Far West asks for smaller rate hike

Far West Water & Sewer is now asking the Arizona Corporation Commission to approve a sewer bill of about $58 per month.

The private utility serving Foothills residents had previously sought to increase its residential customers' sewer bills from $21.75 per month to $62.65, claiming poor financial health. Following analyses by the state, Far West amended its request to $57.77 per month while holding steady on the prompt need for more cash to relieve the company's fiscal struggles.

Corporation Commission staff released a recommendation in February suggesting that Far West be allowed to collect significantly more from its customers – $55.70 per month – but only after paying off several debts and coming into full compliance with the consent judgment issued by the Arizona Department of Environmental Quality in 2010 for numerous water and air quality violations.

In testimony to the Corporation Commission docketed this week, Far West consultant Ray Jones said these preconditions are unworkable.

“First and foremost, the Company acknowledges that each of the items addressed in Staff's recommendations should be resolved and that it is the Company's responsibility to resolve them. The Company would like nothing more than to be able to report that they have all been resolved,” he wrote. “However, the simple truth is that the Company doesn't have the resources to resolve the issues.”

Jones said Far West has been struggling financially for years, following more than $20 million in plant improvements, the Corporation Commission's last denial of a rate increase in 2009, the commission's determination that same year that the wastewater division was insolvent, and the company's ability to maintain sewer operations only through subsidies from its water division, additional short-term borrowings, and capital contributions.

“Placing preconditions to the implementation of rates to be approved in this proceeding do not change these facts. They only make the situation worse,” Jones said. “There is no easy answer. The only thing that will change the situation is allowing the Company to begin earning a return on its substantial investment in wastewater facilities.”

Jones added that in response to the proposed conditions, Far West has initiated contact with its creditors in an effort to arrange payment plans with the goal of eventually offering some specific post-rate implementation alternatives.

Jones also rejected ACC executive consultant Gerald Becker's suggestion that a rate increase be phased in in halves as not “feasible considering its deteriorating financial condition.”

He did accept recommendations to cut out some plant, late fee, working capital and management fees from the rate base, although he argued that some should still be considered.

One of his disagreements was over removing equipment now at the Seasons wastewater treatment plant because it wasn't in service during the state's engineering review. Jones said it was only temporarily not in service because it was being relocated from the Del Oro treatment plant, but had been in service for five years prior and it will be back in full service within a few weeks.

“This is simply unfair. Far West has already endured more than its fair share of regulatory lag with respect to this equipment,” he wrote. “Far West's customers have received substantial benefit from this equipment in the past and will continue to receive benefit from the equipment on a going forward basis. As such, the cost of this equipment should be included in rate base and rates.”

He also said management fees for Andy Capestro, husband to Far West co-owner Paula Capestro and a contracted manager for the company, should be at least partially included in the rate base because Capestro's services have not been duplicative to a prior construction management firm, and they have been the full-time equivalent to a vice president of operations. To disallow them “would be unfair and unreasonable,” but he did say that half could be eliminated as a compromise.

While most of Jones' concessions were based on analysis by ACC's staffers, he ripped the contributions of financial and engineering experts from the Residential Utility Consumer Office, a state government-affiliated agency that represents utility customers in rate case proceedings.

He was especially critical of engineer Royce Duffett's work. He said the engineer should have evaluated the wastewater treatment plants individually instead of on a system-wide basis, that he used incorrect design capacity and that he analyzed the case using an “arbitrary” 10 percent for future growth instead of using a larger five-year growth projection (Duffett's method assumes a growth of about 700 new customers. Far West estimates between 1,100 and 1,200 new customers between 2012 and 2016).

“Each of these issues regarding Mr. Duffett's analysis are significant flaws and each flaw, standing alone, is sufficient to cast serious doubt on Mr. Duffett's conclusions regarding the used and usefulness of Far West's wastewater treatment plants,” he wrote. “The cumulative flaws are fatal to Mr. Duffett's conclusions. His testimony should be given no weight.”

The commissioners have not made any decisions on the matter and will not hold hearings on the rate issue until April.