149884967.1 

INDEX OF EXHIBITS 

EXHIBIT ARIZONA CORPORATION COMMISSION DOCUMENT 

1. Decision No. 71854 (Aug. 25, 2010), Docket No. WS-02987A-08-0180 

2. Decision No. 72579 (Sep. 15, 2011), Docket No. WS-02987A-08-0180 

3. Decision No. 73992 (Jul. 16, 2013), Docket No. WS-02987A-08-0180 

4. Formal Complaint of Delton Munday, et al. (Jun. 19, 2017), Docket No. 

WS-02987A-17-0192 (attachments omitted) 

5. Johnson Utilities, LLC and Johnson International, Inc.’s Motion to 

Dismiss (Jul. 10, 2017), Docket No. WS-02987A-17-0192 

6. ACC Staff’s Motion to Dismiss (Jul. 10, 2017), Docket No. WS02987A-17-0192 

7. Johnson Utilities, LLC and Johnson International, Inc.’s Reply in 

Support of Motion to Dismiss (Jul. 26, 2017), Docket No. WS-02987A17-0192 

8. Decision No. 76467 (Nov. 17, 2017), Docket No. WS-02987A-17-0192 

9. Application of Johnson Utilities, LLC, for Determination of Fair Value 

of Its Water and Wastewater Utility Plant and Property, For Increases in 

Its Rates and Charges for Water and Wastewater Utility Service, and for 

Related Approvals (Dec. 29, 2017), Docket No. WS-02987A-17-0392 

(attachments omitted) 

10. Decision No. 76889 (Sep. 20, 2018), Docket No. WS-02987A-17-0392 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 1 of 134
EXHIBIT 1 

EXHIBIT 1 

EXHIBIT 1 

EXHIBIT 1

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 2 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

2:3 

24 

25 

26 

27 

28 

111,I111 1n 

BEFORE THE ARIZONA CORPORATION COMMISSION 

COMMISSIONERS 

KRISTIN K. MAYES - Chairman 

GARY PIERCE 

PAUL NEWMAN 

SANDRA D. KENNEDY 

BOB STUMP 

Arizona Corporation Commission 

DOCKETED 

AUG 2 5 2010 

DOCKETED DY 

IN THE MATTER OF THE APPLICATION OF 

JOHNSON UTILITIES, L.L.C., DBA JOHNSON 

UTILITIES COMPANY FOR AN INCREASE IN 

ITS WATER AND WASTEWATER RATES FOR 

CUSTOMERS WITHIN PINAL COUNTY, 

ARIZONA. 

DATES OF HEARING: 

DOCKET NO. WS-02987A-08-0180 

DECISION NO. 71854

OPINION AND ORDER 

January 27, February 26 (Procedural Conferences); 

April 20, (Pre-Hearing Conference); April 23, 24, 27 

(Hearing); July 23 (Procedural Conference/Oral 

Arguments); September 21, 24, 25, October 1, 2, 5, 6, 

and 7, 2009 (Hearing). 

PLACE OF HEARING: Phoenix, Arizona 

ADMINISTRATIVE LAW JUDGE: Teena Wolfe 

APPEARANCES: Mr. Jeffrey W. Crockett, Mr. Bradley S. Carroll and 

Mr. Robert Metli, SNELL & WILMER, on behalf of 

Johnson Utilities, LLC; 

Mr. Craig A. Marks, CRAIG A. MARKS, PLC, on 

behalf of Swing First Golf, LLC; 

Ms. Jodi Jerich, Director, Mr. Daniel Pozefsky, Chief 

Counsel and Ms. Michelle Wood, Staff Attorney, on 

behalf of the Residential Utility Consumer Office; 

Mr. James E. Mannato, Town Attorney, on behalf of 

the Town of Florence; and 

Ms. Nancy Scott, Ms. Ayesha Vohra, and Ms. Robin 

Mitchell, Staff Attorneys, Legal Division, on behalf of 

the Utilities Division of the Arizona Corporation 

Commission. 

sitwolfe/johnsonuti1/080180o&o 1 

4

r

H ill lllllllllllllllllllllll 0lll0lll0II)0lHI Wllllqilli |

p 4

€' 18*

1

2

3

BEFORE THE ARIZONA CORPORATION c0MM1ss1on

Arizona Com0rauoo Commission

DOCKETED

COMMISSIONERS

4

5

6

7

KRISTIN K. MAYES - Chairman

GARY PIERCE

PAUL NEWMAN

SANDRA D. KENNEDY

BOB STUMP

AUG 2 5 2010

DOCKETE8 BY

4 Y'T¢"1!"£"s\:=\»4rF¢!\:a1.g=§»v ' * * ' " * * ~ ¢ l = i 4 r 1 .---

DOCKET NO. WS-02987A~08-0180

DECISION NO. 71854

TN THE MATTER OF THE APPLICATION OF

JOHNSON UTILITIES, L.L.C., DBA JOHNSON

UTILITIES COMPANY FOR AN INCREASE IN

ITS WATER AND WASTEWATER RATES FOR

CUSTOMERS WITHIN PINAL COUNTY,

ARIZONA. OPINION AND ORDER

8

9

10

1 l

12 DATES OF HEARING:

13

January 27, February 26 (Procedural Conferences),

April 20, (Pre-Hearing Conference), April 23, 24, 27

(Hearing), July 23 (Procedural Conference/Oral

Arguments), September 21, 24, 25, October l, 2, 5, 6,

and 7, 2009 (Hearing).

Phoenix, Arizona

14

15 PLACE OF HEARING:

6 I ADMINISTRATIVE LAW JUDGE:

l

APPEARANCES:

17

Teena Wolfe

Mr. Jeffrey W. Crockett, Mr. Bradley S. Carroll and

Mr. Robert Metli, SNELL & WILMER, on behalf of

Johnson Utilities, LLC;

18

19

Mr. Craig A. Marks, CRAIG A. MARKS, PLC, on

behalf of Swing First Golf, LLC,

20 Ms. Jodi Jericho, Director, Mr. Daniel Pozefsky, Chief

Counsel and Ms. Michelle Wood, Staff Attorney, on

21 behalf of the Residential Utility Consumer Office;

22

it

Mr. James E. Mannato, Town Attorney, on behalf of

the Town of Florence and

23

24

25

Ms. Nancy Scott, Ms. Ayes fa Vohra, and Ms. Robin

Mitchell, Staff Attorneys, Legal Division, on behalf of

the Utilities Division of the Arizona Corporation

Commission.

26

27

28

s!two|fe/Johnsonutil/080I 80o&o 1

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 3 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

TABLE OF CONTENTS 

INTRODUCTION 2 

APPLICATION 3 

RATE BASE 4 

Plant in Service 4 

Inadequately Supported Plant 5 

AIAC and CIAC Related to Unsupported Plant 9 

Post-Test Year Plant 10 

Plant Not Used and Useful 14 

Rickee Main 15 

Magma Sewer Force Main 16 

Precision WWTP 16 

Excess Capacity 17 

Anthem System Well and Storage Capacity 17 

Anthem System Well Capacity 18 

Storage Capacity 20 

San Tan WWTP 22 

Affiliate Profit 23 

Affiliate/Related party Constructed Plant in Service 24 

Affiliate/Related Party Ownership 26 

Reasonableness of Affiliate/Related Party Transactions 28 

Affiliate/Related Party Profit Adjustment 30 

Affiliate/Related Party Transactions 32

Contributions in Aid of Construction ("CIAC") — Unexpended Hook-up Fees ("HUF') 33 

Fair Value Rate Base Summary 35 

OPERATING INCOME ISSUES 35 

Central Arizona Groundwater Replenishment District ("CAGRD") 35 

Staff Proposed Adjustor and Conditions 38 

Company Arguments Against Conditions 39 

Condition No. 3 39 

Condition No. 4.. 40 

Condition No. 5 40 

Condition No. 7 41 

Condition No. 8 41 

RUCO Proposed Expense Adjustment and Opposition to Adjustor 42 

Conclusion 43 

Rate Case Expense 44 

Income Tax Expense 45 

Operating Income Summary 47 

COST OF CAPITAL/OPERATING MARGIN 47 

Company's Position 47 

RUCO's Position 48 

Staffs Position 49 

ii DECISION NO. 71854 

DOCKET no. WS-02987A-08-0180 1 I

1

TABLE OF CQNTENTS

2

3

4

5

6

7

8

9

10

11

12

13

14 1

16

17 I OPERATI

18

19

20

21

22

23

24

25

26

27

AIAC and CIAC Related to Unsupported Plant 9

3 Ur 14

U I WTP 16

• '7

• lllo¢lQQlIlol»IQmio90lo0o0009¢ll9llluls0l»l0l¢o¢llla1l00IGLDQQoIoQIcQIIoOQQQIIIQUlQ49lQol0»»»»»!»¢¢III9l!¢l 'J

• o "1 I

AfHl1ate/Related party Constructed Plant in f>e1v1ce 24

Affillate/Related Party Ownershlp 26

Reasonableness of Affillate/Related 1 arty Transactlons ,.8

Affil1ate/Related Party Profit Adjustment 30

15 Aftihate/Related Party Transactions 32

I Contrl utlons in AL o Constructlon ( CIA • • | • • cc so ac v *of '1 ) -- Unexpen e of -up hes ( HIJI* ) 3.9

| I

nooouoao90999;»oasno|ouacnouo»»¢¢u¢»¢a|»»|o»»»¢9 sue:so|900|¢»9¢\\||»u¢¢o\o»|eo|¢¢nro¢¢loo¢¢t

C l A I G d R 1 I he D' 9 "CAFRD" 35

\ • •

. 0suoQ»lllloolo¢¢»»0¢on¢»l¢nasoonsooyugnloloioosnon»940l90000oll»§¢»o»loolno¢lll¢»o»ll»ll\o»IO

. 0100909»ouo||\|;¢¢»|o»o¢»o»09¢|aoueoaa9010944m101nine;nceuai100|01900s|»o|»¢o»¢¢0»1»OO¢lll¢Ol

• •

RUCO Proposed Expense Adjustment and Oppos1t1011 to Adjustor......................... 42

"1 I

:ooo 99000009lloss;uuaosaanauounoaoaprusaonounscoot»oo¢uo|¢u»|en.»|a¢\|o»0|u¢o|a|0¢0»»»»»»»»qpunuuosualboaaotiu

sonol008uoolsoooaeoascnoalosonuaosuuoes\c¢¢lo¢0l\lll¢¢o»aall»»loan1oooonoouuilllo»lsoalo¢o4»ocQI¢

COST OF CAPITAL/OPERATING MARGIN 47

RUCO' | |

28

ii DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 4 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Conclusion 49 

AUTHORIZED INCREASE/DECREASE 50 

Water Division 50 

Wastewater Division 50 

RATE DESIGN 51 

OTHER ISSUES 51 

Discontinuance of Hook-Up Fees . 51 

Water Loss for Johnson Ranch System 52 

ADEQ Compliance 53 

Swing First Golf's Recommendations 56 

FINDINGS OF FACT 58 

CONCLUSIONS OF LAW 70 

ORDER 71 

ii DECISION NO, 71854 

DOCKET NO. WS-02987A-08-0180

1

2

3

4

5

6

7

8

C 1 * Nlo¢IIoll¢lloaooQnol¢l¢lo»o¢o»¢ll»¢tl¢»1l¢§¢¢»l»»o»:ucuncsolos:I909090soon;canon;vnsanlsaialolussonsnina:»ocl¢»ollolvl0l

W e • * Q9ggnn994:0snailooaonsuoqaaoonnsugpgg 94449490lvnovun09QueeninsaneQuoin|1090\¢»oo»a||¢o|o»»»»us¢o»¢|»»lou|0o¢|»oo;;00uo

.1 • * l»olno¢ooa»ll\a¢¢unolooa¢l»¢l410000lvlluvv»o1unlo¢on¢»o1assil0199iiioba0000linacl9090l\o¢¢!l0\ll¢h\\¢0t¢l»I0l 5

cucl09l»»o»cal¢»»onooa»lll»»lDinoloasis;vo»»tu\!lolloo¢tlo»¢u90994ouilcooooooosuil0l\\IQ¢oonionsl\¢0lo»¢ulllo¢olllo

¢|¢¢annieoloo»ocancllonsc90000000000vovbloso19991499909994|409ulnobaoatlQuintoluis;puqaasoah»¢o¢oa|\¢»|¢»»¢0¢s|

I •

Dlscontmuance O Hook-U Fees intl44lslll\luuv»blvccuuuonQuoinsoolol»»¢\»»»olo¢i»lotsnlctliontitvlns»ol»»lo»ll»l¢1o¢»¢l 51

S o9Q»uo|uv0no19400900Q9o|a90||IQuaolnoonasooitobaoaiolou|0909»o|eIIool\0oollu¢lol|

lllétooo00olU00ItItooOIuIIu00viu0990IIlol!Io!IcIoIG00lu009IQiolllvI9Ip090Io!I0otoo0009ll¢0t§\Q\oulllllo\\u0olin 5

ou:p9s000000490441900040¢911|uu1a|o»¢0no»rainsonlt999900ln11¢a¢|ooc|||.»»»|oa|0|»¢¢

¢lg¢¢»Ool»»llo¢¢¢¢ll\l»nll¢¢l¢lusuIQQucvcooQoll;¢up1quc¢»»¢9»»¢\obaaoo000990990a¢s1»oIscoboiotilttioqunot

¢¢I|¢010|»ov¢»:lolvolv0991110100Qotiouou1cuuioooa11|\¢aooaonb01i040901019|o|¢0¢1|»o»ocu¢\g¢0¢0¢¢

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

ii DECISION NG. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 5 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

)3 

24 

25 

26 

27 

28 

BY THE COMMISSION: 

I. INTRODUCTION 

On March 31, 2008, Johnson Utilities, LLC, dba Johnson Utilities Company ("Johnson," 

"Johnson Utilities," or "Company") filed with the Arizona Corporation Commission 

("Commission") a rate application for its water and wastewater utility services, using a test year 

ended December 31, 2007. 

Johnson is a water and wastewater provider serving portions of Pinal County, Arizona. The 

Company served approximately 17,541 water customers and 21,525 wastewater customers during 

the test year. This is the first rate case filed by Johnson since the grant of its original Certificate of 

Convenience and Necessity ("CC&N") in Decision No. 60223 (May 27, 1997). Decision No. 60223 

set initial rates for the Company's water and wastewater services and ordered the Company to file a 

rate review 36 months from the date it first provided service to any customer. On October 25, 2005, 

in Decision Nos. 68235, 68236, and 68237, Johnson was ordered to file a rate case by May 1, 2007, 

using a 2006 test year. Prior to that date and on several occasions thereafter, the Company docketed 

filings requesting an extension of the filing date.' No action was taken on the requests for an 

extension of time. The Company filed the instant rate case on a date supported by the Commission's 

Utilities Division ("Staff').2

On August 1, 2008, following Staffs issuance of two Letters of Deficiency and filings by 

Johnson to address the items required to deem the application sufficient for processing, Staff filed a 

Letter of Sufficiency informing the Company that the application had met the Commission's 

sufficiency requirements and classifying the Company as a Class A utility. 

On August 15, 2008, a Rate Case Procedural Order was issued setting a hearing on the rate 

application to commence on April 23, 2009, and setting associated procedural deadlines, including 

public notice requirements. 

Intervention in this matter was granted to Swing First Golf, LLC ("Swing First"), the Town 

of Florence ("Florence"), and the Residential Utility Consumer Office ("RUCO"). The hearing 

See, e.g., December 6, 2007 Letter to Docket Control and accompanying attachments in Docket No. WS-02987A-04-

0288. 

2 See id. 

2 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 BY THE COMMISSION:

2 1. INTRODUCTION

3

4 "Johnson Utilities,"

On March 31, 2008, Johnson Utilities, LLC, alba Johnson Utilities Company ("Johnson,"

or "Company") filed with the Arizona Corporation Commission

5 ("Commission") a rate application for its water and wastewater utility services, using a test year

6 ended December 31, 2007.

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Johnson is a water and wastewater provider sewing portions of Pinal County, Arizona. The

Company served approximately 17,541 water eustomers and 21,525 wastewater customers during

the test year, This is the first rate case tiled by Johnson since the grant of its original Certificate of

Convenience and Necessity ("CC&N") in Decision No. 60223 (May 27, 1997). Decision No. 60223

set initial rates for the Company's water and wastewater services and ordered the Company to file a

rate review 36 months from the date it first provided service to any customer. On October 25, 2005,

in Decision Nos. 68235, 68236, and 68237, Johnson was ordered to tile a rate case by May 1, 2007,

using a 2006 test year. Prior to that date and on several occasions thereafter, the Company docketed

filings requesting an extension of the tiling date.l No action was taken on the requests for an

extension of time. The Company filed the instant rate case on a date supported by the Commission's

Utilities Division ("Staff"').2

On August 1, 2008, following Staff's issuance of two Letters of Deficiency and filings by

Johnson to address the items required to deem the application sufficient for processing, Staff filed a

Letter of Sufficiency informing the Company that the application had met the Commission's

sufficiency requirements and classifying the Company as a Class A utility.

On August 15, 2008, a Rate Case Procedural Order was issued selling a hearing on the rate

application to commence on April 23, 2009, and setting associated procedural deadlines, including

public notice requirements.

Intervention in this matter was granted to Swing First Golf, LLC ("Swing First"), the Town

26 of Florence ("Florence"), and the Residential Utility Consumer Office ("RUCO"). The hearing

27 t See, et., December 6, 2007 Letter to Docket Control and accompanying attachments in Docket No. WS-02987A-04-

0288.

28 2See id

2 DECISION NO. 71854

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 6 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

commenced as scheduled on April 23, 2009 before a duly authorized Administrative Law Judge of 

the Commission. The Company, Swing First, Florence, RUCO, and Staff appeared through counsel 

and cross-examined witnesses. The Company, Swing First, RUCO, and Staff presented evidence in 

the form of testimony and exhibits. At the hearing on April 27, 2009, an exhibit was presented 

which necessitated the suspension of the hearing schedule to allow time for briefing and oral 

argument on the admissibility and confidentiality of the exhibit. The hearing resumed on September 

21, 2009, and concluded on October 7, 2009. The parties filed post-hearing briefs, and the matter 

was taken under advisement pending the submission of a Recommended Opinion and Order 

("ROO") for the Commission's consideration. 

IL APPLICATION 

For its water division, Johnson is requesting a decrease in revenues of $2,879,022 from 

adjusted test year revenues of $13,172,899, or a decrease of 21.86 percent, for a total revenue 

requirement of $10,293,877.3 RUCO is recommending a decrease in revenues of $73,718 from 

adjusted test year revenues of $13,172,899, or a decrease of 0.56 percent, for a total revenue 

requirement of $13,099,181.4 Staff is recommending a decrease in revenues of $3,016,800 from 

adjusted test year revenues of $13,172,899, or a decrease of 22.90 percent, for a total revenue 

requirement of $10,156,099.5

For its wastewater division, Johnson is requesting an increase in revenues of $2,325,720 over 

adjusted test year revenues of $11,354,826, or an increase of 20.48 percent, for a total revenue 

requirement of $13,680,546.6 RUCO is recommending a decrease in revenues of $515,397, or a 

decrease of 4.54 percent, from adjusted test year revenues of $11,354,014, for a total revenue 

requirement of $10,838,617.7 Staff is recommending a revenue decrease of $895,100, or a decrease 

of 7.88 percent, from adjusted test year revenues of $11,354,014, for a total revenue requirement of 

3 Company Water Division Final Schedule A-1. 

4 RUCO Final Water Schedule SURR RLM-1. 

5 Staff Final Schedule JMM-W 1. 

6 Company Wastewater Division Final Schedule A-1. 

RUCO Final Wastewater Schedule SURR RLM-1. 

3 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1

2

'1

.D

4

c

J

6

7

8

9

commenced as scheduled on April 23, 2009 before a duly authorized Administrative Law Judge of

the Commission. The Company, Swing First, Florence, RUCO, and Staff appeared through counsel

and cross-examined witnesses. The Company, Swing First, RUCO, and Staff presented evidence in

the form of testimony and exhibits. At the hearing on April 27, 2009, an exhibit was presented

which necessitated the suspension of the hearing schedule to allow time for briefing and oral

argument on the admissibility and confidentiality of the exhibit. The hearing resumed on September

21, 2009, and concluded on October 7, 2009. The parties filed post-hearing briefs, and the matter

was taken Luider advisement pending the submission of a Recommended Opinion and Order

("ROO") for the Commission's consideration.

10 i 11. APPLICATION

12

13

14

15

16

For its water division, Johnson is requesting a decrease in revenues of $2,879,022 from

adjusted test year revenues of $13,172,899, or a decrease of 21.86 percent, for a total revenue

requirement of $10,293,877.3 RUC() is recommending a decrease in revenues of $73,718 from

adjusted test year revenues of $l3,172,899, or a decrease of 0.56 percent, for a total revenue

requirement of $13,099,181.4 Staff is recommending a decrease in revenues of $3,016,800 from

adjusted test year revenues of $13,172,899, or a decrease of 22.90 percent, for a total revenue

17

20

21

requirement of$10,l56,099.5

lg For its wastewater division, Johnson is requesting an increase in revenues of $2,325,720 over

.19 I adjusted test year revenues of $l 1,354,826, or an increase of 20.48 percent, for a total revenue

g requirement of $13,680,546.6 RUC() is recommending a decrease in revenues of $515,397, or a

! decrease of 4.54 percent, from adjusted test year revenues of $11,354,014, for a total revenue

I requirement of $10,838,617.7 Staff is recommending a revenue decrease of $895,100, or decrease

22

28

24

of 7.88 percent, from adjusted test year revenues of $1 1,354,014, for a total revenue requirement of

25

26

27

28

3 Company Water Division Final Schedule A-l.

4 Rico Final Water Schedule SURR RLM-1,

5 Staff Final Schedule JMM-Wl .

6 Company Wastewater Division Final Schedule A-l .

7 RUCO Final Wastewater Schedule SURR RLM-l .

3 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 7 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

$10,458,914.8 Florence requested that Staff's final schedules be adopted.9 Florence stated that 

having considered the testimony of each party's witnesses in this matter, Florence believes that 

Staff's recommendations will promote equity in the provision of water and wastewater treatment 

services rendered to the citizens of the Town of Florence.' ° 

III. RATE BASE 

For its water division, the Company proposes a fair value rate base ("FVRB"), which is its 

original cost rate base ("OCRB"),11 of $3,539,562.12 RUCO recommends a FVRB of 

($5,556,766).13 Staff recommends a FVRB of ($13,863,166).14

For its wastewater division, the Company proposes a FVRB of $17,479,735.15 RUCO

recommends a FVRB of $11,252,776.16 Staff recommends a FVRB of $136,562.17

A. Plant in Service 

For its water division, the Company proposes net utility plant in service of $69,177,566.18

RUCO recommends net utility plant in service of $68,574,918.19 Staff recommends net utility plant 

in service of $56,916,360.20

For its wastewater division, the Company proposes net utility plant in service of 

$115,454,166.21 RUCO recommends net utility plant in service of $109,672,733.22 Staff 

recommends net utility plant in service of $89,190,774.23

Staff Final Schedule JMM-WW1. 

9 Florence Br. at 1. 

'° Id. at 1-2. 

I ' The Company did not prepare schedules showing the elements of Reconstruction Cost New Rate Base 

("RCND"). 

12 Company Water Division Final Schedule A-1. 

13 RUCO Final Water Schedule SURR RLM-1. 

14 Staff Final Schedule JMM-Wl. 

b Company Wastewater Division Final Schedule A-1. 

16 RUCO Final Wastewater Schedule SURR RLM-1. 

17 Staff Final Schedule JMM-WW1. 

IS Company Water Division Final Schedule B-2, p. 1. 

19 RUCO Final Water Schedule SURR RLM-2. 

20 Staff Final Schedule JMM-W2. 

21 Company Wastewater Division Final Schedule B-2, p. 1. 

22 RUCO Final Wastewater Schedule SURR RLM-2. 

4 DECISION NO. 11854 

DOCKET no. WS-02987A-08-0180

1 $10,458,9l4.8 Florence requested that Staffs final schedules be adopted Florence stated that

2 having considered the testimony of each party's witnesses in this matter, Florence believes that

3 Staff's recommendations will promote equity in the provision of water and wastewater treatment

4 services rendered to the citizens of the Town of Florence.I0

5

111. RATE BASE

6

For its water division, the Company proposes a fair value rate base ("FVRB"), which is its

ll 7

original cost rate

8

| base ("oRB">," of $3,539,562.12

9 l($5,556,766).13 Staff recommends a FVRB of ($13,863,166)."'

RUCO recommends a FVRB of

10 For its wastewater division, the Company proposes a FVRB of $17,479,735.'5 RUC()

1 1 recommends a FVRB of $1 1,252,776.16 Staff recommends a FVRB of $136,562."

12 A. Plant in Service

13 For its water division, the Company proposes net utility plant in service of $69,177,566.18

14

RUC() recommends net utility plant in service of $68,574,918.19 Staff recommends net utility plant

15

16

in service of $56,916,360?0

17 For its wastewater division, the Company proposes net utility plant in service of

18 $115,454,166.2' RUCO recommends net utility plant in service of $109,672,733." Staff

19 recommends net utility plant in service of $89,190,'/74.23

20

21

22

23

24

25

26

27

28 l

8 Staff Final Schedule JMM~WWl .

9 Florence Br.at l.

10 /al.at 1-2.

it The Company did not prepare schedules showing the elements of Reconstruction Cost New Rate Base

("RCND").

12 Company Water Division Final Schedule A-1.

13 Rico Final Water Schedule SURR RLM-1.

14 staff Final Schedule Jim-wi .

l> Company Wastewater Division Final Schedule A-1 .

is RUCO Final Wastewater Schedule SURR RLM-1.

17 Staff Final Schedule JMM-WWI .

is Company Water Division Final Schedule B-2, p. l.

19 RUCO Final Water Schedule SURR RLM-2.

20 Staff Final Schedule JMM-W2.

ii Company Wastewater Division Final Schedule B-2, p. 1.

Hz RUCO Final Wastewater Schedule SURR RLM-2.

4 DECISION NO. -_ll854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 8 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

.3

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

25 

26 

27 

28 

I. Inadequately Supported Plant 

Staff is recommending a 10 percent disallowance of plant for inadequately supported plant 

costs, for a disallowance of $7,433,707 for the water division24 and $10,892,391 for the wastewater 

division.25 Staff calculated its proposed 10 percent disallowance on plant balances after first 

deducting the disallowances Staff recommended, as discussed further below, for plant not used and 

useful and for excess capacity plant.26 Staff also proposed corresponding adjustments to 

accumulated depreciation balances27 and depreciation expense.28 Staff's witness testified that rather 

than disallowing the entire cost of unsubstantiated plant, Staff believes a minimal 10 percent 

disallowance is warranted.29 RUCO took no position on the issue.30 The Company argued that the 

10 percent disallowance proposed by Staff is arbitrary, and that Staff should instead have identified 

and removed specific unsupported or inadequately supported plant costs.31

Staff stated that the Company failed to provide complete and authentic information in regard 

to its plant in accordance with Commission rules.'2 Staff's witness testified that for independent 

third-party transactions, complete and authentic information is source documentation that includes 

but is not limited to vendor invoices for materials, supplies and labor, contracts, cancelled checks, 

time sheets, and reliable accounting records.33 Staff stated that such information would allow 

identification of what was purchased and whether the item was allowable, and further, would allow 

23 Staff Final Schedule JMM-WW2. 

24 Staff Br. at 7; Staff Final Schedule JMM-W3, p. 1 of 2. 

25 Staff Br. at 7; Staff Final Schedule JMM-WW3, p. 1 of 2. 

26 Staff Br. at 7. 

27 Staff Final Schedules JMM-W9, JMM-WW9. 

28 Staff Br. at 7; Staff Final Schedules JMM-W22, JMM-WW20. 

29 Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 14. 

30 RUCO Br. at 4; RUCO Reply Br. at 1. 

Co. Br. at 6; Co. Reply Br. at 5-6, 17-18. 

32 Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 11. 

A.A.C. R14-2-610(D)(1) and A.A.C. R14-2-411(D)(1) each provide, in part: 

D. Accounts and records 

1. Each utility shall keep general and auxiliary accounting records reflecting the cost of its properties, operating 

income and expense, assets and liabilities, and all other accounting and statistical data necessary to give complete 

and authentic information as to its properties and operations. 

33 Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 11. 

5 DECISION NO. . 71854 

DOCKET NO. WS~02987A008-0180

1

1. Inadequately Supported Plant

2

Staff is recommending a 10 percent disallowance of plant for inadequately supported plant

'1

J costs, for a disallowance of $7,433,707 for the water division24 and $10,892,391 for the wastewater

. . . 25

4 division. Staff calculated its proposed 10 percent disallowance on plant balances after first

5 - u .

deducting the dlsallowanees Staff recommended, as dlscussed further below, for plant not used and

6

useful and for excess capacity plant.26

7

Staff also proposed corresponding adjustments to

accumulated depreciation ba1ances27 and depreciation expense. Staffs witness testified that rather

8

9

11

than disallowing the entire cost of unsubstantiated plant, Staff believes a minimal 10 percent

1 Q disallowance is warranted." RUCO took no position on the issue.30 The Company argued that the

I 10 percent disallowance proposed by Staff is arbitrary, and that Staff should instead have identified

12 and removed specific unsupported or inadequately supported plant costs.3l

13 Staff stated that the Company failed to provide complete and authentic information in regard

14

to its plant in accordance with Commission rules. Staffs witness testified that for independent

15

16

17

18

third-party transactions, complete and authentic information is source documentation that includes

l but is not limited to vendor invoices for materials, supplies and labor, contracts, cancelled checks,

time sheets, and reliable accounting records." Staff stated that such information would allow

19 identification of what was purchased and whether the item was allowable, and further, would allow

20

Z1

23

84

25

26

27

23 staff Final Schedule JMIVI-WW2.

24 Staff Br. at 7, Staff Final Schedule JMM-W3, p. 1 off.

22 l2> Staff Br. at 7, Staff Final Schedule JMM-WW3, p. l off.

be, Staff Br. at 7.

27 Staff Final Schedules JmM-w9, JMM-WW9.

28 Staff Br. at 7, Staff Final Schedules JMM-W22, JMM-WW20.

1 29 Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 14.

,I 30 RUCO Br. at 4, Rico Reply Br. at 1.

' Co. Br. at 6, Co. Reply Br, at 5-6, 17-18.

so Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at l i.

A.A.C. R14-2-6l0(D)(l) and A.A.C. R14-2-41 l(D)(l) each provide, in part:

D. Accounts and records

i. Each utility shall keep general and auxiliary accounting records reflecting the cost of its properties, operating

income and expense, assets and liabilities, and all other accounting and statistical data necessary to give complete

and authentic information as to its properties and operations.

33 Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at l l. 28

I

5 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 9 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

Staff to identify the amount of the purchase and whether the amount was reasonable.34 , Staff stated 

that in the case of transactions with affiliates, Staff would request source documents in addition to 

fair competitive bids.35 For Class A utilities such as Johnson, the Commission's Affiliate Interests 

Rules36 require the affiliate to provide all source documentation.37

The Company's witness asserted that Johnson "provided contracts, invoices, cancelled 

checks and/or main extension agreements which supported all but $885,064 of the $79,591,151 in 

plant in service."38 The Company argued that the documentation that the Company provided, line 

extension agreements, construction agreements, invoices, receipts and other supporting 

documentation, are the types of documentation that a utility would traditionally submit to 

substantiate plant costs.39 In the Company's rejoinder testimony, the Company provided a table 

representing a summary of its claimed plant costs listed by the type of supporting documentation 

provided to Staff.4° Staff did not dispute that the Company submitted voluminous documents, but 

34 Id 

" Id 

36 A.A.C. R14-2-801 et seq. 

37 Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 11. 

38 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 12. 

39 Co. Reply Br. at 6. 

40 Rejoinder Testimony of Company witness Thomas Bourassa (Exh. A-4) Vol. II at 13-14. The table the Company's 

witness provided for its water division is reproduced here, without footnotes, as it was reproduced on page 6 of the 

Company's c 

Type of Documentation Cost Booked 

LXA only $ 23,126,031 

LXA plus back-up $ 15,402,986 

Invoices $ 5,703,569 

Contracts, Cancelled Checks, Bank Statements $ 29,222,823 

Plant costs booked in earlier year but subsequently 

removed and not in test year rate base $ 81,087 

Total $ 73,536,516 

Total requested by Staff $ 74,421,579 

Missing documentation $ 885,064 

The Company's witness provided a similar table for its wastewater division in the Rejoinder Testimony of Company 

witness Thomas Bourassa (Exh. A-4) Vol. III at 12. The table the Company's witness provided for its wastewater 

division is reproduced here, without footnotes, as it was reproduced on page 18 of the Company's closing brief: 

6 DECISION NO. 71854 

Tvne of Documentation Cost Booked

LXA only $ 23,126,031

LXA plus back-up $ 15,402,986

Invoices $ 5,703,569

Contracts, Cancelled Checks, Bank Statements $ 29,222,823

Plant costs booked in earlier year but subsequently

removed and not in test year rate base $ 81,087

Total $ 73,536,516

Total requested by Staff $ 74,421,579

Missing documentation $ 885,064

DOCKET NO. WS-02987A-08-0180

\

1 Staff to identify the amount of the purchase and whether the amount was reasonable.34~ Staff stated

2 that in the case of transactions with affiliates, Staff would request source documents in addition to

3 fair competitive bids." For Class A utilities such as Johnson, the Commission's Affiliate Interests

4 Rules36 require the affiliate to provide all source documentation."

5

The Company's witness asserted that Johnson "provided contracts, invoices, cancelled

6

checks and/or main extension agreements which supported all but $885,064 of the $79,591,151 in

7

g

plant in service. The Company argued that the documentation that the Company provided, line 9338

9 extension agreements, construction agreements, invoices, receipts and other supporting

IU documentation, are the types of documentation that a utility would traditionally submit to

l l substantiate plant costs." In the Company's rejoinder testimony, the Company provided a table

12 representing a summary of its claimed plant costs listed by the type of supporting documentation

13

provided to Staff.4° Staff did not dispute that the Company submitted voluminous documents, but

14

15

16

I

17

18

19

34 la/

35 rd.

36 A.A.C. R14-2-801 et seq.

37 Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at I l.

is Rebuttal 'Testimony of Company witness Brian Tompsett (Exh. A-5) at 12.

39 Co. Reply Br. at 6.

40 Rejoinder Testimony of Company witness Thomas Bourassa (Exh. A-4) Vol. II at 13-14. The table the Company's

witness provided for its water division is reproduced here, without footnotes, as it was reproduced on page 6 of the

Company's closing brief:

20

21

22

23

24

25

26 The Company's witness provided a similar table for its wastewater division in the Rejoinder Testimony of Company

witness Thomas Bourassa (Exh. A-4) Vol. III at 12. The table the Company's witness provided for its wastewater

division is reproduced here, without footnotes, as it was reproduced on page 18 of the Company's closing brief: 27

28

6 DECISION NC). 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 10 of 134
1 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

stated that Staff's audit and analysis could not verify the Company's claims.41 Staff stated that its 

audit process was made difficult in this case by the Company's failure to keep its records in 

accordance with the National Association of Regulatory Utility Commissioners ("NARUC") 

Uniform System of Accounts ("USOA") and Commission rules.42 While the USOA requires plant 

records to be kept by plant account, the documentation the Company provided was not provided by 

plant account, but instead by project, which could span several years. Staff's witness testified that 

the Company provided canceled checks showing the amount that Johnson paid to its affiliate, as 

opposed to the actual cost of the asset, and did not provide any evidence that costs charged by the 

affiliates were supported by competitive bids.43 The Company also provided Staff with advances in 

aid of construction ("AIAC") agreements that pertained to the years 2000 to 2007, most of which 

were filed with the Commission in 2008.44 Staff stated that while most of the AIAC agreements are 

with affiliates of Johnson, indicating that nearly all of the Company's plant was constructed by 

affiliates, Johnson did not maintain complete invoices and records to support the transactions with its 

affiliates.45

Staff further stated that the difficulty presented by the Company's failure to properly keep its 

records was compounded by the lack of timeliness of the Company's response to Staffs data 

Type of Documentation Cost Booked 

LXA only $ 31,275,040 

LXA plus back-up $ 20,453,490 

Invoices $ 8,197,464 

Contracts, Cancelled Checks, Bank Statements $ 59,806,578 

Total $ 126,810,065 

Total requested by Staff $ 126,810,065 

Missing documentation $ 1,047,941 

41 Staff Br. at 7-8. 

421d, citing to Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 13. 

43 Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 12-13. 

44 Id. 

45 Staff Br. at 8; Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 11-12. 

7 DECISION NO. 71854 

Type of Documentation Cost Booked

LXA only $ 31,275,040

LXA plus back-up $ 20,453,490

Invoices $ 8,197,464

Contracts, Cancelled Checks, Bank Statements $ 59,806,578

Total $ 126,810,065

Total requested by Staff $ 126,810,065

Missing documentation 5 1,047,941

DOCKET NO. WS-02987A-08-0180

1 stated that Staff' s audit and analysis could not verify the Company's claims.41 Staff stated that its

2 audit process was made difficult in this case by the Company's failure to keep its records in

3 accordance with the National Association of Regulatory Utility Commissioners ("NARUC")

4 Uniform System of Accounts ("USOA") and Commission rules.42 While the USOA requires plant

5

records to be kept by plant account, the documentation the Company provided was not provided by

6

plant account, but instead by project, which could span several years . Staffs witness testified that

7

the Company provided canceled checks showing the amount that Johnson paid to its affiliate, as

8

9 opposed to the actual cost of the asset, and did not provide any evidence that costs charged by the

ll) I affiliates were supported by competitive bids.43 The Company also provided Staff with advances in

1 I aid of construction ("AIAC") agreements that pertained to the years 2000 to 2007, most of which

12 were filed with the Commission in 2008.44 Staff stated that while most of the AIAC agreements are

13 with affiliates of Johnson, indicating that nearly all of the Company's plant was constructed by

14

affiliates, Johnson did not maintain complete invoices and records to support the transactions with its

15

affiliates.

16

45

17

18 | records was compounded by the lack of timeliness of the Company's response to Staffs data

Staff further stated that the difficulty presented by the Company's failure to properly keep its

19

20

21

22

23

24

25

26

27

28

41 staff Br. at 7~8.

4'Id, citing to Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 13.

43 Direct Testimony of Staff witness Jeffrey Michlik (Exp. S-38) at 12-13.

44 ld.

45 Staff Br. at 8, Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at l 1-12.

7 DECISION NO. 7 1 8 5 4

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 11 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

requests.46 During the course of its plant audit, Staff sent the Company additional data requests 

attempting to obtain information that the Company was not providing to Staff, and some of the 

Company's responses were vague or non-responsive, which in turn, resulted in more data requests.47

In one instance, the Company supplemented its response to an August 2008 data request on April 21, 

2009, after Staff had filed its direct testimony, and 21 days before Staff's surrebuttal testimony was 

due.48 That supplemental data response included documents relating to water and sewer 

infrastructure for 17 subdivision projects.49 Staff's witness testified that despite the late provision of 

the documents, Staff did nevertheless attempt to review them.5°

The Company argued that Staff should have identified and removed each specific plant item 

that was unsupported by the documentation it provided, and that because Staff's proposed 

disallowance does not apply to specific plant items, the Company "never received sufficient 

information to challenge the disallowance or raise a reasonable defense regarding the plant costs that 

were disallowed."5' As Staff pointed out, however, this argument presupposes that it is the 

Commission's Staff that bears the burden of proof. Staff argues that its conclusion regarding the 

inadequacy of the Company's documentation is corroborated by a similar conclusion reached in the 

2006 audit report prepared by Henry & Horne.52

We believe the record does not support a specific disallowance figure for the water division, 

notwithstanding the Company's record keeping issues as discussed in this proceeding. Further, we 

46Staff Br, at 7-8, citing to Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 13. 

47 Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 12 and (Exh. S-45) at 14. 

48 Staff Br. at 8, citing to Hearing Exhibit S-46 (cover letter to copies of documents provided to support water and sewer 

infrastructure for 17 subdivision projects). 

49 Hearing Exhibit S-46 (cover letter to copies of documents provided to support water and sewer infrastructure for 17 

subdivision projects). 

59 Tr. at 1712-1713. 

51 Co. Br. at 6-7. 

52 Staff Reply Br. at 3. Staff's witness testified that the Henry & Home audit found the following: "Because of the 

inadequacy of accounting records for the years prior to 2006, we were unable to form an opinion regarding the amounts 

at which utility plant in service and accumulated depreciation are recorded in the accompanying balance sheet at 

December 31, 2006 (stated at $168,974,434 and $8,930,075 respectively), or the amount of depreciation expense from 

the year then ended (stated at $1,799,271)." Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 12-13 

and (Exh. S-45) at 15. 

8 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 requests.46 During the course of its plant audit, Staff sent the Company additional data requests

7 attempting to obtain information that the Company was not providing to Staff, and some of the

. . . . 47 3 Company's responses were vague or non-responslve, whlch in turn, resulted in more data requests.

4 In one instance, the Company supplemented its response to an August 2008 data request on April 21,

5 2009, after Staff had filed its direct testimony, and 21 days before Staffs surrebuttal testimony was

6 48 due. That supplemental data response included documents relating to water and sewer

7

infrastructure for 17 subdivision projects.49 Staffs witness testified that despite the late provision of

8

9 the documents, Staff did nevertheless attempt to review them.50

10

ll I that was unsupported by the documentation it provided, and that because Staffs proposed

12 I disallowance does not apply to specific plant items, the Company "never received sufficient

18 | information to challenge the disallowance or raise a reasonable defense regarding the plant costs that

The Company argued that Staff should have identified and removed each specific plant item

14

were disal1owed."5l As Staff pointed out, however, this argument presupposes that it is the

15

16

Commission's Staff that bears the burden of proof. Staff argues that its conclusion regarding the

17 inadequacy of the Company's documentation is corroborated by a similar conclusion reached in the

18 2006 audit report prepared by Henry & Horne."

19 We believe the record does not support a specific disallowance figure for the water division,

20 notwithstanding the Company's record keeping issues as discussed in this proceeding. Further, we

21

22

23

24

25

26

27

28

"Staff Br. at 7-8, citing to Direct Testimony of Staff witness Jeffrey' Michlik (Exh. S-38) at 13.

47 Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 12 and (Exp. S-45) at 14.

48 Staff Br. at 8, citing to Hearing Exhibit S-46 (cover letter to copies of documents provided to support water and sewer

infrastructure for i7 subdivision projects).

49 Hearing Exhibit S-46 (cover letter to copies of documents provided to support water and sewer infrastructure for 17

subdivision projects).

50 Tr. at 1712-1713.

51 Co. Br. at 6-7.

Hz Staff Reply Br. at 3. Staff's witness testified that the Henry & Horne audit found the following: "Because of the

inadequacy of accounting records for the years prior to 2006, we were unable to form an opinion regarding the amounts

at which utility plant in service and accumulated depreciation are recorded in the accompanying balance sheet at

December 3 l, 2006 (stated at $168,974,434 and $8,930,075 respectively), or the amount of depreciation expense from

the year then ended (stated at $1,799,27l)." Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 12-13

and (Exh. S-45) at 15.

8 DECISION NO, 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 12 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

believe it is in the ratepayers' best interests for the Company to keep its records in accord with 

NARUC USOA and Commission rules. While the Company argued that it made "herculean" efforts 

to supplement the documents requested by Staff,53 and that Staff, and not the Company, was at fault 

for failing to organize the disparate and incomplete pieces of information the Company eventually 

provided when prodded by Staff,54 it is clear from the record that the Company's records were 

inadequately kept, and could therefore not be produced in the manner necessary to demonstrate the 

actual cost of its properties in a form that provides complete and authentic information for public 

audit. It is incumbent upon all regulated utilities to keep the records necessary to demonstrate the 

actual cost of its properties in a form that provides complete and authentic information. The 

evidence in this case demonstrates that the Company has not complied with regulatory accounting 

requirements, and has not met its burden of proof regarding the actual cost of its properties. While 

additional evidence is not necessary to support a conclusion that the Company failed to meet its 

burden, we find that the conclusion of Henry & Home, an independent accounting firm employing 

certified public accountants, regarding the adequacy of the Company's accounting records, provides 

additional evidence corroborating Staff's position that the Company failed to maintain accounting 

records sufficient to provide complete and authentic information to support its plant additions.55 It is 

reasonable and in the public interest to require the Company to keep its records in accordance with 

the NARUC USOA and Commission rules in a manner that will support its filings with the 

Commission. 

a. AIAC and CIAC Related to Unsupported Plant 

The Company argued that Staff's adjustment for inadequately supported plant is one sided 

because it failed to consider corresponding adjustments associated with AIAC and Contributions in 

53 Co. Reply Br. at 8. 

54 See Co. Reply Br. at 8-16. 

55 Staff Reply Br. at 2. 

9 DECISION NO. 71854 

DOCKET no. WS-02987A-08-0180

1 believe it is in the ratepayers' best interests for the Company to keep its records in accord with

2 NARUC USOA and Commission rules. While the Company argued that it made "herculean" efforts

3 to supplement the documents requested by gaff," and that Staff, and not the Company, was at fault

4 for failing to organize the disparate and incomplete pieces of information the Company eventually

5 . . . provided when prodded by Staff,54 it is clear from the record that the Company's records were

6 inadequately kept, and could therefore not be produced in the manner necessary to demonstrate the

8 I actual cost of its properties in a form that provides complete and authentic information for public

| audit. It is incumbent upon all regulated utilities to keep the records necessary to demonstrate the

'| actual cost of its properties in a form that provides complete and authentic information. The

r

7

91

I

lot.

