On August 5, 2011, the Arizona Water Company ("AWC") filed with the Arizona Corporation Commission ("ACC") an application requesting adjustments to its rates and charges for utility service provided by its Eastern Group water systems. AWC's Eastern Group includes the following water systems, which are geographically dispersed and located in Maricopa, Pinal, Gila and Cochise counties: Apache Junction, Superior, and Miami (collectively known as the Superstition Division); Bisbee and Sierra Vista (collectively known as the Cochise Division); and San Manuel, Oracle, SaddleBrooke Ranch and Winkelman. On February 20, 2013, the ACC granted AWC a rate increase for its Eastern Group systems. Among other things, the ACC awarded AWC a 10.55 percent return on equity ("ROE") which is higher than what the ACC had recently awarded in the Company's Western Group case in order to allow for the replacement and repair of the Company's aging infrastructure. The ACC further held the rate case open to conduct additional hearings for the consideration of another mechanism which would also allow the Company to address the costs associated with the repair and replacement of the same aging infrastructure.
This mechanism, known more commonly as a Distribution System Improvement Charge ("DSIC") was the subject of the follow-up hearings. These hearings were held and on May 28, 2013, the Administrative Law Judge, Dwight Nodes, issued his Recommended Opinion and Order ("ROO"). Judge Nodes approved a DSIC mechanism known as the System Improvement Benefits mechanism ("SIB") but recommended that the "...10.55 percent ROE" be adjusted downward to 10 percent "to reflect the commonality of purpose." On June 27, 2013, the ACC, in Decision No. 73938, rejected the ROO and approved the SIB and the higher 10.55 percent ROE.
On July 17, 2013, RUCO requested rehearing on two issues: the duality of purpose associated with the higher ROE and the legality of the SIB under Arizona law. The ACC thereafter granted RUCO's request for rehearing and on March 24, 2014, after another round of hearings, the same Administrative Law Judge, Dwight Nodes, issued his ROO. The Judge, on rehearing, was persuaded by RUCO's arguments and concluded that "the 10.55 percent ROE no longer reflects a reasonable or appropriate cost of equity for AWC's Eastern Group systems and should therefore be reduced to 10.0 percent."
On April 7, 2014, the ACC held its Open Meeting. The ACC for a second time rejected the proposed ROO - Commissioner Gary Pierce proposed an amendment to the ROO, which had the effect of upholding the ACC's previous Decision (Decision No. 73938) awarding the Company both the higher 10.55 ROE and the SIB.
RUCO has since filed its Notice of Appeal to the Arizona Court of Appeals and among other things continues to argue that the SIB is illegal under Arizona law. The Appellate proceeding is currently in the Briefing stage. The adoption of both a higher ROE and a SIB mechanism establishes a dangerous precedent and encourages companies to seek both a SIB and higher ROE to address the same infrastructure needs, resulting effectively in double recovery. While it might seem obvious - it still needs to be said - Ratepayers should not pay twice for the same infrastructure.
RUCO has requested oral argument. Waiting for the Court of Appeals decision on oral argument.