Farmers Water rate increase moving ahead

State officials support a rate increase of 29 percent for Farmers Water Co., which is requesting a 34.8 percent increase, and say the main dispute is whether customers should pay federal and state income taxes for company shareholders.

Farmers Water officials and consultants appeared Wednesday before Arizona Corporation Commission Administrative Law Judge Jane L. Rodda in Tucson and laid out several reasons for the rate hike request. No members of the public spoke.

Reasons for the rate request include that the last rate hike was granted by the ACC in 2001; the utility has had growth of more than 100 percent since then; and because of that growth, the utility had to borrow money to pay for expansion, maintenance and operating expenses from its parent company, Farmers Investment Co. (FICO).

Farmers’ accounting consultant Tom Bourassa of Phoenix said the company has a negative rate base, meaning the value of its pipes, pumps and other capital equipment is negative because Farmers Water owes FICO more than the physical plant is worth.

The water utility has filed documents with the ACC showing that it lost $68,000 during the year ending Sept. 30, 2007, the “test year” used as a basis for the request.

The utility serves 2,240 customers in Sahuarita, Continental, Sahuarita Highlands and Santa Rita Springs in Green Valley, compared to fewer than 1,000 customers in 2001. The average rate increase, would be between $74 and $89 a year, according to documents filed with the ACC, though homeowners would face a slightly smaller increase. The vast majority of customers are residences, though there are a few businesses and contractors that use larger volumes of amounts and would face proportionally larger increases.

The company request for a 34.82 percent increase would yield new revenue of $196,000, for a total of $759,000 a year. ACC staff is recommending a 29.04 percent increase, which would generate $163,000 in new revenue for $726,000 a year.

Under questioning by Rodda and Phoenix lawyer Robert Metli of the Snell & Wilmer law firm, representing Farmers Water, Bourassa and ACC staff agreed that the main difference between the utility and ACC positions was whether the company could charge ratepayers for the $33,000 in state and federal income taxes paid by the utility’s 35 shareholders. The utility is a 100 percent owned by FICO.

The individual shareholders were not named, but Bourassa said that four of them are employees or on the board of directors of Farmers Water or FICO. He said that the water company was organized in the form of a subchapter S corporation in which such tax liabilities are treated as expenses to be passed through to customers. When Rodda asked if any other utilities currently seeking rate increases also are seeking to charge customers for taxes, Bourassa said, “Rancho Sahuarita Water Company,” the former name of the Sahuarita Water Company, which serves that master-planned development and has filed a 63 percent rate increase request with the ACC.

ACC staff said in the hearing and in documents filed before the hearing that a shareholder’s individual income tax liability should not be the burden of ratepayers.

The company has authority to charge deposits to customers such as home builders, for large temporary meters and wants to reduce the interest it pays on deposits to 2 percent from 6 percent. Rodda next will issue a Recommended Order and Opinion based on the hearing and documents filed by the company and ACC staff. Then the case will go before the five-member corporation commission for a resolution.

pfranchine@gvnews.com | 547-9738