11 !| evidence in this case demonstrates that the Company has not complied with regulatory accounting

12 | requirements, and has not met its burden of proof regarding the actual cost of its properties. While

13 1 additional evidence is not necessary to support a conclusion that the Company failed to meet its

15 y burden, we find that the conclusion of Henry & Horne, an independent accounting firm employing

16 1 certified public accountants, regarding the adequacy of the Company's accounting records, provides

U | additional evidence corroborating Staffs position that the Company failed to maintain accounting

14

18 records sufficient to provide complete and authentic information to support its plant additions.55 It is

19 reasonable and in the public interest to require the Company to keep its records in accordance with

20 the NARUC USOA and Commission rules in a manner that will support its filings with the

21 .

» Commission.

22

a. AIAC and CIAC Related to Unsupported Plant

23

24 The Company argued that Staffs adjustment for inadequately supported plant is one sided

25 because it failed to consider corresponding adjustments associated with AIAC and Contributions in

26

27

28

53 Co. Reply Br. at 8.

54 See Co, Reply Br. at 8-16.

55 staff Reply Br. at 2.

9 DECISION NO. 71854

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 13 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

1:3 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

Aid of Construction ("CIAC").56 The Company argued that to ignore the necessary corresponding 

adjustments to AIAC or CIAC associated with disallowed plant would create a mismatch and result 

in an understatement of rate base to the detriment of the Company.57

Staff accepted the Company's adjustments to CIAC and AIAC associated with the 

disallowances for excess capacity, for plant found not used and useful, and for certain items of post 

test year plant, discussed further below.58 Staff stated that for inadequately supported plant, due its 

lack of confidence in the Company's records, it made no corresponding adjustments to CIAC and 

AIAC.59 We agree with Staff that it is inappropriate to make adjustments to CIAC or AIAC when 

plant has been disallowed due to inadequate documentation, and make no such adjustment in this 

case. 

2. Post-Test Year Plant 

Staff disputed the Company's proposal to include $3,222,494 in plant in service related to 

post test year plant for the wastewater division.60 According to the Company, the plant additions 

were not invoiced and paid until 2008.61 The $3,222,494 total disputed amount consists of: (1) 

fourteen separate items, totaling $2,201,386, classified as post test year plant in the Company's 

application, but reclassified, in the Company's rebuttal testimony, to test year plant in service; and 

(2) $1,201,108 classified as post test year plant by the Company, comprised of $486,714 for the 

Parks lift station and $534,394 for the Queen Creek leach field.62

The disputed plant in service amount of $2,201,386 was originally presented in the rate 

application as $2,684,888 of post test year plant.63 In a data response, the Company indicated that 

56 Co. Br. at 7; Co. Reply Br. at 7, 18-19. 

57 Co. Br. at 7. 

58 See Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 3-4. 

59 Staff Reply Br. at 5; Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 12 and (Exh. S-45) at 15. 

60 Co. Final Schedules B-2 Page 3 and 3.4. 

61 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 34. 

62 Co. Br. at 21;Rebuttal Testimony of Company witness Bourrassa (Exh. A-2) Vol. III at 14-15; Company Final 

Schedules B-2, page 3 and 3.4. 

63 Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-44) at 8. 

10 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 Aid of Construction ("CIAC").56 The Company argued that to ignore the necessary corresponding

2 adjustments to AIAC or CIAC associated with disallowed plant would create a mismatch and result

3 in an understatement of rate base to the detriment of the Company."

4 Staff accepted the Company's adjustments to CIAC and AIAC associated with the

<J

disallowances for excess capacity, for plant found not used and useful, and for certain items of post

6

test yea; plant, discussed further below.58 Stadstated that for inadequately supported plant, due its

7

lack of confidence in the Company's records, it made no corresponding adjustments to CIAC and

8

9 AIAC." We agree with Staff that it is inappropriate to make adjustments to CIAC or AIAC when

10 plant has been disallowed due to inadequate documentation, and make no such adjustment in this

l l case.

12 2. Post-Test Year Plant

13 Staff disputed the Company's proposal to include $3,222,494 in plant in service related to

14

post test year plant for the wastewater division.60 According to the Company, the plant additions

15

16 were not invoiced and paid until 2008.61 The $3,222,494 total disputed amount consists of: (1)

17 fourteen separate items, totaling $2,201,386, classified as post test year plant in the Company's

18 application, but reclassified, in the Company's rebuttal testimony, to test year plant in service, and

19

20

(2) $1,201,108 classified as post test year plant by the Company, comprised of $486,714 for the

Parks lift station and $534,394 for the Queen Creek leach field."

21

The disputed plant in service amount of $2,201,386 was originally presented in the rate

22

application as $2,684,888 of post test year plant.63 In a data response, the Company indicated that

23

24

25

26

27

28

56 Co. Br. at 7, Co. Reply Br. at 7, 18-19.

57 Co. Br. at 7.

58 See Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exp. S-39) at 3-4.

59 Staff Reply Br. at 5, Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 12 and (Exh. S-45) at 15.

60 Co. Final Schedules B-2 Page 3 and 3.4.

61 Rebuttal Testimony of Company witness Brian Tompsett (Exp. A-5) at 34.

62 Co. Br. at 2 l ;Rebuttal Testimony of Company witness Bourrassa (Exh. A-2) Vol. III at 14-1 5; Company Final

Schedules B-2, page 3 and 3.4.

63 Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-44) at 8.

10 DECISION no . 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 14 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

.3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

the $2,684,888 was incurred for the Hunt Highway South force main project.64 According to the 

Company's accounting witness, the plant items were recorded in construction work in progress 

("CWIP") at the end of the test year, and had not been transferred into plant in service when the 

application was filed.65 The Company's witness testified that the Hunt Highway South force main, 

which connects its Section 11 wastewater treatment plant ("Section 11 WWTP") to its Anthem 

wastewater treatment plant ("Anthem WWTP"), was used during the test year to redirect flows from 

the Anthem WWTP to the Section 11 WWTP when the Anthem WWTP was not yet ready for 

operation.66

The Company presented the Parks lift station and the Queen Creek leach field as post test 

year plant on its final schedules.67 The Parks lift station was constructed initially for a shopping 

center that was started in 2007.68 The Company asserted that without its construction, the Company 

would have had to implement a costly process of vaulting and hauling the shopping center's 

wastewater to its Pecan wastewater treatment plant ("Pecan WWTP").69 In regard to the Queen 

Creek leach field, the Company's witness testified that during the test year, all excess effluent flows 

from the Pecan WWTP that required disposal were sent to the Trilogy Encanterra development, and 

because the effluent flows were well in excess of the demands needed for the Encanterra golf course 

in 2007, Johnson constructed the Queen Creek leach field to dispose of the excess effluent.7°

RUCO did not oppose the inclusion of the disputed plant items from plant in service.71 Staff 

recommended a disallowance of the entire disputed amount of $3,222,495 as post test year plant, 

64 id

65 Rebuttal Testimony of Company witness Thomas Bourrassa (Exh. A-2) Vol. III at 14. 

66 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 34. 

67 Co. Final Schedules B-2 Page 3.4. 

68 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 34. 

69 Id. 

70 Id. at 35. 

71 Co. Br. at 24; RUCO Br. at 4; RUCO Reply Br. at 1; RUCO Final Schedules SURR RLM-3. The Company claimed 

on brief that RUCO accepted the Company's post test year plant of $2,684,888 from the Company's direct filing plus 

RUCO's proposed increase based on the Company's rebuttal filing, and RUCO did not refute the Company's claim in its 

reply brief. RUCO's final schedules show an adjustment increasing plant in service by $490,896 for post test year plant. 

11 DECISION NO. 

71854 

DOCKET no. WS-02987A-08-0180

1 the $2,684,888 was incurred for the Hunt Highway South force main project.64 According to the

2 Company's accounting witness, the plant items were recorded in construction work in progress

q

J ("CWIP") at the end of the test year, and had not been transferred into plant in service when the

4 application was fi1ed.65 The Company's witness testified that the Hunt Highway South force main,

5 4 . . o n 1

which connects its Sectlon 11 wastewater treatment plant ("Sectlon 11 WWTP") to its Anthem

6

| wastewater treatment plant ("Anthem WWTP"), was used during the test year to redirect flows from

7

the Anthem WWTP to the Section ll WWTP when the Anthem WWTP was not yet ready for

8

9 loperation.66

10 The Company presented the Parks lift station and the Queen Creek leach Held as post test

l I | year plant on its final schedules.67 The Parks lift station was constructed initially for a shopping

12 center that was started in 2007.68 The Company asserted that without its construction, the Company

13 I would have had to implement a costly process of vaulting and hauling the shopping center's

jg I wastewater to its Pecan wastewater treatment plant ("Pecan WWTP").69 In regard to the Queen

16 1 Creek leach field, the Company's witness testified that during the test year, all excess effluent flows

l

17 from the Pecan WWTP that required disposal were sent to the Trilogy Encanterra development, and

18

19

because the effluent flows were well in excess of the demands needed for the Encanterra golf course

in 2007, Johnson constructed the Queen Creek leach Held to dispose of the excess effluent."

20 RUCO did not oppose the inclusion of the disputed plant items from plant in service.7l Staff

21

recommended a disallowance of the entire disputed amount of $3,222,495 as post test year plant,

22

23

24 I

25

26

27

28

64 ld.

65 Rebuttal Testimony of Company witness Thomas Bourrassa (Exp. A-2) Vol. III at 14.

es Rebuttal Testimony of Company witness Brian Tompsett (E>d1. A-5) at 34.

611 Co. Final Schedules B-2 Page 3.4.

Z; Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 34.

I d

70 14. at 35.

71 Co. Br. at 24; RUCO Br. at 4, RUCO Reply Br. at 1, RUCO Final Schedules SURR RLM-3. The Company claimed

on brief that RUCO accepted the Company's post test year plant of $2,684,888 from the Company's direct filing plus

RUCO's proposed increase based on the Company's rebuttal filing, and RUCO did not refute the Company's claim in its

reply brief. RUCO's final schedules show an adjustment increasing plant in service by $490,896 for post test year plant.

11 DECISION NO.

71854

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 15 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

with an accompanying adjustment to reduce CIAC.72 Staff stated that the inclusion of post test year 

plant would result in a mismatch of that plant with the revenues, expenses, and rate base of the test 

year.

73 Staff's witness testified that matching is one of the most fundamental principles of 

accounting and ratemaking, and the absence of matching distorts the meaning of operating income 

and rate of return for measuring the fairness and reasonableness of rates.74 Accordingly, Staff 

explained, post test year plant should be recognized in rate base only in special and unusual 

circumstances where failure to do so would create an inequity.75 Staff stated that it has traditionally 

recognized two scenarios in which recognition of post test year plant is appropriate: (1) when the 

magnitude of the investment relative to the utility's total investment is such that not including the 

post test year plant in the cost of service would jeopardize the utility's financial health; and (2) when 

certain conditions exist as follows: (a) the cost of the post test year plant is significant and 

substantial, (b) the net impact on revenue and expenses for the post test year plant is known and 

insignificant or is revenue-neutral, and (c) the post test year plant is prudent and necessary for the 

provision of services and reflects appropriate, efficient, effective, and timely decision-making.76

The Company stated that all the plant was necessary to serve the test year level of customers, 

and that Staff's engineering testimony noted that the Hunt Highway South force main was in use 

during the test year.77 The Company's accounting witness testified that the Company believes that 

the post test year Parks lift station and the Queen Creek leach field projects are revenue neutral and 

are necessary for reliability purposes, to serve the test year end level of customers.78 The Company 

argued that the Commission has allowed pro forma adjustments, including post-test year plant, in 

72 Staff Final Schedules JMM-WW3 Page 1 of 2; JMM-WW4; Surrebuttal Testimony of Staff witness Jeffrey Michlik 

(Exh. S-39) at 3. 

73 Staff Br. at 10. 

74 Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-44) at 8. 

" Id. 

76 Staff Br. at 10, citing to Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-44) at 9. 

77 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 35, referring to Direct Testimony of Marlin 

Scott Jr. (Exh. S-36), Exhibit MSJ at 31. 

12 DECISION NO. 71854 

DOCKET NO. WS-02987A-_8-0180

1 with an accompanying adjustment to reduce CIAC." Staff stated that the inclusion of post test year

2 plant would result in a mismatch of that plant with the revenues, expenses, and rate base of the test

3 year. Staffs witness testified that matching is one of the most fundamental principles of

4 accounting and ratemaking, and the absence of matching distorts the meaning of operating income

5 u , 1

and rate of return for measuring the fairness and reasonableness of rates.74 Accordingly, Staff

6

explained, post test year plant should be recognized in rate base only in special and unusual

7

circumstances where failure to do so would create an inequity.75 Staff stated that it has traditionally

8

9 recognized two scenarios in which recognition of post test year plant is appropriate: (1) when the

.10 \magnitude of the investment relative to the utility's total investment is such that not including the

I

l l post test year plant in the cost of service would jeopardize the utility's financial health, and (2) when

12 certain conditions exist as follows: (a) the cost of the post test year plant is significant and

13 substantial, (b) the net impact on revenue and expenses for the post test year plant is known and

14

insignificant or is revenue-neutral, and (0) the post test year plant is prudent and necessary for the

15

16

provision of services and reflects appropriate, efficient, effective, and timely decision-making.76

17 The Company stated that all the plant was necessary to serve the test year level of customers,

18

19

and that Staff' s engineering testimony noted that the Hunt Highway South force main was in use

during the test year." The Company's accounting witness testified that the Company believes that

20 the post test year Parks lift station and the Queen Creek leach field projects are revenue neutral and

21

the end level of customers.78

are necessary for reliability purposes, to serve test year The Company

22

argued that the Commission has allowed pro forma adjustments, including post-test year plant, in

23

24

25

26

27

72 Staff Final Schedules JMM-WW3 Page l of 2, JMM-WW4, Surrebuttal Testimony of Staff witness Jeffrey Michlik

(Exp. S-39) at 3.

73 Staff Br. at 10.

12 Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-44) at 8.

Ia(

76 Staff Br. at 10, citing to Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-44) at 9.

77 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 35, referring to Direct Testimony of Marlin

Scott Jr. (Exp. S-36), Exhibit MSJ at 31.

28

12 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 16 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

l.1 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

order to ensure a proper matching of plant to test year customers and to more accurately reflect 

reality during the period the rates will be in effect.79

Staff argued that the Company's request to include post test year plant in rate base is 

inconsistent with the Commission's normal treatment of post test year plant.80 Staff acknowledged 

that the Company, in rebuttal testimony, reclassified $2,201,386 of plant from post test year plant to 

test year plant. Staff explained, however, that because Staff lacked confidence in the Company's 

documentation, Staff continued to classify it as post test year plant.81 While the Company charged 

that "Staff failed to follow-up to determine whether such plant was- in fact put into service in 

2007,"82 Staff responded that the burden of proof lies with the Company, and not with Staff.83 Staff 

stated that the invoices the Company provided for post test year plant were from a Company 

affiliate, Central Pinal Contracting, LLC ("Central Pinar)." The Company, contending that Central 

Pinal is no longer a Company affiliate, did not allow Staff to verify the underlying affiliate records.85

Staff therefore could not verify the invoices for the construction performed by the affiliate.86 Staff 

stated that it had little confidence in the integrity of some of the Company's records.87 For example, 

Staff stated that its confidence in the reliability of the Company's invoices was further diminished by 

the disclosure of the invoice that was created to charge a Company employee for water that he 

neither used nor was a guarantor for on the Swing First account.88 In regard to the Company's 

claims that the post test year plant was revenue neutral (i.e., will not add to test year revenues), Staff 

asserted that the Company's claim is unsubstantiated, and that in the absence of reliable cost 

78 Rebuttal Testimony of Company witness Thomas Bourrassa (Exh. A-2) Vol. III at 15, citing to "Rebuttal Testimony of 

Brian Tompsett." 

79 Co. Br. at 23. 

80 Staff Br. at 9. 

81 Staff Reply Br. at 6. 

82 Co. Br. at 22. 

83 Staff Reply Br. at 6. 

84 Staff Reply Br. at 6, Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-45) at 6. 

85 Id. 

86 Id. 

87 Staff Reply Br. at 6. 

13 DECISION NO. 71854 

I

DOCKET NO. WS-02987A-08-0180

1 order to ensure a proper matching of plant to test year customers and to more accurately reflect

2 reality during the period the rates wit] be in effect.79

Staff argued that the Company's request to include post test year plant in rate base is

4 inconsistent with the Commission's normal treatment of post test year plant.80 Staff acknowledged

3

5 ,

that the Company, in rebuttal testimony, reclassified $2,201,386 of plant from post test year plant to

6

test year plant. Staff explained, however, that because Staff lacked confidence in the Company's

7

8 I documentation, Staff continued to classic it as post test year plant.8l While the Company charged Y

9 that "Staff failed to follow-up to determine whether such plant was in fact put into service in

10 2007982 Staff responded that the burden of proof lies with the Company, and not with Staff.83 Staff

11 stated that the invoices the Company provided for post test year plant were from a Company

12 I

'I affiliate, Central Pinar Contracting, LLC ("CentraI PinaI").84 The Company, contending that Central

13 Pinal is no longer a Company affiliate, did not allow Staff to verify the underlying affiliate records.85

14

Staff therefore could not verify the invoices for the construction performed by the afH1iate.86 Staff

15

16

stated that it had little confidence in the integrity of some of the Company's records.87 For example,

17 I Staff stated that its confidence in the reliability of the Company's invoices was further diminished by

18 the disclosure of the invoice that was created to charge a Company employee for water that he

19 neither used nor was a guarantor for on the Swing First account.88 In regard to the Company's

20 claims that the post test year plant was revenue neutral (i.e., will not add to test year revenues), Staff

21

asserted that the Colnpany's claim is unsubstantiated, and that in the absence of reliable cost

22

23

24

25

26

27

78 Rebuttal Testimony of Company witness Thomas Bourrassa (Exh. A-2) Vol. III at 15, citing to "Rebuttal Testimony of

Brian Tompsett."

79Co. Br. at 23 .

80 Staff Br. at 9.

ax Staff Reply Br. at 6.

82 Co. Br. at 22.

83 Staff Reply Br. at 6.

22 Staff Reply Br. at 6, Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-45) at 6.

l d

so Id.

87 Staff Reply Br. at 6. 28

13 DECISION no. 71854 i

I

r

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 17 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

documentation, it is difficult to determine whether any pro forma adjustments to rate base also 

include known and measurable changes to revenues and expenses.89 Staff argued that the Company 

provided no credible evidence that the Parks lift station was necessary to serve the test year end level 

of customers, other than conclusory statements that it was necessary to resolve potential problems.9°

It is undisputed that the Company did not incur the costs of the $3,222,494 of plant during 

the test year. The Company did not produce requested records necessary to verify the claimed plant 

values, and in addition, failed to quantify the effects of the items of post test year plant on test year 

revenues. Aside from the Company's statements that the Parks lift station and the Queen Creek 

leach field are revenue neutral, the Company presented no evidence demonstrating their claimed 

revenue neutrality. While Staff stated that the Parks lift station was used and useful during the test 

year, Staff also noted that the Company did not perform some of the tasks that are performed when 

installing an upgrade to a lift station, such as retiring plant that was replaced with the upgraded 

plant.91 It is the Company's burden to provide reliable, accurate documentation showing the cost of 

post test year plant and the Company did not meet that burden. The Company also failed to present 

evidence demonstrating that the post test year plant would not add to revenues. The $3,222,494 

should therefore not be included in test year plant in service. The Company will have an opportunity 

to request inclusion of this plant in its next rate case. 

3. Plant Not Used and Useful 

Staff stated that an inspection of the Company's water and wastewater systems revealed plant 

that was not used and useful, and therefore recommended disallowance of $4,127,019 of plant in the 

water division and $4,595,298 of plant in the wastewater division, with corresponding adjustments to 

88 Staff Reply Br. at 6. 

89 Staff Br. at 10-11, citing to Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-44) at 9. 

90 Staff Br. at 11, citing to Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 34. 

91 See Staff Reply Br. at 6, citing to Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-45) at 5. 

14 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 I documentation, it is difficult to determine whether any pro forma adjustments to rate base also

2 include known and measurable changes to revenues and expenses.89 Staff argued that the Company

3 provided no credible evidence that the Parks lift station was necessary to serve the test year end level

4 of customers, other than conclusory statements that it was necessary to resolve potential prob1ems.90

5

It is undisputed that the Company did not incur the costs of the $3,222,494 of plant during

6

7

8

9

10

1]

I the test year. The Company did not produce requested records necessary to verify the claimed plant

I values, and in addition, failed to quantify the effects of the items of post test year plant on test year

i revenues. Aside from the Company's statements that the Parks lift station and the Queen Creek

l leach Held are revenue neutral, the Company presented no evidence demonstrating their claimed

l revenue neutrality. While Staff stated that the Parks lift station was used and useful during the test

12 year, Staff also noted that the Company did not perform some of the tasks that are performed when

13

14

installing an upgrade to a lift station, such as retiring plant that was replaced with the upgraded

plant.91 It is the Company's burden to provide reliable, accurate documentation showing the cost of

15

16 post test year plant and the Company did not meet that burden. The Company also failed to present

17 evidence demonstrating that the post test year plant would not add to revenues. The $3,222,494

18 should therefore not be included in test year plant in service. The Company will have an opportunity

19 to request inclusion of this plant in its next rate case.

20 3. Plant Not Used and Useful

21

Staff stated that an inspection of the Company's water and wastewater systems revealed plant

22

that was not used and useful, and therefore recommended disallowance of $4,127,019 of plant in the

23

24 water division and $4,595,298 of plant in the wastewater division, with corresponding adjustments to

25

26

27

28

as Staff Reply Br. at 6.

89 Staff Br. at 10-11, citing to Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-44) at 9.

90 Staff Br. at 11, citing to Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 34.

91 See Staff Reply Br. at 6, citing to Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exp. S-45) at 5.

14 DECISION NO. 71854

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 18 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

2:3 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

CIAC and AIAC.92 RUCO accepted Staff's findings with respect to Staff's analysis of plant that is 

not used and useful.93 Johnson accepted some of Staff's adjustments to remove plant Staff found not 

used and useful, but disagreed with Staff and RUCO' s recommended removal of $731,125 for 4 

miles of 12-inch mains (the "Rickee Main") from its water division.94 For its wastewater division, 

the Company disagreed with Staff and RUCO's recommended removal of $690,186 for 

approximately 4 miles of 8-inch sewer force mains ("Magma Sewer Force Main") and $1,696,806 

for the Precision Wastewater Treatment Plant ("Precision WWTP").95

a. Rickee Main 

The Company agreed that the Rickee Main is not being used to serve customers, but argued 

that it should be included in rate base nonetheless, because the Company "acted prudently in order to 

provide service."96 The Company stated that it was contractually obligated to construct the Rickee 

Main pursuant to the Silverado Ranch Master Utility Agreement; that the plant was constructed 

within a roadway already paved by the developer, and that the plant is in place, ready to provide 

water to customers within Silverado Ranch, once homes are constructed.97 The Company claimed 

that it would be "inappropriate and inequitable" to deny inclusion of the Rickee Main in rate base.98

Johnson has acknowledged that the $731,125 Rickee Main is not being used to serve 

customers.99 It is therefore not used and useful, and should not be included in rate base. Once the 

plant is being used to serve customers, the Company can request its inclusion in rate base in a rate 

proceeding. Staff's adjustments to plant in service and the corresponding CIAC and AIAC 

adjustmentsi°° are appropriate and will be adopted. 

92 Staff Br. at 3; See Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 3-4. 

RUCO Br. at 4; RUCO Reply Br. at 1; Rebuttal Testimony of RUCO witness Rodney Moore (Exh. R-2) at 4-5. 

94 Co. Reply Br. at 2; Rebuttal Testimony of Company witness Thomas Bourassa (Exhibit A-2) Vol. II at 11-12. 

95 Co. Br. At 19; Rebuttal Testimony of Company witness Thomas Bourassa (Exhibit A-2) Vol. III at 12. 

96 Co. Br. at 8; Co. Reply Br. at 2-3. 

97 Co. Br. at 8; Rejoinder Testimony of Company witness Brian Tompsett (Exh. A-7) at 14. 

98 Co. Br. at 8. 

99 Tr. at 922-923. 

w°See Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 3-4. 

15 DECISION O. 71854 

DOCKET NO. WS-02987A-08-0180

1 CIAC and AIAC.92 RUCO accepted Staffs Endings with respect to Staff s analysis of plant that is

2 not used and useful.93 Johnson accepted some of Staff' s adjustments to remove plant Staff found not

3 used and useful, but disagreed with Staff and RUCO's recommended removal of $731,125 for 4

4 miles of 12-inch mains (the . . . . . . 94 "Rlckee Maln") from its water division. For its wastewater division,

5 the Company disagreed with Staff and RUCO's recommended removal of $690,186 for

6

approximately 4 miles of 8~inch sewer force mains ("Magma Sewer Force Main") and $1,696,806

7

for the Precision Wastewater Treatment Plant ("Precision WWTP").95

8

9

a. Ricker Main

10

1 1 l that it should be included in rate base nonetheless, because the Company "acted prudently in order to

The Company agreed that the Rickee Main is not being used to serve customers, but argued

12 provide service."96 The Company stated that it was contractually obligated to construct the Ricker

i Main pursuant to the Silverado Ranch Master Utility Agreement, that the plant was constructed

f l within a roadway already paved by the developer, and that the plant is in place, ready to provide

1 ; l ater to customers within Silverado Ranch, once homes are constructed.97 The Company claimed

13

that it would be "inappropriate and inequitable" to deny inclusion of the Ricker Main in rate base.98

17

18 Johnson has acknowledged that the $731,125 Ricker Main is not being used to serve

19 customers.99 It is therefore not used and useful, and should not be included in rate base. Once the

20 plant is being used to serve customers, the Company can request its inclusion in rate base in a rate

21

proceeding. Staffs adjustments to plant in service and the corresponding CIAC and AIAC

22

adjustments100 are appropriate and will be adopted.

23

24 92 Staff Br. at 3, See Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 3-4.

25 RUCO Br. at 4, RUCO Reply Br. at l, Rebuttal Testimony of RUCO witness Rodney Moore (Exp. R-2) at 4-5 .

Co. Reply Br. at 2, Rebuttal Testimony of Company witness Thomas Bourassa (Exhibit A-2) Vol. II at l 1-12.

95 Co. Br. At 19, Rebuttal Testimony of Company witness Thomas Bourassa (Exhibit A-2) Vol, Ill at 12.

96 Co. Br. at 8, Co. Reply Br. at 2-3 .

27 91 Co. Br, at 8, Rejoinder Testimony of Company witness Brian Tompsett (Exp. A-7) at 14.

Co. Br, at 8.

99 Tr. at 922-923 .

28 I 100See Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 3-4.

26

15 DECISION NC). 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 19 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

b. Magma Sewer Force Main 

Johnson disagreed with Staff's recommended removal of $690,186 for approximately 4 miles 

of 8-inch sewer force mains to serve the Silverado Ranch development.101 Johnson acknowledged 

that the Magma Sewer Force Main is not currently serving customers, but argued that it should be 

included in plant in service because the Company was obligated to construct the plant and acted 

prudently in order to provide service.102

Johnson has acknowledged that the $690,186 Magma Sewer Force Main is not being used to 

serve customers.103 It is therefore not used and useful, and should not be included in rate base. Once 

the plant is being used to serve customers, the Company can request its inclusion in rate base in a 

rate proceeding. Staff's adjustments to plant in service and the corresponding CIAC and AIAC 

adjustments1°4 are appropriate and will be adopted. 

c. Precision WWTP 

Johnson disagreed with Staff's recommended removal of a total of $1,696,806 for the cost of 

the Precision WWTP.I°5 The Company argued that the Precision WWTP should be considered used 

and useful because the Arizona Department of Environmental Quality ("ADEQ") required the plant 

to be constructed as a condition of issuing subdivision approvals to developers within Johnson 

Ranch and other developments.1°6

The Company also proffered the argument that because construction of the Precision WWTP 

was a prerequisite to the issuance of additional subdivision approvals in Johnson Ranch, the plant 

" Co. Br. at 19; Co. Reply Br. at 3; Rebuttal Testimony of Company witness Thomas Bourassa (Exhibit A-2) Vol. III at 

11. 

102 Co. Br. at 19-20; Rebuttal Testimony of Company witness Thomas Bourassa (Exhibit A-2) Vol. III at 12. 

103 Tr. at 922-923. 

wtee Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 3-4. 

105 Co. Br. at 19-20; Co. Reply Br. at 3; Rebuttal Testimony of Company witness Thomas Bourassa (Exhibit A-2) Vol. III 

at 12. 

106 Co. Br. at 19-20; Co. Reply Br. at 3; Rebuttal Testimony of Company witness Thomas Bourassa (Exhibit A-2) Vol. III 

at 12; Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 36. 

16 DECISION NO. 71854 

DOCKET no. WS-02987A-08-0180

b. Magma Sewer Force Main

1

2

Johnson disagreed with Staff' s recommended removal of $690,l86 for approximately 4 miles

3 of 8-inch sewer force mains to serve the Silverado Ranch development 01 Johnson acknowledged

4 that the Magma Sewer Force Main is not currently serving customers, but argued that it should be

5 . . . . .

included in plant in service because the Company was obligated to construct the plant and acted

6

prudently in order to provide service. 102

7

Johnson has acknowledged that the $690,l86 Magma Sewer Force Main is not being used to

8

9

10 l the plant is being used to serve customers, the Company can request its inclusion in rate base in a

I

l l rate proceeding. Staffs adjustments to plant in service and the corresponding CIAC and AIAC

12 I adj ustrnents104 are appropriate and will be adopted.

serve customers.103 It is therefore not used and useful, and should not be included in rate base. Once

13

c. Precision WWTP

14

Johnson disagreed with Staffs recommended removal of a total of $1,696,806 for the cost of

15

16

the Precision wwTp.'05 The Company argued that the Precision WWTP should be considered used

17 and useful because the Arizona Department of Environmental Quality ("ADEQ") required the plant

18 to be constructed as a condition of issuing subdivision approvals to developers within Johnson

19 Ranch and other deve1opments.106

20 The Company also proffered the argument that because construction of the Precision WWTP

Zl

I was a prerequisite to the issuance of additional subdivision approvals in Johnson Ranch, the plant

22

ZN

24

25

26

27

28

101 Co. Br. at 19, Co. Reply Br. at 3, Rebuttal Testimony of Company witness Thomas Bourassa (Exhibit A-2) Vol. III at

l I.

102 Co. Br. at 19-20, Rebuttal Testimony of Company witness Thomas Bourassa (Exhibit A-2) Vol. III at 12.

103 Tr. at 922-923.

104See SurTebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 3-4.

is Co. Br. at 19-20, Co. Reply Br. at 3, Rebuttal Testimony of Company witness Thomas Bourassa (Exhibit A-2) Vol. III

at 12.

106 Co. Br. at 19-20, Co. Reply Br. at 3, Rebuttal Testimony of Company witness Thomas Bourassa (Exhibit A-2) Vol. III

at 12, Rebuttal Testimony of Com any witness Brian Tompsett (Exh. A-5) at 36. p

16 DECISION no. 71854

i

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 20 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO WS-02987A-08-0180 

was needed to serve the 2007 test year level of customers.107 We disagree. Johnson acknowledged 

that the Precision WWTP is not being used to serve customers.108 It is therefore not used and useful, 

and should therefore be excluded from plant in service. Once the plant is being used to serve 

customers, the Company can request its inclusion in rate base in a rate proceeding. Staff's 

adjustments to plant in service and the corresponding CIAC and AIAC adjustmentsw° are 

appropriate and will be adopted. 

4. Excess Capacity 

Staff recommended a disallowance of $1,127,065 for Johnson's water system, and 

$5,443,062 for the wastewater system, due to excess plant capacity.110 RUCO accepted Staff's 

findings with respect to Staff's analysis of plant that constitutes excess capacity."' Staff's witness 

testified that in evaluating capacity, Staff classifies plant which will be necessary within a five year 

planning period using peak demand factors and growth projections to be "extra capacity," and plant 

which will not be necessary within a five year planning period to be "excess capacity.'5112 The five 

year planning period Staff used in this case began with the end of the Company's 2007 test year. 113

a. Anthem System Well and Storage Capacity 

The Company's Anthem at Merrill Ranch ("Anthem") water system has two 600 gallon per 

minute ("GPM") wells and one 300 GPM well, for a total of three wells with total production 

capacity of 1500 GPM. The Anthem water system has one 1.0 million gallon ("MG") and one 0.5 

MG storage tank, for total storage capacity of 1.5 MG.I14 At the end of the test year, the Anthem 

system served 857 customer connections.115 In its analysis, Staff utilized peak demand factors from 

"°7 Co. Reply Br. at 3-4. 

I" Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 36. 

1°9See Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 3-4. 

II° Surrebuttal Testimony of Staff witness Marlin Scott, Jr. (Exh. S-37) at 3, 9. 

I i I RUCO Brief at 4; Rebuttal Testimony of RUCO witness Rodney Moore (Exh. R-2) at 4-5. 

1 12 Tr. at 1423. 

13 Staff Br. at 5. 

114 Direct Testimony of Staff witness Marlin Scott, Jr. (Exh. S-36) at Exhibit MSJ, p. 9. 

115 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5), Exhibit B. 

17 DECISION N a 71854 

l

DOCKET N() WS-02987A-08-0180

1 was needed to serve the 2007 test year level of cL1sto1ners.l07 We disagree. Johnson acknowledged

2 that the Precision WWTP is not being used to serve customers.l08 It is therefore not used and useful,

3 and should therefore be excluded from plant in service. Once the plant is being used to serve

4 | customers, the Company can request its inclusion in rate base in a rate proceeding. Staff" S

5 1 . . . .

y adjustments to plant in service and the corresponding CIAC and AIAC adjustments 9 are

6

appropriate and will be adopted.

7

4. Excess Capacity

8

9

Staff recommended a disallowance of $1,127,065 for Joltnson's water system, and

10 $5,443,062 for the wastewater system, due to excess plant capacityl I0 RUCO accepted Staff"s

1 l I findings with respect to Staffs analysis of plant that constitutes excess capacity."I Staffs witness

12 I testified that in evaluating capacity, Staff classifies plant which will be necessary within a five year

13 I

i

14

planning period using peak demand factors and growth projections to be "extra capacity," and plant

which will not be necessary within a five year planning period to be "excess capacity."l 12 The five I

15

I . . . . u

16 year planing perlod Staff used in thls case began wlth the end of the Company's 2007 test year. 1 13

17 a. Anthem System Well and Storage Capacity

18 The Company's Anthem at Merrill Ranch ("Anthem") water system has two 600 gallon per

19 minute ("GPM") wells and one 300 GPM well, for a total of three wells with total production

7 . 1 .

-0 I capacity of 1500 GPM. The Anthem water system has one 1.0 mllhon gallon ("MG") and one 0.5

21

MG storage tank, for total storage capacity of 1.5 MG.114 At the end of the test year, the Anthem

22

system served 857 customer connections.H5 In its analysis, Staff utilized peak demand factors from

23

24

25

26

27

28

107 Cc. Reply Br. at 3-4.

101; Rebuttal Testimony of Company witness Brian Tompsett (Exd*1. A-5) at 36.

109See Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exp. S-39) at 3-4.

110 Surrebuttal Testimony of Staff witness Marlin Scott, Jr. (Exh. S-37) at 3, 9.

in RUCO Brief at 4, Rebuttal Testimony of RUCO witness Rodney Moore (Exh. R-2) at 4-5.

112 Tr. at 1423.

113 Staff Br. at 5.

114 Direct Testimony of Staff witness Marlin Scott, Jr. (Exp. S-36) at Exhibit MSJ, p. 9.

115 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5), Exhibit B.

17 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 21 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

the Company's Johnson Ranch system of 400 GPD per service connection for storage capacity and 

0.35 GPM per service connection for well capacity.116 

1) Anthem System Well Capacity 

Staff determined that pursuant to its peak demand and growth projections, the capacity of the 

Anthem system's Rancho Sendero Well No. I will not be needed within five years from the 2007 

test year, and therefore constitutes excess capacity that should be excluded from plant in service.117

Staff's recommended removal of the Anthem Rancho Sendero Well No. 1, a 600 GPM well, would 

reduce plant in service by $693,827.118

Staff's recommendation to remove the 600 GPM Anthem Rancho Sendero Well No. 1 from 

plant in service would leave the Anthem system with 900 GPM of well capacity in plant in service, 

which would allow for 2,571 connections, equating to the addition of 342 new service connections 

per year from 2008 through 2012.119 Johnson proposed to instead the use of a growth rate of 366 

new service connections per year, which is the actual known increase in customers for the year 2008, 

in order to calculate capacity needs.120 Use of Johnson's growth estimate would yield 2,687 

customers at the end of 2012.121 Johnson's witness testified that use of the actual increase in 

Anthem system customers in 2008 as the growth rate to calculate capacity needs through 2012 is 

reasonable because "2008 was a disastrous year for the housing industry."122 

Johnson also argued that the Rancho Sendero Well No. 1 is "necessary and integral to the 

operation of the Anthem at Merrill Ranch water system," and that 141 three wells . . . are necessary 

to provide safe and reliable water service to Anthem at Merrill Ranch."123 Johnson stated that if 

116 Direct Testimony of Staff witness Marlin Scott, Jr. (Exh. S-36), Exhibit MSJ at 9. 

1 17 Staff 13r. at 5. 

1 18 Direct Testimony of Staff witness Marlin Scott, Jr. (Exh. S-36) at Exhibit MSJ, p. 12; Surrebuttal Testimony of Staff 

witness Marlin Scott, Jr. (Exh. S-37) at 3; Tr. at 1464, 1468. 

"9 Surrebuttal Testimony of Staff witness Marlin Scott, Jr. (Exh. S-37) at 4. 

129 Co. Reply Br. at 4, citing Rebuttal Testimony of Brian Tompsett (Exh. A-5) at 8. 

121 Rebuttal Testimony of Brian Tompsett (Exh. A-5) at 8. 

122 Id.

123 Co. Br. at 9. 

18 DECISION NO. 71854 

DOCKET NO. WS-02987A-08~0180

1

the Com an 's Johnson Ranch s stem of 400 GPD Er service connection for storage capacity and p y y P

0.35 GPM per service connection for well capacity.H6 2

3 1) Anthem System Well Capacity

4 Staff determined that pursuant to its peak demand and growth projections, the capacity of the

5

Anthem system's Rancho Sendero Well No. 1 will not be needed within five years from the 2007

6

that should be excluded from plant in service.117

test year, and therefore constitutes excess capacity

7

Staffs recommended removal of the Anthem Rancho Sendero Well No. 1, a 600 GPM well, would

8

9 reduce plant in service by $693,827.1 18

10 Staff" s recommendation to remove the 600 GPM Anthem Rancho Sendero Well No. 1 from

l l plant in service would leave the Anthem system with 900 GPM of well capacity in plant in service,

12 which would allow for 2,571 connections, equating to the addition of 342 new service connections

1° | .

.9 per year from 2008 through 2012 9 Johnson proposed to instead the use of a growth rate of 366

14

new service connections per year, which is the actual known increase in customers for the year 2008,

15

16

in order to calculate capacity needsz0 Use of Johnson's growth estimate would yield 2,687

17 customers at the end of :z012.121 Johnson's witness testified that use of the actual increase in

18

19

Anthem system customers in 2008 as the growth rate to calculate capacity needs through 2012 is

reasonable because "2008 was a disastrous year for the housing industry."l22

20 Johnson also argued that the Rancho Sendero Well No. l is "necessary and integral to the

21

operation of the Anthem at Merrill Ranch water system," and that "[a]ll three wells are necessary

22

to provide safe and reliable water service to Anthem at Merrill Ranch."123 Johnson stated that if

23

24

25

26

27

28

116 Direct Testimony of Staff witness Marlin Scott, Jr. (Exp. S-36), Exhibit MSJ at 9.

117 Staff Br. at 5.

11s Direct Testimony of Staff witness Marlin Scott, Jr. (Eddi. S-36) at Exhibit MSI, p, 12, Suirebuttal Testimony of Staff

witness Marlin Scott, Jr. (Exh. S-37) at 3, Tr. at 1464, 1468.

119 Surrebuttal Testimony of Staff witness Marlin Scott, Jr. (Exh. S-37) at 4.

120 Co. Reply Br. at 4, citing Rebuttal Testimony of Brian Tompsett (Exp. A-5) at 8.

Rebuttal Testimony of Brian Tompsett (Exh. A-5) at 8.

-- Id

123 Co. Br. at 9.

18 DECISION NG. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 22 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

Staffs recommendation to "remove the 600 GPM Rancho Sendero Well No. 1 as excess capacity" 

were adopted, and the other 600 GPM well were out of service for any reason, it would "leave the 

Company with only the 300 GPM Rancho Sendero Well #2 to serve all of Anthem at Merrill 

Ranch.-I24 Johnson argued that because taking Anthem Rancho Sendero Well No. 1 out of service 

would create safety and reliability concerns for the Company and its customers, it should not be 

excluded from rate base as excess capacity.125 Staff disagreed with the Company's arguments that 

exclusion of the Rancho Sendero Well No. 1 from rate base due to excess capacity would cause 

reliability concerns.126 Staff also disagreed with the Company's arguments that it is inequitable to 

exclude excess capacity from rate base because the plant in question remains connected to the 

system.I27 Staff stated that exclusion of plant in service due to excess capacity is not an uncommon 

occurrence,

128 and that it would be inequitable to include plant in rate base when the plant capacity 

exceeds what is needed to serve customers.129 We agree with Staff that excluding well capacity 

from plant in service does not require physical removal of the plant, and therefore does not cause 

reliability concerns. We also agree with Staff that it is inequitable to require ratepayers to pay rates 

that include a return on more plant than is reasonably projected to be required to serve customers 

during a reasonable planning horizon. The Company's arguments that the configuration of the 

Anthem system makes it "inequitable" to exclude plant from rate base are not convincing. 

Ratepayers should not be made to pay for unnecessary plant capacity due to the Company's chosen 

plant configuration. 

There -was no dispute in this proceeding regarding either the daily peak demand or the five 

year planning period Staff used in its excess capacity analysis for the Anthem system. In addition, 

124 Rebuttal Testimony of Company 

125 Rebuttal Testimony of Company 

126 Staff Reply Br. at 4-5. 

127 Staff Reply Br. at 5, citing Tr. at 

128 Tr. at 1472. 

129 Staff Reply Br. at 5. 

witness Brian Tompsett (Exh. A-5) at 9; Co. Br. at 10. 

witness Brian Tompsett (Exh. A-5) at 7; Co. Br. at 11. 

1484. 

19 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 Staffs recommendation to "remove the 600 GPM Rancho Sendero Well No. 1 as excess capacity"

2 were adopted, and the other 600 GPM well were out of service for any reason, it would "leave the

3 Company with only the 300 GPM Rancho Sendero Well #2 to serve all of Anthem at Merrill

4 Ranch. Johnson argued that because taking Anthem Rancho Sendero Well No. 1 out of service 95124

5 . . . . .

would create safety and rellablllty concerns for the Company and its customers, it should not be

6

excluded from rate base as excess capacity.l25 Staff disagreed with the Company's arguments that

7

exclusion of the Rancho Sendero Well No. l from rate base due to excess capacity would cause

8

9 | reliability concerns.126

I . . a ¢

10 | exclude excess capaclty from rate base because the plant in questlon remains connected to the

Staff also disagreed with the Company's arguments that it is inequitable to

1 1 ll system.127 Staff stated that exclusion of plant in service due to excess capacity is not an uncommon

12 occurrence,I28 and that it would be inequitable to include plant in rate base when the plant capacity

13 129 exceeds what is needed to serve customers . We agree with Staff that excluding well capacity

14

from plant in service does not require physical removal of the plant, and therefore does not cause

15

reliability concerns. We also agree with Staff that it is inequitable to require ratepayers to pay rates

16

17 that include a return on more plant than is reasonably projected to be required to serve customers

18 louring a reasonable planning horizon. The Company's arguments that the configuration of the

19 Anthem system makes it "inequitable" to exclude plant from rate base are not convincing.

20 Ratepayers should not be made to pay for unnecessary plant capacity due to the Company's chosen

21

plant configuration.

