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Arizona Corporation Commission Making Progress on New Utility Policies Affecting Water Loss, CIAC and CC&Ns

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by Michael W. Patten

The Arizona Corporation Commission is addressing new policies that could affect a variety of regulated utilities in Arizona in the near future. The policies are intended to provide guidance on issues that are often points of contention in proceedings at the Commission.

The Commission has opened three separate dockets and has been conducting workshops in which utilities, the Residential Utility Consumer Office and Commission Staff have presented information on the history of the issues and possible approaches to address the issues. It is anticipated that the Commission will adopt policies at the end of the process.

The three dockets currently underway are:

  1. Commission Investigation into the Setting and Subsequent Extension of Compliance Deadlines Associated with Certificates of Convenience and Necessity (“CC&Ns”) (Docket No. WS-00000A-17-0094)

This docket arose out of numerous requests to extend deadlines of compliance requirements set forth in Commission orders granting CC&Ns. For the most part, the extension requests are the lingering result of the economic slowdown that delayed construction of developments needing utility service.  Recently, the Commission had been granting ten year extensions, but the Commission appears concerned such extensions may be too long, depending on circumstances.  However, many compliance conditions are capital intensive and cannot be justified until the development is almost ready to begin construction.  Moreover, CC&Ns are critical for developments to proceed and often are a precursor to obtaining other entitlements.  It will be interesting to see how the Commission balances the interests on the issue.

  1. In the matter of the Commission’s Investigation into Current Regulatory Treatment of Contributions in Aid of Construction (“CIAC”) to Ensure Fairness to Ratepayers and Necessary Finances for Companies (Docket No. AU-00000A-17-0151)

Despite the broad title, this docket has focused on how to treat long-term loan surcharge principal payments. This is a particularly important issue for small water companies that need loans to improve infrastructure, but can only afford loan payments if the cost of the payments are immediately passed on to customers through a surcharge.  If such payments funded by a surcharge are treated as CIAC, the utility faces a Catch-22 of never increasing its rate base and never generating income that could fund future loans.  The Commission has not treated such loans as CIAC provided the utility comes in for a rate case within five years and the Commission is reviewing that approach – and other approaches in this docket.

  1. In the matter of the Commission’s Investigation into Improving the Commission’s Water Loss Policy for the Betterment of Water Conservation (Docket No. W-00000A-17-0152)

Water loss is the production and delivery of utility water service can impact costs to consumers. The Commission has typically targeted 10% water loss in reviewing the used and useful infrastructure during a rate case.  However, there are often disputes over how to calculate that water loss, which can be greatly impacted by amount of storage, the amount of distribution facilities per customer and location of production and usage measurements.  This docket is focused on setting a methodology that more accurately determines actual water loss.

To date, the Commission has conducted one workshop in each of the dockets. A second workshop will be conducted in each docket in late July and early August.  It is likely that subsequent workshops will be conducted in the fall of 2017 to finalize appropriate policies on these issues.