ACC ruling on Global Water rate increase details

The Arizona Corporation Commission, at around 4 p.m. yesterday, Aug. 30, approved a rate increase for Global Water that goes into effect immediately.

The final increase will result in the average bill in Maricopa increasing to approximately $95.53 by Jan. 1, 2012.

The increase is a decrease of about $6 from what the Commission’s administrative law judge recommended and almost $40 a month less than what Global originally requested.

While the lower than recommended rates for residential water and sewer service were good news, it was the decision to only increase the rate Global charges for reclaimed water from the current 33 cents per thousand gallons to 57 cents per thousand gallons that made HOA’s happy.

The administrative law judge originally recommended $2 per thousand gallons.

“For those HOA’s who irrigate with effluent water this is a significant victory,” said implementing coordinator for the HOA presidents council Peggy Chapados.

The new rate structures came about as the result of an amendment constructed this past week by ACC staff and Commissioner Sandra Kennedy.

Kennedy and staff were able to construct the new rates by essentially lowering Global’s return rates from 10 percent to nine percent.

“I believe this amendment truly finds a balance,” Kennedy said.

It was the same recommendation the Residential Utility Consumer Office, a group that represents rate payers in utility cases, had originally suggested and stood behind during the hearing.

“The recommendations for 10 percent recommended by staff and the law judge didn’t involve a cost of equity and capital analysis,” said Daniel Pozefsky, chief council for RUCO. “To arrive at our 9 percent we did a full blown cost analysis and support the amendment that utilizes our analysis.”

Pozefsky added that anyone in the room would be ecstatic to be earning a 9 percent return on their investment.

However, Global Water representatives were not initially supportive of the amendment.

“We went to unprecedented levels to keep the impact of this increase to a minimum on those struggling the most and send the strongest signal to conservation to those who needed it the most, “said Global CEO Trevor Hill.

This amendment goes against everything we were trying to accomplish, Hill added.

Global stated, through their testimony, they believed the $2 rate on effluent water would cause HOA’s such as Province, which uses more than 30 million gallons a month at their peak usage, to become more conservative. However, with the new amendment setting the rate at 55-cents, there was no longer a price point to encourage best management practices.

This rate design is essentially 14,000 rate payers subsidizing the cost of effluent water for 800, Hill said.

The subsidy Hill referred to is the provision in the Kennedy amendment which raised the cost of sewer service by essentially $2 to overcome the lowering of the effluent rate.

However, the amendment also lowered the standard water rates, and the rate of return, which resulted in a lower bill overall for the average consumer.

Global was given the option of supporting a different amendment that would keep the rate of return at what the judge recommended, lower the effluent rate to about $1.30 per thousand gallons and slightly increase the sewer rates.

However, the company was not willing to commit to a return to the commission during the next four to six years for a new rate increase.

To gain the company’s support for the Kennedy amendment, Global asked the commission to move up the phase-in dates for sewer service from August 2001 and August 2012 to January 2011 and January 2012, a move the commission eventually made.

While the amendment helped to lower the eventual rates Maricopa residents will pay, it was actually Global Water who did the most damage to its rate case.

A major part of determining what Globals’s rates would be was looking at the amount of investment the company had made into plants and other infrastructure.

However, a stumbling block in determining that was a new financing tool the company developed called Infrastructure Coordination and Financing Agreements (ICFA’s).

The ICFA is an agreement between developers and Global Water, which essentially states the company will provide water service to the development. However, the money granted to Global Water through these agreements is not deducted from the company’s rate basis or earmarked for specific projects.

These contribution contracts were used in place of a standard agreement called Contributions in Aid of Construction (CIAC’s).

CIAC’s are contracts between a third party, typically a developer and a water company, in which the developer agrees to pay for a portion of the infrastructure necessary to serve the project. These contributions are then subtracted from the rate base, ensuring the company does not earn a rate of return on money garnered from third-party contributions.

In the city of Maricopa nearly $50 million was collected through these agreements, and the ruling by the commission, ACC staff and RUCO was to deduct these funds from the company’s rate base.

Hill said in his testimony the monies garnered through ICFA’s were used to buy distraught water companies and were the only tool toward total water management in the state, and thus should not be deducted from the rate base.

However, according to commission chair Kristin Mayes, if the company had separated the funds they garnered from these deals and were able to produce paperwork showing what they were spent on, the commission may not have deducted the funds from their rate base.

Mayes told  Hill the company should have been aware of the scrutiny around these funds because the commission opened a blank docket to investigate their usage in 2006.

“This rate case was your opportunity to make a case for ICFA’s, and you didn’t bother even putting the money in separate accounts,” Mayes said. “You left the commission no option but to rule these funds as CIAC.”

However, the commission left the door open for Global at their next rate case hearing to get the ICFA money added back to their rate base by passing an amendment, despite protest from Maricopa Mayor Anthony Smith, to create a study session on ICFA’s.

This study session is supposed to begin in the next 30 days and have a recommendation to the commission 90 days after its conclusion.

“The eventual way the commission decides to treat ICFA’s is the current most important issue in state water policy,” Mayes said.

Hill refused to comment on the case after the final decision.

Here are the rates adopted:

Sewer (5/8 and ¾ inch meters)
Next bill: $42.97
Jan. 1, 2011: $51.51
Jan. 1, 2012: $60.76

Water (5/8 and ¾ inch meters)
Connection charge: $27.68

Per thousand gallons used charges:
0-1,000: $1.30
1,001 to 5,000: $2.12
5,001-10,000: $2.94
10,001- 18,000: $3.76
18,001-25,000: $4,58
25,000-999,999,999: $4.58
999,999,999+: $5.48

Recycled water: 57 cents per 1,000 gallons

File photo