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Inside a Water Rate Case

December 15, 2009

As Global Water’s testimony supporting its requested rate increase before the Arizona Commerce Commission begins, we are starting to see a small glimpse inside what can be a very involved process.  Rate cases are not new: they are the rule for privately owned utilities and have been part of our history since pre-1900 times. Your electric company, gas company, phone company, and cable company all are likely required to file rate cases in front of a state regulatory agency before they can legally increase their rates.  Although it sounds like the public is in control in such a process, it is really more like a court case where the judge applies the law and legal precedent to make a decision to approve, deny, or amend the rate request.  The judge is bound by the law, and the law requires much from the utility to be sure; the law also allows the utility to increase its rates to recover all of its expenses, plus a reasonable return to shareholders.  So, if the utility is performing its role by providing the utility services to customers at a reasonable standard, and the expenses incurred in providing the service are also found to be reasonable, then the judge is more or less bound to approve the rate request.  Whether service is being provided at a high enough level, and whether the expenses -including the requested return to shareholders – are reasonable, are the major areas for argument during the case.

A recent article about Global Water’s requested increase in Arizona sheds some light.  What we hear from the company’s CEO during testimony is that the proposed rate for recycled water is $2.00/thousand gallons and that 60% of all HOA’s (homeowner associations) are now paying  just $0.33.  If you go to the company’s web site ,you will find that they appear to have not changed their rates for about 10 years, during which time the company claims to have added over $200 million of new infrastructure to serve the area (in Maricopa County).  The article goes on and describes a few strange things about this rate request:

• The company is not seeking a “fair and equitable return.”  The CEO claims that the company will not earn a return in this case for 20 years.  That is quite a statement.  Shareholders may want to sell at this point!
• The company says that the rate should be $2.00/thousand gallons, yet they propose to phase in the rate over five years.  All that means is that the company is not asking the commission to approve a rate that would recover its costs of service.  Why?
• The water rate requested is increasing by 34% and the sewer rate (the company also owns and operates) is increasing by 130%.  These kinds of increases are indicative of failure to revisit rates more frequently.  Most likely, the company didn’t get any real increases for 10-years and need those increases now.

In an earlier article I posted here (What’s Driving High Utility Rates?) I discussed that growth, or lack thereof,  was one of the key drivers to the need for higher utility rates.  Phoenix has been one of the highest growth areas in the US over the last 10 years.  That growth has come to a near standstill of late and the rate case has been filed coincidentally.  It’s no coincidence.

Stay tuned for more.  We hope to follow this case and publish a few more tidbits as they come out.

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