The setting is reminiscent of the legal trappings of a courtroom, with multiple parties arguing their case before a judge in an effort to gain a favorable ruling. However, these parties are not determining the fate of a defendant, but rather the utility destiny of an entire community. The Process At the heart of the issue is Global Water’s request for a 34 percent increase in its water fees and 130 percent increase in the fees charged for sewer service. An Arizona Corporation Commission hearing is slated for Dec. 14 to consider the utility’s request. The players: Global Water, the Corporation Commission and the Residential Utility Consumer Office (RUCO). Following the hearing, which could last for several days, an administrative law judge will form a utility rate recommendation based on testimony from the parties and public comment. “Typically the judge will come to a conclusion that lies between the multiple proposals,” said William Rigsby, RUCO chief utility analyst. This rate proposal by the judge will then be forwarded to the Corporation Commission office, where the commissioners can vote to accept the judge’s proposal as-is or make amendments to the proposal as they see fit. The Proposal Both RUCO and staff from the Arizona Corporation Commission are recommending rate structures that are less than what Global is requesting through the hearing. With the current rate structure and a standard ¾- or ½-inch connection, an average water usage of 7,827 gallons, plus sewage, costs Maricopa residents $76.30 monthly. With the proposed rate increase, the bill for this same usage would swell 59 percent to $121.24.“It is odd to see a utility receive a near 100 percent (combined water and sewer) increase in its rates,” Rigsby said. The Corporation Commission has proposed two different rate increases for the company with one resulting in an average bill (using the above usage) of $100.19 and the other, $101.39. RUCO’s proposal would yield a monthly bill of $105.39. The main portion of the rate increase in all the proposals is a threeyear phased-in increase in sewer fees. “We typically don’t support a phased-in rate increase, but because of the severity of this increase, we are recommending it,” said Darak Eaddy, public utility analyst for the Corporation Commission. When structuring these fees, the Corporation Commission and RUCO look at the utility’s cost of capital and its debt service to determine a maximum return on investment. This maximum
allowable return is then divided into the customer base to develop a rate structure. “The larger the customer base in a community, typically the lower the rate will be,” Rigsby said. Two steps Global took to minimize the increase were voluntarily excluding $32 million from its rate base and phasing in recovery on another $63 million — reducing the company’s required
revenue by more than $8 million in the first year. “We don’t ask for money today to build for tomorrow; we ask to approve rates to recover our investment,” said Ed Borromeo, Global Water’s general manager.
The utility analyst involved in the case also looked at Global Water’s service capacity to determine if the company grossly overbuilt, but found that was not the case. One thing the Corporation Commission and RUCO don’t look at when formulating these rates is the cost of similar utilities.
“A lot of people will come to hearings and say ‘why should we pay this much when another company is cheaper,’ but one of those companies may have had to drill through rock and the
other sand,” Rigsby said. 
The Cause Global Water filed its application for a rate increase early this year, citing a declining return on investment as one of the primary reasons an increase was necessary. “Every year we analyze past-year performance and develop investment and system-maintenance plans based on forecasts,” said Trevor Hill, Global Water’s chief executive officer. “We knew in 2007 that 2008 was going to be very, very low growth year. But in the third quarter, we realized that we were seeing something much worse develop,” In Maricopa, Hill said home vacancies increased to more than 10 percent, while disconnects and late payments surged, leaving the company with dwindling income to serve its 15,000 customers in the area. To offset the reduction in income, Global cut 20 percent of its workforce, froze pay, canceled bonuses and renegotiated and restructured outside contracts. But those efforts, which
cut $2.6 million from the budget, were not enough to offset the need for a rate increase. “Even after very drastic cost cutting, Global’s revenues are well below where they need to be to ensure our viability as a utility provider that meets all requests for service and provides reliable,
safe and adequate utility services,” said Global Water spokesman Paul Walker. However, after all of these cuts the company’s rate of return for 2008 was .65 percent for sewer and 4.35 percent for its water service. The maximum allowable rate of return is 10 percent. “These are pretty low rates,” Rigsby said. If the rate increases Global Water is suggesting are approved in full, its rate of return would grow sewer service by 130.2 percent and water-usage revenues by 33.8 percent. Despite the lackluster return rates, BusinessWeek reported that Global Water paid four of its top executives a combined cash compensation of more than $1 million in fiscal year 2008.
When stocks and other forms of payout are taken into account that number increases
to more than $3 million. “You have a company in the black who says it’s not getting enough of a return on their investment,” said Alan Marchione, who serves on the HOA board at The Villages at Rancho El Dorado. “If I was losing money due to a bad investment, I could not go door to door telling people ‘I made a bad investment decision, give me $10.’” Speak out The Arizona Corporation Commission and presiding administrator law judge will be in Maricopa for a public hearing Dec. 1 at 6:30 p.m. “This will give Maricopa residents an opportunity to get their opinions heard and taken into record by a court reporter,” Rigsby said. In you go: What: Arizona Corporation Commission public hearing
When: Dec. 1, 6:30 p.m.
Where: Maricopa Wells Middle School cafeteria, 45725 W. Honeycutt Ave. (This story previously appeared in the December issue of InMaricopa News.) Photo by Jim Williams |