22

There'-was no dispute in this proceeding regarding either the daily peak demand or the five

23

24 year planning period Staff used in its excess capacity analysis for the Anthem system. In addition,

I

25

26

27

28

124 Rebuttal Testimony of Company witness Brian Tompsett (Exp. A-5) at 9, Co. Br. at 10.

125 Rebuttal Testimony of Company witness Brian Tompsett (Exp. A-5) at 7, Co. Br. at 1 l.

126 Staff Reply Br. at 4-5 .

127 Staff Reply Br. at 5, citing Tr. at 1484.

128 Tr. at 1472.

129 Staff Reply Br. at 5.

I

:I 19 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 23 of 134
2 

3 

4 

c 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

no arguments were raised in response to the Company's assertions that its proposed growth 

projection of 366 new customers per year is reasonable. As Staff pointed out, utilizing the 

Company's proposed growth rate, under the Company's growth projection, the Anthem system's 

300 GPM well constitutes excess capacity.130 Based on the evidence in this proceeding we find that 

the 300 GPM Rancho Sendero Well No. 2 constitutes excess capacity, and that it is reasonable to 

exclude its cost from plant in service, along with the corresponding CIAC and AIAC adjustments. 

The actual cost of the 300 GPM Rancho Sendero Well No. 2 was not available in the record. We 

find it reasonable and appropriate to use half the documented cost of the 600 GPM Anthem Rancho 

Sendero Well No. 1, as a means of calculating a reasonable estimate of the cost of the 300 GPM 

Rancho Sendero Well No. 2 for purposes of excluding its excess capacity from plant in service. 

Therefore, $346,914 will be excluded from the Company's water division plant in service as excess 

capacity, along with the corresponding CIAC and AIAC adjustments. 

2) Storage Capacity 

Staff determined that pursuant to its peak demand and growth projections, the capacity of the 

Anthem system's Rancho Sendero 0.5 MG storage tank will not be needed within, five years from 

the 2007 test year.

131 Staffs recommended removal of the Anthem Ranchero Sendero 0.5 MG 

storage tank would reduce plant in service by $433,238.132 Staff relied on A.A.C. R18-503(B)133 in 

making its excess storage capacity determinations for the Anthem water system. 

130 Staff Br. at 6, citing to Tr. at 1469. Based on Staff's undisputed proposed peak load of 0.35 GPM per service 

connection, at Johnson's proposed growth rate of 366 new connections per year, the Anthem system would require 940 

GPM well capacity by the end of 2012, instead of Staff's recommended well capacity of 900 GPM. 

131 Staff Br. at 5. 

132 Direct Testimony of Staff witness Marlin Scott, Jr. (Exh. S-36) at Exhibit MSJ, p. 12; Surrebuttal Testimony of Staff 

witness Marlin Scott, Jr. (Exh. S-37) at 3; Tr. at 1464, 1468. 

133 A.A.C. R18-5-503 provides as follows: 

R18-5-503. Storage Requirements 

A. The minimum storage capacity for a CWS or a noncommunity water system that serves a residential 

population or a school shall be equal to the average daily demand during the peak month of the year. Storage 

capacity may be based on existing consumption and phased as the water system expands. 

20 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 no arguments were raised in response to the Company's assertions that its proposed growth

2

projection of 366 new customers per year is reasonable. As Staff pointed out, utilizing the

3 Company's proposed growth rate, under the Company's growth projection, the Anthem system's

4 300 GPM well constitutes excess capacity.130 Based on the evidence in this proceeding we find that

5

the 300 GPM Rancho Sendero Well No. 2 constitutes excess capacity, and that it is reasonable to

I

exclude its cost from plant in service, along with the corresponding CIAC and AIAC adjustments;

7

The actual cost of the 300 GPM Rancho Senders Well No. was not available in the record, We 8

")L

9 find it reasonable and appropriate to use half the documented cost of the 600 GPM Anthem Rancho

10 Senders Well No. 1, as a means of calculating a reasonable estimate of the cost of the 300 GPM

l 1 Rancho Sendero Well No. 2 for purposes of excluding its excess capacity from plant in service.

12 | Therefore, $346,914 will be excluded from the Company's water division plant in service as excess

13 . »

l capacity, along with the corresponding CIAC and AIAC adjustments.

14 [|

2) Storage Capacity

15

1_6

Staff determined that pursuant to its peak demand and growth projections, the capacity of the

17 Anthem system's Rancho Senders 0.5 MG storage tank will not be needed within five years from

18 the 2007 test year.3l Staffs recommended removal of the Anthem Ranchero Sendero 0.5 MG

19 storage tank would reduce plant in service by $433,238.'" Staff relied on A.A.c. R18-503(B)'" in

20 I making its excess storage capacity determinations for the Anthem water system.

21

22

23

24

25

26

27

130 Staff Br. at 6, citing to Tr. at 1469. Based on Staffs undisputed proposed peak load of 0.35 GPM per service

connection, at Johnson's proposed growth rate of 366 new connections per year, the Anthem system would require 940

GPM well capacity by the end of 2012, instead of Staffs recommended well capacity of 900 GPM.

131 Staff Br. at 5.

13z Direct Testimony of Staff witness Marlin Scott, Jr. (Exh. S-36) at Exhibit MSJ, p. 12; Surrebuttal Testimony of Staff

witness Marlin Scott, Jr. (Exh. S-37) at 3, Tr. at 1464, 1468.

133 A.A.C. R18-5-503 provides as follows:

R18-5-503. Storage Requirements

A. The minimum storage capacity for a CWS or a noncommunity water system that serves a residential

population or a school shall be equal to the average daily demand during the peak month of the year. Storage

capacity may be based on existing consumption and phased as the water system expands.

28

71854 8

20 DECISION NO.

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 24 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

Johnson asserted that the Rancho Sendero 0.5 MG storage tank is "necessary and integral to 

the operation of the Anthem at Merrill Ranch water system," and that "both storage tanks are 

necessary to provide safe and reliable water service to Anthem at Merrill Ranch."134 The Company 

argued that because it is not possible to pump water from the Rancho Sendero Well No. 2 into the 

distribution system without first pumping it into the 0.5 MG storage tank, it would be inequitable to 

remove it from plant in service as excess capacity.I35 The Company also argued that its storage 

requirement for the Anthem at Merrill Ranch subdivision is 1,397,240 gallons.136 The Company 

reached this figure based on a two-day storage capacity, using a customer usage amount of 260 

gallons per customer per day, which the Company stated that it uses for system design and planning 

purposes, and multiplying that number by the Company's projected 2,687 customers at the end of 

2012.137

Staff based its capacity allowance for the Anthem at Merrill Ranch subdivision on the 

requirements of A.A.C. R18-503(B), and determined that the necessary storage requirement for this 

system is 714,800 gallons per day for the five year planning period following the test year.I38 Staff 

disagreed with the Company's arguments that it is inequitable to exclude excess capacity from rate 

base because the plant in question remains connected to the system.I39 Staff argued that it is not an 

uncommon occurrence,

140 and that it would be inequitable to include plant in rate base when the 

plant capacity exceeds what is needed to serve customers. 

The Company's arguments that the configuration of the Anthem system makes it 

"inequitable" to exclude plant from rate base are not convincing. We agree with Staff that excluding 

B. The minimum storage capacity for a multiple-well system for a CWS or a noncommunity water system that 

serves a residential population or a school may be reduced by the amount of the total daily production capacity 

minus the production from the largest producing well. 

134 Co. Br. at 9. 

135 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 11; Co. Br. at 12. 

136Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 10-11; Co. Br. at 12. 

I" Id. 

138 Surrebuttal Testimony of Staff witness Marlin Scott, Jr. (Exh. S-37) at 5. 

139 Staff Reply Br. at 5, citing Tr. at 1484. 

21 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1

Johnson asserted that the Rancho Sendero 0.5 MG storage tank is "necessary and integral to

2 the operation of the Anthem at Merrill Ranch water system," and that "both storage tanks are

3 necessary to provide safe and reliable water service to Anthem at Merrill Ranch."]34 The Company

4 argued that because it is not possible to pump water from the Rancho Senders Well No. 2 into the

5

6

"7I

I distribution system without first pumping it into the 0.5 MG storage tank, it would be inequitable to

I remove it from plant in service as excess capacity.I35 The Company also argued that its storage

I requirement for the Anthem at Merrill Ranch subdivision is 1,397,240 gallons.I36 The Company

8

9 reached this figure based on a two-day storage capacity, using a customer usage amount of 260

10 gallons per customer per day, which the Company stated that it uses for system design and planning

l l purposes, and multiplying that number by the Company's projected 2,687 customers at the end of

12 2012.137

13 Staff based its capacity allowance for the Anthem at Merrill Ranch subdivision on the

14

requirements of A.A.C, R18-503(B), and determined that the necessary storage requirement for this

15

16

system is 714,800 gallons per day for the five year planning period following the test y€8r.138 Staff

17 disagreed with the Company's arguments that it is inequitable to exclude excess capacity from rate

18

19

base because the plant in question remains connected to the system.l39 Staff argued that it is not an

uncommon occurrence,40 and that it would be inequitable to include plant in rate base when the

'7 . .

J ) plant capacity exceeds what is needed to serve customers.

7 1

The Company's arguments that the configuration of the Anthem system makes it

22

"inequitable" to exclude plant from rate base are not convincing. We agree with Staff that excluding

23 i

24

25

26

27

28

B. The minimum storage capacity for a multiple-well system for a CWS or a noncommunity water system that

serves a residential population or a school may be reduced by the amount of the total daily production capacity

minus the production from the largest producing well.

134 Co. Br. at 9.

135 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at ll, Co. Br. at 12.

}§jt<ebuttai Testimony of Company witness Brian Tornpsett (Exp. A-5) at 10-1 l, Co. Br. at 12.

I d

138 Su1Tebuttal Testimony of Staff witness Marlin Scott, Jr. (Exp. S-37) at 5.

139 Staff Reply Br. at 5, citing Tr. at 1484.

21 DECISION NO. 71854

z

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 25 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

storage capacity from plant in service does not require physical removal of the plant, and therefore 

does not cause reliability concerns. We also agree with Staff that it is inequitable to require 

ratepayers to pay rates that include a return on more plant than what is reasonably projected to be 

required to serve customers during a reasonable planning horizon. Ratepayers should not be made to 

pay for unnecessary plant capacity due to the Company's chosen plant configuration. 

We find, based on the evidence presented, that the Anthem system's Rancho Sendero 0.5 

MG storage tank constitutes excess capacity and will exclude its $433,238 cost from plant in service 

in this case, along with the corresponding CIAC and AIAC adjustments. 141

b. San Tan WWTP 

Staff stated that the Santan Water Reclamation Plant ("San Tan WWTP") contains excess 

capacity because according to information provided by the Company, the 1.0 MGD Phase II 

capacity, at a cost of $5,443,062, is not needed based upon growth projections for the five year 

planning period.142 The Company asserted that "the Phase II capacity will be put to use by late 2009 

to treat wastewater flow that will be redirected from Johnson Utilities' Pecan WWTP, which is 

currently nearing constructed capacity."143 The Company's witness testified that the Company "is 

currently planning/engineering upgrades to the Morning Star Farms and Circle Cross lift stations, 

and planning/engineering the construction of one mile of new force main which will enable the 

Company to redirect flows from the Pecan WWTP to the Santan WWTP. By so doing, Johnson 

Utilities can delay the costly construction of an additional 2.0 MGD at the Pecan WWTP."I44

Johnson argued that its decision to redirect wastewater flows to the Santan WWTP was prudent, 

because it gives the Company greater operational flexibility in treating wastewater flows in its 

14° Tr. at 1472. 

141See Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 3-4. 

142 Tr. at 1425; Direct Testimony of Staff witness Marlin Scott, Jr. (Exh. S-36) at Exhibit MSJ, p 35; Surrebuttal 

Testimony of Staff witness Marlin Scott, Jr. (Exh. S-37) at 9-10. 

143 Co. Br. at 24; citing to Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 38. 

144 Co. Br. at 24; Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 39. 

22 DECISION NO. iisset 

DOCKET NO. WS-02987A-08-0180

1 storage capacity from plant in service does not require physical removal of the plant, and therefore

2 does not cause reliability concerns. We also agree with Staff that it is inequitable to require

3 ratepayers to pay rates that include a return on more plant than what is reasonably projected to be

4 required to serve customers during a reasonable planning horizon. Ratepayers should not be made to

5 . »

pay for unnecessary plant capacity due to the Company's chosen plant configuration.

6

We find, based on the evidence presented, that the Anthem system's Rancho Sendero 0.5

7

MG storage tank constitutes excess capacity and will exclude its $433,238 cost from plant in service

8

9 in this case, along with the corresponding CIAC and AIAC adjustments. 141

10 b. San Tan WWTP

11 Staff stated that the Suntan Water Reclamation Plant ("San Tan WWTP") contains excess

12 capacity because according to information provided by the Company, the 1.0 MGD Phase II

13 capacity, at a cost of $5,443,062, is not needed based upon growth projections for the five year

14

planning period.142 The Company asserted that "the Phase II capacity will be put to use by late 2009

15

to treat wastewater flow that will be redirected from Johnson Utilities' Pecan WWTP, which is

16

17 currently nearing constructed capacity."I43 The Company's witness testified that the Company "is

18 currently planning/engineering upgrades to the Morning Star Farms and Circle Cross lift stations,

19 and planning/engineering the construction of one mile of new force main which will enable the

20 Company to redirect flows from the Pecan WWTP to the Suntan WWTP. By so doing, Johnson

21

Utilities can delay the costly construction of an additional 2.0 MGD at the Pecan wwTp."'44

22

Johnson argued that its decision to redirect wastewater flows to the Suntan WWTP was prudent,

23

24

because it gives the Company greater operational flexibility in treating wastewater flows in its

25

ZN

27

28

140 Tr. at 1472,

'4'see Surrebuttal Testimony of Staff witness Jeffrey michlik (Exp. s-39) at 3-4.

142 Tr. at 1425, Direct Testimony of Staff witness Marlin Scott, Jr. (Exh. S-36) at Exhibit MSJ, p 35, Surrebuttal

Testimony of Staff witness Marlin Scott, Jr. (Exh. S-37) at 9-10.

143 Co. Br. at 24, citing to Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 38.

144 Co. Br. at 24, Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 39.

22 DECISION NO. _]l854*

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 26 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

service area, and it allows the Company to obtain the maximum benefit from its combined 

wastewater treatment capacity.'45

We make no determination at this time on whether Johnson's operational decisions regarding 

the Pecan WWTP described in its witness' testimony are prudent. As Staff's witness testified, the 

construction proposed by the Company would occur almost two years beyond the end of the 2007 

test year, and would result in completely new flow data which would not match the test year flow 

data.146 It is undisputed that the Company's planned redirection of the wastewater flows from the 

Pecan WWTP did not occur during the test year, and had yet to occur at the time of the hearing.147

The evidence demonstrates that Phase II of the Santan WWTP was excess capacity during the test 

year. Staff's adjustments to plant in service for the Phase II excess capacity and the corresponding 

CIAC and AIAC adjustments148 are appropriate and will be adopted. 

5. Affiliate Profit 

This case presents us with the issue of a utility's transactions with its affiliates or related 

parties and how their profit should be treated in a ratemaking context. This Commission has 

addressed the issue of affiliate profit by disallowing affiliate companies' profits, in the form of both 

capitalized costs and expenses.149 As previously discussed, the Company was unable to provide 

adequate documentation to clearly show its plant costs, and the Company did not provide adequate 

documentation of the profit charged to the Company by affiliates or related parties. The Company 

did not dispute Staff's position that affiliate transactions require greater scrutiny than non-affiliate 

145 Co. Reply Br. at 5, citing to Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 38. 

149 See Surrebuttal Testimony of Staff witness Marlin Scott, Jr. (Exh. S-37) at 10. 

147 Staff Br. at 7. 

I48See Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 3-4. 

149 Staff Br. at 17, citing to Decision No. 69164 (December 5, 2006) (Black Mountain Sewer Corporation) and 

Decision No. 69664 (June 28, 2007) (Gold Canyon Sewer Company). 

23 DECISION NO. 71854 

I'ml DOCKET NO. WS-02987A-08-0180

1 5 service area, and it allows the Company to obtain the maximum benefit from its combined

2 wastewater treatment capacity. 145

3 We make no determination at this time on whether Johnson's operational decisions regarding

4 the Pecan WWTP described in its witness' testimony are prudent. As Staff' s witness testified, the

5

construction proposed by the Company would occur almost two years beyond the end of the 2007

6

7

test year, and would result in completely new flow data which would not match the test year flow

data.l46 It is undisputed that the Company's planned redirection of the wastewater flows from the

8

9 Pecan WWTP did not occur during the test year, and had yet to occur at the time of the hearing.l47

10 | The evidence demonstrates that Phase II of the Suntan WWTP was excess capacity during the test

1 1 I year. Staff"s adjustments to plant in service for the Phase II excess capacity and the corresponding

12 CIAC and AIAC adjustments are appropriate and will be adopted. r

r

13

5. Affiliate Profit

14

This case presents us with the issue of a utility's transactions with its affiliates or related

15

16 ,parties and how their profit should be treated in a ratemaking context. This Commission has

17 I addressed the issue of affiliate profit by disallowing affiliate companies' profits, in the term of both

18 1 capitalized costs and expenses.149 As previously discussed, the Company was unable to provide

19 i adequate documentation to clearly show its plant costs, and the Company did not provide adequate

20 g documentation of the profit charged to the Company by affiliates or related parties. The Company

21 did not dispute Staffs position that affiliate transactions require greater scrutiny than non-affiliate

22

23

24

25

26

27

28

145 Co, Reply Br. at 5, citing to Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 38.

146 See Surrebuttal Testimony of Staff witness Marlin Scott, Jr. (Exh. S-37) at 10.

147 Staff Br. at 7.

148888 Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 3-4.

149 Staff Br. at 17, citing to Decision No. 69164 (December 5, 2006) (Black Mountain Sewer Corporation) and

| Decision No. 69664 (June 28, 2007) (Gold Canyon Sewer Company).

al 23 DECISION no. 71854 I

1

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 27 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

?3 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

transactions,15° and did not dispute the Commission's authority to exclude affiliate profit from plant 

in service.151 RUCO did not brief this issue. 

Two issues are in dispute in regard to an affiliate profit adjustment: (1) the amount of plant 

in service that should be subject to the adjustment; and (2) the appropriate percentage of the 

adjustment. Staff recommended that an affiliate profit adjustment of 7.5 percent should be applied 

to the Company's entire plant in service balance. The Company recommended that an affiliate profit 

adjustment of 1.75 percent be applied only to the amount of plant that the Company acknowledges 

was constructed by affiliates. 

Staff's recommended adjustments to remove capitalized affiliate profit from plant in service 

are $5,017,752 for the water division, and $7,352,364 for the wastewater division.152 Staff made the 

adjustments to plant in service balances following its other recommended adjustments. Staff's 

proposed affiliate profit removal adjustment was applied to plant in service balances of $66,903,360 

for the water division, and $98,031,517 for the wastewater division.153

Johnson proposed affiliate profit removal adjustments to plant in service of $469,832 for the 

water division and $800,179 for the wastewater division.' 54 Johnson's proposal is based on the 

amount of plant in service it acknowledged was constructed by affiliates: $26,847,516 for the water 

division, and $45,724,508 for the wastewater division.'55

a. Affiliate/Related Party Constructed Plant in Service 

In the course of analyzing the Company's application in regard to plant in service, Staff 

determined that Company affiliates constructed substantially all the Company's plant.' 56 The 

15° Co. Reply Br. at 23. 

151 Id.. at 24. 

152 Staff Final Schedules JMM-W3, page 1 of 2, JMM-W-8, JMM-WW3, page 1 of 2, JMM-WW8. 

153 Staff Final Schedules JMM-W-8, JMM-WW8. 

154 Co. Br. at 4, 17, citing to Rebuttal Testimony of Thomas Bourassa (Exh. A-2) Vol. II at 4, Vol. III at 5; Co. 

Reply Br. at 24; Company Final Schedules Water B-2, page 3.1, Wastewater B-2, page 3.1. 

155 Company Final Schedules Water B-2, page 3.1, and Wastewater B-2, page 3.1. 

156 Staff Br. at 12; Direct Testimony of Staff witness Jeffrey Michlik (S-38) at 12; Surrebuttal Testimony of Staff 

witness Jeffrey Michlik (Exh. S-45) at 12. 

24 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

I transactions,l50 and did not dispute the Commission's authority to exclude affiliate profit from plant

2 in service.1 RUCO did not brief this issue.

1

3

I

4 in service that should be subject to the adjustment, and (2) the appropriate percentage of the

Two issues are in dispute in regard to an affiliate profit adjustment: (1) the amount of plant

5

adjustment. Staff recommended that an affiliate profit adjustment of 7.5 percent should be applied

6

to the Company/'s entire plant in service balance. The Company recommended that an affiliate profit

7

8

adjustment of 1.75 percent be applied only to the amount of plant that the Company acknowledges

9 was constructed by affiliates.

10 Staffs recommended adjustments to remove capitalized affiliate profit from plant in service

1 1 are $5,017,752 for the water division, and $7,352,364 for the wastewater division.152 Staff made the

12 adjustments to plant in service balances following its other recommended adjustments. Staff" s

13 proposed affiliate profit removal adjustment was applied to plant in service balances of $66,903,360

14

for the water division, and $98,031 ,517 for the wastewater division.l53

15

16

Johnson proposed affiliate profit removal adjustments to plant in service of $469,832 for the

17 water division and $800,179 for the wastewater divisi0n.'54 Johnson's proposal is based on the

18 amount of plant in service it acknowledged was constructed by affiliates: $26,847,516 for the water

i9 division, and 845,724,508 for the wastewater divi$i0n.'55

20 a. Affiliate/Related Party Constructed Plant in Service

21

In the course of analyzing the Company's application in regard to plant in service, Staff

22

determined that Company affiliates constructed substantially all the Company's plant.156 The

23

24

25

26

27

28

150 Co. Reply Br. at 23.

151 ld., at 24.

152 Staff Final Schedules JMM-W3, page l off, JMM-W-8, JMM-WW3, page l of 2, JMM-WW8.

153 Staff Final Schedules JMM-w-8, JMM-WW8.

i 54 Co. Br. at 4, 17, citing to Rebuttal Testimony of Thomas Bourassa (Exh. A-2) Vol. II at 4, Vol. III at 5, Co.

Reply Br. at 24, Company Final Schedules Water B-2, page 3. 1, Wastewater B-2, page 3. l -

155 Company Final Schedules Water B-2, page 3.1, and Wastewater B-2, page 3. l .

156 Staff Br, at 12, Direct Testimony of Staff witness Jeffrey Michlik (S~38) at 12, Surrebuttal Testimony of Staff

witness Jeffrey Michlik (Exh. S-45) at 12.

24 DECISION N() . 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 28 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

Company argued that Staff "improperly assumed that all plant recorded on the Company's books 

was constructed by affiliates" and that its lower percentage affiliate profit adjustment should be 

applied only to the plant the Company contends was constructed by affiliates.157 However, with the 

exception of contributed plant, which is excluded from rate base, the Company failed to demonstrate 

that any entity other than Company affiliates or related parties constructed the Company's water or 

wastewater plant between 1998 and 2007. 

Staff stated that the canceled checks and bank statements provided by the Company for the 

purpose of supporting payments made for plant showed that payments were made to a Company 

affiliate, and to no other construction entity.158 The Company provided no documentation showing 

any major construction performed by any entity other than affiliates since 1998.159 Staff stated that 

its audit of the Company's bank records could not verify the amount that the Company claimed 

represented affiliate-constructed wastewater plant, and that documentation provided by the Company 

conflicted with some Company responses to data requests.160 The 2006 external audit report of the 

Company's financial statements, prepared by Henry & Horne, specified in Note 3 that "substantially 

all of the water and sewer construction for. the Company" was affiliate contracted.161

The Company argued that there was a "lack of consistency" between a Staff witness' prefiled 

testimony that "[tjhe Company used affiliates to construct approximately all plant after 1998" and 

the witness' negative response on cross-examination to a question regarding whether "100 percent of 

Johnson Utilities' plant was constructed by affiliates."162 We find that there was no inconsistency 

157 Co. Br. at 4, 15. 17, citing to Rebuttal Testimony of Thomas Bourassa (Exh. A-2) Vol. II at 4-5, Vol. 111 at 5; Co. 

Reply Br. at 24. 

158 Staff Br. at 15-16; Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-45) at 11-12; Staff Reply Br. at 2. 

159 Surrebuttal Testimony of Staff witness Jeffrey Michlik (S-45) at 12. 

166 Staff Br. at 15-16; Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-45) at 11-12; Staff Reply Br. at 2. 

161 Staff Reply Br. at 2; citing to Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-45) at 14. 

162 Co. Reply Br. at 25, citing to Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-45) at 12 and Tr. 1576. 

25 DECISION NO. 71854 

DOCKET NO. WS-02987/-08-0180

1 Company argued that Staff "improperly assumed that all plant recorded on the Company°s books

2 was constructed by affiliates" and that its lower percentage affiliate profit adjustment should be

3 applied only to the plant the Company contends was constructed by afHliates.]57 However, with the

4 exception of contributed plant, which is excluded from rate base, the Company failed to demonstrate

5 | . .

ll that any entity other than Company affiliates or related pomes constructed the Company's water or

6

lwastewater plant between 1998 and 2007.

7

8

Staff stated that the canceled checks and bank statements provided by the Company for the

9 purpose of supporting payments made for plant showed that payments were made to a Company

10 | affiliate, and to no other construction entity.158 The Company provided no documentation showing

ll I any major construction performed by any entity other than affiliates since 1998959 Staff stated that

12 1 its audit of the Company's bank records could not verify the amount that the Company claimed

13 I represented affiliate-constructed wastewater plant, and that documentation provided by the Company

i conflicted with some Company responses to data requests.l60 The 2006 external audit report of the

16

Company's financial statements, prepared by Henry & Home, specified in Note 3 that "substantially

17 all of the water and sewer construction for. the Company" was affiliate contracted 61

18 The Company argued that there was a "lack of consistency" between a Staff witness' prefixed

19 testimony that "[t]he Company used affiliates to construct approximately all plant after l998" and

20

21

I

the witness' negative response on cross-examination to a question regarding whether "100 percent of

Johnson Utilities' plant was constructed by affiliates."I62 We find that there was no inconsistency

22

23

24

25

26

27

28

157 Co. Br. at 4, 15. 17, citing to Rebuttal Testimony of Thomas Bourassa (Exh. A-2) Vol. ll at 4-5, Vol. III at 5, Co.

I Reply Br, at 24. .

158 Staff Br. at 15-16, Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-45) at I 1-12, Staff Reply Br. at 2.

159 Surrebuttal Testimony of Staff witness Jeffrey Michlik (S-45) at 12.

160 Staff Br. at 15-16, Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-45) at 11-12, StaffRep1y Br. at 2.

161 Staff Reply Br. at 2, citing to Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-45) at 14.

162 Co. Reply Br. at 25, citing to Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-45) at 12 and Tr. 1576.

25 DECISION NG. 71854

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 29 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

between the witness' response, which explained that some plant developer-contributed plant was not 

constructed by affiliates, and the prefiled testimony.' 63 

(1) Affiliate/Related Party Ownership 

Johnson is organized as a limited liability corporation, and its membership is comprised of 

the George Johnson Revocable Trust, George and Jana Johnson, co-trustees,164 and Connorg, LLC 

("Connorg").' 65 The members of Connorg are Brian Tompsett, Executive Vice President of Johnson 

Utilities, and his wife Susan Tompsett.I66

During its analysis of the application, Staff requested information from the Company 

regarding the contracting companies that constructed plant for the Company's water and wastewater 

divisions for the years 1997-2007.167 Staff asked the Company to identify the owners of the 

contracting companies, and to indicate whether or not the contracting company or companies were 

affiliated with Johnson Utilities, and if so, how.168 The Company provided information for the years 

1998 through 2007, and stated that no plant was constructed prior to 1998.169 For the years 1998 

through 2003, Boulevard Contracting Company, Inc., which was owned by George Johnson, 

constructed water and wastewater plant for the Company.17° For the years 2004 through 2006, the 

Company identified Central Pinal as the contracting company that constructed plant for the 

Company's water and wastewater divisions.171 The Company identified the owners of Central Pinal 

from 2004 through 2006 as Crisbar, LLC, Connorg, Chris Johnson Family Trust, Barjo LLC, and 

163 Tr. at 1576. 

164 Jana Johnson is George Johnson's wife. Tr. at 862. 

165 Hearing Exh. SF-1. 

166 Tr. at 867; Exh. S-20. 

167 Exh. S-20. 

168 Id. 

169 Id.

170 Exh. S-20. Corporations Division records show that Boulevard Contracting Company, Inc. was incorporated on 

December 18, 1998, with George Johnson and Jana Johnson as officers, and that it was administratively dissolved for 

failure to file its annual report. Staff Br. at 12. 

171 Exh. S-20. 

26 DECISION NO. 7185_4_ 

DOCKET NO. WS-02987A-08-0180

1 between the witness' response, which explained that some plant developer-contributed plant was not

2 constructed by affiliates, and the prefixed testimony.163

3 (1) Affiliate/Related Party Ownership

4 Johnson is organized as a limited liability corporation, and its membership is comprised of

5

the George Johnson Revocable Trust, George and Jana Johnson, co-trustees, and Connors, LLC

1-64

6

("Connorg").I65 The members of Comorgare Brian Tompsett, Executive Vice President of Johnson

7

Utilities, and his wife Susan Tompsett.'66

8

9

During its analysis of the application, Staff requested information from the Company

I() regarding the contracting companies that constructed plant for the Company's water and wastewater

l l divisions for the years 1997-2007.'67 Staff asked the Company to identify the owners of the

12 contracting companies, and to indicate whether or not the contracting company or companies were

13 affiliated with Johnson Utilities, and if so, h0w.168 The Company provided information for the years

14

1998 through 2007, and stated that no plant was constructed prior to 1998.169 For the years 1998

15

through 2003, Boulevard Contracting Company, Inc., which was owned by George Johnson,

16

17 constructed water and wastewater plant for the Company.170 For the years 2004 through 2006, the

18 Company identified Central Pinar as the contracting company that constructed plant for the

19 Company's water and wastewater divisions.l7I The Company identified the owners of Central Penal

20 from 2004 through 2006 as Crisbar, LLC, Connors, Chris Johnson Family Trust, Banjo LLC, and

21

22

23

24

25

26

163 Tr. at 1576.

164 Jana Johnson is George Johnson's wife. Tr. at 862.

165 Hearing Exh. SF-l.

166 Tr. at 867, Exp. s-20.

167 Exp. s-20.

168 Id.

169 Ia/.

27 170 Exp. S-20. Corporations Division records show that Boulevard Contracting Company, Inc. was incorporated on

December 18, 1998, with George Johnson and Jana Johnson as officers, and that it was administratively dissolved for

failure to file its annual report. Staff Br. at 12.

171 Ex11. s-20. 28

26 D E C I S I O N n o . _11854L

3

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 30 of 134
1 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

Margarett Bullard.I72 The members of Crisbar, LLC are Atlas Southwest, Inc. and the George H. 

Johnson Revocable Trust.I73 Atlas Southwest, Inc.'s officers and directors are George H. Johnson 

and Jana S. Johnson.174 For the year 2007, the Company also identified Central Pinal as a 

contracting company that constructed plant for the Company, but indicated that in 2007 Central 

Pinal was owned by the Roadrunner Trust.I75 Prior to January 2007, the manager of Central Pinal 

was Atlas Southwest, Inc.,176 and the member was Crisbar, LLC.I77 In January of 2007, Barbara A. 

Johnson and Christopher Johnson, the daughter and son of George Johnson,178 became the managers 

of Central Pinal, and the sole member of Central Pinal became the Roadrunner Trust, with Barbara 

A. Johnson and Christopher Johnson, co-trustees.179

Other Johnson affiliates that have provided services to the Company are Specific 

Engineering, LLC ("Specific") and Shea Utility Services, Inc. ("Shea" ).180 From 2004 through 

2008, Specific's member and manager were Atlas Southwest, but in 2008, its membership was 

changed to the Roadrunner Trust.181 Shea currently provides management services and operations 

for the Company.182 In a 2004 annual report, George and Jana Johnson were listed as Shea's 

president and secretary/treasurer, respectively, Brian Tompsett was listed as executive vice 

president, and George and Jana Johnson were listed as directors.183 In January of 2007, however, 

George Johnson's children, Christopher and Barbara Johnson, took office as president, secretary, and 

treasurer, and as directors, of Shea.I84

172 Id 

173 Exh. S-10. 

174 Exh. S-9. 

175 Exh. S-20. 

i'''Atlas Southwest, Inc.'s officers and directors are George H. Johnson and Jana S. Johnson. Exh. S-9. 

177 Staff Br. at 12; citing to Exhs. S-3 and S-4. 

178 Tr. at 856 

179 Exh. S-4. 

180 Exh. S-2. 

181 Staff Br. at 13; Exhs. S-5, S-6. 

182 Tr. 864. 

183 Exh. S-12. 

184 Exh. S-13. 

27 DECISION NO. 11 8 5 4 

DOCKET NO. WS-02987A-08-0180

4

1

Margarete Bullard.172 The members of Crisbar, LLC are Atlas Southwest, Inc. and the George H.

2

Johnson Revocable Trust.173 Atlas Southwest, Inc.'s officers and directors are George H. Johnson

3 and Jana S. Johnson.l74 For the year 2007, the Company also identified Central Penal as a

4 contracting company that constructed plant for the Company, but indicated that in 2007 Central

5 Penal was owned by the Roadrunner Trust.175 Prior to January 2007, the manager of Central Penal

6

was Atlas Southwest, 1nc.,176 and the member was Crossbar, LLC.l77 In January of 2007, Barbara A.

7

Johnson and Christopher Johnson, the daughter and son of George Johnson,78 became the managers

8

9

of Central Pima), and the sole member of Central Penal became the Roadrunner Trust, with Barbara

10 A. Johnson and Christopher Johnson, co-trustees.l79

11 Other Johnson affiliates that have provided services to the Company are Specific

12 Engineering, LLC ("Specific") and Shea Utility Sel'vices, Inc. ("Shea").180 From 2004 through

13

14

2008, Specific's member and manager were Atlas Southwest, but in 2008, its membership was

changed to the Roadrunner Trust.181 Shea currently provides management services and operations

15

for the Com any.l82 p In a 2004 annual report, Geom e and Jana Johnson were listed as Shea's g I

17 1 president and secretary/treasurer, respectively, Brian Tompsett was listed as executive vice

18 I president, and George and Jana Johnson were listed as directors.l83 In January of 2007, however,

19 I George Johnson's children, Christopher and Barbara Johnson, took office as resident, secretary, and p

20 treasurer, and as directors, of Shea.l84

16

21

22

23

24 i

25

26

27

28

i72 Id.

178 Exp. s-10.

174 Exp. s-9.

175 Em. s-20.

l76AtIas Southwest, Inc.'s officers and directors are George H. Johnson and Jana S. Johnson. Exh. S-9.

177 Staff Br. at 12, citing to Eths. S-3 and S-4.

178 Tr, at 856.

179 Ex11. s-4.

is Em. s-2.

181 Staff Br. at 13, Exhs. s-5, s-6.

182 Tr. 864,

183 Exp. s-12.

184 Em. s-13.

27 DECISION NC). 11854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 31 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

1:3 

14 

15 

16 

17 

18 

19 

20 

21 

77 

23 

24 

25 

26 

27 

28 

b. Reasonableness of Affiliate/Related Party Transactions 

Staff stated that it could not determine whether the transactions between Johnson and its 

affiliates were arm's length transactions."5 Staff was concerned by the fact that Mr. Tompsett was 

both an executive of the Company and an owner of its affiliate Central Pinal while Central Pinal was 

building water and wastewater plant for the Company.186 The fact that Mr. Tompsett was 

compensated for his roles both at Shea and the Company"' also caused Staff to question the arm's 

length nature of transactions between the Company and its affiliates.I88 Staff was unable to conduct 

an audit on the Company's affiliate construction project bids to determine whether they were fair 

and protected ratepayers from being charged too much for plant, because while the Company claims 

that it competitively bid its construction projects, the Company did not retain any bids.I89

The Company, contending that Central Pinal is no longer a Company affiliate, did not allow 

Staff to verify the underlying affiliate records associated with documentation regarding plant 

construction by Central Pinal.19° The Company's witness testified that the change of membership 

and management of Central Pinal renders it no longer an affiliate of Johnson Utilities.i9I According 

to Staff, the Company also contended that it was not required to disclose any transactions with 

Specific, because in 2008, it ceased being an affiliate of Johnson.'92

Staff argued that even accepting the Company's contention that Central Pinal, Shea and 

Specific are no longer Company affiliates due to the changes in ownership, family relationships 

make any transactions between the Company and these entities related party transactions, which 

should be subject to greater scrutiny.193 Staff asserted that because the son and daughter of the 

185 Staff Br. at 15. 

186 Staff Br. at 15-16. 

187 Tr. at 864. 

188

. Staff Br. at 13. 

189 Staff Br. at 15, citing to Direct Testimony of Staff witness Jeffrey Michlik (S-38) at 12. 

19° Staff Reply Br. at 6, Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-45) at 6. 

191 Tr. at 857. 

192 Staff Br. at 13. 

193 Staff Br. at 15. 

28 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

b. Reasonableness of Affiliate/Related Party Transactions 1

2

Staff stated that it could not determine 'whether the transactions between Johnson and its

3 affiliates were arm's length tra11sactions.I85 Staff was concerned by the fact that Mr. Tompsett was

4 both an executive of the Company and an owner of its affiliate Central Penal while Central Pinal was

building water and wastewater plant for the Company.86 The fact that Mr. Tompsett was

6

compensated for his roles both at Shea and the Company 87 also caused Staff to question the arm's

7

length nature of transactions between the Company and its afflliates."'* Staff was unable to conduct

8

5

9 an audit on the Company's affiliate construction project bids to determine whether they were fair

10

l 1

and protected ratepayers from being charged too much for plant, because while the Company claims

that it competitively bid its construction projects, the Company did not retain any bid8.189

12 The Company, contending that Central Pine] is no longer a Company affiliate, did not allow

1° , , . . , ,

J Staff to verify the underlying affiliate records associated wlth documentatlon regarding plant

14

construction by Central Pinal.I90 The Company's witness testified that the change of membership

15

16

and management of Central Pinal renders it no longer an affiliate of Johnson Uti1m@3.19' According

17

18

I to Staff, the Company also contended that it was not required to disclose any transactions with

I Specific, because in 2008, it ceased being an affiliate of Johnson.192

19 Staff argued that even accepting the Company's contention that Central Penal, Shea and

20 Specific are no longer Company affiliates due to the changes in ownership, family relationships

21

make any transactions between the Company and these entities related party transactions, which

97

should be subject to greater scrutiny.l93 Staff asserted that because the son and daughter of the

23

24

25

26

27

28

185 Staff Br. at 15.

186 staff 13r. at 15-16.

187 Tr. at 864.

' ". Staff Br. at 13.

189 Staff Br. at 15, citing to Direct Testimony of Staff witness Jeffrey Michlik (S-38) at 12.

190 Staff Reply Br. at 6, Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-45) at 6.

"" Tr. at 857.

192staff Br. at 13.

193 Staff Br. at 15.

28 DECISION NO. 71854

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 32 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

owner and founder of Johnson Utilities are owners of the entity that provides construction services to 

the Company, transactions between the Company and Central Pinal are related party transactions 

within the definition provided by the Financial Accounting Standards Board ("FASB") in its 

Statement of Financial Accounting Standards No. 57 ("FAS 57").194 Staff argued that although a 

transaction between related parties is not per se unreasonable, the Company has the burden of 

proving that resulting costs are reasonable.195

There is no dispute that the Company reported Central Pinal, Shear and Specific Engineering, 

LLC as affiliates for the calendar year ending December 31, 2006.196 The Commission's Public 

Utility Holding Companies and Affiliated Interests Rules ("Affiliated Interests Rules") define 

"affiliate" as follows: 

"Affiliate," with respect to the public utility, shall mean any other entity directly 

or indirectly controlling or controlled by, or under direct or indirect common 

control with the public utility. For purposes of this definition, the term "control" 

(including the correlative meanings of the terms "controlled by" and "under 

common control with"), as used with respect to any entity, shall mean the power 

to direct the management policies of such entity, whether through ownership of 

voting securities, by contract, or otherwise. 

A.A. C. R14-2-801(1) (emphasis added). 

The Company denied that it engaged in any related party transactions.197 The Company 

disagreed that "certain entities with which the Company has done business should be treated as 

affiliates based solely upon the familial relationships of members of these entities and members of 

Johnson Utilities."198 The Company argued, without citation, that "[o]nly an entity which can be 

directed is deemed to be an affiliate" and that "[a]bsent sufficient ownership of voting securities, 

194 Staff Br. at 15, citing to FAS 57, which provides guidance for accounting disclosure of related party transactions. 

FAS 57 provides examples of related party transactions, including transactions between (a) a parent company and its 

subsidiaries; (b) subsidiaries of a common parent; (c) an enterprise and trusts for the benefit of employees, such as 

pension and profit-sharing trusts that are managed by or under the trusteeship of the enterprise's management; (d) an 

enterprise and its principal owners, management, or members of their immediate families; and (e) affiliates. 

195 Staff Br. at 15, citing to Florida Power Corp. v. Cresse, 413 So.2d 1187 (Fla. 1982) at 1191. 

196 Exh. S-2. 

197 Exh. S-18; Tr. at 897-900. 

198 Co. Reply Br. at 23. 

29 DECISION NO. 71854 

DOCKET no. WS-02987A~08-0180

1 owner and founder of Johnson Utilities are owners of the entity that provides construction services to

2 the Company, transactions between the Company and Central Penal are related party transactions

3 within the definition provided by the Financial Accounting Standards Board ("FASB") in its

4 Statement of Financial Accounting Standards No. 57 ("FAS 57>>).194 Staff argued that although a

5

6

transaction between related parties is not per Se unreasonable, the Company has the burden of

proving that resulting costs are reasonab1e.l95

7

8

There is no dispute that the Company reported Central Penal, Shea, and Specific Engineering,

9

LLC as affiliates for the calendar year ending December 31, 2006.196 The Commission's Public

10 I Utility Holding Companies and Affiliated Interests Rules ("Affiliated Interests Rules") define

1 l | "affiliate" as follows:

12 |

13

»

I

14

15

16

"Affiliate," with respect to the public utility, shall mean any other entity directly

or indirectly controlling or controlled by, or under direct or indirect common

control with the public utility. For purposes of this definition, the term "control"

(including the correlative meanings of the terms "controlled by" and "under

common control with"), as used with respect to any entity, shall mean the power

to direct the management policies of such entity, whether through ownership of

voting securities, by contract, or otherwise.

A.A.C. R14-2-80l(l) (emphasis added),

17

The Company denied that it engaged in any related party transactions.l97 The Company

18

disagreed that "certain entities with which the Company has done business should be treated as

19

70 affiliates based solely upon the familial relationships of members of these entities and members of

91 Johnson Utilities."I98 The Company argued, without citation, that "[o]nly an entity which can be

22 directed is deemed to be an affiliate" and that "[a]bsent sufficient ownership of voting securities,

23

24

25

26

27

28

194 Staff' Br. at 15, citing to FAS 57, which provides guidance for accounting disclosure of related party transactions.

FAS 57 provides examples of related party transactions, including transactions between (a) a parent company and its

subsidiaries, (b) subsidiaries of a common parent, (c) an enterprise and trusts for the benefit of employees, such as

pension and profit-sharing trusts that are managed by or under the trusteeship of the enterprise's management, (d) an

enterprise and its principal owners, management, or members of their immediate families, and (e) affiliates.

195 Staff Br. at 15, citing toFloridaPower Corp. v. Crease,413 So.2d 1187 (Fla. 1982) at 1 191.

196 Em s-2.

197 Exp. s-18, Tr. at 897-900.

198 Co. Reply Br. at 23;

Z9 DECISION ms. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 33 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

contract or some other right to direct management policies, the other entity is not an affiliate."199

The Company then argued that other than "alleged family relations," no evidence was provided that 

the Company has any control over "these separate entities."200 For its proposition that control cannot 

be imputed through family attribution, the Company cited to two United States Court of Appeals 

opinions involving decedents' estates.201

The Company's arguments, including the cited cases, are not relevant to the issue in this case 

of the appropriate ratemaking treatment of profit provided by a utility company to an affiliate or 

related party, which has been brought to the fore by the Company's failure to produce adequate plant 

documentation. Although given the opportunity to do so, Johnson Utilities presented no evidence 

that the costs of the utility plant were determined as a result of arm's length transactions. Neither 

has the Company presented evidence demonstrating that Central Pinal, which it formerly reported as 

an affiliate,202 and which currently shares common or familial ties with the owners and directors of 

Johnson Utilities,203 is not subject to direct or indirect control by the Company's members. 

c. Affiliate/Related Party Profit Adjustment 

As Staff pointed out, a regulated utility has a duty to serve its customers in a fair and 

equitable manner, and this includes the obligation to get the best price for services to its 

customers.204 A regulated utility has an obligation not to promote profitability for itself or another 

interested company in a transaction that may not be at arm's length to the detriment of its 

customers.205 Fair competitive bids protect ratepayers from being charged too much for plant. 

