On Friday, December 19, 2008, Far West Water and Sewer Company (“Far West” or the “Company”) filed an application for interim emergency rates (“Application”) with the Arizona Corporation Commission ("ACC" or "Commission") for a temporary increase in rates for the Company’s Sewer Division. A request for permanent rates is also pending before the ACC.
Far West’s Sewer Division is a Class A utility that provides wastewater service to approximately 7,237 customers of which 7,199, or 99.5 percent, are residential ratepayers. Far West’s service territory is located along Interstate 8, just east of the City of Yuma, in an unincorporated portion of Yuma County known as the foothills area. The Company’s present rates were established in Decision No. 69335, dated February 20, 2007 (RUCO was an intervenor in that proceeding).
Far West is requesting an interim increase in revenues of $2,161,788 or a 101.02 percent increase over the Company's 2007 adjusted operating revenue. According to Far West’s application, the emergency interim rate increase is needed to keep the Company’s Sewer Division solvent. The Company states that the requested rate increase will provide nearly sufficient cash flows to meet Far West’s debt service obligations on $25.2 million in industrial development authority ("IDA") bonds that were used to finance new plant additions. Far West further states that the requested rate increase will only cover adjusted test year operating expenses, and will not result in any operating income for Far West. The Company-proposed level of depreciation expense (a non-cash charge) will provide Far West with the cash flow to cover 83 percent of the annual debt service obligation associated with the IDA bonds that are financing the new wastewater treatment plant improvements. Any interim rates collected by the Company are subject to refund should the Commission find that the rates were not warranted in the the pending permanent rate case.
RUCO filed its direct testimony on Far West's request on Thursday, March 19, 2009. ACC Staff filed its report on Tuesday, March 24, 2009. Far West filed rebuttal testimony on Tuesday, March 31, 2009.
RUCO is recommending that the Commission deny Far West’s request for emergency interim rates. RUCO is also recommending that the Commission suspend the time clock on Far West’s permanent rate case proceeding for a twelve-month period, from the date that the IDA bond funded wastewater plant additions are placed into service, and that Far West be required to update the Company’s pending application for permanent rates at the end of the twelve-month period to include a more current test year. This will provide both RUCO and ACC Staff with the opportunity to see what the actual expenses associated with the wastewater treatment plant are before setting permanent rates. RUCO further recommended that the twelve-month period be used for discovery and that the updated application for permanent rates be handled on an expedited basis.
The evidentiary hearing on Far West's request began on Monday, April 6, 2009 at the Commission's Tucson offices. During the hearing, RUCO's attorney cross examined the Company's witnesses and offered a witness from the Arizona Department of Environmental Quality ("ADEQ") to testify on consent agreements that Far West has entered into.
The evidentiary hearing on Far West's request for emergency interim rates was concluded on Thursday, May 21, 2009. During the final day of the hearing, witnesses for RUCO and ACC Staff appeared and faced cross examination from Far West's attorney (RUCO's Staff witness faced approximately three hours of cross examination from Far West's attorney on his recommendation to deny the Company's request for interim rates). During the hearing, the Company stated that it needed approximately $3.5 million to pay off creditors in order to complete ADEQ mandated wastewater plant additions.
After obtaining a filing extension, RUCO's initial closing brief was filed on Monday, June 22, 2009. ACC Staff filed its reply brief on Thursday, July 2, 2009. RUCO filed its reply brief as scheduled on Wednesday July 8, 2009.
On Wednesday, September 2, 2009, the Administrative Law Judge ("ALJ") assigned to the case issued a Recommended Opinion and Order ("ROO") on Far West's Application. The ALJ recommended that the ACC deny Far West's request for emergency interim rates. The ALJ also recommended that Far West's management provide a plan on how to complete improvements to its sewer system and that ACC Staff investigate the possibility of appointing an interim manager.
At the ACC's Regular Open Meeting on September 22, 2009, the five ACC Commissioners agreed to pull Far West's request from the agenda and delay voting on it until the next Regular
Open Meeting. The Commission's decision to pull the request was made after attorneys for the Company reported that an unaffiliated business entity, that belongs to the owners of Far West, was in the process of securing a $5.5 million loan. According to Far West's attorneys, the loan proceeds would be contributed to the Company and recorded on Far West's books as paid in equity capital (as opposed to additional debt). The funds would then be used to pay off creditors in order to complete ADEQ mandated wastewater plant improvements. The additional equity capital would eliminate the need for the interim rates requested by Far West. The thirty-day delay gives Far West time to arrange the $5.5 million equity infusion.
During subsequent Open Meetings held in October and November, the five Commissioners decided to postpone a vote on the ROO in order to give Far West time to finalize the loan agreement. At the Regular Open Meeting held on November 19, 2009, Far West reported that funding of the loan was expected to occur within the next two weeks. The Commissioners heard public comment from Far West ratepayers and agreed to postpone their vote once more.
At the Regular Open Meeting held on Wednesday, December 16, 2009, the five sitting Commissioners adopted an amended ROO that denied the Company's request for interim rates. According to the Company's attorney, Far West expected to receive the aforementioned loan proceeds on Friday, December 18, 2009.