On August 24, 2004 Chaparral City Water Company ("Chaparral" or "Company") filed an application for a permanent rate increase with the Arizona Corporation Commission ("ACC" or "Commission").  According to the Company’s Application, Chaparral provides water service to a total of 12,000 customers in portions of eastern Maricopa County, Arizona including the Town of Fountain Hills.  Chaparral is an Arizona corporation that operates from its office located at 12021 North Panorama Drive, Fountain Hills Arizona 85268.

Chaparral is requesting an increase in annual revenues of $1,797,182 or 29 percent.  The primary reason for the requested increase is the Company’s stated requirement to determine the fair value of its utility plant and property, and receive authorization for a rate of return on the fair value rate base equal to 8.22 percent.

Chaparral’s request is based on a test year ended December 31, 2003.  The Company’s request will increase the Zone 1 (lower elevation) average residential customers (3/4” meter) by 23.23 percent.  The Company’s request will increase the Zone 2 (higher elevation) average residential customers (3/4” meter) by 23.47 percent.  For Zone 1, under the Company’s proposal, the basic monthly service charges for customers would increase from $12.81 to $14.58.  The proposed metered commodity would increase by creating two tiered rates from $2.16 to $2.46 for consumption of 0 to 8,000 gallons, $2.16 to $3.06 for consumption over 8,000. 

For Zone 2, under the Company’s proposal, the basic monthly service charges for customers would increase from $12.81 to $14.58.  The proposed metered commodity would increase by creating two tiered rates from $2.29 to $2.52 for consumption of 0 to 8,000 gallons, $2.29 to $3.12 for consumption over 8,000. 

The Company’s request will increase the Zone 3 (highest elevation) average residential customers (3/4” meter) by 24.34 percent.  For Zone 3, under the Company’s proposal, the basic monthly service charges for customers would increase from $12.81 to $14.58.  The proposed metered commodity would increase by creating two tiered rates from $2.49 to $2.74 for consumption of 0 to 8,000 gallons, $2.49 to $3.34 for consumption over 8,000.

Chaparral's primary source of water is supplied through the Central Arizona Project ("CAP"), at present; the Company takes delivery and uses 6,978 acre-feet from its allocation of 9,828 acre-feet per year.  Sufficient supplemental groundwater is pumped from two wells as required.

Chaparral’s current rates were approved in Decision No. 57395, dated May 23, 1991 and have been in effect since June 1, 1991.  The Company’s sole shareholder is American States Water Company, which acquired the Company’s stock from MCO properties, Inc. This transaction was approved by the Commission in Decision No. 62909 in October 2000.

On September 14, 2004 RUCO filed a request for intervention which was approved by the ACC's Hearing Division.  The case then entered the discovery phase of the proceeding.  During this period RUCO's analysts performed an audit of the Company's books and records and conducted a cost of capital analysis to determine if Chaparral's proposed increases were justified. 

On March 22, 2005 RUCO filed direct testimony, containing its recommended level of revenue and return on invested capital.  A comparison of Chaparral's proposed revenue increases and RUCO's recommendations are as follows:

 

					(A)		(B)
					COMPANY		RUCO
	LINE				FVRB		ORIGINAL
	NO.		DESCRIPTION		AS FILED		COST
	1		Fair Value Rate Base		$20,080,393		$15,835,533
	2		Adjusted Operating Income (Loss)		$     538,126		$     851,045
	3		Current Rate Of Return (Line 2 / Line 1)		2.68%		5.37%
	4		Required Operating Income (Line 5 X Line 1)		$  1,650,608		$  1,213,695
	5		Required Rate Of Return On Fair Value Rate Base		8.22%		7.66%
	6		Operating Income Deficiency (Line 4 - Line 2)		$  1,112,482		$     362,650