While the Company claimed that there was a competitive bidding process for construction of its 

199 Company Reply Br. at 23-24. 

200 Co. Reply Br. at 23. 

201 Propstra v. U.S., 680 F.2d 1248 (9th Cir. 1981) (without an explicit directive from Congress, courts cannot require 

executors to make inquiries into the feelings, attitudes, and anticipated behavior of those holding undivided interests in 

property owned by estates, legatees, or heirs), and Bright v. U.S., 658 F.2d 999 (5th Cir. 1981) (no element of control 

could be attributed to decedent in determining value of decedent's interest in stock). 

202 Exh.

203 Exhs. S-4 (Central Pinal), S-6 (Specific Engineering, LLC), and S-13 (Shea). 

204 See Staff Br. at 15. 

71854 30 DECISION NO. 

DOCKET NO. WS-02987A-08-0180

1 contract or some other right to direct management policies, the other entity is not an affi1iate."199

2 The Company then argued that other than "alleged family relations," no evidence was provided that

3 the Company has any control over "these separate entities."200 For its proposition that control cannot

4

5

be imputed through family attribution, the Company cited to two United States Court of Appeals

opinions involving decedents' estates.201

6

The Company's arguments, including the cited cases, are not relevant to the issue in this case

7

8

of the appropriate ratemaking treatment of profit provided by a utility company to an affiliate or

9

related party, which has been brought to the fore by the Company's failure to produce adequate plant

10 documentation. Although given the opportunity to do so, Johnson Utilities presented no evidence

l 1 that the costs of the utility plant were determined as a result of arm's length transactions. Neither

12 has the Company presented evidence demonstrating that Central Pinal, which it formerly reported as

13

an affiliate,202 and which currently shares common or familial ties with the owners and directors of

14

Johnson Uti1ities,203 is not subject to direct or indirect control by the Company's members.

15

c. Affiliate/Related Party Profit Adjustment

16

17 As Staff pointed out, a regulated utility has a duty to serve its customers in a fair and

18 equitable manner, and this includes the obligation to get the best price for services to its

19 customers.204 A regulated utility has an obligation not to promote profitability for itself or another

20 interested company in a transaction that may not be at arm's length to the detriment of its

21 205 customers . Fair competitive bids protect ratepayers from being charged too much for plant.

22

While the Company claimed that there was a competitive bidding process for construction of its

23

24

25

26

27

28

199 Company Reply Br. at 23-24.

200 Co. Reply Br. at 23.

201 Propstra v. US., 680 F.2d 1248 (9"' Cir. 1981) (without an explicit directive from Congress, courts cannot require

executors to make inquiries into the feelings, attitudes, and anticipated behavior of those holding undivided interests in

property owned by estates, legatees, or heirs), and Bright v. U.S., 658 F.2d 999 (5th Cir. 1981) (no element of control

c8u1d be attributed to decedent in determining value of decedent's interest in stock).

... Exp. S-2.

203 Eths. s-4 (Central Pinal), s-6 (Specific Engineering, LLC), and s-13 (Shea).

204 See Staff Br. at 15.

30 DECISION I\'Q 71854 I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 34 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

plant, which was subsequently all completed by entities who were either affiliates or related parties, 

the Company's claim cannot be verified, as the Company stated that it did not retain any bids. As 

Staff argued, the reasonableness of affiliate costs must be determined using some independent 

standard, and the Company could have done much more to gather sufficient, competent and reliable 

evidence to meet its burden of production.206 Due to the Company's failure to present bids for 

regulatory inspection, no audit could be conducted to determine whether the transactions conducted 

by the Company with affiliates or related parties were at arm's length. The evidence presented 

shows that an executive of the Company was an owner of Central Pinal, which constructed the plant 

which the Company is requesting be put in plant in service at full cost. The fact that ownership of an 

affiliate changed after relevant costs were incurred does not release the Company from its obligation 

to provide the Commission with adequate information about its transactions, be they affiliate 

transactions, related party transactions, or otherwise, for ratemaking purposes. The Company failed 

to keep adequate records of its affiliate/related party transactions to demonstrate that the costs the 

Company paid for plant were reasonable and appropriate, and were not detrimental to ratepayers. 

Because the Company failed to produce adequate documentation, the record in this case does 

not allow us to find that the amounts the Company paid to affiliates/related parties were competitive, 

fair and reasonable. In order to achieve just and reasonable rates for the Company's ratepayers, an 

adjustment must be made to remove the inflated cost associated with the profit the Company paid to 

affiliates/related parties for plant construction. Staff proposed adjustments subtracting affiliate profit 

from the Company's water and wastewater plant in service, after all other plant in service 

adjustments. After considering all the evidence presented, we find that the record is insufficient to 

support specific plant in service adjustments for the water division. Rather than estimating an 

205 See id. 

206 See Staff Br. at 16. 

31 DECISION NO. 71854 

H

DOCKET NO. WS-029877-08-0180

1 plant, which was subsequently all completed by entities who were either affiliates or related parties,

2 the Company's claim cannot be verified, as the Company stated that it did not retain any bids. As

3 Staff argued, the reasonableness of affiliate costs must be determined using some independent

4 standard, and the Company could have done much more to gather sufficient, competent and reliable

> evidence to meet its burden of production.206 Due

6

regulatory inspection, no audit could be conducted to determine whether the transactions conducted

7

to the Company's failure to present bids for

by the Company with affiliates or related parties were at arm's length.

8

The evidence presented

9 shows that an executive of the Company was an owner of Central Penal, which constructed the plant

10 which the Company is requesting be put in plant in service at full cost. The fact that ownership of an

l l aftlliate changed after relevant costs were incurred does not release the Company from its obligation

L to provide the Commission wlth adequate information about its transactions, be they affiliate

13 transactions, related party transactions, or otherwise, for ratemaking purposes. The Company failed

14

to keep adequate records of its affiliate/related party transactions to demonstrate that the costs the

15

16

Company paid for plant were reasonable and appropriate, and were not detrimental to ratepayers.

17 Because the Company failed to produce adequate documentation, the record in this case does

18 not allow us to find that the amounts the Company paid to affiliates/related parties were competitive,

19 fair and reasonable. In order to achieve just and reasonable rates for the Company's ratepayers, an

9 . - 1 . .

-0 adjustment must be made to remove the inflated cost associated wlth the profit the Company paid to

21

affiliates/related parties for plant construction. Staff proposed adjustments subtracting affiliate profit

22

from the Company's water and wastewater plant in service, after all other plant in service

23

24 adjustments. After considering all the evidence presented, we find that the record is insufficient to

25 support specific plant in service adjustments for the water division. Rather than estimating an

26

27

28

205 See id

206 See staff Br. at 16.

31 DECISION NO, I 71854 I

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 35 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

appropriate adjustment and excluding plant costs from the Company's rate base, we believe it is 

appropriate to make adjustments to the authorized operating margin. 

d. Affiliate/Related Party Transactions 

The Company, as a Class A Utility, is subject to the Commission's Affiliate Interests Rules. 

As set forth in the discussion above, the Company recently restructured several of its affiliates. In 

the course of this proceeding, no party made a recommendation regarding a finding whether the 

Company is in compliance or non-compliance with the Affiliate Interests Rules, and we make none 

at this time. We note, however, that evidence in this proceeding indicates that the Company used the 

fact that Central Pinal had been restructured as the basis for its refusal to provide documentation 

from Central Pinal to Staff upon Staff's request. The Company offered no explanation or argument 

regarding the reasons for any of the restructuring. 

The affiliate profit adjustment is necessary in this case due to the Company's lack of 

adequate record keeping and its failure to document competitive bids. As a regulated utility, it is 

incumbent upon the Company to ensure that its dealings are arm's length, transparent, and welldocumented. Based on the evidence in this proceeding, we find that it is reasonable and appropriate 

to require the Company to prepare an action plan that indicates the specific steps it will take to 

demonstrate, by means of its day to day record keeping regarding transactions between the Company 

and all entities with which it conducts business, including, but not limited to, its affiliates and related 

parties, that its dealings are arm's length, transparent, and well-documented. We will require the 

Company to file the plan for Staff's review, and will require Staff to assess the plan and its 

adequacy, and to file a report with Staffs findings and recommendations on the action plan 

accompanied by a Recommended Order for Commission approval or disapproval of the Company's 

action plan. In order to allow adequate time for the Company to retain a consultant to assist it in the 

32 DECISION NO. uss4 

DOCKET NO. WS-02987A-08-0180

1 appropriate adjustment and excluding plant costs from the Company's rate base, we believe it is

2 appropriate to make adjustments to the authorized operating margin.

3 d. Affiliate/Related Party Transactions

4 The Company, as a Class A Utility, is subject to the Commission's Affiliate Interests Rules.

5

As set forth in the dlscusslon above, the Company recently restructured several of its affiliates. In . . 1 . .

6

the course of this proceeding, no party made a recommendation regarding a finding whether the

7

8

Company is in compliance or non-compliance with the Affiliate Interests Rules, and we make none

9 at this time. We note, however, that evidence in this proceeding indicates that the Company used the

10 fact that Central Pima] had been restructured as the basis for its refusal to provide documentation

l l from Central Pinal to Staff upon Staff" s request. The Company offered no explanation or argument

12 regarding the reasons for any of the restructuring.

13 The affiliate profit adjustment is necessary in this case due to the Company's lack of

14

adequate record keeping and its failure to document competitive bids. As a regulated utility, it is

15

16

incumbent upon the Company to ensure that its dealings are Ann's length, transparent, and well17 documented. Based on the evidence in this proceeding, we find that it is reasonable and appropriate

18 to require the Company to prepare an action plan that indicates the specific steps it will take to

19 demonstrate, by means of its day to day record keeping regarding transactions between the Company

20 and all entities with which it conducts business, including, but not limited to, its affiliates and related

21

parties, that its dealings are arm's length, transparent, and well-documented. We will require the

77

Company to file the plan for Staffs review, and will require Staff to assess the plan and its

23

24 adequacy, and to tile a report with Staffs findings and recommendations on the action plan

25 accompanied by a Recommended Order for Commission approval or disapproval of the Company's

26 action plan. In order to allow adequate time for the Company to retain a consultant to assist it in the

27

28

32 DECISION NO. -11st-..

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 36 of 134
1 

3 

4 

5 

6 

7 

8 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

preparation of its action plan, we will allow the Company 90 days to prepare the plan and make the 

filing. 

B. Contributions in Aid of Construction ("CIAC") - Unexpended Hook-Up Fees 

("HUF") 

Johnson opposed the recommendation of Staff and RUCO to include unexpended hook-up 

fees ("HUFs") in rate base in the amount of $6,931,078 for the water division and $16,505 for the 

wastewater division.207 Johnson collects HUFs in advance of the time the Company will be expected 

to provide service to the customers for whom the HUFs are credited, and the time between collection 

of the HUFs, the time the capital improvements to provide capacity are constructed, and the date the 

customer connects to the system can be one year or longer.208 The Company argued that including 

unexpended HUFs in rate base creates a mismatch in rate base and gives existing ratepayers a 

windfall because they get credit for HUFs collected on behalf of future customers who have not yet 

connected to the system.209 The Company argued that its advance collection of HUFs ensures that 

funds are available for new and needed capacity when construction begins.2I0 The Company argued 

that the HUFs are restricted and can only be spent on new capacity; that the Company does not 

benefit from excluding unexpended- HUF from rate base; and existing ratepayers are not harmed by 

4.211 The Company argued that Staffs recommendation to exclude CIAC and AIAC related to 

excess capacity and not used and useful supports the Company's position that HUFs should be 

excluded from rate base.212 The Company also argued that according to the NARUC Uniform 

System of Accounts, Section 271, contributions are not CIAC until they offset used and useful 

207 Co. Br. at 13-14, 26. 

208 Co. Br. at 14, citing to Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-2) Vol. II at 15. 

209 Co. Br. at 14, citing to Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-2) Vol. II at 15-16; Co. 

Reply Br. at 26. 

210 Co. Reply Br. at 26, citing to Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-2) Vol. II at 16. 

211 Co. Br. at 14, citing to Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-2) Vol. II at 16-17; 

Co. Reply Br. at 26. 

212 Co. Br. at 14-15, citing to Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-4) Vol. II at 11. 

33 DECISION NO. 71854 

|

I DOCKET NO. WS-02987A-08-0180

1 I preparation of its action plan, we will allow the Company 90 days to prepare the plan and make the

7 filing.

3 B. Contributions in Aid of Construction ("CIAC")

($¢HUF7,)

Unexpended Hook-Up Fees

4

5

Johnson opposed the recommendation of Staff and RUCO to include unexpended hook-up

6 fees ("HUFs") in rate base in the amount of $6,931,078 for the water division and $16,505 for the

7

8

wastewater division.207 Johnson collects HUFs in advance of the time the Company will be expected

Ito provide service to the customers for whom the HUFs are credited, and the time between collection

0 lot the HUFs, the time the capital improvements to provide capacity are constructed, and the date the

customer connects to the system can be one year or longer.208 The Company argued that including

12 ! unexpended HUFs in rate base creates a mismatch in rate base and gives existing ratepayers a

13 windfall because they get credit for HUFs collected on behalf of future customers who have not yet

14 connected to the system.209 The Company argued that its advance collection of HUFs ensures that

15 funds are available for new and needed capacity when construction begins.2I0 The Company argued

16 4 that the HUFs are restricted and can only be spent on new capacity, that the Company does not

17 w

I benefit from excluding unexpended HUF from rate base, and existing ratepayers are not harmed by

18 | oil

it, The Company argued that Staffs recommendation to exclude CIAC and AIAC related to

19

70 excess capacity and not used and useful supports the Company's position that HUFs should be

21 excluded from rate base.2l2 The Company also argued that according to the NARUC Uniform

22 System of Accounts, Section 271, contributions are not CIAC until they offset used and useful

23

25

26

27

24 I

207 Co. Br. at 13-14, 26.

20s Co. Br. at 14, citing to Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-2) Vol. II at 15.

209 Co. Br. at 14, citing to Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-2) Vol. II at 15-16, Co.

Reply Br. at 26.

210 Co. Reply Br. at 26, citing to Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-2) Vol. II at 16.

211 Co. Br. at 14, citing to Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-2) Vol. II at 16-17,

Co. Reply Br. at 26.

212 Co. Br. at 14-15, citing to Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-4) Vol. II at l 1. 28

33 DECISION NU. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 37 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

plant.213 The Company argued that there is a transition period from the time a utility receives 

contributed money and the time the contributed money has been spent and is reflected as an offset to 

used and useful plant, and that because unexpended dollars and associated construction work in 

progress are not used and useful plant, the associated CIAC is technically in transition, and should 

therefore be excluded from rate base.214

RUCO argued that "advances represent customer-supplied funds that are properly deducted 

from the Company's rate base."215 RUCO recommended that the Company be afforded the same 

rate base treatment of CIAC as other Arizona utilities, with contributions being booked as CIAC 

when they are received, and treated as a deduction to rate base.216 RUCO framed the dispute as a 

timing argument as to when the HUFs should be treated as CIAC, noting that a utility typically 

builds infrastructure in advance and then collects HUFs for each new connection.217 RUCO stated 

that normal accounting procedure for HUFs should not be changed to accommodate the Company's 

choice to collect HUFs prior to providing serviee.218 RUCO stated that neither the NARUC 

definition of CIAC nor the Commission's rules differentiate when the contributions are received and 

when the contributions are expended.219

Staff stated that removal of unexpended CIAC from the Company's CIAC account is 

inconsistent with the NARUC USOA.22° Staff stated that this Commission recently rejected, in 

Decision No. 71414 (December 8, 2009), the very treatment of unexpended CIAC proposed by the 

213 Co. Reply Br. at 26. The NARUC USOA provides as follows: 

271. Contributions in Aid of Construction 

A. This account shall include: 

1. Any amount or item of money, services or property received by a utility from any person or governmental 

agency, any portion of which is provided at no cost to the utility, which represents and addition or transfer to the 

capital of the utility, and which is utilized to offset the acquisition, improvement to offset the utility's property, 

facilities or equipment used to provide utility services to the public. 

214 Co. Reply Br. at 26. 

215 RUCO Reply Br. at 2, citing to Decision No. 70011 (November 27, 2007) (UNS Gas, Inc.). 

216 RUCO Br. at 4-5. 

217 RUCO Reply Br. at 2-3. 

218 RUCO Reply Br. at 3. 

219 RUCO Reply Br. at 2. 

220 Direct Testimony of Staff witness Jeffrey Michlik (S-38) at 18. 

34 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 plant. The Company argued that there is a transition period from the time a utility receives

2 contributed money and the time the contributed money has been spent and is reflected as an offset to

3 used and useful plant, and that because unexpended dollars and associated construction work in

4 progress are not used and useful plant, the associated CIAC is technically in transition, and should

therefore be excluded from rate base.2l4

6

5

RUCO argued that "advances represent customer-supplied funds that are properly deducted

7

from the Company's rate base."215 RUCO recommended that the Company be afforded the same

8

9 rate base treatment of CIAC as other Arizona utilities, with contributions being booked as CIAC

10 when they are received, and treated as a deduction to rate base.2l6 RUCO framed the dispute as a

l l timing argument as to when the HUFs should be treated as CIAC, noting that a utility typically

12 builds infrastructure in advance and then collects HUFs for each new connection.2l7 RUCO stated

13 \

14 l

choice to collect HUFs prior to providing service.2l8 RUCO stated that neither the NARUC

15

16 deNtition of CIAC nor the Cornmission's rules differentiate when the contributions are received and

that normal accounting procedure for HUFs should not be changed to accommodate the Company's

17 when the contributions are expended.2I9

18

19 I inconsistent with the NARUC UsoA?20 Staff stated that this Commission recently rejected, in

Staff stated that removal of unexpended CIAC from the Company's CIAC account is

7 . . "O Declslon No. 71414 (December 8, 2009), the very treatment of unexpended CIAC proposed by the

21

22

23

24

25

26

27

28

213 Co. Reply Br. at 26. The NARUC usoA provides as follows:

271. Contributions in Aid of Construction

A. This account shall include:

1. Any amount or item of money, services or property received by a utility from any person or governmental

agency, any portion of which is provided at no cost to the utility, which represents and addition or transfer to the

capital of the utility, and which is utilized to offset the acquisition, improvement to offset the utility's property,

facilities or equipment used to provide utility services to the public.

214 Co. Reply Br. at 26.

215 RUCO Reply Br. at 2, citing to Decision No. 70011 (November 27, 2007) (UNS Gas, Inc.).

216 Rico Br. at 4-5.

217 RUCO Reply Br. at 2-3.

218 RUCO Reply Br. at 3.

219 RUCO Reply Br. at 2.

120 Direct Testimony of Staff witness Jeffrey Michlik (S-38) at 18.

34 DECISION NG. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 38 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

1 1 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Company.221 Staff stated that Decision No. 71414 also discontinued that utility's authority to collect 

HUFs, as Staff is recommending in this case.222

We are not persuaded by the Company's arguments in favor of departing from the normal 

ratemaking treatment of CIAC. We agree with Staff that the NARUC USOA definition of CIAC 

does not hinge upon whether or not CIAC is expended or unexpended, as the Company argued, but 

on whether or not (1) the CIAC was provided by someone other than the owner, (2) the CIAC is 

non-refundable, and (3) the purpose of the CIAC is to fund plant.223 We recognize that the Company 

collects HUFs well in advance of providing service to customers for whom the HUF is credited, and 

that it is the Company's practice in regard to the timing of its HUF collection that is responsible in 

part for the resulting magnitude of CIAC balances in the test year. As Staff and RUCO argued, the 

actual test year end balances of CIAC should be included in rate base, and Staff's adjustments for the 

water and wastewater divisions will therefore be adopted. 

C. Fair Value Rate Base Summary 

Based on the discussion of rate base issues set forth above, we find the Company's OCRB 

for its water division to be ($2,414,613) and for its wastewater division to be $136,562. As the 

Company did not prepare RCND schedules, the OCRB for its water and wastewater divisions 

constitute its FVRB. 

IV. OPERATING INCOME ISSUES 

A. Central Arizona Groundwater Replenishment District ("CAGRD") 

The CAGRD was established in 1993 by the Arizona legislature to serve as a groundwater 

replenishment entity for its members.224 The CAGRD is operated by the Central Arizona Water 

221 Staff Reply Br. at 5. 

222 Staff Br. at 5. 

223 Direct Testimony of Staff witness Jeffrey Michlik (S-38) at 18; citing to NARUC USOA 271, Contributions in Aid of 

Construction. 

224 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 17. 

35 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 Company.221 Staff stated that Decision No. 71414 also discontinued that utility's authority to collect

2 HUFs, as Staff is recommending in this case.222

3 We are not persuaded by the Company's arguments in favor of departing from the nonna

4

5

II ratemaking treatment of CIAC. We agree with Staff that the NARUC USOA definition of CIAC

i does not hinge upon whether or not CIAC is expended or unexpended, as the Company argued, but

I on whether or not (l) the CIAC was provided by someone other than the owner, (2) the CIAC is

; non-refundable, and (3) the purpose of the CIAC is to fund plant.223 We recognize that the Company

9 l collects HUFs well in advance of providing service to customers for whom the HUF is credited, and

10 that it is the Company's practice in regard to the timing of its HUF collection that is responsible in

6

I I part for the resulting magnitude of CIAC balances in the test year. As Staff and RUC() argued, the

12 actual test year end balances of CIAC should be included in rate base, and Staffs adjustments for the

13 .. ¢ »

water and wastewater dlvlslons wlll therefore be adopted.

14

c. Fair Value Rate Base Summary

15

Based on the discussion of rate base issues set forth above, we find the Company's OCRB

16

17 for its water division lo be ($2,414,613) and for its wastewater division to be $136,562. As the

18 Company did not prepare RCND schedules, the OCRB for its water and wastewater divisions

19 constitute its FVRB .

20 I v . OPERATING INCOME ISSUES

21

A. Central Arizona Groundwater Replenishment District ("CAGRD")

22

The CAGRD was established in 1993 'by the Arizona legislature to serve as a groundwater

23

74 replenishment entity for its members.224 The CAGRD is operated by the Central Arizona Water

25

27

Z6 221 Staff Reply Br. at 5.

buzz Staff Br. at 5.

223 Direct Testimony of Staff witness Jeffrey Michlik (S-38) at 18, citing to NARUC USOA 271, Contributions in Aid of

I Construction.

224 Rebuttal Testimony of Company witness Brian Tompsett (Exp. A-5) at 17. 28

35 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 39 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

Conservation District, which operates the Central Arizona Project.225 The CAGRD provides a 

mechanism for landowners and designated water supply providers such as Johnson Utilities to 

demonstrate a 100-year water supply under Arizona's assured water supply rules ("AWS Rules"), 

which became effective in 1995.226 Members of the CAGRD must pay the CAGRD to replenish (or 

recharge) any groundwater pumped by the member that exceeds the pumping limits imposed by the 

AWS rules.227 The CAGRD includes the Phoenix, Tucson and Pinal County active management 

areas ("AMAs").228 Johnson Utilities completed the process for becoming a Member Service Area 

of the CAGRD on or about June 9, 2000.229 Joining the CAGRD is one of the steps in the process of 

becoming a designated provider, which means a water provider that has demonstrated to the Arizona 

Department of Water Resources ("ADWR") that it has a 100-year water supply.230 The AWS Rules 

were designed to protect groundwater supplies within each AMA and to ensure that people 

purchasing or leasing subdivided land within an AMA have a water supply of adequate quality and 

quantity.23I The AWS Rules require new subdivisions to demonstrate to ADWR that a 100-year 

water supply is available to serve the subdivision before home sales can begin.232 An assured water 

supply can be demonstrated in one of two ways: the subdivision owner can prove an assured water 

supply for the specific subdivision and receive a certificate of assured water supply (CAWS") from 

ADWR; or alternatively, a subdivision owner can receive service from a city, town, or private water 

company that has been designated by ADWR as having a designated water supply.233 

225 Co. Br. at 28. 

226 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 17. 

227 Id. 

228 Id. 

229 Id. at 18. 

2" Id 

2

31 Id. 

232 Id. 

233 Id. 

36 DECISION NO. 71854 

DOCKET no. WS-02987A-08-0180

1

Conservation District, which operates the Central Arizona Project.225 The CAGRD provides a

2 mechanism for landowners and designated water supply providers such as Johnson Utilities to

3 demonstrate a 100-year water supply under Arizona's assured water supply rules ("AWS Rules"),

4 which became effective in 1995.226 Members of the CAGRD must pay the CAGRD to replenish (or

5 . . . .

recharge) any groundwater pumped by the member that exceeds the pumping 11m1ts imposed by the

6

7

8

9

I~Aws rules.227 The CAGRD includes the Phoenix, Tucson and Pinal County active management

l areas ("AMAs").228 Johnson Utilities completed the process for becoming a Member Service Area

l of the CAGRD on or about June 9, 2000.229 Joining the CAGRD is one of the steps in the process of

10 | becoming a designated provider, which means a water provider that has demonstrated to the Arizona

I 1 Department of Water Resources ("ADWR") that it has a 100-year water supply.230 The AWS Rules

12 were designed to protect groundwater supplies within each AMA and to ensure that people

13 purchasing or leasing subdivided land within an AMA have a water supply of adequate quality and

14

| quantity.231 The AWS Rules require new subdivisions to demonstrate to ADWR that a 100-year

15 1

16 water supply is available to serve the subdivision before home sales can begin.232 An assured water

17 supply can be demonstrated in one of two ways: the subdivision owner can prove an assured water

18 supply for the specific subdivision and receive a certificate of assured water supply (CAWS") from

19 ADWR, or alternatively, a subdivision owner can receive service from a city, town, or private water

20 Company that has been designated by ADWR as having a designated water supply.233

21

22

23

24

25

26

27

28 l 233

225 Co. Br. at 28.

326 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 17.

- 27 I d

22s ld.

z2914 at 18.

230 I

231 I

232 I d

Id

36 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 40 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

The costs of the CAGRD are covered by a replenishment assessment levied on CAGRD 

members.234 Designated water supply providers such as Johnson Utilities that serve a Member 

Service Area pay a replenishment tax directly to the CAGRD according to the number of acre-feet of 

"excess groundwater" they deliver within their service areas during a year.

235 The amount due the 

CAGRD is based on CAGRD's total cost per acre-foot of recharging groundwater, including the 

capital costs of constructing recharge facilities, water acquisition costs, operation and maintenance 

costs and administrative costs.236 By statute, the replenishment tax must be calculated separately for 

each AMA.237 Johnson Utilities is a designated provider in both the Phoenix and Pinal County 

AMAs.238 Johnson had a CAGRD assessment of $883,842 in the test year.239 Instead of recovery of 

the test year amount of CAGRD expense, Johnson requested approval of a CAGRD adjustor 

mechanism in this case.240

The Company, RUCO and Staff agreed that the CAGRD is an important tool in Arizona's 

groundwater conservation efforts, and that the Company should recover its CAGRD expenses. The 

Company's ratepayers and the general public benefit from the Company having a designation of 

assured water supply, because such designations result in more efficient regional planning than the 

alternative of requiring individual developers within a certificated area to each obtain a CAWS .241

As RUCO stated, the issue before us is not whether to allow the Company to recover its 

CAGRD expense, but the manner of the expense recovery.

242 Staff recommended that an adjustor 

mechanism be established, but with specific conditions that would require the Company to keep the 

Commission closely informed of the CAGRD fee calculation and would allow the Commission to 

234 Id. 

235 Id. at 18-19. 

236 Id. at 19. 

2" Id 

238 Id 

239 N 

240 

Id

241 Staff Br. at 20. 

242 RUCO Reply Br. at 5. 

37 DECISION NO. 71854 

II

DOCKET no. WS~02987A-08-0180

1

The costs of the CAGRD are covered by a replenishment assessment levied on CAGRD

2 II'l€mbers.234 Designated water supply providers such as Johnson Utilities that serve a Member

3 Service Area pay a replenishment tax directly to the CAGRD according to the number of acre-feet of

44 9, . . . . . . 2

4 excess groundwater they deliver wlthln thelr service areas during a year. 35 The amount due the

5 . . .

CAGRD is based on CAGRD's total cost per acre-foot of recharging groundwater, lncludxng the

6

capital costs of constructing recharge facilities, water acquisition costs, operation and maintenance

7

8

costs and administrative costs.236 By statute, the replenishment tax must be calculated separately for

9 each AMA.237 Johnson Utilities is a designated provider in both the Phoenix and Penal County

10 AMAs.238 Johnson had a CAGRD assessment of $883,842 in the test year.239 Instead of recovery of

1 1 I the test year amount of CAGRD expense, Johnson requested approval of a CAGRD adjustor

" - - . 240 LE mechanism in thls case.

13 The Company, RUCO and Staff agreed dirt the CAGRD is an important tool in Arizona's

14

I groundwater conservation efforts, and that the Company should recover its CAGRD expenses. The

15

l a

Company's ratepayers and the general public benefit from the Company having a designation of

17 assured water supply, because such designations result in more efficient regional planning than the

18 alternative of requiring individual developers within a certificated area to each obtain a cAws.24 I

19 As RUCO stated, the issue before us is not whether to allow the Company to recover its

20 CAGRD expense, but the manner of the ex else recover .242 Staff recommended that an adjustor p y

21 | . . . .. .

| mechanism be established, but with specific conditions that would require the Company to keep the

22 |

1. Commission closely informed of the CAGRD fee calculation and would allow the Commission to

23

25

24 234 Id

235 ld. at 18-19.

236 14 at 19.

28 Id

239

2 7 I 240

1241 staff Br. at to.

28 242 Rico Reply Br. at 5.

26

37 DECISION no. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 41 of 134
1 

2 

3 

4 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

closely monitor the Company's collection of CAGRD fees and the Company's treatment of monies 

collected to pay the CAGRD fees. The Company was in favor of the establishment of a CAGRD 

recovery mechanism, but was unwilling to agree to abide by the conditions that Staff argued are 

necessary to safeguard the Company's ratepayers. 

1. Staff Proposed Adjustor and Conditions 

Staff recommended that the Company recover its CAGRD tax assessment through the use of 

an adjustor mechanism, subject to specific enumerated conditions. Staff recommended that the 

CAGRD adjustor mechanism only be authorized with the following conditions attached: 

1. The initial adjuster fee shall apply to all water sold after the date new 

rates from this case become effective. In order to calculate this initial 

fee, the Company shall submit the 2008 data, as per condition No. 7 

below, within 30 days of the date of the final order in this matter. 

2. The Company shall, on a monthly basis, place all CAGRD monies 

collected from customers in a separate, interest bearing account 

("CAGRD Account"). 

3. The only time the Company can withdraw money from the CAGRD 

Account is to pay the annual CAGRD fee to the CAGRD, which is due 

on October 15th of each year. 

4. The Company must provide to Staff a semi-annual report of the 

CAGRD Account and CAGRD use fees collected from customers and 

paid to the CAGRD, with reports due during the last week of October 

and the last week of April each year. 

5. The Company must provide to Staff, every even-numbered year (first 

year being 2010) by June 30th, the new firm rates set by the CAGRD 

for the next two years. 

6. The CAGRD adjustor fees shall be calculated as follows: The total 

CAGRD fees for the most current year in the Phoenix AMA shall be 

divided by the gallons sold in that year to determine a CAGRD fee per 

1,000 gallons. Similarly, the total CAGRD fees for the most current 

year in the Pinal AMA shall be divided by the gallons sold in that year 

to determine a CAGRD fee per 1,000 gallons. 

7. By August 25th of each year, beginning in 2010, the Company shall 

submit for Commission consideration its proposed CAGRD adjustor 

fees for the Phoenix and Pinal AMAs, along with the calculations and 

38 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 closely monitor the Company's collection of CAGRD fees and the Company's treatment of monies

2 collected to pay the CAGRD fees. The Company was in favor of the establishment of a CAGRD

3 recovery mechanism, but was unwilling to agree to abide by the conditions that Staff argued are

4 necessary to safeguard the Company's ratepayers.

5

1. Staff Proposed Adjustor and Conditions

6

Staff recommended that the Company recover its CAGRD tax assessment through the use of

7

an adjustor mechanism, subject to specific enumerated conditions. Staff recommended that the

8

9 CAGRD adjustor mechanism only be authorized with the following conditions attached:

10 1.

11

The initial adjuster fee shall apply to all water sold after the date new

rates from this case become effective. In order to calculate this initial

fee, the Company shall submit the 2008 data, as per condition No. 7

below, within 30 days of the date of the final order in this matter.

12

13 2. The Company shall, on a monthly basis, place all CAGRD monies

collected from customers in a separate, interest bearing account

14 ("CAGRD Account").

15 3.

16

The only time the Company can withdraw money from the CAGRD

Account is to pay the annual CAGRD fee to the CAGRD, which is due

on October 15th of each year.

17

18

19

70

4. The Company must provide to Staff a semi-annual report of the

CAGRD Account and CAGRD use fees collected from customers and

paid to the CAGRD, with reports due during the last week of October

and the last week of April each year.

5. The Company must provide to Staff, every even-numbered year (first

year being 2010) by June 30th, the new Hrm rates set by the CAGRD

for the next two years.

21

22

6.

23

24

The CAGRD adjustor fees shall be calculated as follows: The total

CAGRD fees for the most current year in the Phoenix AMA shall be

divided by the gallons sold in that year to determine a CAGRD fee per

1,000 gallons. Similarly, the total CAGRD fees for the most current

year in the Pinal AMA shall be divided by the gallons sold in that year

to determine a CAGR.D fee per 1>000 gallons.

25

26

27

28

7. By August 25th of each year, beginning in 2010, the Company shall

submit for Commission consideration its proposed CAGRD adjustor

fees for the Phoenix and Penal AMAs, along with the calculations and

38 DECISION no. _-71854 I

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 42 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

documentation from the relevant state agencies to support the data used 

in the calculations. Failure to provide such documentation to Staff 

shall result in the immediate cessation of the CAGRD adjustor fee. 

Commission-approved fees shall become effective on the following 

October 1st. 

8. If the CAGRD changes its current method of assessing fees (i.e. based 

on the current volume of water used by customers) to some other 

method, such as, but not limited to, future projection of water usage, or 

total water allocated to the Company, the Company's collection from 

customers of CAGRD fees shall cease. 

9. As a compliance item, the Company shall submit a new tariff reflecting 

the initial adjustor fee as per Condition No. 1 above and shall annually 

submit a new tariff reflecting the reset adjustor fee prior to the fee 

becoming effective.243

2. Company Arguments Against Conditions 

The Company opposed or requested modification of Staff's recommended Condition Nos. 3, 

4,5, 7, and 8. Staff opposed the Company's requested modifications to Staff's recommended 

conditions.244

a. Condition No. 3 

The Company stated that it is concerned that Condition No. 3 lacks sufficient flexibility to 

allow for changes in CAGRD's payment policies and other policies with regard to- the use of 

CAGRD monies.245 The Company submitted that it should be permitted to withdraw funds from the 

CAGRD account as necessary to comply with the conditions of its membership in the CAGRD, as 

those conditions exist now or as they may be modified in the future.246

Staff stated that the Company's requested modification of Condition No. 3 should be 

disregarded, as the Company should not be allowed to spend funds in the CAGRD account for any 

243 Staff Br. at 20-21, citing to Revised Surrebuttal Testimony of Jeffrey Michlik (Exh. S-43) at 4. 

244 Staff Reply Br. at 21-23. 

24) Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 20. 

246 

39 DECISION NO. 71854 

II

I

DOCKET NO. WS-02987A-08-0180

1

2

documentation from the relevant state agencies to support the data used

in the calculations. Failure to provide such documentation to Staff

shall result in the immediate cessation of the CAGRD adjustor fee.

Commission-approved fees shall become effective on the following

3 October let.

4 8.

5

If the CAGRD changes its current method of assessing fees (i.e. based

on the current volume of water used by customers) to some other

method, such as, but not limited to, future projection of water usage, or

total water allocated to the Company, the Company's collection from

customers of CAGRD fees shall cease.

6

7 I

9.

8

9

As a compliance item, the Company shall submit a new tariff reflecting

the initial adjustor fee as per Condition No. l above and shall annually

submit a new tariff reflecting the reset adjustor fee prior to the fee

becoming effective.243

10

2. Company Arguments Against Conditions

1 I

12

The Company opposed. or requested modification of Staff" s recommended Condition Nos. 3,

16 4,5, 7, and 8. 13 Staff opposed the Company's requested modifications to Staff" s recommended

14 conditions.244

15 a. Condition No. 3

16 The Company stated that it is concerned that Condition No. 3 lacks sufficient flexibility to

17

allow for changes in CAGRD's payment policies and other policies with regard to the use of

18

CAGRD monies.245 The Company submitted that it should be permitted to withdraw funds from the

19

20

CAGRD account as necessary to comply with the conditions of its membership in the CAGRD, as

71 those conditions exist now or as they may be modified in the future.246

22 Staff stated that the Company's requested modification of Condition No. 3 should be

23 disregarded, as the Company should not be allowed to spend funds in the CAGRD account for any

24

25

26

27

28

243 Staff Br. at 20-21, citing to Revised Su1Tebuttal Testimony of Jeffrey Michlik (Exh. S-43) at 4.

244 Staff Reply Br. at 21-23.

149 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 20.

246 Id

39 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 43 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

purpose other than the CAGRD expense item than has been analyzed in this proceeding and that the 

proposed adjustor is designed to recover.247

b. Condition No. 4 

The Company argued that a single annual report, instead of the semi-annual report required 

by Condition No. 4, would be sufficient for Staff's verification of the accounting for CAGRD 

monies collected and remitted.248 Staff opposed the Company's requested modification of Condition 

No. 4 because Staff believes it is important for the Commission to have the ability closely monitor 

the Company's collection of CAGRD fees and the state of the CAGRD Account.249

c. Condition No. 5 

The Company opposed Condition No. 5, arguing that the information it requires is publicly 

available and it would be more efficient for Staff to obtain the information directly from CAGRD.25°

The Company also argued that compliance with regulatory conditions adds costs that are ultimately 

borne by the ratepayers and should only be imposed as necessary to achieve important regulatory 

obj ectives .251

Staff opposed modification of Condition No. 5 because the rates established by the CAGRD 

involve calculations with many variables that may or may not be accessible or publicly available on 

the CAGRD's website now or in the future.252 Staff stated that because the Company will be in 

possession of the information as part of its own record keeping and compliance requirements, it will 

therefore be in the best position to provide the Commission and Staff with the information.253 Staff 

indicated that as a result of this rate case, it lacks confidence in the Company's record keeping 

247 Staff Br. at 21. 

248 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 20. 

249 Staff Br. at 22. 

259 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 20. 

251 Id. at 20-21. 

252 Staff Br. at 22. 

253 Id

71854 40 DECISION NO. 

DOCKET NO. WS-02987A-08-0180

1 purpose other than the CAGRD expense item than has been analyzed in this proceeding and that the

2 proposed adjustor is designed to recover.247

3 b. Condition No. 4

4 The Company argued that a single annual report, instead of the semi-annual report required

5

by CondMon No. 4, would be sufficient for Staffs verlicatlon of the accounting for CAGRD n 1 . , . .

6

monies collected and re1nitted.248 Staff opposed the Colnpany's requested modification of Condition

7

No. 4 because Staff believes it is important for the Commission to have the ability closely monitor

8

Q the Company's collection of CAGRD fees and the state of the CAGRD Account.249

10 c. Condition No. 5

11

12

The Company opposed Condition No. 5, arguing that the information it requires is publicly

available and it would be more efficient for Staff to obtain the information directly from CAGRD.250

1 °

.3 The Company also argued that compliance with regulatory conditions adds costs that are ultimately

14

borne by the ratepayers and should only be imposed as necessary to achieve important regulatory

15

objectives.25l

16

17 Staff opposed modification of Condition No. 5 because the rates established by the CAGRD

18 involve calculations with many variables that may or may not be accessible or publicly available on

19 the CAGRD's website now or in the future.252 Staff stated that because the Company will be in

20 possession of the information as part of its own record keeping and compliance requirements, it will

21

therefore be in the best position to provide the Commission and Staff with the information.253 Staff

22

indicated that as a result of this rate case, it lacks confidence in the Company's record keeping

23

24

25

26

27

28

247 Staff Br. at 21.

248 Rebuttal Testimony of Company witness Brian Tompsett (Exp. A-5) at 20.

249 staff Br. at 22.

250 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 20.

251 14. at 2()-21.

252 Staff Br. at 22 .

253 I a(

40 DECISION NQ. 71854

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 44 of 134
2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

abilities, and the submittal required by Condition No. 5 is necessary to confirm that the Company is 

charging its customers the correct rates.254

d. Condition No. 7 

The Company stated that it is not clear what consideration or approval the Commission 

would exercise with regard to the assessment, and therefore opposes Condition No. 7.255 The 

Company argued that this requirement is unnecessary as the CAGRD assessments are fixed by 

CAGRD and are not subject to interpretation.256

Staff stated that Condition No. 7 is important because it allows the Company to receive the 

required documentation first from CAGRD, and Staff and the Commission must have the ability to 

review the calculations and documentation, including the CAGRD invoice.257 Staff stated that the 

language "for Commission consideration" should not be changed because it is standard language that 

allows the Commission to monitor and ultimately approve the exact adjustor fee charged to 

customers.258 Staff stated that the Commission review and approval process each year would ensure 

that the Company is submitting data to ADWR that is consistent with annual reports filed with the 

Commission, that the Company is not misinterpreting the correct assessment rate, and that the 

Company is calculating the customer fee correctly.259

e. Condition No. 8 

The Company opposed Condition No. 8's requirement that the collection of fees cease should 

the CAGRD change its current method of assessing fees.26° The Company argued that if the 

• 

254 Staff Reply Br. at 8. 

255 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 21. 

256 Id 

25' Staff Br. at 22; Tr. at 912. 

258 Staff Br. at 22. 

259 Staff Reply Br. at 8. 

260 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 21. 

41 DECISION NO. 71854 

it DOCKET no. WS-02987A-08-0l80

| abilities, and the submittal required by Condition No. 5 is necessary to confirm that the Company is

2 I charging its customers the correct rates.254

1

3 d. Condition No. 7

4 The Company stated that it is not clear what consideration or approval the Commission

5

would exercise with regard to the assessment, and therefore opposes Condition No. 7 255 The

6

Company argued that this requirement is unnecessary as the CAGRD assessments are fixed by

7

CAGRD and are not subject to interpretation.256

8

9

Staff stated that Condition No. 7 is important because it allows the Company to receive the

10 required documentation first from CAGRD, and Staff and the Commission must have the ability to

l l review the calculations and documentation, including the CAGRD invoice.257 Staff stated that the

12 language "for Commission consideration" should not be changed because it is standard language that

13

allows the Commission to monitor and ultimately approve the exact adjustor fee charged to

14

. customers.258 Staff stated that the Commission review and approval process each year would ensure

15

16

that the Company is submitting data to ADWR that is consistent with annual reports filed with the

17

18

Commission, that the Company is not misinterpreting the correct assessment rate, and that the

Company is calculating the customer fee correct1y.259

19 e. Condition No. 8

20 The Company opposed Condition No. 8's requirement that the collection of fees cease should

21

the CAGRD change its current method of assessing fees.260 The Company argued that if the

22

ZN 4

24

25

26

27

28

254 Staff Reply Br. at 8.

£; Rebuttal Testimony of Company witness Brian Tompsett (Exp. A-5) at 21.

z ld.

257 staff Br. at 22, Tr. at 912.

258 Staff Br. at 22 .

259 Staff Reply Br. at 8.

260 Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 21 .

41 DECISION n<~>. 71854

I

x

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 45 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

CAGRD changes its method of assessing fees, that Johnson would likewise change the way it passes 

through the fee to its customers, consistent with the CAGRD changes.26' 

Staff stated that Condition No. 8 should be retained because it is unlikely that CAGRD would 

change the assessment methodology without notice, and if it were changed, the Company could 

request a modification of the approved methodology. 

