Arizona-American Water Company, Inc. - Transaction with Maricopa County Municipal Water Conservation District Number One

On October 11, 2005, Arizona-American Water Company ("Arizona-American" or "Company") filed an application ("Original Application") with the Arizona Corporation Commission ("ACC" or "Commission") requesting certain approvals associated with a transaction between the Company's Aqua Fria Water District and the Maricopa County Municipal Water Conservation District Number One ("MWD") for the purpose of obtaining treatment, at a planned regional water treatment facility, of a portion of the Company's Central Arizona Water Project ("CAP") water allocation.  

Arizona-American's Original Application outlined the Company's plans to purchase water treatment capacity, through a capital lease arrangement, from MWD.  At the time of the filing, MWD had plans to finance, build, and own a water treatment facility (the "White Tanks Plant") that could provide treated CAP water for the Company's Agua Fria District service territory located west of Phoenix and north of Interstate 10, between the White Tank Mountains and the Arizona Loop 101 freeway.  

Arizona-American's Original Application sought the following:

a)  Commission pre-approval of and a finding of prudency  for a capital lease agreement for CAP water treatment capacity between the Company and MWD;

b)  authority to issue debt;

c)  authority to transfer assets from the Company to MWD;

d)  revisions to an existing Company hook-up fee; and,

e)  preapproval of rate treatment and rate process for the proposed capital lease.

RUCO filed an Application to Intervene in the case on January 4, 2006.  RUCO's request was granted by the ACC's Hearing Division in a procedural order dated January 10, 2006.  The procedural order also set a hearing date on the matter.

On February 10, 2006 RUCO filed direct testimony on Arizona-American's Original Application.  ACC Staff filed a Staff Report on the same date.

On March 2, 2006, the ACC Hearing Division issued a procedural order that granted Arizona-American's request to suspend the procedural schedule (and the hearing) because of issues that had developed between the Company and MWD.

After filing several status reports on capital lease negotiations between the Company and MWD, and appearing at a procedural conference on August 1, 2006, Arizona-American filed a revised application ("Revised Application") on September 1, 2006.  

The Revised Application describes MWD's decision not to finance, build, and own the proposed White Tanks Plant.  The Revised Application also states that the Company could construct, own and operate the White Tanks Plant but would not be able to do so under the conventional rate-making process.

Arizona-American's Revised Application is requesting that the Commission approve increases to the Agua Fria District's existing Water Facilities Hook-Up Fee ("Hook-Up Fee") that will be used to finance construction of the White Tanks Plant. The Hook-Up Fee is currently being charged to builders that are operating in the Agua Fria District.  Arizona-American presents two different options for increasing the existing Hook-Up Fee in the Company's Revised Application.  Arizona-American is also seeking approval of an accounting order that will make the Company whole during the construction of the White Tanks Plant.

On September 21, 2006, RUCO filed comments on Arizona-American's Revised Application.  RUCO's comments voiced no objection to the increases in hook-up fees requested by the Company.  RUCO also stated its preference for the Company-proposed "Option 2 hook-up fee increase" presented in the Revised Application.

Between October 23, 2006 and December 6, 2006, MWD and numerous developers filed for intervention in the case.

On October 27, 2006, ACC Staff filed a Staff Report on the Company's Revised Application recommending approval of the Company's proposed hook-up fee and accounting order as requested.  

On December 27, 2006, the Administrative Law Judge ("ALJ") assigned to the case issued a procedural order that set the evidentiary hearing on the matter for 10:00 a.m. on  March 19, 2007 at the ACC's Phoenix Offices at 1200 W. Washington.  

On January 24, 2007, RUCO and other intervenors to the case filed direct testimony on Arizona-American's Revised Application.  RUCO's direct testimony largely supported the Company's requests and reiterated the comments that RUCO filed earlier in September 2006.

RUCO filed rebuttal testimony on February 21, 2007.  RUCO's rebuttal testimony continued to support the Company's requests and argued why it was premature to make any decisions on whether or not the Company's estimated costs represent impudent expenditures.  

Surrebuttal testimony from RUCO was  filed as scheduled on March 12, 2007.  RUCO's surrebuttal testimony took issue with one of the components of a Company-proposed formula that would recalculate the amount of hook-up fee to be charged in the event of third party capacity sales.

The evidentiary hearing on Arizona-American's application was concluded on Monday, March 26, 2007.  Closing briefs were filed by the attorneys for the various parties to the case on Tuesday, April 17, 2007.  Reply briefs were filed on Tuesday, April 27, 2007.  After weighing all of the evidence presented during the proceeding, the ALJ assigned to the case issued her Recommended Opinion and Order ("ROO") on Tuesday, September 4, 2007.  The ROO recommended that Arizona-American's requests for an increase in the Company's hook-up fees and an accounting order that will keep Arizona-American whole during the construction of the White Tanks Plant be granted.

On Tuesday, September 18, 2007, the five ACC Commissioners adopted an amended version of the ALJ's ROO by a vote of 5-0.

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