After more than a week of hearings before the Arizona Corporation Commission, Chaparral City Water Company will now wait until May for a decision on its request for a water rate increase.

EPCOR, the parent company for CCWC, filed for a proposed rate hike in April of 2013, which worked out to about 35 percent for customers.

The hearings began on Feb. 18 before hearing officer Teena Jibilian, administrative law judge. Among the first to be called for testimony were residents of Fountain Hills who wished to speak.

“I do not even know where to begin in expressing professionally and politely how indignant I am about this rate increase,” said resident Lina Bellenir.

She said her frustration was added to by having the Town of Fountain Hills and the Residential Utility Consumer Office (RUCO) support an increase, although less than the one proposed.

The Town Council voted to support a recommendation by Town Manager Ken Buchanan to support the ACC staff proposal for an increase of about 12 percent.

Bellenir noted that in a presentation to citizens and the Town Council last year EPCOR Vice President for Corporate Services Jim McKee cited a need for significant infrastructure repair.

“We felt the system was in good condition; we’ve had a few surprises,” Bellenir quoted McKee as saying. “Yet never offering adequate documentation…just stating ‘we felt.’

“My question to Mr. McKee then and to each of you now (is), ‘Why does the consumer have to pay because EPCOR did not perform their due diligence prior to purchasing Chaparral?’

“EPCOR’s requested 34.8 percent rate increase is outrageous, ludicrous and greedy at best.”

Bellenir noted that her average monthly water bill dating back 11 years to 2003 has been $177.59.

Bellenir was the only resident to speak during the hearing before discussion turned to the intricate calculations that go into the considerations.

Michael Hallam, an attorney representing CCWC, told Jibilian that it is important that the rate case be viewed in the context of the purchase of the company in 2010.

“EPCOR purchased a system in need of repair and invested $4 million in the plant,” Hallam said. “The ACC has agreed that should be included in the rate case.”

The discussion by the parties has boiled down to three key points: capital structure, depreciation structuring and a sustainable water surcharge.

Debt (lenders) and equity (EPCOR) make up the components of the capital structure. According to McKee, at this time the ratio is approximately 85 percent equity and 15 percent debt.

ACC staff, however, is recommending a 60/40 ratio. While this will reduce rates to customers, it will be unfavorable to EPCOR’s ability to fund needed infrastructure replacement, the company argues.

McKee said EPCOR does support reducing the equity portion of the capital structure and believes the company should be allowed the opportunity to develop a plan to pay down investment and replace it with debt financing.

Such a plan would require the support of the ACC and RUCO.

The recovery of investment used to purchase a utility to provide service is usually through depreciation.

The method of how to group the various assets to be depreciated reaching a balance in how long the various assets last before replacement is needed, EPCOR says.

ACC staff and RUCO have chosen a group methodology setting the value of assets near zero with no further depreciation to be recovered at the time rates are set.

According to McKee, if this is used the company will be unable to recover the cost of assets added between rate cases.

“Although the action… will reduce the rates to customers, it will also affect the ability of the company to replace the assets necessary to address old infrastructure in need of replacement,” McKee said.

EPCOR is also requesting a surcharge used for recovery of actual water supply costs, in this case from the Central Arizona Project (CAP).

“The surcharge will reconcile actual costs to those approved in a rate proceeding with the water rates being adjusted annually to recover or reimburse the difference,” McKee said.

“The cost of the water supplied to Fountain Hills via CAP is projected to increase in the future to address increasing costs. To limit the size and frequency of future rate increases to customers, it was proposed that the annual increases or decreases in the cost of water supplied be recovered annually.

“Although this would result in small annual increases in water rates, our customers have requested smaller annual increases rather than large infrequent increases to increase the predictability of rate increases and assist with budgeting.”

A decision from the ACC regarding the rate increase is expected by the end of May, and any increases are likely to take effect shortly after that.