3. RUCO Proposed Expense Adjustment and Opposition to Adjustor 

RUCO asserted that the use of an adjustor mechanism is not a necessary or appropriate 

means for the recovery of CAGRD expense.262 RUCO argued that the circumstances of the CAGRD 

assessment do not warrant an adjustor mechanism because it is a routine yearly expense and because 

its progressive increase is not volatile.263 RUCO stated that rate stability is important in today's 

economic environment, and because adjustors lead to changes in residential ratepayers' rates, they 

should be approved only in extraordinary circumstances.264 RUCO also argued that oversight of 

Staffs proposed adjustor would unnecessarily and inappropriately increase the Staffs workload.265

RUCO recommended that the CAGRD be treated as an expense, and proposed a 

normalization adjustment to test year expenses based on the known and measurable costs of the 

Company's CAGRD assessments through 2010.266 RUCO's proposed adjustment is based on the 

Company's test year water sold and a 2009-2010 composite of Phoenix AMA and Pinal AMA 

CAGRD fees per thousand gallons.267 RUCO asserted that because the Company has stated an 

intention to file a new rate case every three years, RUCO's recommended adjustment would provide 

261 id. 

262 RUCO Br. at 8-14; Reply Br. at 5. 

263 RUCO Br. at 12-13. 

264 Id 

265 Id. 

266 RUCO Br. at 8; 14; Tr. at 205; Direct Testimony of RUCO witness Rodney Moore (Exh. R-1) at 16-17; RUCO 

Final Schedules RLM 7 and RLM-16. 

267 RUCO Final Schedule RLM-16. 

42 DECISION N O. 71854 

*

DOCKET no. WS-02987A-08-0180

1 CAGRD changes its method of assessing fees, that Johnson would likewise change the way it passes

2 through the fee to its customers, consistent with the CAGRD changes.261

3 Staff stated that Condition No. 8 should be retained because it is unlikely that CAGRD would

4 change the assessment methodology without notice, and if it were changed, the Company could

5 . .

request a mod18cat1on of the approved methodology.

6

3. RUCO Proposed Expense Adjustment and Opposition to Adjustor

7

RUCO asserted that the use of an adjustor mechanism is not a necessary or appropriate

9 means for the recovery of CAGRD expense.262 RUCO argued that the circumstances of the CAGRD

8

10 assessment do not warrant an adjustor mechanism because it is a routine yearly expense and because

11 its progressive increase is not volatile.263 RUCO stated that rate stability is important in today's

12

13

14

economic environment, and because adjustors lead to changes in residential ratepayers' rates, they

should be approved only in extraordinary circumstances.264 RUCO also argued that oversight of

Staff' s proposed adjustor would unnecessarily and inappropriately increase the Staff s workload.265

15

RUCO recommended that the CAGRD be treated as an expense, and proposed a

16

17 normalization adjustment to test year expenses based on the known and measurable costs of the

18 Company°s CAGRD assessments through 2010.266 RUCO's proposed adjustment is based on the

I

19 | Company's test year water sold and a 2009-2010 composite of Phoenix AMA and Penal AMA

20 I CAGRD fees PEr thousand ga110ns.267 RUCO asserted that because the Com any has stated an p

21

intention to file a new rate case every three years, RUCO's recommended adjustment would provide

22

23

24

25

26

RUCO

261 Id.

262 Rico Br. at 8-14, Reply Br. at 5.

263 RUCO Br. at 1243.

264 ld.

265 Id.

27 266 RUCO Br. at 8, 14; Tr. at 205, Direct Testimony of RUCO witness Rodney Moore (Exh. R-1) at 16-17,

Final Schedules RLM 7 and RLM-16.

267 Rico Final Schedule RLM-16. 28

42 DECISION NG. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 46 of 134
1 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

1'3 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-01 80 

the Company with complete recovery of the CAGRD expense without requiring extraordinary 

ratemaking treatment for a routine cost.268

In support of its recommendation that a CAGRD adjustor mechanism be put in place for the 

Company, Staff stated that the CAGRD assessment represents a significant annual expense for the 

Company, which is anticipated to progressively increase, and that in order to keep its membership in 

the CAGRD, the Company must pay the fee.269 Staff asserted that the CAGRD assessment is 

amenable to an adjustor mechanism because the assessment, unlike a pass-through tax, is not easily 

calculated and assigned.27° Staff noted that the Commission has approved adjustor mechanisms 

where appropriate in order to advance important policy concerns that protect the public interest.27I

Staff stated that the Commission has approved adjustors for expenses that are not extremely volatile 

for Demand Side Management and the Renewable Energy Standards Tariff, based on a 

determination that the advancement of energy conservation programs and the move to renewable 

sources of energy were necessary policy considerations to advance the public interest.272 Staff 

opined that it would be appropriate, in the Commission's support of groundwater conservation, to 

adopt the Staffs recommendation regarding an adjustor for the Company's CAGRD assessment. 

4. Conclusion 

We agree with Staff that this Commission has in the past approved adjustor mechanisms 

where appropriate to advance important policy concerns that protect the public interest. The 

CAGRD adjustor mechanism that Staff designed, inclusive of all eight conditions without 

modification, appears to be a just and reasonable means of dealing with the costs of the CAGRD. 

Conservation and wise stewardship of increasingly stressed water supplies is a matter of paramount 

concern in Arizona, and we believe that it is important to send appropriate signals to water 

268 RUCO Br. at 14. 

269 Staff Br. at 20, citing to Revised Surrebuttal Testimony of Jeffrey Michlik (Exh. S-43) at I. 

271 Staff Reply Br. at 7-8. 

43 DECISION NO. 71854 

DOCKET no. WS-02987A-08-0180

1

the Company with complete recovery of the CAGRD expense without requiring extraordinary

q ratemaking treatment for a routine cost.268 4.

q

J In support of its recommendation that a CAGRD adjustor mechanism be put in place for the

4 Company, Staff stated that the CAGRD assessment represents a significant annual expense for the

Company, whlch is antlclpated to progresslvely increase, and that in order to keep its membership in

6

the CAGRD, the Company must pay the fee.269 Staff asserted that the CAGRD assessment is

7

amenable to an adjustor mechanism because the assessment, unlike a pass-through tax, is not easily

8

I calculated and assigned.270 Staff noted that the Commission has approved adjustor mechanisms

10 1 where appropriate in order to advance important policy concerns that protect the public interest.27l

9

1] I Staff stated that the Commission has approved adjustors for expenses that are not extremely volatile

12 I `l tor Demand Side Management and the Renewable Energy Standards Tariff, based on a

13 I determination that the advancement of energy conservation programs and the move to renewable

14 |

sources of energy were necessary policy considerations to advance the public interest.272

15

Staff

16 opined that it would be appropriate, in the Commission's support of groundwater Conservation, to

17 adopt the Staff s recommendation regarding an adjustor for the Company's CAGRD assessment.

18 4. Conclusion

19 We agree with Staff that this Commission has in the past approved adjustor mechanisms

20 where appropriate to advance important policy concerns that protect the public interest. The

21

l CAGRD adjustor mechanism that Staff designed, inclusive of all eight conditions without

22

I modification, appears to be a just and reasonable means of dealing with the costs of the CAGRD.

23

24 I Conservation and wise stewardship of increasingly stressed water supplies is a matter of paramount

GO i concern in Arizona, and we believe that it is important to send appropriate signals to water

26

27

268 RUCQ Br. at 14.

269 Staff Br. at 20, citing to Revised Su1Tebuttal Testimony of Jeffrey Michlik (Exp. S-43) at 1.

170I d

28 271 Staff Reply Br. at 7-8.

43 DECISION N() v 7 1 8 5 4

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 47 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

companies regarding their duty to fully engage in conservation programs administered by the 

ADWR. The CAGRD assessment fee is not discretionary for Companies such as Johnson Utilities, 

and the Commission believes that the CAGRD participation represents the kind of investment that is 

appropriate for timely cost recovery. To not allow the Company to recover its CAGRD costs in real 

time may threaten the Company's ability to participate in the CAGRD program and would send a 

negative signal to water providers regarding this Commission's support for sound regional 

approaches to achieving safe yield in Active Management Areas. While we are not satisfied with the 

Company's past accounting methodologies, and are supportive of the steps taken in this Order to 

require Johnson Utilities to come into compliance with NARUC accounting standards, we believe 

Staff's adjustor mechanism proposal will accord the Commission maximum oversight over the 

application of the adjustor mechanism. We will therefore approve the CAGRD adjustor mechanism, 

inclusive of all eight conditions proposed by Staff. 

B. Rate Case Expense 

The Company requested recovery of $100,000 in rate case expense for each division.273

There was no disagreement on the amount of expense. Staff recommended normalization of the 

expense over three years, and the Company agreed.274 RUCO recommended an amortization of five 

years to reflect the Company's propensity for not timely filing rate applications.275 The Company 

pointed out that RUCO's CAGRD expense normalization assumed that the Company would be filing 

a rate case in three years.

276 We find that the three year normalization period is appropriate, and will 

adopt it. 

272 Id.

271 Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-2) Vol. II at 23. 

274 Id.

275 RUCO Br. at 7. 

44 DECISION NO. 71854 

DOCKET no. WS-02987A008-0180

1 companies regarding their duty to fully engage in conservation programs administered by the

2 ADWR. The CAGRD assessment fee is not discretionary for Companies such as Johnson Utilities,

3 and the Commission believes that the CAGRD participation represents the kind of investment that is

4 appropriate for timely cost recovery. To not allow the Company to recover its CAGRD costs in real

5 . . . . . n

tlme may threaten the Company's ablllty to partlclpate in the CAGRD program and would send a

6

negative signal to water providers regarding this Commission's support for sound regional

7

approaches to achieving safe yield in Active Management Areas. While we are not satisfied with the

8

9 Company's past accounting methodologies, and are supportive of the steps taken in this Order to

10 require Johnson Utilities to come into compliance with NARUC accounting standards, we believe

l l Staffs adjustor mechanism proposal will accord the Commission maximum oversight over the

i n application of the adjustor mechanism. We will therefore approve the CAGRD adjustor mechanism,

13 . . inclusive of ail eight condltlons proposed by Staff.

14

B. Rate Case Expense

15

The Company requested recovery of $100,000 in rate case expense for each division.273

16

17

18

There was no disagreement on the amount of expense. Staff recommended normalization of the

expense over three years, and the Company agreed.274 RUCO recommended an amortization of five

19 years to reflect the Company's propensity for not timely filing rate applications.275 The Company

20 pointed out that RUCO's CAGRD expense normalization assumed that the Company would be filing

21

a rate case in three years.276 We find that the three year normalization period is appropriate, and will

22

adopt it.

23

24

25

26

27

777 _ - ld

273 Rebuttal Testimony of Company witness Thomas Bourassa (Exp. A-2) Vol. II at 23.

774

_ l d

28 275 Rico Br. at 7,

44 DECISION NU, 71854

:

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 48 of 134
DOCKET NO. WS-02987A-08-0180 

1 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

2,3 

24 

2,5 

26 

27 

28 

C. Income Tax Expense 

The Company is seeking recovery of income tax expense in the amount of $1,185,679. As 

an LLC, the Company does not pay taxes at the corporate level.277 Instead, its taxes are passed 

through to the owners of the Company and accounted for when its member owners file their tax 

returns. The Company reimburses its member owners for their tax liabilities.278 The Company 

argued that because the income tax liability of its members "arises from the taxable income of 

Johnson and it is directly attributable to Johnson Utilities" that the Company should be allowed to 

collect the expense from ratepayers.279

The Company disagreed with the recommendations of RUCO and Staff to reject the 

Company's request to recover income tax expense. Johnson argued that denying recovery in rates of 

the members' pass through income tax liability results in inequities because Johnson will have a 

lower revenue requirement than a C-Corp, and ratepayers will "receive an unjustified windfall from 

the lower revenue requirement and operating income when income taxes are excluded."28°

Staff and RUCO both asserted that the Company voluntarily chose to organize as an LLC, 

which is a pass through entity for purposes of income tax liability.281 Staff argued that it would be 

unfair to award the Company an expense it does not pay.

282 RUCO emphasized that the Company's 

chosen corporate organization confers a tax benefit on its shareholder members not enjoyed by "C" 

corporation shareholders.283 RUCO stated that while a "C" corporation must pay income taxes prior 

to the distribution of any profits to its shareholders as LLC shareholders, the tax liability of an LLC's 

shareholder members passes directly to the shareholders, such that they avoid double taxation.284

"6 Co. Br. at 31. 

2' Tr. at 9. 

278 Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-2) Vol. III at 28. 

279 Co. Br, at 32, citing to Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-2) Vol. II at 23. 

280 Id. 

281 RUCO Br. at 7; Staff Reply Br. at 9. 

282 Staff Br. at 19. 

283 RUCO Reply Br. at 7. 

284 RUCO Br. at 7. 

45 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1

c. Income Tax Expense

2

The Company is seeking recovery of income tax expense in the amount of $1,185,679 As

'a

J an LLC, the Company does not pay taxes at the corporate 1eve1.277 Instead, its taxes are passed

4 through to the owners of the Company and accounted for when its member owners file their tax

5

returns. The Company reimburses its member owners for their tax liabilities.278 The Company

6

argued that because the income tax liability of its members "arises from the taxable income of

7

8

Johnson and it is directly attributable to Johnson Utilities" that the Company should be allowed to

9 collect the expense from ratepayers.279

10 The Company disagreed with the recommendations of RUCO and Staff to reject the

1 1 . Company's request to recover income tax expense. Johnson argued that denying recovery in rates of

12 the members' pass through income tax liability results in inequities because Johnson will have a

13 lower revenue requirement than a C-Corp, and ratepayers will "receive an unjustified windfall from

14

the lower revenue requirement and operating income when income taxes are excluded,,480

15

16

Staff and RUCO both asserted that the Company voluntarily chose to organize as an LLC,

which is a pass through entity for purposes of income tax liability.281 Staff argued that it would be 17

18 unfair to award the Company an expense it does not pa;/.282 RUCO emphasized that the Company's

19 chosen corporate organization confers a tax benefit on its shareholder members not enjoyed by "C"

20 I corporation shareholders.283 RUCO stated that while a "C" corporation must pay income taxes prior

21

I to the distribution of any prompts to its shareholders as LLC shareholders, the tax liability of an LLC's

22

I shareholder members passes directly to the shareholders, such that they avoid double taxation.284

23

24

25

26

27

28

_ Co. Br. at 31.

27/ Tr. at 9.

2,8 Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-2) Vol. III at 28.

379 Co. Br. at 32, citing to Rebuttal Testimony of Company witness Thomas Bourassa (Exp. A-2) Vol. II at 23 .

280 Id

181 RUCO Br. at 7, staff Reply Br. at 9.

282 staff Br. at 19.

283 RUCO Reply Br. at 7.

284 RUCO Br. at 7.

45 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 49 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

1 1 

12 

1:3 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

Regarding the agreement between the Company and its members for the Company to reimburse their 

personal tax liability, as testified to by the Company's witness,285 Staff argued that the ratepayers are 

not a party to the agreement,286 and RUCO argued that just like the Company's corporate status 

election, the Company's election to reimburse its shareholders' tax liability is voluntary.287

The Company argued that its tax situation is analogous to a subsidiary of a "C" corporation 

utility of a parent holding company whose tax return is consolidated with the parent.288 Staff and 

RUCO both disagreed. RUCO stated that the Company's situation is not analogous, because the 

Company is not a subsidiary of a parent company that files a consolidated return.289 Staff stated that 

the Company's tax status is distinguishable from the case of a subsidiary "C" corporation utility of a 

parent holding company whose tax return is consolidated with the parent, because in that case, there 

is evidence of the tax rate, but in this case, there is no such evidence.290 Staff argued that the 

Company provided no evidence regarding the tax rates of its members or that its members even paid 

any taxes.29I

Johnson cited to several cases in which pass through taxes have been allowed rate 

recovery,292 but acknowledged that state Commissions vary as to whether income taxes for passthrough entities are allowed in cost of service.293 Johnson argued that inclusion or exclusion of 

income tax expense should not be affected by technical distinctions, but that the appropriate inquiry 

should consider whether the outcome is fair and non-discriminatory.294 We agree that the tax 

liability issue should receive fair and non-discriminatory ratemaking treatment, but disagree with the 

Company that its chosen organizational form is a "technical distinction." As RUCO and Staff argue, 

285 Tr. at 1352. 

286 Staff Reply Br. at 9. 

2" RUCO Br. at 7. 

288 Co. Br. at 32, citing to Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-2) Vol. II at 24. 

289 RUCO Br. at 7-8. 

290 Staff Reply Br. at 9. 

291 Id 

292 Co. Br. at 34-36. 

293 Co. Br. at 33. 

46 DECISION NC). 71854 

DOCKET no. WS-02987A-08-0180

1 Regarding the agreement between the Company and its members for the Company to reimburse their

2 personal tax liability, as testified to by the Company's witness,285 Staff argued that the ratepayers are

q

J not a party to the agreement,286 and RUCO argued that just like the Company's corporate status

4 election, the Company's election to reimburse its shareholders' tax liability is voluntary.287

5

The Company argued that its tax situation is analogous to a subsidiary of a "C" corporation

6

utility of a parent holding company whose tax return is consolidated with the parentzgg Staff and

7

8

RUCO both disagreed. RUCO stated that the Company's situation is not analogous, because the

Company is not a subsidiary of a parent company that files a consolidated return.289 Staff stated that 9

10 the Company's tax status is distinguishable from the case of a subsidiary "C" corporation utility of a

l l I parent holding company whose tax return is consolidated with the parent, because in that case, there

12 is evidence of the tax rate, but in this case, there is no such evidence.290 Staff argued that the

1°J Company provided no evldence regarding the tax rates of its members or that its members even pald . . . . . .

4

1 29 l any taxes.

15

Johnson cited to several cases in which pass through taxes have been allowed rate

16

17 recovery,292 but acknowledged that state Commissions vary as to whether income taxes for pass18 through entities are allowed in cost of service.293 Johnson argued that inclusion or exclusion of

19 income tax expense should not be affected by technical distinctions, but that the appropriate inquiry

20

21

should consider whether the outcome is fair and non-discriminatory.294 We agree that the tax

| liability issue should receive fair and non-discriminatory ratemaking treatment, but disagree with the

22

Company that its chosen organizational form is a "technical distinction." As RUCO and Staff argue,

23

24

25

26

27

285 Tr. at 1352.

286 Staff Reply Br. at 9.

287 RUCO Br. at 7.

288 Co. Br, at 32, citing to Rebuttal Testimony of Company witness Thomas Bourassa (Exh. A-2) Vol. II at 24.

289 RUCO Br. at 7-8.

290 Staff Reply Br. at 9.

291 Id

292 Co. Br. at 34-36.

28 293Co. Br. at 33.

46 DECISION NG. 7 1 8 5 4

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 50 of 134
2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

the Company freely chose to be organized as an LLC, and we must assume that its choice was an 

informed choice that imparts certain advantages to the Company. We do not share the Company's 

view that inclusion of the Company's members' pass-through tax liability in customers' rates would 

lead to a fair, equitable, and non-discriminatory result. As we determined in Decision No. 71445 

(December 23, 2009), it is not appropriate or in the public interest to allow pass through entities such 

as the Company to recover income tax expenses through rates.295 The Company's request is not 

reasonable and will be denied. 

D. Operating Income Summary 

Based on the discussion of operating income issues set forth above, we find the adjusted test 

year operating expenses and operating income for its water and wastewater divisions to be as 

follows: 

Water Division Wastewater Division 

Adjusted test year revenues $13,172,899 $11,354,014 

Test year operating expenses $9,553,304 $9,432,270 

Test year operating income $3,619,595 $1,921,744 

COST OF CAPITAL/OPERATING MARGIN 

A. Company's Position 

The Company recommended that its proposed weighted average cost of capital ("WACC") of 

11.89 percent be used as the Company's rate of return to be applied to its proposed fair value rate 

base ("FVRB") to compute the Company's required operating income.296

The Company proposed a cost of equity of 12.0 percent.297 The Company's witness Thomas 

Bourassa reached this recommendation based on his discounted cash flow ("DCF") and capital asset 

pricing model ("CAPM") results using data from a sample of six water utilities selected from the 

294 Co. Br. at 32-33; Co. Reply Br. at 27. 

295 Decision No. 71445 at 29-37. 

296 Rebuttal Testimony of Company witness Thomas Bourrassa (Exh. A-2) Vol. I at 3. 

297 Id. 

47 DECISION NO. 71854 

DOCKET ND. WS~02987A-08-0180

I I the Company freely chose to be organized as an LLC, and we must assume that its choice was an

2 informed choice that imparts certain advantages to the Company. We do not share the Company's

3 view that inclusion of the Company's members' pass-through tax liability in customers' rates would

4 lead to a fair, equitable, and non-discriminatory result. As we determined in Decision No. 71445

(December 23, 2009), it is not appropriate or in the pubic interest to allow pass through entltles such

6

as the Company to recover income tax expenses through rates.295 The Company's request is not

7

reasonable and will be denied.

8

9

D. Operating Income Summarv

10 Based on the discussion of operating income issues set forth above, we find the adjusted test

11 i year operating expenses and operating income for its water and wastewater divisions to be as

12 follows

13 ii

14

15

Adj used test year revenues

Test year operating expenses

Test year operating income

Water Division

$13 , 172,899

$9,553,304

$3,619,595

Wastewater Division

$11 ,354,()14

$9,432,270

$1,921,744

16IV

17

COST OF CAPITAL/OPERATING MARGIN

A. Company's Position

18

The Company recommended that its proposed weighted average cost of capital ("WACC") of

19

Q() 11.89 percent be used as the Company's rate of return to be applied to its proposed fair value rate

21 base ("FVRB") to compute the Company's required operating income.296

22 The Company proposed a cost of equity of 12,0 percent.297 The Company's witness Thomas

23 Bourassa reached this recommendation based on his discounted cash flow ("DCF") and capital asset

24 pricing model ("CAPM") results using data from a sample of six water utilities selected 180m the

25

27

26

294 Co. Br. at 32-33, Co. Reply Br. at 27.

295 Decision No. 71445 at 29-37.

I 296 Rebuttal Testimony of Company witness Thomas Bourrassa (Exp. A-2) Vol. I at 3.

297 Id. 28

47 DECISION NCI. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 51 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

Value Line Investment Survey.298 The Company's proposed cost of debt is 8.0 percent.299 The 

Company used its actual capital structure to calculate its proposed WACC, and disagreed with 

RUCO's proposed hypothetical capital structure of 40 percent debt and 60 percent equity.30° The 

Company stated that at the end of the test year, the Company had adjusted total capital of 

$25,897,122, consisting of $722,000 long term debt and $25,175,122 common equity, for a capital 

structure of 2.8 percent debt and 97.2 percent common equity.30I

B. RUCO's Position 

RUCO recommended that its proposed WACC of 8.18 percent be applied to rate base to 

determine the required operating income for the Company's wastewater division.302 RUCO's 

recommended cost of equity for the Company's wastewater division is 8.31 percent, and is based on 

the analysis of its witness William Rigsby. Mr. Rigsby used the average of his CAPM and DCF 

model results to reach his cost of equity estimate.303 Like the Company, RUCO recommended a cost 

of debt of 8.0 percent based on the Company's existing debt cost.304 RUCO stated that because the 

Company's actual capital structure consists of almost all equity, it used a hypothetical capital 

structure of 40 percent long term debt and 60 percent common equity to calculate its proposed 

WACC.305

For the Company's water division, RUCO recommended a negative rate base, and proposed 

an operating margin of 8.18 percent to determine its recommended revenue requirement for the 

water division .3°6

298 Direct Testimony of Company witness Thomas Bourrassa (Exh. A-]) Exhibit F at 4. 

299 Rebuttal Testimony of Company witness Thomas Bourrassa (Exh. A-2) Vol. I at 3. 

3°° Co. Br. at 47. 

3°1 Direct Testimony of Company witness Thomas Bourrassa (Exh. A-1) Exhibit F at 2; Rebuttal Testimony of Company 

witness Thomas Bourrassa (Exh. A-2) Vol. 1 at 3. 

302 Direct Testimony of RUCO witness William Rigsby (Exh. R-9) at 5. 

303 Id 

304 Id. 

3°5 RUCO Br, at 15. 

48 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 Value Line Investment Survey.298 The Company's proposed cost of debt is 8.0 percent.299 The

2 Company used its actual capital structure to calculate its proposed WACC, and disagreed with

3 RUCO's proposed hypothetical capital structure of 40 percent debt and 60 percent equity.300 The

4

Co1T1pa1'1y stated that at the end of the test year, the Company had adj used total capital of

5 . . $25,897,121 conslstlng of $722,000 long term debt and $25,175,122 common equity, for a capltal . ,

6

structure of 2.8 percent debt and 97.2 percent common equity.30l

7

B. RUCO's Position

8

9

RUCO recommended that its proposed WACC of 8.18 percent be applied to rate base to

10 | determine the required operating income for the Company's wastewater division.302 RUCO's

I 1 l recommended cost of equity for the Company's wastewater division is 8.31 percent, and is based on

|

Ethe analysis of its witness William Rigsby. Mr. Rigsby used the average of his CAPM and DCF 1 2

13

14

model results to reach his cost of equity estimate.303 Like the Company, RUCO recommended a cost

of debt of 8.0 percent based on the Company's existing debt cost.304 RUCO stated that because the

15

16

Company's actual capital structure consists of almost all equity, it used a hypothetical capital

17 structure of 40 percent long term debt and 60 percent common equity to calculate its proposed

18 WACQ305

19 For the Company's water division, RUCO recommended a negative rate base, and proposed

20 l an operating margin of 8.18 percent to determine its recommended revenue requirement for the

21 . . . 306 water division.

22

23

24

25 |

26

27

298 Direct Testimony of Company witness Thomas Bourrassa (Exh. A-1) Exhibit F at 4.

199 Rebuttal Testimony of Company witness Thomas Bourrassa (Exh. A-2) Vol. I at 3.

300 Co. Br. at 47.

"01 Direct Testimony of Company witness Thomas Bourrassa (Exh. A-1) Exhibit F at 2, Rebuttal Testimony of Company

witness Thomas Bourrassa (Exh. A-2) Vol. I at 3.

302 Direct Testimony of RUCO witness William Rigsby (Exh. R-9) at 5.

303I d

304

28 305 RUCO Br. at 15.

48 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 52 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

1.3 

14 

15 

16 

17 

18 

19 

20 

21 

')? 

23 

24 

25 

26 

27 

28 

C. Staffs Position 

Staff did not present a cost of capital analysis or recommendation for the Company. Due to 

the size of the rate base for the wastewater division and the negative rate base for the water division, 

Staff recommended that an operating margin should be used to determine both revenue 

requirements. Staff recommended that an operating margin of 10 percent be used in order to 

determine a revenue requirement for both the water and wastewater divisions.307

D. Conclusion 

The Company's FVRB for its water division is negative and the FVRB for its wastewater 

division is $136,562. Due to the size of the rate bases for the Company's two divisions, there is 

insufficient investment upon which to grant the Company a return. Authorizing an operating margin 

for a utility the size of the Company is problematic.308 Any part of an operating margin that is not 

used to cover legitimate utility expenses would accrue to the utility as income. Allowing a utility to 

collect an operating margin in rates has the potential to allow the utility to accrue a net income 

similar to the return earned by a utility that has made an investment in plant. In other words, 

authorizing an operating margin when there is no rate base investment has the potential of allowing 

the utility to realize a profit without making any investment, creating a windfall for the utility, 

without the utility having put any capital at risk. 

We do not wish to reward the Company for having a negative or negligible rate base. 

However, neither do we wish to have the Company's customers placed in jeopardy as they might be 

if the Company is unable to meet its legitimate operating expenses. We believe that an operating 

margin of 10 percent is too generous and would be a windfall for the Company and result in 

unreasonably higher rates for its customers. On the other hand, no allowance for an operating 

306 Direct Testimony of RUCO witness William Rigsby (Exh. R-9) at 3. 

307 Staff Br. at 19; Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 31 and (Exh. S-44) at 29. 

308 In the absence of a FVRB, the Arizona Constitution does not require the Commission to authorize rates to allow the 

Company to collect any revenue in addition to its operating expenses. 

49 DECISION NO. 71B54 

fl

DOCKET NO. WS-02987A-08-0l80

1

c. Staff's Position

2

Staff did not present a cost of capital analysis or recommendation for the Company, Due to

3 the size of the rate base for the wastewater division and the negative rate base for the water division,

4 Staff recommended that an operating margin should be used to determine both revenue

5 .

requirements . Staff recommended that an operating margin of 10 percent be used in order to

6 . . . . . 307 determine a revenue requirement for both the water and wastewaterd1v1s1ons.

7

\.|

D. Conclusion

8

9

The Company's FVRB for its water division is negative and the FVRB for its wastewater

10 division is $136,562. Due to the size of the rate bases for the Company's two divisions, there is

1 1 insufficient investment upon which to grant the Company a return. Authorizing an operating margin

12

1. 3

14

for a utility the size of the Com an is roblematic.308 An art of an o eating margin that is not I y p y P y p p

H used to cover legitimate utility expenses would accrue to the utility as income. Allowing a utility to

ll collect an operating margin in rates has the potential to allow the utility to accrue a net income

15

16 similar to the return earned by a utility that has made an investment in plant. In other words,

I

17 authorizing an operating margin when there is no rate base investment has the potential of allowing

18 the utility to realize a profit without making any investment, creating a windfall for the utility,

19 without the utility having put any capital at risk.

20 We do not wish to reward the Company for having a negative or negligible rate base.

21

v However, neither do we wish to have the Company's customers placed in jeopardy as they might be

77

if the Company is unable to meet its legitimate operating expenses. We believe that an operating

23

y

24 margin of 10 percent is too generous and would be a windfall for the Company and result in

25 unreasonably higher rates for its customers. On the other hand, no allowance for an operating

26

27

28

306 Direct Testimony ofRUCO witness William Rigsby (Exh. R-9) at 3.

307 Staff Br. at 19, Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 31 and (Exh. S-44) at 29.

308 In the absence of a FVRB, the Arizona Constitution does not require the Commission to authorize rates to allow the

Company to collect any revenue in addition to its operating expenses.

49 DECISION NO. 11854,

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 53 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

1:3 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

margin (a margin set to zero) would reduce cash flow for contingencies, and could place the 

Company's customers in harm's way. Accordingly, in weighing the interests of the Company and 

its customers we consider the range of possible operating margins between 10 percent and zero that 

could be authorized based upon this record. In our consideration, we also note the absence of 

existing equity investment by the Company. 

In light of these factors and the record, we believe something less than a midpoint within the 

range is warranted when balancing the interests of the Company and its customers, and find that an 

operating margin of 3 percent for both its water and wastewater divisions is reasonable. Therefore, 

we determine a 3 percent operating margin for the water and wastewater divisions is appropriate and 

in the public interest. The operating margin will allow the Company to meet its legitimate operating 

expenses while it works to build its equity investment. 

The issue of whether an operating margin remains suitable, and whether the size of the 

operating margin is appropriate for a Class A Utility, will be re-evaluated in the Company's next rate 

filing. 

VI. AUTHORIZED INCREASE/DECREASE 

A. Water Division 

The adjusted test year operating income for the water division was $3,619,595. A 3 percent 

operating margin for the Company's water division results in operating income of $293,218. Based 

on our findings herein, we determine that the Company's gross revenue for its water division should 

decrease by $3,398,960. 

B. Wastewater Division 

The adjusted test year operating income for the wastewater division was $1,921,744. A 3 

percent operating margin for the Company's wastewater division results in operating income of 

50 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 margin (a margin set to zero) would reduce cash flow for contingencies, and could place the

2 Company's customers in harm's way. Accordingly, in weighing the interests of the Company and

'v

3 its customers we consider the range of possible operating margins between 10 percent and zero that

4 could be authorized based upon this record. In our consideration, we also note the absence of

5 . . . . re existing equity investment by the company.

6

In light of these factors and the record, we believe something less than a midpoint within the

7

range is warranted when balancing the interests of the Company and its customers, and find that an

8

9 operating margin of 3 percent for both its water and wastewater divisions is reasonable. Therefore,

|

we determine a 3 percent o keratin mar in for the water and wastewater divisions is a 10 p p g g p p p ro rite and

1 l in the public interest. The operating margin will allow the Company to meet its legitimate operating

12 expenses while it works to build its equity investment.

13 The issue of whether an operating margin remains suitable, and whether the size of the

14

operating margin is appropriate for a Class A Utility, will be re-evaluated in the Company's next rate

15

16

filing.

17 VI. AUTHORIZED INCREASE/DECREASE

18 A. Water Division

19 The adjusted test year operating income for the water division was $3,619,595 A 3 percent

20 operating margin for the Company's water division results in operating income of $293,218. Based

21

on our findings herein, we determine that the Company's gross revenue for its water division should

22

decrease by 83,398,960

23

B. Wastewater Division 24

25 The adjusted test year operating income for the wastewater division was $1,921,744 A 3

26 percent operating margin for the Company's wastewater division results in operating income of

27

28

50 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 54 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

3 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

$290,610. Based on our findings herein, we determine that the revenues for the Company's 

wastewater division should decrease by $1,667,019. 

VII. RATE DESIGN 

Staff recommended an inverted three-tiered rate design for the Company's 3/4 and 5/8 inch 

meter residential water customers and an inverted two-tiered rate design for all other water 

customers.309 For wastewater customers, Staff recommended a single monthly minimum charge 

based on meter size for all zones and classes of customers.310 There was no dispute regarding rate 

design. Staff's recommendations regarding rate design are reasonable and will be adopted. 

VIII. OTHER ISSUES 

A. Discontinuance of Hook-Up Fees 

Staff recommended that the Company's HUF tariffs be discontinued, due to the fact that 

there is comparatively little equity in the Company's capital structure.311 Staff stated that according 

to the independent auditor's report, at the end of 2006, the percentage of members' capital in the 

Company was 9.65 percent.312 Staff noted that while it is supportive of the use of HUFs, there 

should be a balance between the amount of equity the Company is investing in plant and what 

customers are investing in plant through HUFs.313 For a utility the size of Johnson, Staff 

recommends an equity range of between 40 to 60 percent and debt between 40 to 60 percent, and in 

addition, that no more than 30 percent equity should be from AIAC and CIAC.314 Staff further 

recommended that in the future, if the Company wishes to apply for a HUF tariff, that it have a 

Certified Public Accounting firm attest to the Company's membership equity level of 40 percent315

309 Staff Final Schedule JMM-W26. 

310 Staff Final Schedule JMM-WW24. 

31I Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 35. 

312 Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 34-35 and (Exh. S-44) at 32-34. 

313 Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 34-35 and (Exh. S-44) at 32-34. 

314 Id. 

315 Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 15 and (Exh. S-45) at 17. 

51 DECISION NO. 71854 

DOCKET no. WS-02987A-08-0180

1 $290,610. Based on our findings herein, we determine that the revenues for the Company's

2 wastewater division should decrease by $1 ,667,019.

3 VII. RATE DESIGN

4 Staff recommended an inverted three-tiered rate design for the Company's 3/4 and 5/8 inch

5 . . . . . meter residential water customers and an inverted two~t1ered rate design for all other water

6 309 . . .

customers. For wastewater customers, Staff recommended a single monthly minimum charge

7

8 based on meter size for all zones and classes of customers.3I0 There was no dispute regarding rate

9 y design. Staff" s recommendations regarding rate design are reasonable and will be adopted.

10 ; VIII. OTHER ISSUES

1 1 A. Discontinuance of Hook-Up Fees

12 Staff recommended that the Company's HUF tariffs be discontinued, due to the fact that

13 there is comparatively little equity in the Company's capital structure.311 Staff stated that recording

14

i to the independent auditor's report, at the end of 2006, the percentage of members' capital in the

I

16 Company was 9.65 percent.312 Staff noted that while it is supportive of the use of HUFs, there

15

17

18

should be a balance between the amount of equity the Company is investing in plant and what

customers are investing in plant through HUFs.313 For a utility the size of Johnson, Staff

19

20

recommends an equity range of between 40 to 60 percent and debt between 40 to 60 percent, and in

addition, that no more than 30 percent equity should be from AIAC and CIAC.314 Staff further

21

recommended that in the future, if the Company wishes to apply for a HUF tariff, that it have a

22

Certified Public Accounting firm attest to the Company's membership equity level of 40 percent315

23

24

26

'7

5 309 staffrinal Schedule JMM-W26.

310 Staff Final Schedule JMM-WW24.

311 Direct Testimony of Staff witness Jeffrey Michlik (Exh. S-38) at 35.

312 Direct Testimony of Staff witness Jeffrey 1v1i¢h1ik (Exp. s-38) at 34-35 and (Exp. s-44) at 32-34.

Direct 'Testimony of Staff witness Jeffrey Miehlik (Exp, S-38) at 34-35 and (Exh. S-44) at 32-34.

Id.

28 315 Surrebuttal Testimony of Staff witness Jeffrey Michlik (Exh. S-39) at 15 and (Exp. S-45) at 17,

27

51 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 55 of 134
1 

2 

_3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

The Company opposed Staff's recommendation. The Company argued that in the coming 

years it will fund plant capacities with equity, and that the $6,931,078 balance in the water HUF 

account at the end of the test year was collected on developments where construction has stopped 

due to current market conditions.316 The Company also argued that in 2006, the Company was 

informed that a Staff audit had not disclosed anything unusual or improper regarding the way the 

Company was collecting, using and accounting for HUFs.317

We agree with Staff that under the circumstances of this case, in the interest of attaining a 

balance for the Company between equity investment in plant and customer contributions to plant, it 

is reasonable and in the public interest to discontinue the Company's authority to collect HUFs for 

both its water and wastewater divisions. We further find it reasonable and in the public interest to 

require, as a prerequisite to approval of a new hook up fee tariff for the Company in the future, that 

the Company provide certification by a Certified Public Accounting firm that the Company has a 

membership equity level of at least 40 percent. 

B. Water Loss for Johnson Ranch System 

Staff recommended that the Company be ordered to conduct a twelve month water loss 

monitoring exercise for the Johnson Ranch water system including monitoring and reporting water 

gallons sold, gallons pumped, and gallons purchased per month.318 The information the Company 

initially provided to Staff showed that this system's 2007 water loss was 19.4 percent.3I9 The 

Company subsequently indicated that the number of gallons sold that it initially reported was 

inaccurate because it did not include construction water and irrigation water sales.32° Staff further 

recommended that the Company docket the results of the system monitoring as a compliance item in 

316 Co. Reply Br. at 59, citing to Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 31. 

317 Co. Reply Br. at 59, citing to Rejoinder Testimony of Company witness Brian Tompsett (Exh. A-7) at 7. 

318 Tr. 1425-1426; Direct Testimony of Staff witness Marlin Scott, Jr. (Exh. S-36) Exhibit MSJ at 8-9; Tr. at 1419; Reply 

Br. at 24. 

19 Staff Br. at 23, citing to Direct Testimony of Staff witness Marlin Scott, Jr. (Exh. S-36) at 8, Surrebuttal Testimony of 

Staff witness Marlin Scott, Jr. (Exh. S-37) at 6, and Tr. at 1456. 

52 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1

The Company opposed Staffs recommendation. The Company argued that in the coming

2 years it will fund plant capacities with equity, and that the $6,931,078 balance in the water HUF

4

_) account at the end of the test year was collected on developments where construction has stopped

4 due to current market conditions.316 The Company also argued that in 2006, the Company was

5

informed that a Staff audit had not disclosed anything unusual or mxproper regarding the way the . . . . . Q

6

Company was collecting, using and accounting for HUFs.3I7

7

We agree with Staff that under the circumstances of this case, in the interest of attaining a

8

9 balance for the Company between equity investment in plant and customer contributions to plant, it

10 is reasonable and in the public interest to discontinue the Company's authority to collect HUFs for

l l both its water and wastewater divisions. We further find it reasonable and in the public interest to

12 require, as a prerequisite to approval of a new hook up fee tariff for the Company in the future, that

13

the Company provide certification by a Certified Public Accounting firm that the Company has a

14

membership equity level of at least 40 percent.

15

B. Water Loss for Johnson Ranch System

16

17 Staff recommended that the Company be ordered to conduct a twelve month water loss

18 monitoring exercise for the Johnson Ranch water system including monitoring and reporting water

19 gallons sold, gallons pumped, and gallons purchased per month.318 The information the Company

20 initially provided to Staff showed that this system's 2007 water loss was 19.4 percent.3l9 The

21

22

Company subsequently indicated that the number of gallons sold that it initially reported was

inaccurate because it did not include construction water and irrigation water sales.320 Staff further

23

24 recommended that the Company docket the results of the system monitoring as a compliance item in

25

26

27

316 Co. Reply Br. at 59, citing to Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 31 .

317 Co. Reply Br. at 59, citing to Rejoinder Testimony of Company witness Brian Tompsett (Exh. A-7) at 7.

318 Tr. 1425-1426, Direct Testimony of Staff witness Marlin Scott, Jr. (Exh. S-36) Exhibit MSJ at 8-9, Tr. at 1419, Reply

Br. at 24.

819 Staff Br. at 23, citing to Direct Testimony of Staff witness Marlin Scott, Jr. (Exh. S-36) at 8, Surrebuttal Testimony of

Staff witness Marlin Scott, Jr. (Exp. S-37) at 6, and Tr. at 1456. 28

52 DECISION NO. 71854

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 56 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

this case. Staff recommended that if the reported water loss for a one year period is greater than 10 

percent, the Company be required to prepare a report containing detailed analysis and plan to reduce 

water loss to 10 percent or less. Staff recommended that if the Company believes it is not cost 

effective to reduce water loss to less than 10 percent, it should submit a detailed cost benefit analysis 

to support its opinion. Staff recommended that such report be docketed as a compliance item for this 

proceeding for review and certification by Staff Staff recommended that in no case should water 

loss be greater than 15 percent, and that Staff be authorized to initiate an Order to Show Cause 

against the Company if water loss is not reduced to less than 15 percent.32' 

The Company argued that the actual percentage of non-account water for the Johnson Ranch 

system for 2007 was under 10 percent, and that it addressed the issue in its 2008 water use data sheet 

submitted with its 2008 annual report.322 Staff responded that because the Company did not provide 

sufficient support for its claim, including a breakdown of the gallons sold per month, that Staff's 

recommendation remains the same following the Company's submission of the 2008 water use data 

sheet.323 Staff's recommendations are reasonable and will be adopted. 

C. ADEQ Compliance 

Swing First presented evidence in this proceeding concerning fourteen Notices of Violation 

("NOVs") issued to the Company by ADEQ, dating back to September 2004.324 Five of the NOVs 

were issued in 2008 and two were issued in 2009.325 Some of the NOVs remain open.326

Staff recommended that any increases in rates and charges authorized in this matter not go 

into effect until the Company comes into full compliance with ADEQ by resolving all outstanding 

NOVs including, but not limited to, the outstanding NOV associated with the Pecan, San Tan, and 

320 Surrebuttal Testimony of Staff witness Marlin Scott, Jr. (Exh. S-37) at 6. 

'21 Direct Testimony of Staff witness Marlin Scott, Jr. (Exh. S-36) at 8-9; Tr. at 1419. 

322 Co. Br. at 60, citing to Rebuttal Testimony of Company witness Brian Tompsett (Exh. A-5) at 32 and Rejoinder 

Testimony of Company witness Brian Tompsett (Exh. A-7) at 15. 

223 Staff Br. at 24, citing to Tr. at 1457 and Surrebuttal Testimony of Staff witness Marlin Scott, Jr. (Exh. S-37) at 7. 

324 RUCO Br. at 22, citing to Exh. SF-9. 

53 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 this case. Staff recommended that if the reported water loss for a one year period is greater than 10

2 percent, the Company' be required to prepare a report containing detailed analysis and plan to reduce

3 water loss to 10 percent or less. Staff recommended that if the Company believes it is not cost

4 effective to reduce water loss to less than 10 percent, it should submit a detailed cost benefit analysis

5 . . - , . .

to support its opinion. Stafffecommended that such report be docketed as a compliance item for thls

6

proceeding for review and certification by Staff. Staff recommended that in no case should water

7

8

loss be greater than 15 percent, and that Staff be authorized to initiate an Order to Show Cause

i against the Company if water loss is not reduced to less than 15 percent.321 9

10 The Company argued that the actual percentage of non-account water for the Johnson Ranch

11 system for 2007 was under 10 percent, and that it addressed the issue in its 2008 water use data sheet

12 submitted with its 2008 amlual report.322 Staff responded that because the Company did not provide

13 sufficient support for its claim, including a breakdown of the gallons sold per month, that Staff' s

14

I recommendation remains the same following the Company's submission of the 2008 water use data

15

16 sheet.323 Staff' s recommendations are reasonable and will be adopted.

17 c. ADEQ Compliance

18 Swing First presented evidence in this proceeding concerning fourteen Notices of Violation

19

20

I

*I ("Novs" issued to the Com any by ADEQ, dating back to September 2004.324 Five of the NOVs p

'were issued in 2008 and two were issued in 2009.325 Some of the NOVs remain open.326

21

Staff recommended that any increases in rates and charges authorized in this matter not go

22

'74.3

l into effect until the Company comes into full compliance with ADEQ by resolving all outstanding

lNOVs including, but not limited to, the outstanding NOV associated with the Pecan, San Tan, and

24

25

26

27

320 Surrebuttal Testimony of Staff witness Marlin Scott, Jr. (Exh. S-37) at 6.

321 Direct Testimony of Staff witness Marlin Scott, Jr. (Exh. S-36) at 8-9, Tr. at 1419.

322 Co. Br. at 60, citing to Rebuttal Testimony of Company witness Brian Tompsett (Exp. A-5) at 32 and Rejoinder

'Testimony of Company witness Brian Tompsett (Exp. A-7) at 15.

