ANTHEM
– The hearing to decide if the state Corporation Commission
will approve a substantial
rate increase for Anthem water and sewer services began
last week.
At
the onset of the hearing, Commissioner Kristin Mayes asked
to have the original asset purchase agreement between
Del Webb Corp. and Citizens Utilities Co., the original
Anthem provider later purchased by Arizona American Water,
placed into the record. She also asked for a representative
from Del Webb/ Pulte Homes to appear at the hearing for
questioning.
“What
notice since 1999 did homeowners have of the balloon payment
(due Del Webb/Pulte
from AAW)? I personally would be interested in asking
questions,” Mayes said.
One
of Mayes’ staff later in the week told The Desert Advocate
the commissioner was going to
insist on the developer appearing to testify. But as the
week progressed, efforts to get Pulte to come to the hearing
produced no immediate results.
Mayes
said she questions whether the six‑ and 10‑year
amortization periods for AAW’s repayment to Del Webb/Pulte
for infrastructure costs advanced by the developer is
fair.
“Could
this be extended to 20 to 30 years instead?” Mayes asked.
Commissioner
Bill Mundell said he wants someone to testify about the
relationship between the Anthem Community Council and
the developer. The council has intervened in the rate
case on behalf of residents. However, five of the nine‑member
council board are Pulte employees.
John
Kaites, attorney for the council, said the developer signed
a waiver that allows council
attorneys to fully represent Anthem residents, should
a situation arise where there is a
conflict in representation adverse to the developer.
Mundell
asked that any sales prospectus given to Anthem home buyers
be made available to the commission during the hearing.
“I
do not believe anyone in Anthem knew about this balloon
payment before this year,” Anthem resident Pat Henson
told the commissioners.
Although
the bulk of infrastructure repayments are due as Anthem
reaches build‑out, the current rate hike is based
on Test Year 2005 and does not reflect the largest refund
payment still due, referred to as the “balloon payment.”
However, the current rate case does reflect substantial
refunds already paid.
AAW
in its application stated the company will have to file
for at least one more rate increase soon after the current
case is decided.
Former
AAW president Ray Jones, who testified on behalf of the
water company, said the amount of money AAW would have
to refund was not known at the time the company signed
the
Citizens Utilities purchase agreement. Later in the week,
Jones testified that Del Webb/ Pulte expects a 100‑percent
refund of $100.774 million for advances made.
“...
the amount coming due in 2007, the balloon payment, at
what point was that known–measurable?” Mayes asked.
In
the final phase of construction around 2002, Jones responded.
“Was
there any discussion by the company about how difficult
this would be on the customers?” Mayes continued. “Any
discussion the water company might impose a hookup fee
on the developer” to defray some of the infrastructure
costs?
Jones
said he did not recall Del Webb/Pulte considering a hookup
fee during those years and that the developer thought
it was “OK” to invest in the infrastructure and have customers
pay for it in their rates.
Commissioner
Gary Pierce noted that a developer doesn’t always pass
on to customers the full cost of infrastructure, but that
it depends on the market.
According
to Jones, the concept of the developer paying such hookup
fees is recent.
“We
were trying to do what made some sense ... I can’t offer
excuses. A rate increase will result in a healthy infrastructure,”
Jones said.
Pierce
commented that hookup fees would have affected the developer’s
profit.
“It
appears intentional – they (the developer) knew this day
was coming and here we are,” Pierce said.
“If
the commission decided that certain (re)payments are not
appropriate, would there be any way for AAW to reach a
settlement with its predecessors?” asked commission staff
attorney Maureen Scott.
“(There
would be) no contract obligation,” Jones responded.
Jones
said he did not recall “a big hit (rate hike) at the end
but more of a series of hits.”
“What
changed the equation?” Mayes asked.
Jones
answered: the size of the community at build‑out
decreased and the community reached build‑out sooner
than expected. A rapid community build‑out means
lower depreciation on infrastructure assets.
Anthem
initially was planned to be completed by 2014.
“So
the developer gets the time value of his money ... and
the ratepayer gets a higher tab,” Mayes commented.
Jones
testified the company did not make any disclosures to
the commission or customers about the large payments toward
the end of build‑out with respect to planned rate
increases.
Administrative
Law Judge Teena Wolfe asked if the commission ever specifically
approved this methodology, to which Jones answered it
did not.
