. 68176 to the Commission for further determination.
On July 17, 2008, after the conclusion of an evidentiary hearing on the fair value rate of return issue that was remanded back to the Commission by the Court of Appeals, four of the five sitting ACC Commissioners voted to adopt the recommendations of the Commission's Chief Administrative Law Judge resulting in Decision No. 70441.
Decision No. 70441 adopted a modified version of the methodology recommended by RUCO witness Dr. Ben Johnson during the remand proceeding, and reduced the Company's cost of equity capital 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 provided the Company with an additional $12,143 more than what was originally authorized in Decision No. 68176.
The Decision also ordered 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 (Docket No. W-02113A-07-0551).
On Thursday, July 31, 2008, the Company filed a motion for rehearing. After the Commission declined to rehear the case, Chaparral filed an appeal with the Arizona Court of Appeals, Division One.
On Monday, April 6, 2009, RUCO filed an Answering Brief with the Court of Appeals.
On Tuesday, January 12, 2010, The Arizona Court of Appeals heard oral arguments from attorneys for Chaparral, the ACC and RUCO. Attorneys for both RUCO and the ACC defended the Commissions Remand Decision.
On Thursday, June 10, 2010, the Court of Appeals issued a Memorandum Decision affirming Decision No. 70441.