223 Staff Br. at 24, citing to Tr. at 1457 and Surrebuttal Testimony of Staff witness Marlin Scott, Jr. (Exp. S-37) at 7.

324 RUCO Br. at 22, citing to Exh. sr-9. 28

53 DECISION no. 71854

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 57 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

Section 11 Wastewater Treatment plants.327 Staff recommended, however, that if rate decreases are 

authorized, as recommended by Staff, that such decreases should not be postponed until the 

Company comes into full compliance with ADEQ.328

RUCO stated that it is very concerned about the public's health and safety and the 

Company's attitude toward the subject, and believes it is necessary for the Commission to take 

action to assure the public's safety.329 RUCO recommended that the Company be required to 

provide the Commission twice a month or monthly confirmation that it is in compliance with all 

rules and regulations of ADEQ and notice of any new alleged violations whether written or ora1.33°

RUCO recommended that its proposed filing include all correspondence, oral and written, that the 

Company has with ADEQ during the time period.33I RUCO recommended that the Company be 

ordered to report any leaks, overflows or any other incidents no matter how minor to the 

Commission immediately after they occur.332 Finally, RUCO recommended that the Commission 

should, resources permitting, put into place both scheduled and unannounced visits by its Staff to the 

Company's service area for the purpose of on-site inspections, and require Staff to file with the 

Commission, with copies to the parties, reports of any inspection made.333 RUCO recommended 

that its proposed requirements remain in place for a minimum of six months but not be removed 

until the Company can prove that all open NOVs are closed.334

Staff stated that it shares the concerns of RUCO, but that it does not have the resources 

available to commit to additional inspections of Johnson's facilities.335 Staff noted that it receives 

3" Id. 

326 RUCO Br. at 22, citing to Tr. at 85-117. 

327 Tr. at 1430. 

328 Tr. at 1520-21. 

329 RUCO Br. at 29. 

330 Id

331 Id 

332 Id 

333 1d. at 29-30. 

334 RUCO Br. at 30. 

535 Staff Reply Br. at 12. 

54 DECISION rO. 71854 

DOCKET NO. WS»02987A-08-0180

1 Section 11 Wastewater Treatment plants.327 Staff recommended, however, that if rate decreases are

2

authorized, as recommended by Staff, that such decreases should not be postponed until the

q

.J Company comes into full compliance with ADEQ328

4 RUCO stated that it is very concerned about the public's health and safety and the

<.1 Company's attitude toward the subject, and believes it is necessary for the Commission to take

6

action to assure the public's safety.329 RUCO recommended that the Company be required to

7

provide the Commission twice a month or monthly confirmation that it is in compliance with all

8

9 rules and regulations of ADEQ and notice of any new alleged violations whether wrillen or oral.330

10 RUCO recommended that its proposed filing include all correspondence, oral and written, that the

11 Company has with ADEQ during the time period.33I RUCO recommended that the Company be

12 \ ordered to report any leaks, overflows or any other incidents no matter how minor to the

13 | Commlsslon rmmedlately after they occur.332 Florally, RUCO recommended that the Commlsslon . . . . v . .

14

should, resources permitting, put into place both scheduled and unannounced visits by its Staff to the

15

16

Company's service area for the purpose of on-site inspections, and require Staff to file with the

17 Commission, with copies to the parties, reports of any inspection made.333 RUCO recommended

18 that its proposed requirements remain in place for a minimum of six months but not be removed

19 l until the Company can prove that all open NOVs are closed.334

20 Staff stated that it shares the concerns of RUCO, but that it does not have the resources

21

available to commit to additional inspections of Johnson's facilities.335 Staff noted that it receives

22

23

24

25

26

27

28

325 ld.

326 RUCQ Br, at 22, citing to Tr. at 85-1 17.

327 Tr. at 1430.

328 Tr. at 1520-21 .

329 Rico Br. at 29.

380 Id

331 Id

332 Id

333 ld. at 29-30.

334 Rico Br. at 30.

335 Staff Reply Br. at 12.

54 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 58 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

notification from the Company when spills occur, and that any additional inspection and reporting 

requirements would be duplicative of the work performed by ADEQ.336

We agree with Staff and RUCO that the evidence presented in this case regarding both the 

quantity of NOVs and the nature and character of the NOVs, especially the NOV designated by 

ADEQ as Case ID #103357 involving the Company's Section 11 WWTP, are cause for concern. As 

RUCO argued, if the Commission finds, based on the preponderance of the evidence, that the 

Company's manner of providing service jeopardizes the public's safety and health, this 

Commission's remedies cannot be punitive as might be the case with ADEQ, but rather must focus 

on remedying the situation.337 The evidence presented this proceeding regarding the NOVs issued 

by ADEQ is of great concern to this Commission. However, the evidence was not first-hand 

investigative evidence such as would be required for a Commission finding by the preponderance of 

the evidence, as urged by RUCO in its closing brief, that the Company's operations are jeopardizing 

the public's safety and health. ADEQ is the state agency in Arizona charged with the responsibility 

to, and provided with the resources and expertise required to, investigate and prosecute entities who 

violate Arizona's environmental laws. The evidence elicited by Swing First was of the nature of 

reporting on the investigative and enforcement activities of ADEQ. We are in agreement with 

RUCO that the roles of ADEQ and the Commission should not be duplicative,338 but unlike RUCO, 

we believe that implementing RUCO's recommendations would lead to just such a result. 

Staffs recommendation to require that any increases in rates and charges authorized in this 

matter not go into effect until the Company comes into full compliance with ADEQ by resolving all 

outstanding NOVs including, but not limited to, the outstanding NOV associated with the Pecan, San 

Tan, and Section 11 Wastewater Treatment plants is reasonable. However, the rates approved herein 

constitute a rate reduction for the Company's water and wastewater divisions. We will require 

3" Id. 

337 See RUCO Br. at 23. 

55 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 'notification from the Company when spills occur, and that any additional inspection and reporting

2 | requirements would be duplicative of the work performed by ADEQ336

3 We agree with Staff and RUCO that the evidence presented in this case regarding both the

4 quantity of NOVs and the nature and character of the NOVs, especially the NOV designated by

5

ADEQ as Case ID #103357 involving the Company's Section 11 WWTP, are cause for concern. As

6

RUCO argued, if the Commission finds, based on the preponderance of the evidence, that the

7

Company's manner of providing service jeopardizes the public's safety and health, this

8

9 Commission's remedies cannot be punitive as might be the case with ADEQ, but rather must focus

}

10 on remedying the situation.337 The evidence presented this proceeding regarding the NOVs issued

11 by ADEQ is of great concern to this Commission. However, the evidence was not first-hand

L. mvestlgatxve evldence such as would be required for a Commlsslon finding by the preponderance of

13

the evidence, as urged by RUCO in its closing brief, that the Company's operations are jeopardizing

the public's safety and health. ADEQ is the state agency in Arizona charged with the responsibility

D

16 Ito, and provided with the resources and expertise required to, investigate and prosecute entities who

17 violate Arizona's environmental laws. The evidence elicited by Swing First was of the nature of

18 | reporting on the investigative and enforcement activities of ADEQ. We are in agreement with

19 RUCO that the roles of ADEQ and the Commission should not be duplicative,338 but unlike RUCO,

20 we believe that implementing RUCO's recommendations would lead to just such a result.

21

Staffs recommendation to require that any increases in rates and charges authorized in this

22

23

24

| matter not go into effect until the Company comes into full compliance with ADEQ by resolving all

I outstanding NOVs including, but not limited to, the outstanding NOV associated with the Pecan, San

Tan, and Section l 1 Wastewater Treatment plants is reasonable. However, the rates approved herein

26 | constitute a rate reduction for the Company's water and wastewater divisions. We will require

27

336

28 l 337 See RUCO Br. at 23.

25

55 DECISION NC). 7 1 8 5 4

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 59 of 134
1 

2 

3 

4 

5 

6 

7 

8-

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

2.3 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

instead that the Company file, within 30 days, a list of outstanding NOVs issued against it by 

ADEQ, and to list (1) the procedural status of each NOV; and (2) steps the Company is taking to 

come into compliance with ADEQ requirements. We will also require the Company to notify the 

Commission at such time that the Company comes into full compliance with all ADEQ 

requirements, including resolving all outstanding NOVs. We will require that Staff, within 60 days 

of receipt of such filing, review the filing, verify the Company's compliance, and file a status report 

in this docket indicating that the Company has come into full compliance with all ADEQ 

requirements. 

D. Swing First Golfs Recommendations 

Swing First, a customer of Johnson, owns and operates The Golf Club at Johnson Ranch. On 

January 25, 2008, Swing First filed a complaint against Johnson in Docket No. WS-02987A-08-0049 

("Complaint Docket"). The Complaint Case is currently pending. 

Swing First's witness Sonn Rowell made nine recommendations in her testimony, as follows: 

1. Utility should not be allowed to increase its rates until its 

management and financial practices are investigated. 

2. Utility should be required to immediately reduce its water rates and 

make refunds. 

3. The Company should be required to refund — in cash, not credits — its 

illegal superfund tax collections. 

4. Utility's Pecan Wastewater Treatment Plant should not be included in 

rate base. 

5. Utility should be required to dismiss all pending defamation lawsuits 

against its customers, and pay all of their court costs and legal fees. 

6. Utility should be fined for its blatant disregard of its public service 

obligations, environmental laws, and explicit commission orders. 

7. Utility should be penalized with a reduced rate of return on equity. 

3

38 See id. 

56 DECISION NO. 71854 

DOCKET NO. WS-02987A-08»0180

1 instead that the Company tile, within 30 days, a list of outstanding NOVs issued against it by

2 ADEQ, and to list (1) the procedural status of each NOV, and (2) steps the Company is taking to

3 come into compliance with ADEQ requirements. We will also require the Company to notify the

4 Commission at such time that the Company comes into full compliance with all ADEQ

requirements, rncludmg resolving all outstanding NOVs. We wlll require that Staff, wrthm 60 days

6

of receipt of such filing, review the filing, verify the Company's compliance, and file a status report

7

in this docket indicating that the Company has come into full compliance with all ADEQ 8_

9 requirements.

10 D. Swing First Golf's Recommendations

11 Swing First, a customer of Johnson, owns and operates The Golf Club at Johnson Ranch. On

12 January 25, 2008, Swing First tiled a complaint against Johnson in Docket No, WS-02987A-08-0049

13 . . . .

("Complalnt Docket"). The Complalnt Case is currently pending.

14

Swing First's witness Sonn Rowell made nine recommendations in her testimony, as follows:

15

1.

16

Utility should not be allowed to increase its rates until its

management and financial practices are investigated.

17

2. Utility should be required to immediately reduce its water rates and

18 make refunds.

19 3. The Company should be required to refund

illegal superfund tax collections.

in cash, not credits --. its

20

21 4. Utility's Pecan Wastewater Treatment Plant should not be included in

rate base.

22

5.

23

Utility should be required to dismiss all pending defamation lawsuits

against its customers, and pay all of their court costs and legal fees.

24 6. Utility should be fined for its blatant disregard of its public service

obligations, environmental laws, and explicit commission orders. 25

* .

26 7. Utility should be penalized with a reduced rate of return on equity.

27

28 3 .

.38 See ld

56 DECISION NO. 71854

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 60 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

1.2 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

8. Following the completion of the independent management and 

financial audits, the Commission should require Utility to 

demonstrate why it should not surrender its certificate of convenience 

and necessity. 

9. The Commission should bifurcate this case into two phases.339

The Company responded to Swing First's recommendations in its closing brief. In its reply 

brief, the Company responded to arguments Swing First made on brief in support of its 

recommendations.34°

Staff stated that it does not support the recommendations made by Swing First in this 

docket,34I and noted that a number of actions Swing First recommended are beyond the 

constitutional and statutory authority of the Commission to implement.342 Staff stated that the 

Company has been charging rates authorized in Decision No. 60223, and thus has charged its 

customers rates that were deemed just and reasonable, until further determination by the 

Commission.343 Staff stated that to require the Company to refund its customers from 2007 forward, 

as recommended by Swing First, raises issues of retroactive ratemaking, and that generally, the rule 

against retroactive ratemaking prohibits the retroactive adjustment of rates to account for unexpected 

expenses or revenues.

344 Staff also commented that the Commission does not have authority to order 

the Company to dismiss all pending defamation lawsuits against its customers and to pay all of their 

court costs and legal fees.345 Staff noted, however, that Swing First's intervention in this matter 

helped bring to Staff's attention certain irregular billing practices and other customer service 

339 Direct Testimony of Swing First witness Sonn Rowell (Exh. SF-40) at 15. 

340 Co. Reply Br. at 30-46. 

341 Staff Br. at 24. 

342 Staff Reply Br. at 12. 

343 Id. 

344 Id

345 Id. 

57 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1

8.

2

Following the completion of the independent management and

financial audits, the Commission should require Utility to

demonstrate why it should not surrender its certificate of convenience

and necessity.

3

9. The Commission should bifurcate this case into two phases.339

4

5

The Company responded to Swing First's recommendations in its closing brief. In its reply

6

brief, the Company responded to arguments Swing First inane on brief in support of its

7 recommendations.340

8 Staff stated that it does not support the recommendations made by Swing First in this

9

docket 34 I and noted that a number of actions Swing First recommended are beyond the

10

constitutional and statutory authority of the Commission to imp1ement.342 Staff stated that the

H

12

Company has been charging rates authorized in Decision No. 60223, and thus has charged its

13 customers rates that were deemed just and reasonable, until further determination by the

14 Commission.343 Staff stated that to require the Company to refund its customers from 2007 forward,

15 as recommended by Swing First, raises issues of retroactive ratemaking, and that generally, the rule

16 against retroactive ratemaking prohibits the retroactive adjustment of rates to account for unexpected

17

expenses or revenues.344 Staff also commented that the Commission does not have authority to order

18

19

the Company to dismiss all pending defamation lawsuits against its customers and to pay all of their

court costs and legal fees.345 Staff noted, however, that Swing First's intervention in this matter

20

21 helped bring to Staffs attention certain irregular billing practices and other customer service

22 I

23

24 If

25

26

27

339 Direct Testimony of Swing First witness Sons Rowell (Exh, SF-40) at 15.

340 Co. Reply Br. at 30-46.

841 Staff Br. at 24.

342 Staff Reply Br. at 12.

843ld.

344 I d

845 l d

28

57 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 61 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DOCKET NO. WS-02987A-08-0180 

issues.346 Staff stated that because it was made aware of the Company's practice of under-billing 

Oasis Golf Course, Staff was able to make an adjustment to correct it.347

Staff recommended that the remaining customer service issues that Swing First has alleged 

be adjudicated and resolved in the pending Complaint Case.348 RUCO stated that it believes Swing 

First's billing dispute would be better addressed in the Complaint Docket.349 The Company agreed 

that the appropriate forum for the billing dispute is the Complaint Docket.35°

We agree with RUCO, the Company, and Staff that the customer service and billing issues 

raised by Swing First in this docket are best addressed in the pending Complaint Docket. We further 

agree with Staff that it would not be appropriate to adopt Swing First's other recommendations in 

this proceeding. 

* * * * * 

Having considered the entire record herein and being fully advised in the premises, the 

Commission finds, concludes, and orders that: 

FINDINGS OF FACT 

1. On March 31, 2008, Johnson filed a rate increase application for water and 

wastewater with a 2007 test year. 

2. Johnson is a public service corporation that provides water and wastewater service in 

Final County, Arizona pursuant to a CC&N originally granted in Decision No. 60223 (May 2, 

1997), which authorized its current rates and charges. Johnson is organized as an Arizona limited 

liability company and is in good standing. Its principal place of business is 5230 East Shea Blvd., 

Suite 200, Scottsdale, Arizona 85254. 

3. In Decision Nos. 68235 (October 25, 2005), 68236 (October 25, 2005), and 68237 

(October 25, 2005), Johnson was ordered to file a rate application for both water and wastewater by 

May 1, 2007, based on a 2006 test year. Prior to May 1, 2007, Johnson filed a request to extend 

346 Staff Br. at 24, citing to (Exh. SF-40) at 9, Tr. at 584-590, and (Exh. A-6) at 16. 

347 Staff Br. at 24-25, citing to (Exh. SF-38) at 15, and Tr. at 473 and 1704. 

348 Staff Br. at 25. 

349 RUCO Reply Br. at 10. 

350 Co. Reply Br. at 46. 

58 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1

issues.346 Staff stated that because it was made aware of the Company's practice of under-billing

Oasis Golf Course, Staff was able to make an adjustment to correct it.347 2

Staff recommended that the remaining customer service issues that Swing First has alleged

4 be adjudicated and resolved in the pending Complaint Case.348 RUCO stated that it believes Swing

5 First's billing dispute would be better addressed in the Complaint Docket.349 The Company agreed

6 that the appropriate forum for the billing dispute is the Complaint Docket.350

7 We agree with RUCO, the Company, and Staff that the customer service and billing issues

3

ralsed by Swlng Flrst in thls docket are best addressed in the pending Complalnt Docket. We further

agree wlth Staff that it would not be appropriate to adopt Swing Flrst's other recommendations in

10

this proceeding.

11 * * * * * * * * * *

12 Having considered the entire record herein and being fully advised in the premises, the

13 Commission finds, concludes, and orders that:

14 FINDINGS OF FACT

15

1. On March 31, 2008, Johnson filed a rate increase application for water and

16

17

2.

18

19

20

21

22 "'t

J .

23

24

wastewater with a 2007 test year.

Johnson is a public service corporation that provides water and wastewater service in

Penal County, Arizona pursuant to a CC8cN originally granted in Decision No. 60223 (May 2,

1997), which authorized its current rates and charges. Johnson is organized as an Arizona limited

liability company and is in good standing. Its principal place of business is 5230 East Shea Blvd.,

Suite 200, Scottsdale, Arizona 85254.

In Decision Nos. 68235 (Qctober 25, 2005), 68236 (October 25, 2005), and 68237

(October 25, 2005), Johnson was ordered to tile a rate application for both water and wastewater by

May l, 2007, based on a 2006 test year. Prior to May l, 2007, Johnson tiled a request to extend

25

26

27

28

346 Staff Br. at 24, citing to (Exp. SF-40) at 9, Tr. at 584-590, and (Exh. A-6) at 16.

347 Staff Br. at 24-25, citing to (Exh. SF-38) at 15, and Tr. at 473 and 1704.

348 Staff Br. at 25.

349 RUCO Reply Br. at 10.

350 Co. Reply Br. at 46.

58 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 62 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

that filing date. On September 18, 2007, Staff recommended that the Company be required to file 

the rate application by March 31, 2008, using a 2007 test year. 

4. On April 29, 2008, Staff filed a Letter of Deficiency stating that the rate application 

did not meet the sufficiency requirements as outlined in A.A.C. R14-2-103, and listing the items 

Staff required to deem the application sufficient for processing. 

5. On May 13, 2008, existing Counsel for the Company filed a Motion Requesting 

Permission to Withdraw as Counsel, and new Counsel for the Company filed a Notice of 

Substitution of Counsel. 

6. On May 14, 2008, the Company filed revised schedules and other documents to 

address the items identified in Staffs April 29, 2008, Letter of Deficiency. 

7. On May 16, 2008, a Procedural Order was issued granting the May 13, 2008, Motion 

Requesting Permission to Withdraw as Counsel. 

8. On June 11, 2008, a letter from Commissioner Mundell to the Commission was 

docketed. 

9. On June 11, 2008, Swing First filed a Motion to Intervene. By Procedural Order 

issued June 23, 2008. Swing First's Motion to Intervene was granted. 

10. On June 13, 2008, Staff filed a Second Letter of Deficiency. 

11. On June 23, 2008, a letter from Commissioner Mundell to the Company was 

docketed, indicating that Commissioner Mundell docketed all the material that Johnson provided to 

the Commissioners regarding the sanitary sewer overflows from the Pecan WWTP during the 

weekend of May 17-18, 2008. 

12. On June 24, 2008, a letter from Commissioner Mundell to the Commission was 

docketed. 

13. On July 3, 2008, Johnson filed responses to the data requests contained in Staffs 

Second Letter of Deficiency. 

14. On August 1, 2008, Staff filed a Letter of Sufficiency informing the Company that the 

application had met the Commission's sufficiency requirements and classifying the Company as a 

Class A utility. 

59 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1

2

3

4

5

6

7

that filing date. On September 18, 2007, Staff recommended that the Company be required to file

the rate application by March 31, 2008, using a 2007 test year.

4. On April 29, 2008, Staff filed a Letter of Deficiency stating that the rate application

did not meet the sufficiency requirements as outlined in A.A.C. R14-2~103, and listing the items

Staff required to deem the application sufficient for processing.

5. On May 13, 2008, existing Counsel for the Company filed a Motion Requesting

Permission to Withdraw as Counsel, and new Counsel for the Company filed a Notice of

8 Substitution of Counsel.

9

10 !|

11

On May 14, 2008, the Company filed revised schedules and other documents to

address the items identified in Staff" s April 29, 2008, Letter of Deficiency.

6.

7.

12

On May 16, 2008, a Procedural Order was issued granting the May 13, 2008, Motion

ll Requesting Permission to Withdraw as Counsel.

13 8. On June ll, 2008, a letter from Commissioner Mundell to the Commission was

14 docketed.

15 9.

16

I

17 10.

18 11.

19

20

21

22

On June ll, 2008, Swing First tiled a Motion to Intervene. By Procedural Order

issued June 23, 2008, Swing First's Motion to Intervene was granted.

On June 13, 2008, Staff filed a Second Letter of Deficiency.

On June 23, 2008, a letter from Commissioner Mundell to the Company was

docketed, indicating that Commissioner Mundell docketed all the material that Johnson provided to

the Commissioners regarding the sanitary sewer overflows from the Pecan WWTP during the

weekend of May 17-18, 2008,

12. On June 24, 2008, a letter from Commissioner Blundell to the Commission was i

23 docketed.

24 13.

25

26 14.

27

28

On July 3, 2008, Johnson filed responses to the data requests contained in Staffs

Second Letter of Deficiency.

On August 1, 2008, Staff filed a Letter of Sufficiency informing the Company that the

application had met the Commission's sufficiency requirements and classifying the Company as a

Class A utility.

59 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 63 of 134
DOCKET NO. WS-02987A-08-0180 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

1:3 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

15. On August 15, 2008, a Rate Case Procedural Order was issued setting a hearing on 

the rate application to commence on April 23, 2009, and setting associated procedural deadlines, 

including public notice requirements. 

16. On September 25, 2008, Johnson filed a Motion to Revise Procedural Schedule. 

17. On November 21, 2008, Swing First filed a Motion to Compel. 

18. On November 25, 2008, Johnson filed a Request for Extension of Time to Respond to 

Motion to Compel. 

19. On December 2, 2008, Johnson filed a Notice of Filing Affidavit of Publication. 

20. A total of 159 public comments concerning the rate application were filed in this 

docket. 

21. On December 2, 2008, Johnson filed a Response to Swing First's Motion to Compel. 

22. On December 4, 2008, RUCO filed an Application to Intervene. RUCO was granted 

intervention by Procedural Order issued December 16, 2008. 

23. On December 5, 2008, Swing First filed a Reply to Johnson's Response to Motion to 

Compel. 

24. On December 17, 2008, Florence filed a Motion for Leave to Intervene. Florence 

was granted intervention by Procedural Order issued December 31, 2008. 

25. On December 17, 2008, Staff filed a copy of a letter to the Company indicating 

Staff's concerns with late or incomplete Company responses to Staff's data requests. The letter 

stated that "Staff must now insist that the Company file all responses to all outstanding and current 

data requests by January 8, 2009. Staff will make adjustments according to the information 

received as of January 8, 2009. Staff reserves the right to disregard any responses to current and 

outstanding data requests received after January 8, 2009. Staff further reserves the right to issue 

more data requests as needed." The letter included a listing of all data requests to which Staff stated 

Company responses were incomplete. 

26. On January 21, 2009, a Procedural Order was issued setting a Procedural Conference 

for January 27, 2009, for the purpose of allowing the parties to present their arguments regarding 

Swing First's Motion to Compel Discovery. 

60 DECISION NO. 71854 

DOCKET no. WS-029877-08-0180

1 15.

2

On August 15, 2008, a Rate Case Procedural Order was issued setting a hearing on

the rate application to commence on April 23, 2009, and setting associated procedural deadlines,

3

4

including public notice requirements.

16.

5

6

17.

18.

On September 25, 2008, Johnson filed a Motion to Revise Procedural Schedule.

On November 21, 2008, Swing First tiled a Motion to Compel.

On November 25, 2008, Johnson filed a Request for Extension of Time to Respond to

7

8

Motion to Compel.

19. On December 2, 2008, Johnson filed a Notice of Filing Affidavit of Publication.

20. A total of 159 public comments concerning the rate application were filed in this

10 docket.

21.

12 22.

On December 2, 2008, Johnson filed a Response to Swing First's Motion to Compel.

On December 4, 2008, RUCO filed an Application to Intervene. RUCO was granted

13

14

intervention by Procedural Order issued December 16, 2008.

On December 5, 2008, Swing First filed a Reply to Johnson's Response to Motion to

15

23.

Compel.

16 24.

17

18

19

20

21

22 I

23

24

25

26

27

28

On December 17, 2008, Florence filed a Motion for Leave to intervene. Florence

was granted intervention by Procedural Order issued December 3 l, 2008.

25. On December 17, 2008, Staff filed a copy of a letter to the Company indicating

Staffs concerns with late or incomplete Company responses to Staff" s data requests. The letter

stated that "Staff must now insist that the Company file all responses to all outstanding and current

data requests by January 8, 2009. Staff will make adjustments according to the information

received as of January 8, 2009. Staff reserves the right to disregard any responses to current and

outstanding data requests received after January 8, 2009. Staff further reserves the right to issue

more data requests as needed." The letter included a listing of all data requests to which Staff stated

Company responses were incomplete.

26. On January 21, 2009, a Procedural Order was issued setting a Procedural Conference

for January 27, 2009, for the purpose of allowing the parties to present their arguments regarding

Swing First's Motion to Compel Discovery. .

60 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 64 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

27. On January 27, 2009, the Procedural Conference was held as scheduled. Swing First 

and Johnson presented their arguments regarding Swing First's Motion to Compel, and during the 

Procedural Conference, Johnson was directed to provide some of the requested information to 

Swing First. 

28. On January 29, 2009, Florence filed a Motion for Extension of Time to File 

Testimony. 

29. On February 3, 2009, Staff filed a Response to Florence's Motion for Extension of 

Time to File Testimony. 

30. On February 3, 2009, Swing First filed direct testimony of David Ashton. 

31. On February 4, 2009, RUCO filed direct testimony of William A. Rigsby and Rodney 

L. Moore. 

32. On February 4, 2009, Staff filed direct testimony of Jeffrey M. Michlik and Marlin 

Scott, Jr. 

33. On February 5, 2009, a Procedural Order was issued extending the deadline for 

Florence to file its direct testimony to February 17, 2009. 

34. On February 6, 2009, Swing First filed a Motion for Date Certain requesting that a 

date and time certain be set for the testimony of its witness David Ashton. 

35. On February 17, 2009, a Procedural Order was issued scheduling Mr. Ashton to 

appear on April 17, 2009, at 9:30 a.m. to testify. 

36. On February 17, 2009, Swing First filed its Motion for Leave to File Supplemental 

Direct Testimony and Emergency Motion to Prohibit Inappropriate Contact. 

37. On February 19, 2009, a Procedural Order was issued ordering Johnson to file, by 

February 24, 2009, a response to Swing First's Emergency Motion to Prohibit Inappropriate 

Contact, and setting a Procedural Conference for February 26, 2009 for the purpose of allowing the 

parties to present their arguments regarding Swing First's Emergency Motion to Prohibit 

Inappropriate Contact. 

38. On February 19, 2009, Johnson made two filings: a Motion to Strike Pre-Filed Direct 

Testimony of David Ashton on Behalf of Intervenor Swing First Golf and Response to Swing First 

61 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 27.

2

3

On January 27, 2009, the Procedural Conference was held as scheduled. Swing First

and Johnson presented their arguments regarding Swing First's Motion to Compel, and during the

Procedural Conference, Johnson was directed to provide some of the requested information to

4

5

Swing First.

28. On January 29, 2009, Florence filed a Motion for Extension of Time to File

6 Testimony.

7 29. On February 3, 2009, Staff filed a Response to Florence's Motion for Extension of

8 Time to File Testimony.

9 30. On February 3, 2009, Swing First filed direct testimony of David Ashton.

31. On February 4, 2009, RUCO filed direct testimony of William A. Rigsby and Rodney

1 1

10

I L. Moore.

12 32. On February 4, 2009, Staff filed direct testimony of Jeffrey M. Michlik and Marlin

13 Scott, Jr.

14 33.

15

16 34.

17

18 35.

19

20 36.

21

22 37.

23

24

25

26

27

On February 5, 2009, a Procedural Order was issued extending the deadline for

Florence to file its direct testimony to February 17, 2009.

On February 6, 2009, Swing First filed a Motion for Date Certain requesting that a

date and time certain be set for the testimony of its witness David Ashton.

On February 17, 2009, a Procedural Order was issued scheduling Mr. Ashton to

appear on April 17, 2009, at 9:30 a.m. to testify.

On February 17, 2009, Swing First filed its Motion for Leave to File Supplemental

Direct Testimony and Emergency Motion to Prohibit Inappropriate Contact.

On February 19, 2009, a Procedural Order was issued ordering Johnson to file, by

February 24, 2009, a response to Swing First's Emergency Motion to Prohibit Inappropriate

Contact, and setting a Procedural Conference for February 26, 2009 for the purpose of allowing the

parties to present their arguments regarding Swing First's Emergency Motion to Prohibit

Inappropriate Contact.

38.

28

On February 19, 2009, Johnson made two filings: a Motion to Strike Pre-Filed Direct

Testimony of David Ashton on Behalf of Intervenor Swing First Golf and Response to Swing First

61 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 65 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Golf's Motion for Leave to File Supplemental Direct Testimony, and a Motion to Compel 

Discovery. 

39. On February 20, 2009, a Procedural Order was issued stating that the Procedural 

Conference set for February 26, 2009 would be expanded to allow the parties to address all 

outstanding motions and responses. 

40. On February 20, 2009, Johnson filed a Notice of Inappropriate Discovery and 

Litigation Tactics. 

41. On February 24, 2009, Johnson filed its Response to Emergency Motion to Prohibit 

Inappropriate Contact. 

42. On February 25, 2009, Swing First filed its Response to Johnson's Motion to Compel. 

43. On February 25, 2009, Swing First filed its Notice of Partial Witness Substitution; 

Response to Johnson's Motion to Strike; and Reply to Johnson's Response to Swing First's Motion 

for Leave to File Supplemental Direct Testimony. 

44. On February 26, 2009, Johnson filed its Response and Motion to Strike Intervenor 

Swing First's Notice of Inappropriate Discovery and Litigation Tactics. 

45. On February 26, 2009, a Procedural Conference was held as scheduled. 

46. On February 27, 2009, Johnson filed its Request Regarding Deadline for Filing 

Rebuttal Testimony to Swing First's Direct Testimony. 

47. On March 2, 2009, Swing First filed its revised direct testimonies of Swing First 

witnesses David Ashton and Sonn S. Rowell. 

48. On March 5, 2009, a Procedural Order was issued granting Johnson's request for an 

extension of time, to March 23, 2009, to file rebuttal to the revised direct testimonies of Swing First 

witnesses David Ashton and Sonn S. Rowell 

49. On March 5, 2009, Johnson filed a Motion for Extension of Time to File Rebuttal 

Testimony. 

50. On March 10, 2009, Johnson filed rebuttal testimony of Thomas J. Bourassa 

(Volumes I, II, and III) and Brian Tompsett. 

51. On March 23, 2009, Johnson filed supplemental rebuttal testimony of Brian 

62 DECISION NO. 71854 

DOCKET no. WS-02987A-08-0180

1 Golf" s Motion for Leave to File Supplemental Direct Testimony, and a Motion to Compel

2

3

Discovery.

39.

4

On February 20, 2009, a Procedural Order was issued stating that the Procedural

Conference set for February 26, 2009 would be expanded to allow the parties to address all

5 outstanding motions and responses.

6 40. On February 20, 2009, Johnson filed a Notice of Inappropriate Discovery and

7 Litigation Tactics.

8 41. On February 24, 2009, Johnson filed its Response to Emergency Motion to Prohibit

9

10

Inappropriate Contact.

42 .

11 43.

12

13

14 44.

15

16

17 46.

18

19 47.

20

On February 25, 2009, Swing First filed its Response to Johnson's Motion to Compel.

On February 25, 2009, Swing First filed its Notice of Partial Witness Substitution,

Response to Jollnson's Motion to Strike, and Reply to Johnson's Response to Swing First's Motion

for Leave to File Supplemental Direct Testimony.

On February 26, 2009, Johnson filed its Response and Motion to Strike Intervenor

Swing First's Notice of Inappropriate Discovery and Litigation Tactics.

45. On February 26, 2009, a Procedural Conference was held as scheduled.

On February 27, 2009, Johnson tiled its Request Regarding Deadline for Filing

Rebuttal Testimony to Swing First's Direct Testimony. .

On March 2, 2009, Swing First filed its revised direct testimonies of Swing First

witnesses David Ashton and Som S. Rowell.

21 48.

22

23

On March 5, 2009, a Procedural Order was issued granting Johnson's request for an

extension of time, to March 23, 2009, to file rebuttal to the revised direct testimonies of Swing First

witnesses David Ashton and Sonn S. Rowell,

24 49. On March 5, 2009, Johnson filed a Motion for Extension of Time to File Rebuttal

25

26

Testimony.

50.

27

28

On March 10, 2009, Johnson filed rebuttal testimony of Thomas J. Bourassa

(Volumes I, II, and III) and Brian Tompsett.

51. On March 23, 2009, Johnson tiled supplemental rebuttal testimony of Brian

62 DECISION NO. g1%-4-_

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 66 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Tompsett. 

52. On March 24, 2009, Johnson filed supplemental rebuttal testimony of Thomas J. 

Bourassa. 

53. On March 31, 2009, RUCO filed surrebuttal testimony of William A. Rigsby and 

Rodney L. Moore. 

54. On March 31, 2009, Staff filed surrebuttal testimony of Jeffrey M. Michlik and 

Marlin Scott Jr. 

55. On April 15, 2009, Staff filed a Motion to Compel. Staff requested an order directing 

that Johnson and/or Florence be directed to immediately make arrangements for Staff's review of 

the workpapers associated with an audit previously provided to Staff by Johnson in response to a 

Data Request. A copy of the audit was attached to the Motion as an exhibit. 

56. On April 16, 2009, a Procedural Order was issued directing Johnson and Florence to 

be prepared to discuss Staff's Motion to Compel at the prehearing conference, if they had not, by 

the time the scheduled prehearing conference commenced, made the arrangements requested by 

Staff for its review of the workpapers associated with the Henry and Home, LLP audit dated June 

26, 2007, that had previously been provided to Staff. 

57. On April 20, 2009, the prehearing conference was held as scheduled. At the 

prehearing conference, Staff withdrew its Motion to Compel. 

58. On April 17, 2009, Johnson filed the rejoinder testimony of Thomas J. Bourassa 

(Volumes I, II and III) and Brian Tompsett. 

59. On April 20, 2009, Swing First filed testimony summaries of its witnesses. 

60. On.April 21, 2009, Swing First filed testimony summaries of its witnesses. 

61. On April 22, 2009, RUCO filed testimony summaries of its witnesses. 

62. On April 24, 2009, Staff filed testimony summaries of its witnesses. 

63. On April 23, 2009, the hearing commenced as scheduled. Appearances were entered 

by Johnson, intervenors Swing First, Florence, RUCO, and Staff. No members of the public 

appeared to provide public comment. 

64. On Monday, April 27, 2009, at the commencement of the third day of hearing, 

63 DECISION NO. 71854 

t

DOCKET NO. WS-02987A-08-0180

1

2

Tompsett.

52. On March 24, 2009, Johnson filed supplemental rebuttal testimony of Thomas J.

3 Bourassa.

4 53. On March 31, 2009, RUCO filed surrebuttal testimony of William A. Rigsby and

5

6

Rodney L. Moore.

54. On March 31, 2009, Staff filed surrebuttal testimony of Jef15"ey M. Michlik and

7 i Marlin Scott Jr.

10 a

13

I

I

16

19

20

21 59.

22 60.

23 61.

24 62.

25 63.

26

8 55. On April 15, 2009, Staff filed a Motion to Compel. Staff requested an order directing

9 that Johnson and/or Florence be directed to immediately make arrangements for Staffs review of

I! the workpapers associated with an audit previously provided to Staff by Johnson in response to

l l l Data Request. A copy of the audit was attached to the Motion as an exhibit.

12 i 56. On April 16, 2009, a Procedural Order was issued directing Johnson and Florence to

be prepared to discuss Staff's Motion to Compel at the prehearing conference, if they had not, by

14 the time the scheduled prehearing conference commenced, made the arrangements requested by

15 Staff for its review of the workpapers associated with the Henry and Horne, LLP audit dated June

26, 2007, that had previously been provided to Staff

17 57. On April 20, 2009, the prehearing conference was held as scheduled. At the

18 I prehearing conference, Staff withdrew its Motion to Compel.

58. On April 17, 2009, Johnson filed the rejoinder testimony of Thomas J. Bourassa

(Volumes I, II and Ill) and Brian Tompsett.

On April 20, 2009, Swing First filed testimony summaries of its witnesses.

On-April 21, 2009, Swing First filed testimony summaries of its witnesses.

On April 22, 2009, RUCO filed testimony summaries of its witnesses.

On April 24, 2009, Staff filed testimony summaries of its witnesses.

On April 23, 2009, the hearing commenced as scheduled. Appearances were entered

by Johnson, interveners Swing First, Florence, RUCO, and Staff. No members of the public

27

28

appeared to provide public comment,

64. On Monday, April 27, 2009, at the commencement of the third day of hearing,

63 DECISION NO. 71854

I

|

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 67 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

counsel for Johnson informed the Commission that Swing First had informed counsel for Johnson 

over the weekend of the existence of a transcript of a recorded conversation between Swing First 

witness Mr. David Ashton and Johnson employee Mr. Gary Larson ("Ashton Transcript"). Counsel 

for Johnson indicated that counsel for Swing First intended to offer the transcript into evidence, and 

requested that it be excluded. Counsel for Swing First had marked a copy of the Ashton Transcript 

as an exhibit. 

65. The Administrative Law Judge conducted an in camera review of the Ashton 

Transcript, and subsequently ordered briefing on its admissibility. Discovery was reopened to 

allow additional discovery prior to the briefing deadline. The parties were informed that the Ashton 

Transcript would be treated as confidential and kept under seal pending a ruling on its admissibility, 

and that parties who wished to submit briefs on the transcript's admissibility could accomplish 

access to the Ashton Transcript by entering into a confidentiality agreement with Johnson. The 

timeclock for processing this matter was suspended pending a ruling on the admissibility of the 

Ashton Transcript. 

66. On May 8, 2009, Pulte Homes filed a letter in the docket. 

67. On May 11, 2009, RUCO filed its opening brief of the admissibility of the Ashton 

Transcript. 

68. On May 22, 2009, Johnson, Swing First, and Staff filed opening briefs regarding the 

admissibility of the Ashton Transcript. 

69. On May 29, 2009, Johnson, RUCO, and Swing First filed reply briefs regarding the 

admissibility of the Ashton Transcript, 

70. On May 29, 2009, Swing First filed a Notice of Availability of Witness and Counsel, 

indicating that counsel for Swing First would be unavailable from June 8 through June 19, 2009, 

and that Swing First's witness David Ashton would be available to testify on July 9-10, 2009. 

71. On June 1, 2009, Johnson docketed a filing in reply to issues raised in Swing First's 

May 29, 2009 reply brief. 

72. On June 30, 2009, a Procedural Order was issued setting a procedural conference to 

commence on July 17, 2009, at 1:30 p.m., for the purpose of taking oral argument on the issues 

64 DECISION NO. 71854 

DOCKET no. WS-02987A-08-0180

1 counsel for Johnson informed the Commission that Swing First had informed counsel for Johnson

2

3

4

5

over the weekend of the existence of a transcript of a recorded conversation between Swing First

witness Mr. David Ashton and Johnson employee Mr. Gary Larson ("Ashton Transcript"). Counsel

for Johnson indicated that counsel for Swing First intended to offer the transcript into evidence, and

requested that it be excluded. Counsel for Swing First had marked a copy of the Ashton Transcript

6 as an exhibit.

7 65~. The Administrative Law Judge conducted an in camera review of the Ashton

8 | Transcript, and subsequently ordered briefing on its admissibility. Discovery was reopened to

9 \ allow additional discovery prior to the briefing deadline. The parties were informed that the Ashton

10

11

l a

13

14

15 66.

16

Transcript would be treated as confidential and kept under seal pending a ruling on its admissibility,

and that parties who wished to submit briefs on the transcript's admissibility could accomplish

access to the Ashton Transcript by entering into a confidentiality agreement with Johnson. The

timeclock for processing this matter was suspended pending a ruling on the admissibility of the

Ashton Transcript.

On May 8, 2009, Pulte Homes filed a letter in the docket.

67. On May ll, 2009, RUCO filed its opening brief of the admissibility of the Ashton

17

18

Transcript.

68 .

19

ZN 69.

21

22 70.

23

24

25 71.

26

27

28

On May 22, 2009, Johnson, Swing First, and Staff filed opening briefs regarding the

admissibility of the Ashton Transcript.

On May 29, 2009, Johnson, RUCO, and Swing First filed reply briefs regarding the

admissibility of the Ashton Transcript,

On May 29, 2009, Swing First filed a Notice of Availability of Witness and Counsel,

indicating that counsel for Swing First would be unavailable from June 8 through June 19, 2009,

and that Swing First's witness David Ashton would be available to testify on July 9-10, 2009.

On June l, 2009, Johnson docketed a filing in reply to issues raised in Swing First's

May 29, 2009 reply brief.

72. On June 30, 2009, a Procedural Order was issued setting a procedural conference to

commence on July 17, 2009, at l:30 p.m., for the purpose of taking oral argument on the issues

DECISION NO. 71854 64

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 68 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

raised in the parties' briefings on the admissibility of the Ashton Transcript. 

73. On the morning of July 17, 2009, counsel for Swing First contacted the Hearing 

Division to request authority to participate telephonically in the oral argument due to an unforeseen 

medical issue. Counsel for Swing First also informed the Hearing Division that counsel for the 

Town of Florence would not be in attendance for the scheduled oral argument. Subsequently, on 

July 17, 2009, at 10:30 a.m., a telephonic procedural conference was held to address the issue. 

Counsel for Johnson, Swing First, RUCO, and Staff attended. At the telephonic procedural 

conference, counsel for the parties were informed that under the circumstances, the oral argument 

would be continued to a later date. 

74. On July 20, 2009, a Procedural Order was issued setting a date of July 23, 2009 for 

the continuance of the procedural conference originally set for July 17, 2009. 

75. On July 23, 2009, a procedural conference was convened as scheduled. Johnson, 

Swing First, RUCO and Staff appeared through counsel and provided oral argument regarding the 

admissibility of the Ashton Transcript. After oral argument was taken, the Administrative Law 

Judge issued a preliminary ruling on admissibility of the Ashton Transcript, which had not yet been 

moved into evidence. It was ruled that portions of the Ashton Transcript might be admitted if 

offered for the purpose of impeachment; and that portions of the Ashton Transcript might be 

admitted as direct evidence in regard to (1) customer service issues, (2) billing issues, and (3) 

revenue issues. It was ruled that because allegations that Johnson attempted to drive Swing First 

out of business are not relevant to this rate case proceeding, the transcript would not be admissible 

in this proceeding for the purpose of supporting those allegations. 

76. On July 24, 2009, a Procedural Order was issued setting a date of September 21, 

2009, for the continuance of the hearing, and setting deadlines for Staffs filing of revised 

surrebuttal testimony on the CAGWD assessment issue as requested by Staff, and for the Company 

to file rejoinder testimony in response. On July 27, 2009, a Procedural Order was issued correcting 

an incorrectly stated deadline in the July 24, 2009 Procedural Order. 

77. On July 28, 2009, Staff filed revised surrebuttal testimony on the CAGWD 

assessment issue. 

65 DECISION NO. 71854 

I

DOCKET NO. WS-02987A-08-0180

1

2 73.

3

4

raised in the parties' briefings on the admissibility of the Ashton Transcript.

On the morning of Idly 17, 2009, counsel for Swing First contacted the Hearing

Division to request authority to participate telephonically in the oral argument due to an unforeseen

medical issue. Counsel for Swing First also informed the Hearing Division that counsel for the

5 1 Town of Florence would not be in attendance for the scheduled oral argument. Subsequently, on

6 July 17, 2009, at l0:30 a.m., a telephonic procedural conference was held to address the issue.

7 Counsel for Johnson, Swing First, RUCO, and Staff attended. At the telephonic procedural

8 conference, counsel for the parties were informed that under the circumstances, the oral argument

9 I would be continued to a later date.

10 74.

1 1

On July 20, 2009, a Procedural Order was issued setting a date of July 23, 2009 for

1 the continuance of the procedural conference originally set for July 17, 2009.

12 On July 23, 2009, a procedural conference was convened as scheduled. Johnson,

13 Swing First, RUCO and Staff appeared through counsel and provided oral argument regarding the

75.

i

14

15

16

17

18

19

20

21

22

23

24

25

26

admissibility of the Ashton Transcript. After oral argument was taken, the Administrative Law

Judge issued a preliminary ruling on admissibility of the Ashton Transcript, which had not yet been

moved into evidence. It was ruled that portions of the Ashton Transcript might be admitted if

offered for the purpose of impeachment, and that portions of the Ashton Transcript might be

admitted as direct evidence in regard to (1) customer service issues, (2) billing issues, and (3)

revenue issues. It was ruled that because allegations that Johnson attempted to drive Swing First

out of business are not relevant to this rate case proceeding, the transcript would not be admissible

in this proceeding for the purpose of supporting those allegations.

76. On July 24, 2009, a Procedural Order was issued setting a date of September 21,

2009, for the continuance of the hearing, and setting deadlines for Staffs filing of revised

surrebuttal testimony on the CAGWD assessment issue as requested by Staff, and for the Company

to tile rejoinder testimony in response. On July 27, 2009, a Procedural Order was issued correcting

an incorrectly stated deadline in the July 24, 2009 Procedural Order.

27 77. On July 28, 2009, Staff filed revised surrebuttal testimony on the CAGWD

28 assessment issue.

65 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 69 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

78. On August 17, 2009, Swing First filed a Motion for Date Certain requesting that Mr. 

Ashton's testimony be confined to Thursday, September 24 and Friday, September 25, 2009. 

79. On August 27, 2009, a Procedural Order was issued denying the August 17, 2009 

Motion for Date Certain due to the possibility that Mr. Ashton's testimony might be required 

beyond Friday, September 25, 2009, in order to allow sufficient time for his cross-examination. 

80. On September 8, 2009, Johnson filed supplemental rejoinder testimony on the issue 

of the CAGWD assessment issue. 

81. The hearing resumed as scheduled on September 21, 2009, and concluded on October 

1, 2009. 

82. On October 26, 2009, Swing First filed a Motion to Admit Late-Filed Exhibits. 

83. On October 29, 2009, RUCO filed a response to Swing First's October 26, 2009 

motion, and stated that RUCO had no objection to the admission of the proposed late-filed exhibits. 

84. On October 30, 2009, the Company, RUCO, and Staff filed their final post-hearing 

schedules. 

85. On October 30, 2009, Johnson filed a Response and Objection to Swing First's 

October 26, 2009 motion. Johnson objected to the admission of the proposed late-filed exhibits, 

and stated that if they are admitted, Johnson wishes to have the opportunity to provide additional 

testimony and documentary evidence to supplement the evidentiary record and to rebut certain 

statements in the October 26, 2009 motion. 

86. On November 3, 3009, a Procedural Order was issued denying Swing First's October 

26, 2009 motion. The Procedural Order stated that the record in this proceeding is closed; that both 

Swing First and Johnson are parties to Docket No. WS-02987A-08-0049, which is a complaint filed 

by Swing First against Johnson; and that Swing First may wish to pursue the subject matter of its 

proposed late-filed exhibits in that docket. 

87. On November 20, 2009, the Company, Florence, Swing First, RUCO, and Staff filed 

opening post-hearing briefs. 

88. On December 11, 2009, the Company, Swing First, RUCO, and Staff filed reply posthearing briefs. 

66 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 78.

2

3 79.

4

5

6

On August 17, 2009, Swing First tiled a Motion for Date Certain requesting that Mr.

Ashton's testimony be confined to Thursday, September 24 and Friday, September 25, 2009.

On August 27, 2009, a Procedural Order was issued denying the August 17, 2009

Motion for Date Certain due to the possibility that Mr. Ashton's testimony might be required

beyond Friday, September 25, 2009, in order to allow sufficient time for his cross-examination.

80. On September 8, 2009, Johnson filed supplemental rejoinder testimony on the issue

7 of the CAGWD assessment issue.

8 81. The hearing resumed as scheduled on September 21, 2009, and concluded on October

9 1,2009.

10 82.

11 83.

12

13

On October 26, 2009, Swing First filed a Motion to Admit Late~Filed Exhibits.

On October 29, 2009, RUCO filed a response to Swing First's October 26, 2009

motion, and stated that RUCO had no objection to the admission of the proposed late-filed exhibits .

84. On October 30, 2009, the Company, RUCO, and Staff filed their final post-hearing

14 schedules .

15 85.

16

17

18

19

20 86.

21

22

23

24

On October 30, 2009, Johnson tiled a Response and Objection to Swing First's

October 26, 2009 motion. Johnson objected to the admission of the proposed late-filed exhibits,

and stated that if they are admitted, Johnson wishes to have the opportunity to provide additional

testimony and documentary evidence to supplement the evidentiary record and to rebut certain

statements in the October 26, 2009 motion. .

On November 3, 3009, a Procedural Order was issued denying Swing First's October

26 2009 motion. The Procedural Order stated that the record in this proceeding is closed, that both

Swing First and Johnson are parties to Docket No. WS-02987/-08-0049, which is a complaint filed

by Swing First against Johnson, and that Swing First may wish to pursue the subject matter of its

proposed late-filed exhibits in that docket.

25 87. On November 20, 2009, the Company, Florence, Swing First, RUCO, and Staff filed

26 opening post-hearing briefs.

27 88. On December ll, 2009, the Company, Swing First, RUCO, and Staff tiled reply post28 hearing briefs.

66 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 70 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Water Rates 

89. The Company's FVRB for its water division is ($2,414,613). 

90. The Company's present rates and charges for its water division produced adjusted test 

year operating revenues of $13,172,899 and adjusted test year operating expenses of $9,553,304, 

for a test year operating income of $3,619,595. 

91. For its water division, the Company requested rates that would result in total revenues 

of $10,293,877, a revenue decrease of $2,879,022, or 21.86 percent. RUCO recommended rates 

that would yield total revenues of $13,099,181, a decrease of $73,718, or 0.56 percent. Staff 

recommended total revenues of $10,156,009, a decrease of $3,016,800, or 22.90 percent. 

92. Because the Company's adjusted FVRB for its water division is negative, a rate of 

return calculation is not meaningful. Based on the unique circumstances of this case, it is 

appropriate to use an operating margin to set fair and reasonable rates, and to allow a 3 percent 

operating margin, for revenues of $9,773,939. This represents a $3,398,960, or 25.80 percent, 

revenue decrease from $13,172,899 to $9,773,939. 

93. The Company's gross revenue for its water division should decrease by $3,398,960. 

94. Average and median usage during the test year for the Company's 3/4 inch meter 

residential water customers were 6,931 and 6,000 gallons per month, respectively. 

95. Under the Company's proposed rates, an average usage (6,931 gallons/month) 

residential water customer on a 3/4-inch meter would experience a decrease of $8.51, 

approximately 19.99 percent, from $42.59 per month to $34.08 per month. The Company's 

proposed rates do not include its requested adjustor for CAGRD expenses and thus do not show the 

total amount customers would pay if the Company's requested CAGRD adjustor mechanism were 

implemented. 

96. Under the rates adopted herein, an average usage (6,931 gallons/month) residential 

water customer on a 3/4-inch meter would experience a monthly rate decrease of $12.78, 

approximately 30.01 percent, from $42.59 per month to $29.81 per month. 

Wastewater Rates 

97. The Company's FVRB for its wastewater division is $136,562. 

67 DECISION NO. 71854 

DOCKET no. WS-02987A-08-0180

1 Water Rates

2 89.

3 90.

4

The Company's FVRB for its water division is ($2,414,613).

The Company's present rates and charges for its water division produced adjusted test

year operating revenues of $13,172,899 and adjusted test year operating expenses of $9,553,304,

5

6

for a test year operating income of $3,619,595.

91 u For its water division, the Company requested rates that would result in total revenues

7 of $10,293,871 a revenue decrease of $2,879,022, or 21.86 percent. RUCO recommended rates

that would yield total revenues of $13,099,181, a decrease of $73,718, or 0.56 percent. Staff

9 recommended total revenues of $10,156,009, a decrease of $3,016,800, or 22.90 percent.

al|

10 92.

11 return calculation is not meaningful.

Because the Company's adjusted FVRB for its water division is negative, a rate of

Based on the unique circumstances of this case, it is I

12

13

14

15 93.

16 94.

17

18 95.

19

20

21

22

appropriate to use an operating margin to set fair and reasonable rates, and to allow a 3 percent

operating margin, for revenues of $9,773,939 This represents a $3,398,960, or 25.80 percent,

revenue decrease from $13,172,899 to $9,773,939

The Company's gross revenue for its water division should decrease by $3,398,960

Average and median usage during the test year for the Company's 3/4 inch meter

residential water customers were 6,931 and 6,000 gallons per month, respectively.

Under the Company's proposed rates, an average usage (6,931 gallons/month)

residential water customer on a 3/4-inch meter would experience a decrease of $8.51,

approximately 19.99 percent, from $42.59 per month to $34.08 per month. The Company's

proposed rates do not include its requested adjustor for CAGRD expenses and thus do not show the

total amount customers would pay if the Company's requested CAGRD adjustor mechanism were

23 implemented.

24 96.

25

26

Under the rates adopted herein, an average usage (6,931 gallons/month) residential

water customer on a 3/4-inch meter would experience a monthly rate decrease of $12.78,

approximately 30.01 percent, from $42.59 per month to $29.81 per month.

27 Wastewater Rates

28 97. The Company's FVRB for its wastewater division is $136,562.

67 DECISION NU. 71854

I

|

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 71 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

98. The Company's present rates and charges for its wastewater division produced 

adjusted test year operating revenues of $11,354,014 and adjusted test year operating expenses of 

$9,432,270, for a test year operating income of $1,921,744. 

99. For its wastewater division, the Company requested rates that would result in total 

revenues of $13,680,546, a revenue increase of $2,326,532, or 20.49 percent. RUCO recommended 

rates that would yield total revenues of $10,838,617, a decrease of $515,397 or 4.54 percent. Staff 

recommended total revenues of $10,458,914, a decrease of $895,100, or 7.88 percent. 

100. Because the Company's adjusted FVRB for its wastewater division is so small, a rate 

of return calculation is not meaningful. Based on the unique circumstances of this case, it is 

appropriate to use an operating margin to set fair and reasonable rates, and to allow a 3 percent 

operating margin, for operating income of $290,610. This represents a $1,667,019, or 14.68 

percent, revenue decrease, from $11,354,014 to $9,686,995. 

101. Under the Company's proposed rates, a residential wastewater customer on a 3/4 inch 

water meter would experience an increase of $8.33, approximately 21.64 percent, from $38.50 per 

month to $46.83 per month. 

102. Under the rates adopted herein, a residential wastewater customer on a 3/4 inch water 

meter would experience a decrease of $5.71, approximately 14.83 percent, from $38.50 per month 

to $32.79 per month. 

103. It is reasonable and in the public interest to approve the depreciation rates set forth in 

Exhibit B attached hereto and to require their use by the Company on a going-forward basis. 

104. It is reasonable and in the public interest to discontinue the Company's authority to 

collect additional HUFs for both its water and wastewater divisions, and to require, as a prerequisite 

to approval of a new hook up fee tariff for the Company in the future, a certification by a Certified 

Public Accounting firm that the Company has a membership equity level of at least 40 percent. 

105. It is reasonable and in the public interest to require the Company to begin a 12-month 

monitoring exercise of the Johnson Ranch water system, to comply with the Staff recommendations 

regarding the docketing of the system monitoring results as a compliance item in this case, and to 

prepare and file a report as recommended by Staff if the reported water loss for the period from 

71854 68 DECISION NO. 

DOCKET NO. WS-()2987A-08-0180

1

2

3

4

5

6

7

8 100.

9

10

98. The Company's present rates and charges for its wastewater division produced

adjusted test year operating revenues of $1 1,354,014 and adjusted test year operating expenses of

$9,432,270, for a test year operating income of $1 ,921 ,744.

99. For its wastewater division, the Company requested rates that would result in total

revenues of $13,680,546, a revenue increase of $2,326,532, or 20.49 percent. RUCO recommended

rates that would yield total revenues of $10,838,,617, a decrease of $515,397 or 4..54 percent. Staff

recommended total revenues of $10,458,914, a decrease of $895,100, or 7.88 percent.

Because the Company's adjusted FVRB for its wastewater division is so small, a rate

of return calculation is not meaningful. Based on the unique circumstances of this case, it is

appropriate to use an operating margin to set fair and reasonable rates, and to allow a 3 percent

11 This represents a $1,667,019, or 14.68

12

operating margin, for operating income of $290,610.

percent, revenue decrease, from $1 1,354,014 to $9,686,995

13 101. Under the Company's proposed rates, a residential wastewater customer on a 3/4 inch

14 water meter would experience an increase of $8.33, approximately 21 .64 percent, from $38.50 per

15

16

month to $46.83 per month.

102. Under the rates adopted herein, a residential wastewater customer on a 3/4 inch water

17 meter would experience a decrease of $5.71, approximately 14.83 percent, from $38.50 per month

18

19

to $32.79 per month.

103 I It is reasonable and in the public interest to approve the depreciation rates set forth in

20

21 104.

22

23

24

25

26

27

28

Exhibit B attached hereto and to require their use by the Company on a going-forward basis.

It is reasonable and in the public interest to discontinue the Company's authority to

collect additional HUFs for both its water and wastewater divisions, and to require, as a prerequisite

to approval of a new hook up fee tariff for the Company in the future, a certification by a Certified

Public Accounting firm that the Company has a membership equity level of at least 40 percent.

105. It is reasonable and in the public interest to require the Company to begin a 12-month

monitoring exercise of the Johnson Ranch water system, to comply with the Staff recommendations

regarding the docketing of the system monitoring results as a compliance item in this case, and to

prepare and file a report as recommended by Staff if the reported water loss for the period from

68 DECISION n<>. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 72 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

September 1, 2010 through September 1, 2011, is greater than 10 percent. In no case should water 

loss be allowed to remain at 15 percent or greater. If for any reason the water loss for the Johnson 

Ranch water system is not reduced to less than 15 percent by October 1, 2011, Staff should be 

required to initiate an Order to Show Cause against the Company. 

106. It is reasonable and in the public interest to require the Company to keep its records in 

accordance with the NARUC USOA and Commission rules in a manner that will support its filings 

with the Commission. 

107. It is reasonable, appropriate, and in the public interest to require the Company to 

prepare an action plan that indicates the specific steps it will take to demonstrate, by means of its 

day to day record keeping regarding transactions between the Company and all entities with which 

it conducts business, including, but not limited to, its affiliates and related parties, that its dealings 

are arm's length, transparent, and well-documented; to require the Company to file the plan within 

90 days for Staffs review; and to require Staff to assess the plan and its adequacy, and file a report 

with Staffs findings and recommendations on the action plan accompanied by a Recommended 

Order for Commission approval or disapproval of the Company's action plan, within 60 days of 

receipt of the Company's action plan. 

108. It is reasonable and in the public interest to require the Company to file, within 30 

days, a list of outstanding NOVs issued by ADEQ, and to list (1) the procedural status of each 

NOV; and (2) steps the Company is taking to come into compliance with ADEQ requirements. 

109. It is reasonable and in the public interest to require the Company to notify the 

Commission at such time that the Company comes into full compliance with all ADEQ 

requirements, including resolving all outstanding NOVs. We will require that Staff, within 60 days 

of receipt of such filing, review the filing, verify the Company's compliance, and file a status report 

in this docket indicating that the Company has come into full compliance with all ADEQ 

requirements. 

110. In light of the need to conserve groundwater in Arizona, we believe it is reasonable to 

require Johnson Utilities to address conservation and submit for Commission approval, within 120 

days of the effective date of this Decision, at least ten Best Management Practices ("BMPs") (as 

69 DECISION NO. 71854 

DOCKET no. WS-02987A-08-0180

1

2

3

4

5 106.

6

September 1, 2010 through September 1, 2011, is greater than 1.0 percent. In no case should water

loss be allowed to remain at 15 percent or greater. If for any reason the water loss for the Johnson

Ranch water system is not reduced to less than 15 percent by October 1, 2011, Staff should be

required to initiate an Order to Show Cause against the Company.

It is reasonable and in the public interest to require the Company to keep its records in

accordance with the NARUC USOA and Commission rules in a manner that will support its filings

7 with the Commission.

8 107.

9

10

12

It is reasonable, appropriate, and in the public interest to require the Company to

. prepare an action plan that indicates the specific steps it will take to demonstrate, by means of its

! day to day record keeping regarding transactions between the Company and all entities with which

I it conducts business, including, but not limited to, its affiliates and related parties, that its dealings

I are arm's length, transparent, and well-documented, to require the Company to file the plan within

14

15

16

17

18

19

20

21

22

23

24

13 | 90 days for Staff s review, and to require Staff to assess the plan and its adequacy, and file a report

with Staffs findings and recommendations on the action plan accompanied by a Recommended

Order for Commission approval or disapproval of the Company's action plan, within 60 days of

receipt of the Company's action plan.

108. It is reasonable and in the public interest to require the Company to file, within 30

days, a list of outstanding NOVs issued by ADEQ, and to list (1) the procedural status of each

NOV, and (2) steps the Company is taking to come into compliance with ADEQ requirements.

109. It is reasonable and in the public interest to require the Company to notify the

Commission at such time that the Company comes into full compliance with all ADEQ

requirements, including resolving all outstanding NQVs. We will require that Staff, within 60 days

of receipt of such filing, review the filing, verify the Company's compliance, and file a status report

in this docket indicating that the Company has come into frill compliance with all ADEQ

25

26

requirements.

1 10.

27

28

In light of the need to conserve groundwater in Arizona, we believe it is reasonable to

require Johnson Utilities to address conservation and submit for Commission approval, within 120

days of the effective date of this Decision, at least ten Best Management Practices ("BMPs") (as

69 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 73 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

outlined in ADWR's Modified Non-Per Capita Conservation Program). A maximum of two of 

these BMPs may come from the "Public Awareness/PR or Education and Training" categories of 

the BMPs. Johnson Utilities may request cost recovery of actual costs associated with BMPs 

implemented. 

CONCLUSIONS OF LAW 

1. Johnson Utilities, LLC, dba Johnson Utilities Company is a public service corporation 

pursuant to Article XV of the Arizona Constitution and A.R.S. §§ 40-203, 40-204, 40-250 and 40-

251. 

2. The Commission has jurisdiction over the Company and the subject matter of the 

application. 

3. Notice of the proceeding was provided in conformance with law. 

4. The fair value of the Company's water division rate base is ($2,414,613), and 

therefore a rate of return analysis is not reasonable. Authorizing an operating margin of 3 percent 

produces rates and charges that are just and reasonable. 

5. The fair value of the Company's wastewater division rate base is $136,562, and 

therefore a rate of return analysis is not reasonable. Authorizing an operating margin of 3 percent 

produces rates and charges that are just and reasonable. 

6. The rates and charges approved herein are reasonable. 

7. The Company should be required to file, within 30 days, a list of outstanding NOVs 

issued by ADEQ, and to list (1) the procedural status of each NOV; and (2) steps the Company is 

taking to come into compliance with ADEQ requirements. 

8. It is reasonable and in the public interest to require the Company to notify the 

Commission at such time that the Company comes into full compliance with all ADEQ 

requirements, including resolving all outstanding NOVs, and to require that Staff, within 60 days of 

receipt of such filing, review the filing, verify the Company's compliance, and file a status report in 

this docket indicating that the Company has come into full compliance with all ADEQ requirements. 

9. It is reasonable and in the public interest to discontinue the Company's authority to 

collect additional hook up fees for both its water and wastewater divisions. 

70 DECISION NO. 71854 

DOCKET no. WS-02987A-08-0180

1

2

3

outlined in ADWR's Modified Non-Per Capita Conservation Program). A maximum of two of

these BMPs may come from the "Public Awareness/PR or Education and Training" categories of

the BMPs. Johnson Utilities may request cost recovery of actual costs associated with BMPs

4 implemented.

5 CONCLUSIONS OF LAW

6 1.

7

8

Johnson Utilities, LLC, alba Johnson Utilities Company is a public service corporation

pursuant to Article XV of the Arizona Constitution and A.R.S. §§ 40-203, 40~204, 40-259 and 40-

251.

9 2. The Commission has jurisdiction over the Company and the subject matter of the

10 application.

11 3.

12 4.

13

14

15 5.

16

17

18

Notice of the proceeding was provided in conformance with law.

The fair value of the Company's water division rate base is ($2,414,613), and

therefore a rate of return analysis is not reasonable. Authorizing an operating margin of 3 percent

produces rates and charges that are just and reasonable.

The fair value of the Company's wastewater division rate base is $l36,562, and

therefore a rate of return analysis is not reasonable. Authorizing an operating margin of 3 percent

produces rates and charges that are just and reasonable.

6. The rates and charges approved herein are reasonable.

19 7.

20

The Company should be required to file, within 30 days, a list of outstanding NOVs

I issued by ADEQ, and to list (1) the procedural status of each NOV; and (2) steps the Company is I

21

22

taking to come into compliance with ADEQ requirements.

8. It is reasonable and in the public interest to require the Company to notify the

23 Commission at such time that the Company comes into full compliance with all ADEQ I

24

25

26

27 9.

28

requirements, including resolving all outstanding NOVs, and to require that Staff, within 60 days of

receipt of such filing, review the filing, verify the Company's compliance, and tile a status report in

this docket indicating that the Company has come into full compliance with all ADEQ requirements.

It is reasonable and in the public interest to discontinue the Company's authority to

collect additional hook up fees for both its water and wastewater divisions.

70 DECISION NO. 71854

|

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 74 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

10. It is reasonable and in the public interest to require, as a prerequisite to approval of a 

new hook up fee tariff for the Company in the future, certification by a Certified Public Accounting 

firm that the Company has a membership equity level of at least 40 percent. 

11. It is reasonable and in the public interest to require the Company to begin a 12-month 

monitoring exercise of the Johnson Ranch water system; to comply with the Staff recommendations 

regarding the docketing of the system monitoring results as a compliance item in this case; to 

prepare and file a report as recommended by Staff if the reported water loss for the period from 

September 1, 2010 through September 1, 2011, is greater than 10 percent; but in no case to allow 

water loss to remain at 15 percent or greater. 

12. It is reasonable and in the public interest to require Staff to initiate an Order to Show 

Cause against the Company if for any reason the water loss for the Johnson Ranch water system is 

not reduced to less than 15 percent by October 1, 2011. 

13. It is reasonable and in the public interest to require the Company to keep its records in 

accordance with the NARUC USOA and Commission rules in a manner that will support its filings 

with the Commission. 

14. It is reasonable, appropriate, and in the public interest to require the Company to 

prepare an action plan that indicates the specific steps it will take to demonstrate, by means of its 

day to day record keeping regarding transactions between the Company and all entities with which it 

conducts business, including, but not limited to, its affiliates and related parties, that its dealings are 

arm's length, transparent, and well-documented; to require the Company to file the plan within 90 

days for Staffs review; and to require Staff to assess the plan and its adequacy, and file a report with 

Staffs findings and recommendations on the action plan accompanied by a Recommended Order for 

Commission approval or disapproval of the Company's action plan, within 60 days of receipt of the 

Company's action plan. 

15. It is reasonable and in the public interest to approve the depreciation rates set forth in 

Exhibit A attached hereto and to require their use by the Company on a going-forward basis. 

ORDER 

IT IS THEREFORE ORDERED that Johnson Utilities, LLC, dba Johnson Utilities Company 

71 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1 10.

2

3

4 11.

5

6

It is reasonable and in the public interest to require, as a prerequisite to approval of a

new hook up fee tariff for the Company in the future, certification by a Certified Public Accounting

firm that the Company has a membership equity level of at least 40 percent.

It is reasonable and in the public interest to require the Company to begin a 12-month

monitoring exercise of the Johnson Ranch water system, to comply with the Staff recommendations

regarding the docketing of the system monitoring results as a compliance item in this case, to

7

8

9

prepare and file a report as recommended by Staff if the reported water loss for the period from I

September 1, 2010 through September 1, 2011, is greater than 10 percent, but in no case to allow

water loss to remain at 15 percent or greater.

10 12. It is reasonable and in the public interest to require Staff to initiate an Order to Show

11

12

13 13.

14

Cause against the Company if for any reason the water loss for the Johnson Ranch water system is

not reduced to less than 15 percent by October 1, 201 1.

It is reasonable and in the public interest to require the Company to keep its records in

accordance with the NARUC USOA and Commission rules in a manner that will support its filings

15

16 14.

17

18

19

20

with the Commission.

It is reasonable, appropriate, and in the public interest to require the Company to

prepare an action plan that indicates the specific steps it will take to demonstrate, by means of its

day to day record keeping regarding transactions between the Company and all entities with which it

conducts business, including, but not limited to, its affiliates and related parties, that its dealings are

arm's length, transparent, and well-documented, to require the Company to file the plan within 90

21 days for Staff" s review, and to require Staff to assess the plan and its adequacy, and file a report with

22 4Staff s findings and recommendations on the action plan accompanied by a Recommended Order for

|

23 Commission approval or disapproval of the Company's action plan, within 60 days of receipt of the

24

25

Company's action plan.

15 .

26

It is reasonable and in the public interest to approve the depreciation rates set forth in

Exhibit A attached hereto and to require their use by the Company on a going-forward basis.

27 ORDER

28 IT IS THEREFORE ORDERED that Johnson Utilities, LLC, alba Johnson Utilities Company

71 DECISION NO, 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 75 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

shall file with the Commission, on or before August 20, 2010, the schedules of rates and charges 

attached hereto and incorporated herein as Exhibit A, which shall be effective for all service rendered 

on and after June 1, 2010. 

IT IS FURTHER ORDERED that Johnson Utilities, LLC, dba Johnson Utilities Company 

shall notify its water and wastewater division customers of the revised schedules of rates and charges 

authorized herein by means of an insert, in a form acceptable to Staff, included in its next regularly 

scheduled billing. 

IT IS FURTHER ORDERED that Johnson Utilities, LLC, dba Johnson Utilities Company 

shall file, with docket control as a compliance item in this docket, within 30 days, a list of 

outstanding NOVs issued by ADEQ, and to list (1) the procedural status of each NOV; and (2) steps 

the Company is taking to come into compliance with ADEQ requirements. 

IT IS FURTHER ORDERED that Johnson Utilities, LLC, dba Johnson Utilities Company 

shall notify the Commission at such time that the Company comes into full compliance with all 

ADEQ requirements, including resolving all outstanding NOVs. Upon receipt of such filing, the 

Commission's Utilities Division shall, within 60 days, review the filing, verify the Company's 

compliance, and file a status report, as a compliance item in this docket, indicating that the Company 

has come into full compliance with all ADEQ requirements. 

IT IS FURTHER ORDERED that the authority previously granted to Johnson Utilities, LLC, 

dba Johnson Utilities Company to collect hook-up fees is hereby discontinued for both its water and 

wastewater divisions. 

IT IS FURTHER ORDERED that in order to receive approval of a new hook up fee tariff for 

either its water or wastewater division, Johnson Utilities, LLC, dba Johnson Utilities Company shall 

demonstrate, by means of a certification by a Certified Public Accounting firm, that it has attained a 

membership equity level of at least 40 percent. 

IT IS FURTHER ORDERED that Johnson Utilities, LLC, dba Johnson Utilities Company 

shall begin a 12-month monitoring exercise of its Johnson Ranch water system, and shall docket the 

results of the system monitoring as a compliance item in this case by October 1, 2011. If the reported 

water loss for the period from September 1, 2010 through September 1, 2011, is greater than 10 

72 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

1

2

shall file with the Commission, on or before August 20, 2010, the schedules of rates and charges

attached hereto and incorporated herein as Exhibit A, which shall be effective for all service rendered

3 on and after June 1, 2010.

4

5

6

IT IS FURTHER ORDERED that Johnson Utilities, LLC, alba Johnson Utilities Company

shall notify its water and wastewater division customers of the revised schedules of rates and charges

authorized herein by means of an insert, in a form acceptable to Staff, included in its next regularly

7 '1 scheduled billing.

8 IT IS FURTHER ORDERED that Johnson Utilities, LLC, alba Johnson Utilities Company

l

9 shall file, with docket control as a compliance item in this docket, within 30 days, a list of

10

12

13

14

15

16

17

outstanding NOVs issued by ADEQ, and to list (1) the procedural status of each NOV, and (2) steps

the Company is taking to come into compliance with ADEQ requirements.

IT IS FURTHER ORDERED that Johnson Utilities, LLC, alba Johnson Utilities Company

shall notify the Commission at such time that the Company comes into full compliance with all

ADEQ requirements, including resolving all outstanding NOVs. Upon receipt of such filing, the

Colnmission's Utilities Division shall, within 60 days, review the filing, verify the Company's

compliance, and file a status report, as a compliance item in this docket, indicating that the Company

has come into full compliance with all ADEQ requirements.

IT IS FURTHER ORDERED that the authority previously granted to Johnson Utilities, LLC,

19 alba Jonson Utilities Company to collect hook-up fees is hereby discontinued for both its water and

18

20 wastewater divisions.

21

22

23

24

IT IS FURTHER ORDERED that in order to receive approval of a new hook up fee tariff for

either its water or wastewater division, Johnson Utilities, LLC, alba Johnson Utilities Company shall

demonstrate, by means of a certification by a Certified Public Accounting firm, that it has attained a

membership equity level of at least 40 percent.

IT IS FURTHER ORDERED that Johnson Utilities, LLC, alba Johnson Utilities Company

26 shall begin a 12-month monitoring exercise of its Johnson Ranch water system, and shall docket the

25

27 | results of the system monitoring as a compliance item in this case by October 1, 201 1. If the reported

28 I water loss for the period from September 1, 2010 through September 1, 2011, is greater than 10

72 DECISION NU. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 76 of 134
DOCKET NO. WS-02987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

percent, Johnson Utilities, LLC, dba Johnson Utilities Company shall prepare a report containing a 

detailed analysis and a plan to reduce water loss to 10 percent or less, and if it believes it is not cost 

effective to reduce water loss to less than 10 percent, the report shall include a detailed cost benefit 

analysis to support its opinion. This report shall be docketed as a compliance item for this 

proceeding for review and certification by Staff The report or cost benefit analysis, if required, shall 

be docketed by November 30, 2011. In no case shall the Company allow water loss to remain at 

greater than 15 percent. If water loss is not reduced to less than 15 percent by October 1, 2011, Staff 

shall initiate an Order to Show Cause against the Company. 

IT IS FURTHER ORDERED that Johnson Utilities, LLC, dba Johnson Utilities Company 

shall keep its records in accordance with the National Association of Regulatory Utility 

Commissioners Uniform System of Accounts and Commission rules in a manner that will support its 

filings with the Commission. 

IT IS FURTHER ORDERED that Johnson Utilities, LLC, dba Johnson Utilities Company 

shall prepare an action plan that indicates the specific steps it will take to demonstrate, by means of 

its day to day record keeping regarding transactions between the Company and all entities with which 

it conducts business, including, but not limited to, its affiliates and related parties, that its dealings are 

arm's length, transparent, and well-documented. The Company shall file the plan with the 

Commission's Docket Control Center as a compliance item in this case within 90 days for Staff's 

review. Staff shall assess the plan and its adequacy, and shall file, with the Commission's Docket 

Control Center as a compliance item in this case, within 60 days of Staffs receipt of the Company's 

action plan, a report with Staff's findings and recommendations on the action plan accompanied by a 

Recommended Order for Commission approval or disapproval of the Company's action plan. 

IT IS FURTHER ORDERED that Johnson Utilities, LLC, dba Johnson Utilities Company 

shall, on a going-forward basis, use the depreciation rates set forth in Exhibit B attached hereto. 

IT IS FURTHER ORDERD that Johnson Utilities, LLC dba Johnson Utilities Company, shall 

implement a CAGRD adjustor mechanism as proposed by Staff, inclusive of all eight conditions 

proposed by Staff. 

71854 73 DECISION NO. 

DOCKET NO. WS-0;2987A-08-0180

1

2

'1

J

4 analysis to support its opinion.

5

6 no case

7

8

percent, Johnson Utilities, LLC, alba Johnson Utilities Company shall prepare a report containing a

detailed analysis and a plan to reduce water loss to 10 percent or less, and if it believes it is not cost

effective to reduce water loss to less than 10 percent, the report shall include a detailed cost benefit

This report shall be docketed as a compliance item for this

proceeding for review and certification by Staff. The report or cost benefit analysis, if required, shall |

be docketed by November 30, 201 l. In shall the Company allow water loss to remain at I

greater than 15 percent. If water loss is not reduced to less than 15 percent by October 1, 201 1, Staff

shall initiate an Order to Show Cause against the Company.

9 IT IS FURTHER ORDERED that Johnson Utilities, LLC, alba Johnson Utilities Company

10 i shall keep its records in accordance with the National Association of Regulatory Utility

1 1 I Commissioners Uniform System of Accounts and Commission rules in a manner that will support its

12 filings with the Commission.

13

14

15

16

17

18

19

20

IT IS FURTHER ORDERED that Johnson Utilities, LLC, alba Johnson Utilities Company

shall prepare an action plan that indicates the specific steps it will take to demonstrate, by means of

its day to day record keeping regarding transactions between the Company and all entities with which

it conducts business, including, but not limited to, its affiliates and related parties, that its dealings are

arm's length, transparent, and well-documented. The Company shall file the plan with the

Commission's Docket Control Center as a compliance item in this case within 90 days for Staffs

review. Staff shall assess the plan and its adequacy, and shall file, with the Commission's Docket

Control Center as a compliance item in this case, within 60 days of Staffs receipt of the Company's

2] action plan, a report with Staffs findings and recommendations on the action plan accompanied by a

22 Recommended Order for Commission approval or disapproval of the Company's action plan,

23 IT IS FURTHER ORDERED that Johnson Utilities, LLC, alba Johnson Utilities Company

24 shall, on a going-forward basis, use the depreciation rates set forth in Exhibit B attached hereto.

IT IS FURTHER ORDERD that Johnson Utilities, LLC alba Johnson Utilities Company, shall

26 implement a CAGRD adjustor mechanism as proposed by Staff, inclusive of all eight conditions

25

27 proposed by Staff.

28

|

I

73 DECISION ND. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 77 of 134
DOCKET NO. WS-02987A-08-0180 

1 

7 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

23 

24 

25 

26 

27 

28 

IT IS FURTHER ORDERED that Johnson Utilities, LLC, dba Johnson Utilities Company 

shall submit for Commission consideration within 120 days of the effective date of this Decision, at 

least ten Best Management Practices (as outlined in Arizona Department of Water Resource's 

Modified Non-Per Capita Conservation Program). A maximum of two of these BMPs may come 

from the "Public Awareness/PR" or "Education and Training" categories of the BMPs. Johnson 

Utilities, LLC, dba Johnson Utilities Company may request cost recovery of actual costs associated 

with the BMPs implemented. 

IT IS FURTHER ORDERED that this Decision shall become effective immediately. 

BY ORDER OF THE ARIZONA CORPORATION COMMISSION. 

DISSENT 

DISSENT 

COMMISSIO ER 

MM SIONER CtIIS8IONF 

IN WITNESS WHEREOF, I, ERNEST G. JOHNS 

Executive Director of the Arizona Corporation Commission, 

have hereunto set my hand and caused the official seal of the 

Commission to be affixed at the Capitol, in the City of Phoenix, 

this 2 1/ 7" day of u s-/--- , 2010. 

EXECUTIVE DIRECTOR 

74 DECISION NO. 71854 

DOCKET NO. WS-02987A-08-0180

2

l IT IS FURTHER ORDERED that Johnson Utilities, LLC, alba Johnson Utilities Company

|

shall submit for Commission consideration within 120 days of the effective date of this Decision, at

3

4

5

6

least ten Best Management Practices (as outlined in Arizona Department of Water Resource's

Modified Non-Per Capita Conservation Program). A maximum of two of these BMPs may come

from the "Public Awareness/PR" or "Education and Training" categories of the BMPs. Johnson

Utilities, LLC, alba Johnson Utilities Company may request cost recovery of actual costs associated

with the BMPs implemented.

IT IS FURTHER ORDERED that this Decision shall become effective immediately.

BY ORDER OF THE ARIZONA CORPORATION COMMISSION .

7

8

9

10 . ,I

11 9

12 CHAIRMAN / 7 COMMISSIO E

R_

13

§@1onER

/

/7

Mi/ I4/M ._ ----

CO MISSIONE

..»--"'"-

14

-: J \l*,

I\/IlsbI NER

f

/'

15

16

17

IN W ITNESS WHEREOF, I, ERNEST G. .y()Hng(jnt,

Executive Director of the Arizona Corporation Commission,

have hereunto set my -hand and caused the official seal of the

Commission to be affixed at the Capitol, in the City of Phoenix,

this 24* day of 4 l ? v , - / * , 2010. 18

19

20 4 4 /

\

21

sTG.é9Hm1s'E>n

EXECUTIVE DIRECTOR

22 DISSENT

23

24 DISSENT

25

26

27

28

74 DECISION mc). 71854

I

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 78 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

SERVICE LIST FOR: 

DOCKET NO.: 

Jeffrey W. Crockett 

Bradley S. Carroll 

Kristoffer P. Kiefer 

SNELL & WILMER LLP 

One Arizona Center 

400 East Van Buren Street 

Phoenix, AZ 85004 

Attorneys for Johnson Utilities, LLC 

Craig A. Marks 

CRAIG A. MARKS, PLC 

10645 North Tatum Blvd., Suite 200-676 

Phoenix, AZ 85028 

Attorney for Swing First Golf, LLC 

Daniel Pozefsky, Chief Counsel 

RESIDENTIAL UTILITY 

CONSUMER OFFICE 

1110 West Washington Street, Suite 220 

Phoenix, AZ 85007-2958 

James E. Mannato, Town Attorney 

TOWN OF FLORENCE 

P.O. Box 2670 

775 North Main Street 

Florence, AZ 85232-2670 

JOHNSON UTILITIES, L.L.C., DBA JOHNSON 

UTILITIES COMPANY 

WS-02987A-08-0180 

Janice Alward, Chief Counsel 

Ayesha Vohra, Staff Attorney 

Legal Division 

ARIZONA CORPORATION COMMISSION 

1200 West Washington Street 

Phoenix, AZ 85007-2927 

Steve Olea, Director 

Utilities Division 

ARIZONA CORPORATION COMMISSION 

1200 West Washington Street 

Phoenix, AZ 85007-2927 

75 DECISION NO. 71854 

JOHNSON UTILITIES,

UTILITIES COMPANY

L.L.C., DBA JOHNSON

DOCKET NO.: WS-02987A-08-0180

1 SERVICE LIST FOR:

2

3

4

5

6

7

8

Jeffrey W. Crockett

Bradley S. Carroll

Kristoffer P. Kiefer

SNELL & WILMER LLP

One Arizona Center

400 East Van Buren Street

Phoenix, AZ 85004

Attorneys for Johnson Utilities, LLC

9

10

Craig A. Marks

CRAIG A. MARKS, PLC ,

10645 North Tatum Blvd, Suite 200-676

Phoenix, AZ 85028

| Attorney for Swing First Golf, LLC

12

13

Daniel Pozefsky, Chief Counsel

RESIDENTIAL UTILITY

CONSUMER OFFICE

ll 10 West Washington Street, Suite 220

Phoenix, AZ 85007-2958

14

15

16

James E. Mannato, Town Attorney

TOWN OF FLORENCE

P.O. BOX 2670

775 North Main Street

Florence, AZ 85232-2670

17

18

19

20

Janice Allard, Chief Counsel

Ayes fa Vohra, Staff Attorney

Legal Division

ARIZONA CORPORATION COMMISSION

1200 West Washington Street

Phoenix, AZ 85007-2927

21

22

23

Steve Oleo_ Director

Utilities Division

ARIZONA CORPORATION COMMISSION

1200 West Washington Street

Phoenix, AZ 85007-2927

24

25

26

Z7

28

75 DECISION NO. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 79 of 134
DOCKET NO. WS-02987A-08-0180 

EXHIBIT A 

WATER DIVISION 

MONTHLY USAGE CHARGE: 

5/8" x 3/4" Meter 

3/4" Meter 

1" Meter 

1-1/2" Meter 

2" Meter 

3" Meter 

4" Meter 

6" Meter 

8" Meter 

10" Meter 

COMMODITY CHARGES 

(Residential, Commercial, Industrial) 

All Meter Sizes 

Gallons Included in Minimum 

5/8-Inch Meter (Residential) 

0 to 4,000 Gallons 

4,001 to 10,000 Gallons 

Over 10,000 Gallons 

3/4-Inch Meter Commercial, Industrial, Irrigation 

and Public Authority 

0 to 10,000 Gallons 

Over 10,000 Gallons 

1-Inch Meter 

From 1 to 32,000 Gallons 

Over 32,000 Gallons 

1-1/2-Inch Meter 

From 1 to 88,000 Gallons 

Over 88,000 Gallons 

2-Inch Meter 

From 1 to 156.000 Gallons 

Over 156,000 Gallons 

3-Inch Meter 

From 1 to 339,000 Gallons 

Over 339,000 Gallons 

4-Inch Meter 

From 1 to 545,000 Gallons 

Over 545,000 Gallons 

6-Inch Meter 

From 1 to 1,120,000 Gallons 

Over 1,1200,000 Gallons 

8-Inch Meter 

From 1 to 1,800,000 Gallons 

Over 1,800,000 Gallons 

10-Inch Meter 

From 1 to 2,600,000 Gallons 

Over 2,600,000 Gallons 

Construction Water 

Central Arizona Water 

$11.00 

16.50 

27.50 

55.00 

88.00 

176.00 

275.00 

550.00 

880.00 

1,265.00 

0 

$1.7600 

2.1400 

2.4960 

2.1400 

2.4960 

2.1400 

2.4960 

2.1400 

2.4960 

2.1400 

2.4960 

2.1400 

2.4960 

2.1400 

2.4960 

2.1400 

2.4960 

2.1400 

2.4960 

2.4960 

See Tariff 

1 DECISION NO. 71854 

DOCKET no. WS-02987A-08-0180

EXHIBIT A

WATER DIVISION

$1 1.00

16.50

27.50

55.00

88.00

176.00

275.00

550.00

880.00

1,265.00

MGNTHLY USAGE CHARGE:

5/8" x 3/4" Meter

3/4" Meter

l" Meter

1-l/2" Meter

2" Meter

3" Meter

4" Meter

6" Meter

8" Meter

10" Meter

COMMODITY CHARGES

(Residential, Commercial, Industrial)

All Meter Sizes

Gallons Included in Minimum 0

$1 .7600

2.1400

2.4960

2.1400

2.4960

2.1400

2.4960

2.1400

2.4960

5/8-Inch Meter (Residential)

0 to 4,000 Gallons

4,001 to 10,000 Gallons

Over 10,000 Gallons

%-Inch Meter Commercial, Industrial, Irrigation

and Public Authority

0 to 10,000 Gallons

Over 10,000 Gallons

1-Inch Meter

From 1 to 32,000 Gallons

Over 32,000 Gallons

1-1/2-Inch Meter

From 1 to 88,000 Gallons

Over 88,000 Gallons

2-Inch Meter

From 1 to 156,000 Gallons

Over 156,000 Gallons

3-Inch Meter

From 1 to 339,000 Gallons

Over 339,000 Gallons

4-Incb Meter

From l to 545.000 Gallons

2.1400

2.4960

2. 1400

2.4960

2.1400

2.4960

2.1400

2.4960

Over 545,000 Gallons

6-Inch Meter

From l to 1,120,000 Gallons

Over 1,1200,000 Gallons

8-Inch Meter

From 1 to 1,800,000 Gallons

Over 1,800,000 Gallons

10-Inch Meter

From l to 2,600,000 Gallons

Over 2,600,000 Gallons

Construction Water

Central Arizona Water

2. 1400

2.4960

2.4960

See Tariff

1 DECISION NG. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 80 of 134
DOCKET NO. WS-02987A-08-0180 

WASTEWATER DIVISION 

MONTHLY USAGE CHARGE: 

5/8" Meter $ 29.8100 

3/4" Meter 32.7900 

1" Meter 41.7300 

1-1/2" Meter 53.6508 

2" Meter 86.4400 

3" Meter 327.8700 

4" Meter 625.9300 

6" Meter 864.3700 

8" Meter 1,092.6000 

10" Meter 1,748.3300 

Effluent: per 1,000 gallons 

Per acre foot 

$ 0.5280 

170.3200 

SERVICE CHARGES Staff 

Establishment $ 25.00 

Establishment (After Hours) 40.00 

Deposit (Residential) (a) 

Deposit (None-Residential) (a) 

Deposit Interest (b) (b) 

Re-establishment (Within 12 Months) (c) 

Re-establishment (After Hours) (c) 

NSF Check 15.00 

Deferred Payment, Per Month 1.50% 

After-hours Service, Per Rule R14-2-403D Refer to Above Charges 

Service Line Connection Charge 350.00 

Late Charge, Per Month 40.00 

Main Extension Tariff, per rule R14-2- Cost 

606B except refunds shall be based upon 

5% of gross revenues from bonafide 

customers, until all advances are fully 

refunded to the Developer. 

(a) Residential: two times the average bill. 

Non-Residential: two and one-half times the maximum monthly bill. 

(b) Interest per Rule R14-2-403(B) 

(c) Minimum charge times number of months off the system, per rule R14-2-103(D). 

IN ADDITION TO THE COLLECTION OF REGULAR RATES, THE UTILITY WILL COLLECT FROM 

ITS CUSTOMERS A PROPORTIONATE SHARE OF ANY PRIVILEGE, SALES, USE AND 

FRANCHISE TAX, PER RULE 14-2-409(D)(5 

— DECISION NO, 71854 

DOCKET NO. WS-02987A-08-0180

WASTEWATER DIVISION

MONTHLY USAGE CHARGE :

5/8" Meter

3/4" Meter

1" Meter

1-l/2" Meter

2" Meter

3" Meter

4" Meter

6" Meter

8" Meter

10" Meter

$ 29.8100

32.7900

41.7300

53.6508

86.4400

327.8700

625.9300

864.3700

1,092.6000

1,748.3300

Effluent: per 1,000 gallons

Per acre foot

32 0.5280

170.3200

SERVICE CHARGES

Establishment

Establishment (After Hours)

Deposit (Residential)

Deposit (None-Residential)

Deposit interest (b)

Re-establishment (Within 12 Months)

Re~establishment (After Hours)

NSF Check

Deferred Payment, Per Month

After-hours Service, Per Rule Rl4-2-403D

Service Line Connection Charge

Late Charge, Per Month

Main Extension Tariff, per rule Rl4-2-

606B except refunds shall be based upon

5% of gross revenues from bonafide

customers, until all advances are fully

refunded to the Developer.

Staff

$ 25.00

40.00

(a) (a)

(b)

(c)

(c)

I5 .00

I .50%

Refer to Above Charges

350.00

40.00

Cost

(a) Residential: two times the average bill.

Non-Residential: two and one-half times the maximum monthly bill.

Interest per Rule R14-2-403(B)

Minimum charge times number of months off the system, per rule R14-2-103(D) .

(b)

(C)

IN ADDITION To THE COLLECTION OF REGULAR RATES, THE UTILITY WILL COLLECT PRQM

ITS CUSTOMERS A PROPORTIONATE SHARE OF ANY PRIVILEGE, SALES, USE AND

FRANCHISE TAX, PER RULE I 4-2-409(D)(5

~»~DEGISION n-Q, 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 81 of 134
DOCKET NO. WS-02987A-08-0180 

EXHIBIT "B" 

Water Depreciation Rates 

NARUC 

Acct. No. Depreciable Plant 

Average 

Service Life 

(Years) 

Annual 

Accrual 

Rate (%) 

1

304 Structures & Improvements 30 3.33 

305 Collecting & Impounding Reservoirs 40 2.50 

306 Lake, River, Canal Intakes 40 2.50 

307 Wells & Springs 30 3.33 

308 Infiltration Galleries 15 6.67 

309 Raw Water Supply Mains 50 2.00 

310 Power Generation Equipment 20 5.00 

311 Pumping Equipment 8 12.5 

320 Water Treatment Equipment 

320.1 Water Treatment Plants 30 3.33 

320.2 Solution Chemical Feeders 5 20.0 

330 Distribution Reservoirs & Standpipes 

330.1 Storage Tanks 45 2.22 

330.2 Pressure Tanks 20 5.00 

331 Transmission & Distribution Mains 50 2.00 

333 Services 30 3.33 

334 Meters 12 8.33 

335 Hydrants 50 2.00 

336 Backflow Prevention Devices 15 6.67 

339 Other Plant & Misc Equipment 15 6.67 

340 Office Furniture & Equipment r- 15 6.67 

340.1 Computers & Software 5 20.00 

341 Transportation Equipment 5 20.00 -1 

342 Stores Equipment 25 4.00 

343 Tools, Shop & Garage Equipment 20 5.00 

344 Laboratory Equipment 10 10.00 

345 Power Operated Equipment 20 5.00 

346 Communication Equipment 10 10.00 

347 Miscellaneous Equipment 10 10.00 

348. Other Tangible Plant 10 ---

DECISION NO. 71854 

Average

Service Life

(Years)

Annual

Accrual

Rate (%)

NARUC

A f

Depreciable Plant

__ _____

30 3.33

2.50

v 304 S c es 8; Improvements

305 Collecting & Impounding Reservoirs

306 Lake River, Canal Intakes 40 2.50

307 W'=11s & Springs 30 3.33

308 T file anion Galleries 15 6.67

|

I 309 » Water Supply Mains 50 2.00

310 Po Er Generation Equipment 20 5.00

i 311 P ~ing Equipment 8 12.5

v

320 amer Treatment Equipment

|

320.1 amer Treatment Plants 30 3.33

I

320.2 Solution Chemical Feeders 5 20.0

1

i 330 ~is | 'button Reservous & Standpipes

r 330.1 Storage Tanks 45 2.22

I

330.2 Pressure Tanks 20 5.00

1 331

333

Tr~ emission 8; Distribution Mains 50 2.00

Se 'yes 30 3.33

i 334 eyers 12 8.33

i

I

335 | ants 50 2.00

E 336 Bar 1 ow Prevention Devices 15 6.67

339 Other Plant & Misc Equipment 15 6.67

340 I

t

Office Furniture & Equipment 15 6.67

Co Dupers 8; Software 5 20.00

Tia s~ ~o1tation Equipment 5 20.00

Stores Equipment 25 4.00

Tools Shop & Garage Equipment 20 5.00

Laborato Equipment 10 10.00

Power Operated Equipment 20 5.00

346 i

y

1 Co frication Equipment 10 10.00

\ 347 miscellaneous Equipment 10 10.00

340.1

341

342

343

\ 344

345

I 348. 10

DOCKET NO I WS-02987A-08-0180

v

EXHIBIT "B"

Water Depreciation Rates

1 Lvwu» .a.\\...

Other Tangible Plant

DECISION NG. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 82 of 134
DOCKET NO, WS-02987A-08-0180 

EXHIBIT "B" 

Wastewater Depreciation Rates 

NARUC 

Acct. No. Depreciable Plant 

Average 

Service Life 

(Years) 

Annual 

Accrual 

Rate (%) 

1 354 Structures & Improvements 30 3.33 

355 Power Generation Equipment 20 5.00 

360 Collection Sewers — Force 50 2.0 

361 Collection Sewers- Gravity 50 2.0 

362 Special Collecting Structures 50 2.0 

363 Services to Customers 50 2.0 

364 Flow Measuring Devices 10 10.00 

365 Flow Measuring Installations 10 10.00 

366 Reuse Services 50 2.00 

367 Reuse Meters & Meter Installations 12 8.33 

370 Receiving Wells 30 3.33 

371 Pumping Equipment 8 12.50 

374 Reuse Distribution Reservoirs 40 2.50 

375 Reuse Transmission & Distribution System 40 2.50 

380 Treatment & Disposal Equipment 20 5.0 

381 Plant Sewers _20 5.0 

382 Outfall Sewer Lines 30 3.33 

389 Other Plant & Miscellaneous Equipment 15 6.67 

390 Office Furniture & Equipment 15 6.67 

390.1 Computers & Software c 20.0 

391 Transportation Equipment 5 20.0 

392 Stores Equipment 25 4.0 

393 Tools, Shop & Garage Equipment 20 5.0 

394 Laboratory Equipment 10 10.0 

395 Power Operated Equipment 20 5.0 

396 Communication Equipment 10 10.0 

397 Miscellaneous Equipment 10 10.0 

398 Other Tangible Plant ----

DECISION NO. 71854 

Annual

Accrual

Rate (%)

Average

Sewlce Life i (Years) I

Depreciable Plant

P

)

I

INARUC

Acct. No.

Structures 8; Improvements 30 3.33 I

355

360

Power Generation Equlpment 20 5.00 i

Collection Sewers - Force 50 2.0

361 COllection Sewers- Gravity 50 2.0

1 362

363

Special Collecting Structures 50 2.0 i

|

Services to Customers 50 2.0 i

364 Flow Measuring Devices 10 10.00

365 Flow Measuring Installations 10 10.00

366 Reuse Services 50 |

I

2.00

i 367 Reuse Meters 84 Meter Installations 12 8.33

370 Receiving Wells 30

I

3.33

371 Pumping Eqlupment 8 12.50 i

l

374 Reuse Distribution Reservoirs 40 2.50

375 Reuse Transmission & Distribution System 40 2.50

380

381

Treatment BL Disposal Equipment 20 5.0

Plant Sewers 20 5.0 I

382 Outfall Sewer Lines 30 3.33

389 Other Plant & Miscellaneous Equlpment 15 6.67

390 Office Furniture & Equipment 15 6.67

390.1 Computers & Software 5 20.0

391 Transportation Equipment 5 20.0 I

|

392 Stores Equipment 25 4.0 I

393 Tools, Shop 8; Garage Equipment 20 5.0

394 Laborato Equipment 10

I

10.0

|

10.0 I

395 Power Operated Equipment 20

396 Communication Equipment 10

397 Miscellaneous Equipment 10 10.0 i

398 Other Tangible Plant

DOCKET NO I WS-02987A-08-0180

P

EXHIBIT "B"

Wastewater Depreciation Rates

DECISION in. 71854

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 83 of 134
EXHIBIT 2 

EXHIBIT 2 

EXHIBIT 2

 EXHIBIT 2

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 84 of 134
11~ II~ ~II~~ ~I~~ M 11 WI Im 

0000129725 

1 BEFORE THE ARIZONA CORPORATION C~-·--·--~~- ...... 

2 COMMISSIONERS Artzona Corporation Commission 

3 GARY PIERCE, CHAIRMAN DOCKETED 

BOB STUMP 

4 PAUL NEWMAN SEP 1 5 2011 

SANDRA D. KENNEDY 

l~e- I 5 BRENDA BURNS DOCKETED BY 

6 

7 IN THE MATTER OF THE APPLICATION OF 

JOHNSON UTILITIES, LLC, DBA JOHNSON 

8 UTILITIES COMP ANY FOR AN INCREASE IN 

ITS WATER AND WASTEWATER RA TES FOR 

9 CUSTOMERS WITHIN PINAL COUNTY, 

ARIZONA. 

DOCKET NO. WS-02987 A-08-0180 

DECISION NO. 72579 

10 

11 

ORDER AMENDING 

DECISION NO. 71854 

ti--------------------' 

12 

Open Meeting 

13 September 6, 2011 

Phoenix, Arizona 

14 

15 BY THE COMMISSION: 

16 FINDINGS OF FACT 

17 1. Johnson Utilities LLC ("Johnson Utilities" or "Company") is engaged in providing 

18 water and waste water service within Pinal County, Arizona. 

19 2. Johnson Utilities current rates were approved in Decision No. 71854 entered August 

20 25, 2010. 

21 3. On February 28, 2011, Johnson Utilities filed with the Arizona Corporation 

22 Commission ("Commission") a Petition to Amend Decision No. 71854 pursuant to A.R.S § 40-252. 

23 4. Johnson Utilities' Petition to Amend requested that the Commission modify Decision 

24 No. 71854 in the following manner: 

25 

26 

27 

28 

a. 

b. 

Change the $40 per month late fee in the Company's wastewater division tariff 

to a late fee of 1.5% per month on the unpaid account balance, consistent with 

the Company's water division tariff. 

Add back into rate base wastewater division plant of$18,244,755 which was 

Decision No. ------

;;1 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 85 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 5. 

c. 

d. 

e. 

f. 

g. 

h. 

Docket No. WS-2987A-08-0180 

disallowed in the rate case. This sum includes the addition back into rate base 

the $10,892,391 disallowance for inadequately supported plant cost and the 

$7 ,352,364 disallowance related to affiliate profit. 

Remove from the water division rate base $6,931,078 in unexpended test year 

hook-up fees. 

Reinstate the Company's previously authorized hook-up fees for new water and 

wastewater divisions' connections. 

Establish a rate of return for the Company based upon its weighted average 

cost of capital in the range of 8.18% to 11.89%. 

Reclassify $2,201,386 of wastewater plant identified as post test year plant to 

test year plant-in-service. 

Include in plant-in-service post test-year wastewater plant at $1,021,108, 

which the Company alleges is necessary to serve the test year-end level of 

customers. 

Include explicit language for Johnson Utilities to request income tax expense 

prospectively in a future A.R.S. § 40-252 Petition ifthe Commission changes 

its policy on imputed income tax expense. 

At its July 12, 2011 Open Meeting, the Commission voted to reopen Decision No. 

19 71854, and directed the Company to notice its customers concerning: (a) the rate impacts of granting 

20 the reliefrequested, (b) a public comment session in Pinal County, and (c) the August 11, 2011 Open 

21 Meeting at which the Commission would consider the Company's request for relief. 

22 6. Johnson Utilities noticed its customers as directed by the Commission and filed proof 

23 of notice in the docket. 

24 7. On July 26, 2011, Johnson Utilities filed an Amendment to Petition to Amend 

25 Decision No. 71854. The amendment modified its Petition to Amend to request a rate ofretum based 

26 upon a weighted average cost of capital of 8.0%. 

27 8. On August 4, 2011, Chairman Pierce mailed and docketed a letter to the parties 

28 requesting proposed amendments to aid in the Commission's consideration of the Petition. 

2 Decision No. 72579 -------

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 86 of 134
Docket No. WS-2987A-08-0180 

1 9. On August 9, 2011, Johnson Utilities filed a proposed amendment modifying Decision 

2 No. 71854 concerning the relief requested. The amendment was adopted by Chairman Pierce for 

3 purposes of discussion and consideration at the August 11, 2011 Open Meeting. 

4 10. At the August 11, 2011 Open Meeting, the Commission discussed and considered the 

5 proposed amendment to Decision No. 71854 in accordance with A.R.S. § 40-252, and provided all 

6 parties an opportunity to be heard concerning the requested relief. 

7 11. The Commission determined that certain of the Company's requested modifications 

8 to Decision No. 71854 did not warrant further Commission consideration, but voted to direct the 

9 Utilities Division ("Staff') to prepare and docket an order incorporating the following requested 

10 modifications to be considered at September, 2011 Open Meeting: 

11 a. The change of the wastewater late fee from $40 per month to 1.5% per month. 

12 b. The addition back of$ 18,244,755 in disallowed wastewater plant, which 

13 

14 

15 

16 

17 

18 

c. 

d. 

e. 

includes the $10,892,391 disallowance for inadequately supported plant and 

the $7,352,364 disallowance related to affiliate profit. 

The reinstatement of hook-up fee tariffs for water and wastewater divisions. 

The determination of a rate of return of 8.0% for the wastewater division. 

The inclusion of language permitting the Company to request income tax 

expense prospectively in a future A.R.S. § 40-252 Petition ifthe Commission 

19 changes its policy relating to imputed income tax expense. 

20 12. The Commission also determined that ifthe relief requested was granted, that new 

21 rates should go into effect October 1, 2011, and that the Company could not a file a rate case with a 

22 test year ending earlier than December 31, 2012. 

23 13. The Commission directed Staff and the Company to meet, discuss and analyze the rate 

24 impacts concerning the remaining requested modifications to Decision No. 71854, and thereafter for 

25 Staff to docket a report concerning the resulting revenue and rate design analysis. 

26 14. On August 26, 2011, Staff docketed its report as directed by the Commission. 

27 15. Upon due consideration of these matters pursuant to A.R.S. § 40-252, and in balancing 

28 the implicated public interest concerning the certainty of Commission orders with the opportunity to 

3 Decision No. 72579 -------

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 87 of 134
Docket No. WS-2987A-08-0180 

1 take appropriate regulatory ratemaking measures presented by the circumstances herein, we find and 

2 conclude that it is in the public interest to modify Decision No. 71854 as determined in this decision. 

3 16. The Company's hook up fee tariffs for its water and wastewater in effect prior to 

4 Decision No. 71854 are reinstated, with the condition that new tariffs be filed with wording in 

5 conformance with the hook-up fee templates on the Commission's website. 

6 17. The Company is permitted to request income tax expense prospectively in a future 

7 A.R.S. § 40-252 Petition ifthe Commission changes its policy relating to imputed income tax 

8 expense. 

9 18. The Company's wastewater division current tarifffor a $40 late payment fee is 

1 O modified to a late fee of 1.5% on the unpaid account balance, consistent with the similar tariff for the 

11 Company's water division. 

12 19. The Company's wastewater rate base shall be increased to allow the additional 

13 inclusion of plant in the amount of $18,244,755. As a result, the Company's adjusted fair value rate 

14 base ("FVRB") for its wastewater division is modified, and is determined to be $17,270,554, an 

15 increase of $17,133,992 over $136,562 authorized in Decision No. 71854. 

16 20. The rate ofretum on the Company's wastewater division adjusted FVRB shall be 8.0 

17 percent. This rate of return applied to the Company's adjusted wastewater division FVRB results in 

18 an increase to the Company's Required Operating Income in the amount of $1,091,034 over the 

19 $290,610 authorized in Decision No. 71854. The new Required Operating Income is determined to 

20 be $1,381,644. 

21 21. Because we make these modifications in this decision, the new revenue requirement is 

22 determined to be 11,591,861, which is an increase of $1,904,866 over the $9,686,995 authorized in 

23 Decision No. 71854. 

24 22. In Staff's August 26, 2011 filing, Staff sets out an analysis with a revised rate design 

25 with new rates intended to provide the Company the opportunity to earn the return authorized herein. 

26 We approve the new rates as set out by Staff and attached to this decision as Exhibit A, and shall 

27 require the Company to file new tariffs reflecting these approved rates. 

28 23. Under the new rates approved by this decision, a residential wastewater customer on a 

4 Decision No. 72579 -------

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 88 of 134
Docket No. WS-2987A-08-0180 

I % inch meter would experience an increase of $6.56 or approximately 20% over the rates approved in 

2 Decision No. 71854, from $32.79 to $39.35 per month. 

3 24. We find and conclude that the modifications made herein to Decision No. 71854 result 

4 in just and reasonable rates for the Company and its ratepayers. 

5 25. We further find and conclude that the modifications made herein to Decision No. 

6 71854 shall be effective prospectively, and all other provisions, terms and rates in Decision No. 

7 71854 remain in full force and effect except where inconsistent with this Decision on rehearing. 

8 26. We further find and conclude that because we make these modifications to Decision 

9 No. 71854, the public interest requires a stay out provision that prohibits the Company from filing a 

1 O future rate increase application that uses a test year ending earlier than December 31, 2012. 

11 27. We further find and conclude that it is in the public interest that new rates and tariffs 

12 resulting from this Decision shall be effective for all service rendered on and after October 1, 2011. 

13 CONCLUSIONS OF LAW 

14 1. Johnson Utilities is a public service corporation within the meaning of Article XV of 

15 the Arizona Constitution and A.R.S. §§ 40-250, 40-251, 40-367, 40-202, 40-321, and 40-361. 

16 2. The Commission has jurisdiction over Johnson Utilities and the subject matter set 

17 forth in the Company's rate application and in the Company's Petition to Amend Decision No. 

18 71854 pursuant to A.R.S. § 40-252. 

19 3. Pursuant to A.R.S. § 40-252, the Commission, having reviewed the Petition and the 

20 Staffs Memorandum dated August 26, 2011, concludes that it is in the public interest to approve the 

21 modification to Decision No. 71854 as discussed herein. 

22 ORDER 

23 IT IS THEREFORE ORDERED that Decision No. 71854 is modified by the Commission in 

24 the manner determined by this Decision. 

25 IT IS FURTHER ORDERED that Johnson Utilities shall not file for an increase in rates using 

26 a test year ending earlier than December 31, 2012. 

27 IT IS FURTHER ORDERED that all other matters set forth in Decision No. 71854 continue 

28 to be in full force and effect except where inconsistent with the Decision. 

5 Decision No. 72579 -------

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 89 of 134
Docket No. WS-2987A-08-0180 

1 IT IS FURTHER ORDERED that Johnson Utilities shall file a tariff in conformance with this 

2 Decision for rates as shown in Exhibit A to go into effect for all service rendered on and after 

3 October 1, 2011, and notice its customers of the new rates on or before September 23, 2011. 

4 IT IS FURTHER ORDERED that in the event the Commission alters its policy to allow S5 corporation and LLC entities to impute a hypothetical income tax expense for ratemaking purposes, 

6 Johnson Utilities may file a motion to amend this Order prospectively, and Johnson Utilities' 

7 authorized revenue requirement hereunder, pursuant to A.RS.§ 40-252, to reflect the change in 

8 Commission policy. 

9 IT IS FURTHER ORDERED that Johnson Utilities shall file new hook-up fee tariffs for both 

10 water and sewer with wording conforming to the wording on the Commission's hook-up fee 

11 templates on its website and the charges shall be the same as those on Johnson Utilities' former hook12 up fee tariffs. 

13 IT IS FURTHER ORDERED that this Decision shall be effective immediately. 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

6 Decision No. 72579 -------

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 90 of 134
1 

2 

3 

4 

5 

Docket No. WS-2987A-08-0180 

BY ORDER OF THE ARIZONA CORPORATION COMMISSION 

COMMISSIONER 

Commissioner Burns 

Abstained 

COMMISSIONER 

IN WITNESS WHEREOF, I, ERNEST G. JOHNSON, 

Executive Dire-ctor of the Arizona Corporation Commission, 

have hereunto, set my hand and caused the official seal of this 

Commissm to be affixed at the Capital, in the City of Phoenix, 

this /5 day of Svpt~t 1.< 2011. 

EZG'S~ Executive Director 

7 Decision No. 72579 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 91 of 134
Johnson Utillties L.L.C. - Wastewater Division 

Docket No. WS-02987A-OB-01BO 

Test Year Ended December 31, 2007 

EXHIBIT A 

WASTEWATER DIVISION 

!Monthly Minimum Charge 

l"t:;K 

DECISION NO. 71854 

Meter Sizes (All Zones and Classes) 

5/8 Inch $ 29.8100 

3/4 Inch $ 32.7900 

1 Inch $ 41.7300 

11/2 Inch $ 53.6508 

2 Inch $ 86.4400 

31nch $ 327.8700 

41nch $ 625.9300 

61nch $ 864.3700 

81nch $ 1,092.6000 

10inch $ 1,746.3300 

Effluent per 1, 000 gallons $ 0.5280 

per acre foot $ 170.3200 

Service Charges 

Establishment $ 25.00 

Establishment (After hours) $ 40.00 

Deposit Requirement (Residential) (a) 

Deposit Requirement (Non Residential Meter) (a) 

,Deposit Interest (b) 

!Re-Establishment (With-in 12 months) (C) 

Re-Establishment (After Hours) (C) 

NSF Check 15.00 

Deffered Payment, Per Month 1.50% 

After Hours service charge, per Rule R14-2-603D Refer to Above Charges 

Late Charge per month 40.00 

Service· Line Connection Charge 350.00 

Main Extension Tariff, per Rule R14-2-606B 

except refunds shall be based upon five percent (5%) of 

gross revenues from bonafide customers, Cost 

until all advances are fully refunded to Developer. NIA ... Off-site Fac1hties Hook-up Fee 

EXHIBIT A 

Page 1of2 

l'ICVY RA I Cl:> Pt:K 

ARS 40-262 

$ 35.7700 

$ 39.3500 

$ 50.0800 

$ 64.3900 

$ 103.7300 

$ 393.4700 

$ 751.1700 

$ 1,037.3300 

$ 1,430.8000 

$ 2,056.7600 

$ 0.6300 

$ 205.2900 

$ 25.00 

$ 40.00 

(a) 

(a) 

(b) 

(c) 

(c) 

15.00 

1.50% 

Refer to Above Charges 

1.50% 

350.00 

Cost 

(d) 

(a) Residential - two times the estimated average monthly bill. Non-residential - two and one-half times the estimated 

maximum monthly bill. 

(b) Interest per Rule R14-2-603(B). 

(c) Minimum charge times number of full months off the system. per Rule R14-2-603(B). 

(d) New wastewater installations. May be assessed only once per parcel, service connection, or lot within a subdivision. 

Decision No. 72579 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 92 of 134
Johnson Utilities - Wastewater Division 

Docket No. W-02987A-08-0180 

Test Year Ended December 31, 2007 

EXHIBIT A 

Page 2 of 2 

COMPARISON OF RATE BASE AND REVENUE REQUIREMENT PER DECISION NO 71854 AND ARS 40-25:< 

Gross Plant-in-Service 

Accumulated Depreciation 

Net Plant in Service 

Advances in Aid of Construction 

Net Contribution in Aid of Construction 

Rate Base 

Required Operating Margin/Rate of Return 

Required Operating Income 

Operating Income Deficiency 

Tax Gross-up Factor 

Gross Revenue Increase (Decrease) 

Adjusted Test Year Revenue 

Revenue Requirement 

Percentage Increase in Revenue Requirement(Decrease) 

Impact on 3/4 Inch Residential Bill 

Average 3/4 Inch Residential Biii 

\ 

·' ·~). 

[A] 

DECISION 

NO. 71854 

$ 95,566,588 

(6,375,814) 

$ 89, 190,774 

$ 

(52,231,631) 

(36,822,582) 

136,562 

Operating Margin 

3.00% 

$ 

$ 

$ 

$ 

$ 

$ 

290,610 

(1,631, 136) 

1.0220 

(1,667 ,020) 

11,354,014 

9,686,995 

-14.68% 

32.79 

[B] 

ARS 40-252 

$ 113,811,344 

(7,486,577) 

$ 106,324,766 

(52,231,631) 

(36,822,582) 

$ 17,270,554 

Rate of Return 

8.00% 

$ 

$ 

1,381,644 

232,727 

1.0220 

$ 237,847 

$ 11,354,014 

$ 11,591,861 

2.09% 

$ 39.35 

[CJ 

CHANGE 

$ 18,244,756 

(1,110,763) 

$ 17,133,992 

$ 17,133,992 

$ 1,091,034 

$ 1,863,863 

$ 1,904,867 

$ 

$ 1,904,866 

19.66% 

$ 6.56 

Decision No. 72579 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 93 of 134
COMMISSIONERS 

GARY PIERCE - Chairman 

BOB STUMP 

SANDRA D. KENNEDY 

PAUL NEWMAN 

BRENDA BURNS ARIZONA CORPORATION COMMISSION 

Arizona Corporation Commission 

Docket Control 

WS02987A-08-0180 

September 14, 2011 

Re: Johnson Utilities; Dissent Letter 

WS-02987 A-08-0180 

To all Interested Parties; 

SANDRA D. KENNEDY 

COMMISSIONER 

Direct Line: (602) 542-3625 

Fax: (602) 542-3669 

E-mail: skennedy@azcc.gov 

I am submitting my dissent letter explaining my No vote of September 6, 2011 on the rehearing 

of Johnson Utilities Company's (Company) application for an increase in its Water and 

Wastewater Rates for Customers within Pinal County, AZ. 

The case and record before the Commission posed many concerns on how the company was 

operating and keeping vital business records. Due to those issues and concerns, in my opinion, 

the original order issued on August 2010 (Decision No. 71854) was the correct one. 

While having said that, when the company petitioned the Commission for a rehearing, I voted to 

give the company another opportunity to present new evidence that was not part of the previous 

record. However, that did not occur. 

With no additional evidence or an amended recommended opinion and order presented to the 

Commissioners, there was nothing new to persuade me that we erred in Decision No.71854. 

Given the lack of new evidence or information, I do not believe the record supports the vote to 

amend Decision No. 71854 and the resulting increases in rates for Johnson Utilities' customers. 

I am concerned that the manner in which the Commission reversed several key ratemaking 

components will lead to a precedent that may be used or referenced by other companies when 

they do not support their rate cases with proper documentation. As I mentioned earlier, the 

record was very clear on the fact the company was not maintaining appropriate day-to-day record 

keeping, and raised with concerns that transactions with affiliates and related parties may lack 

needed transparency and were not conducted at arms length. For me, the Commission's 

Decision based on the record presented did not support a finding that amending Decision No. 

71854 is in the public interest. 

1200 wEsT wAsH1NGToN, PHOENIX, AR1zoNA 05007-2996 1400 wEsT coNGREss sTREET, TucsoN, ARIZONA 05701-1347 Decision No. 72579 www.azcc.gov 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 94 of 134
Page 2 

Johnson Utilities WS02987A-08-0180 

I know this rate case has been a learning process for Johnson Utilities. The company seems 

committed from this point on to conduct their business in a professional manner. I believe this is 

evident by the Company's statements that they have made reorganizational changes. However, 

that was not the record before us and I could not vote for a decision that will increase the 

wastewater rates that lack the proper documentation. 

Our job as Commissioners is to find just and reasonable rates that are in the public interest, to 

allow investors the opportunity to get a reasonable return on their investments. However, the 

utility that holds a monopoly has a responsibility to show that it indeed made those investments. 

Without adequate documentation, it is unfair to make the ratepayers bear that burden. 

It is because of these facts I voted against increasing the rates. 

Sincerely, 

~~'& Corporation Commissioner 

Sandra D. Kennedy 

Decision No. 72579 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 95 of 134
EXHIBIT 3 

EXHIBIT 3 

EXHIBIT 3

 EXHIBIT 3 

 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 96 of 134
ll~~!M~~~l~llHH 0000146924 

1 BEFORE THE ARIZONA CORPORATION COMMISSION 

2 BOB STUMP 

Chairman 

3 GARYPIERCE 

Alizona Corporation Commission 

Commissioner 

4 BRENDA BURNS 

Commissioner 

5 BOBBURNS 

Commissioner 

DOCKETED 

JUL. 1 6 2013 

6 SUSAN BITTER SMITH 

7 

8 

9 

10 

11 

12 

13 

14 

Commissioner 

STAFF REPORT FOR THE PETITION TO 

AMEND DECISION NOS. 71854 AND 

72579 PURSUANT TO ARS § 40-252 

REGARDING THE MATTER OF THE 

APPLICATION OF JOHNSON UTILITIES, 

LLC, DBA JOHNSON UTILITIES 

COMPANY, FOR AN INCREASE IN ITS 

WATER AND WASTEWATER RATES FOR 

CUSTOMERS WITHIN PINAL COUNTY, 

ARIZONA 

15 Open Meeting 

June 27, 2013 

16 Phoenix, Arizona 

17 BY THE COMMISSION: 

DOCKET NO. WS-02987A-08-0180 

DECISION NO. 73992 

ORDER 

18 FINDINGS OF FACT 

19 1. Johnson Utilities, LLC, dba Johnson Utilities Company ("Johnson" or "Company") 

20 is a Class A water and wastewater public service corporation. The Company is headquartered in 

21 Scottsdale, Arizona, but its service area encompasses various areas of Pinal County, Arizona. In 

22 the test year, ending December 31, 2007, the Company served an average of 17 ,541 water 

23 customers and 21,596 wastewater customers. 

24 2. The Company has filed a petition as described below arising from the Arizona 

25 Corporation Commission's ("Commission") recent policy change regarding income taxes. 

26 Background 

27 3. On September 15, 2011, the Commission issued Decision No. 72579, which 

28 established the current rates for Johnson. This Decision amended the rates that had been set for 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 97 of 134
Page2 Docket No. WS-02987A-08-0180 

1 Johnson in Decision No. 71854, issued August 25, 2010. Decision No. 72579 also provided that 

2 Johnson could seek an allowance for income taxes generated as a result of its operations if the 

3 Commission changed its policy regarding the treatment of income taxes for subchapter S 

4 corporations. 

5 4. On February 21, 2013, in Decision No. 73739, the Commission adopted a policy 

6 allowing every utility entity, other than subchapter C corporations and tax-exempt entities, to seek 

7 to include in its cost of service an income tax allowance based on the lower of comparable 

8 subchapter C corporate income tax expense, or the combined personal income tax obligation 

9 created by the distribution of the utility's profits. 

10 5. On March 8, 2013, the Company filed a petition to amend Decision No. 71854 

11 pursuant to Arizona Revised Statutes ("A.R.S.") § 40-252. The Company has included full 

12 schedules that appropriately fulfill the new income tax policy requirements and the resulting 

13 recognition of an income tax allowance. Staff has confirmed that the amount that the Company is 

14 seeking to collect for income taxes is less than it would be ifthe Company had elected to be taxed 

15 as a stand-alone C corporation. The increase to the revenue requirement for water customers is 

16 $125,071, or an increase of 0.95 percent, and the increase to the revenue requirement for 

17 wastewater customers is $747 ,274, or an increase of 6.58 percent. Staff concurs with these 

18 amounts because they comply with the Commission's new policy and will therefore result in just 

19 and reasonable rates. 

20 6. In its filing, the· Company is not proposing any changes to its fair value rate base, 

21 which is negative $2,414,613 for its water division and $17,270,553 for its wastewater division. 

22 Adopting the increases proposed by the Company would increase the Company's revenue 

23 requirements to $9,899,013 and $12,339,134 for its water and wastewater divisions, respectively. 

24 7. For the water division, there is no impact to the fair value rate of return ("FVROR") 

25 because the fair value rate base is negative, i.e., the revenue requirement is based on an operating 

26 margm. The impact to rates is de minimis because the amount of the increase is so small. 

27 

28 

Decision No. 73992 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 98 of 134
Page 3 Docket No. WS-02987A-08-0180 

1 8. For the wastewater division, the FVROR remains at 8.0 percent, or may become 

2 12.33 percent, depending on the ratemaking classification for the income tax issue, as discussed 

3 in Finding of Fact Nos. 14- 16 below. 

4 9. The Company's current rates, based on a 2007 test year, were approved in Decision 

5 No. 71854, as amended by Decision No. 72579. In that case, the Company requested recognition 

6 of income tax expense in its application, but it was disallowed as the Commission's policy at that 

7 time did not recognize income tax for pass-through entities that had no income tax liability. 

8 However, also at that time, the Commission was in the process of evaluating changes to this 

9 policy, which ultimately resulted in Decision No. 73739. 

10 10. In its petition, the Company stated that, if its application is approved, the Company 

11 would not need new rates to be effective prior to July 1, 2019. 

12 11. Staff notes that the new Commission income tax policy has no stay-out 

13 requirements. Further, Decision No. 71854 (amended by Decision No. 72579) was the 

14 Company's first rate case since the granting of its Certificate of Convenience and Necessity by 

15 Decision No. 60223 (May 27, 1997). 

16 12. Because of the length of time between rate cases that would occur ifthe Company 

17 did not file a new rate application for several years, Staff recommends that the Company be 

18 ordered to file a full rate case application for its water and wastewater divisions by no later than 

19 June 30, 2015, using a 2014 calendar year test year. 

20 Notice 

21 13. Staff asked the Company to provide the notice attached as Attachment 1 to the Staff 

22 Memorandum in a special direct mailing to all of its customers by May 8, 2013. Staff also asked 

23 the Company to provide the attached notice to all parties to this case by May 8, 2013. 

24 Terminology 

25 14. The Commission's new policy on the income tax issue for pass-through entities 

26 refers in the body of the policy to an "imputed income tax expense"; however, in items 5, 6, and 7 

27 listed on page 3 of the policy statement, it refers to an "income tax allowance." Although this 

28 

Decision No. 73992 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 99 of 134
Page 4 Docket No. WS-02987A-08-0180 

1 terminology may appear insignificant, the classification of this adjustment impacts the 

2 calculation of the FVROR. 

3 15. If the income taxes were classified as an imputed expense, the FVROR for this case 

4 would not be impacted (will remain 8.0 percent) for the Johnson wastewater division. If the 

5 income taxes were classified as an allowance, the resulting FVROR could be 12.33 percent. 

6 Within the context of this case, however, the actual rate impact to customers is the same under 

7 either classification. 

8 16. Staff believes that, for the purposes of accounting, auditing, bookkeeping, and other 

9 associated activities, the Commission was correct on page 3 of its policy statement in classifying 

10 the income taxes for pass-through entities as an "allowance." This classification is also consistent 

11 with that used in Texas (referred to on page 2 of the Commission's policy statement) and with 

12 that used by the Federal Energy Regulatory Commission. However, for ratemaking purposes, the 

13 Commission will classify this adjustment as an imputed expense, which is the intent of the 

14 Commission's policy. 

15 Rate Design 

16 17. The Company has proposed a rate design that includes both an increase to the 

17 monthly minimum charge and an increase to the commodity charge for its water division, and an 

18 increase to its monthly minimum charge for its wastewater division as there is no commodity 

19 charge (except for the purchase of effluent) for wastewater service. 

20 18. Staff concurs with the Company on its proposed rate design. For informational 

21 purposes, the typical bill impact analysis for a %-inch meter residential customer using the 

22 average of 6,931 gallons per month is as follows: 

23 

24 

25 

26 

27 

28 

Water current bill is $29. 81 

proposed bill would be $30.28 

increase would be $0.47 or 1.58%. 

Wastewater: current bill is $39.35 

proposed bill would be $42.00 

increase would be $2.65 or 6.73%. 

Decision No. 73992 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 100 of 134
Page 5 Docket No. WS-02987A-08-0180 

1 Staff Recommendations 

2 19. Staff recommends approval of the rate increases requested by the Company in the 

3 amounts of $125,071 for its water division and $747,274 for its wastewater division. 

4 20. Staff further recommends approval of the associated rate design proposed by the 

5. Company in its application. 

6 21. Staff further recommends that the Company be ordered to file a full rate case 

7 application for both its water and wastewater divisions by no later than June 30, 2015, using a 

8 2014 calendar year test year. 

9 CONCLUSIONS OF LAW 

10 1. Johnson Utilities, LLC, dba Johnson Utilities Company, is a public service 

11 corporation within the meaning of Article XV of the Arizona Constitution and A.R.S. §§40-250 

12 and-252. 

13 2. The Commission has jurisdiction over the Company and over the subject matter of 

14 the application. 

15 3. Notice of the proceeding and an opportunity to be heard have been afforded in the 

16 manner prescribed by law. 

17 4. For the purposes of evaluating this application, the information set forth in Finding 

18 of Fact Nos. 6- 8 serve as appropriate fair value information for the Commission's consideration. 

19 5. The Commission may determine appropriate ratemaking classifications pursuant to 

20 Article XV, Section 3 of the Arizona Constitution, and the rates proposed herein are just and 

21 reasonable. 

22 6. Decision Nos. 71854 and 72579 are hereby modified to provide for recovery of 

23 income taxes through rates. 

24 7. Staffs recommendations are reasonable and hereby approved. 

25 ORDER 

26 IT IS THEREFORE ORDERED that Decision Nos. 71854 and 72579 are hereby modified 

27 to permit Johnson Utilities, LLC, DBA Johnson Utilities Company, to recover income taxes as 

28 requested in its March 8, 2013 petition. 

Decision No. 73992 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 101 of 134
Page 6 Docket No. WS-02987A-08-0180 

1 IT IS FURTHER ORDERED that the recommendations of Staff discussed in Findings of 

2 Fact 19 through 21 are reasonable and are hereby adopted. 

3 IT IS FURTHER ORDERED that this decision shall become effective immediately. 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

BY THE ORDER OF T~ZONA CORPORATION CO , __ _ 

COMMISSIONER 

IN WITNESS WHEREOF, I, JODI JERICH, Executive 

Director of the Arizona Corporation Commission, have 

hereunto, set my hand and caused the official seal of this 

Commission to be affixed at the Capitol, in the City of 

Phoenix, this \i.J-11> day of ~ , 2013. 

19 DISSENTb ~ ~~ 

20 

21 DISSENT: _________ _ 

22 SMO:DWC:lhm\JFW 

23 

24 

25 

26 

27 

28 

Decision No. 73992 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 102 of 134
Page 7 Docket No. WS-02987A-08-0180 

1 Service List for: Johnson Utilities, LLC, dba Johnson Utilities Company 

Docket No. WS-02987 A-08-0180 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Mr. Jeffrey W. Crockett, Esq. 

Brownstein Hyatt Farber Schreck, LLP 

One East Washington Street, Suite 2400 

Phoenix, Arizona 85004 

Mr. George H. Johnson 

Johnson Utilities, LLC 

5320 East Shea Boulevard 

Scottsdale, Arizona 85254 

Mr. Craig A. Marks 

Craig A. Marks, PLC 

10645 North Tatum Boulevard, Suite 200-676 

Phoenix, Arizona 85028 

Mr. James E. Mannato, Town Attorney 

Town of Florence 

P.O. Box 2670 

775 North Main Street 

Florence, Arizona 85232-2670 

Mr. Daniel Pozefsky, Esq. 

RUCO 

1110 West Washington Street, Suite 220 

Phoenix, Arizona 85007 

Mr. Steven M. Olea 

Director, Utilities Division 

Arizona Corporation Commission 

1200 West Washington Street 

Phoenix, Arizona 85007 

Ms. Janice M. Alward 

Chief Counsel, Legal Division 

Arizona Corporation Commission 

1200 West Washington Street 

Phoenix, Arizona 85007 

Decision No. 73992 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 103 of 134
EXHIBIT 4 

EXHIBIT 4 

EXHIBIT 4

 EXHIBIT 4 

 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 104 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

opiGINA FORMAL LOC P N r:" r 

L V! LIU: 

P 7rri‘'71 

BEFORE THE ARIZONA CORR0RAfl

COMMISSIONERS 

TOM FORESE, Chairman 

BOYD DUNN 

DOUG LITTLE 

ANDY TOBIN 

BOB BURNS 

FORMAL COMPLAINT OF DELTON NO. 

MUNDAY AND THOSE SIMILARLY 

SITUATED AGAINST THE ARIZONA 

CORPORATION COMMISSION, JOHNSON 

UTILITIES LLC AND NON PUBLIC FORMAL COMPLAINT 

SERVICE COMPANIES R&R PARTNERS 

INC., JOHNSON INTERNATIONAL INC. 

1111! !11111)1 0111,111 

WS-02987A-17-0192 

Arizona Corporation Co rrission 

DOCKET 

JUN 19 2117 

DOCKETED B 

Pursuant to the provisions of A.R.S. §§ 40-246 and 40-248 and A.A.C. R14-3-106(L), 

Delton Munday and those similarly situated who have signed below ("Munday Group") hereby 

files its formal Complaint against Johnson Utilities LLC, the Arizona Corporation Commission 

("ACC") and non public service companies R&R Partners Inc. and Johnson International Inc. 

and request that the ACC issue an order for the relief requested at the end of this complaint. 

PARTIES 

1. Delton Munday and those signed below are users and consumers of water and 

wastewater products provided by Johnson. They bring this Complaint on behalf of themselves 

and all those similarly situated and seek class designation pursuant to AAC 14-3-104© and 

Rule 23, ARCP. 

2. Defendant R&R Partners Inc. is an Arizona corporation with its headquarters in 

Maricopa County, Arizona and constituted under the laws of the State of Arizona. It is not a 

public service company regulated by the ACC and at all times material, employed James 

Norton. 

3. Defendant Johnson Utilities L.L.C. is an Arizona limited liability corporation with its 

headquarters in Maricopa County, Arizona and constituted under the laws of the State of 

Page 1 of 8 

. . . i .

I v FT QGMPLMN E y we Will! 4

{)R¥G'lnl\l- II II IH11 IIIIIINI IIIII

0 0001 801 2 5

Q;'flF1\

v I "p

BEFORE THE ARlZONA CORA>OR»A'H6N C0mml:ss1un

r " . . .

A.. . J 5 . A U . n . ...

COMMISSIONERS .

tr ...

.

u

TOM FORESE, Chairman

BOYD DUNN

DOUG LITTLE

ANDY TOBIN

BOB BURNS

WS02987A-17-0192

NO.

Ali20n8 CorporationCm mission

DOCKET J F O R M A L C O M P L A I N T

FORMAL COMPLAINT OF DELTON

MUNDAY AND THOSE SIMILARLY

SITUATED AGAINST THE ARIZONA

CORPORATION COMMISSION, JOHNSON

UTILITIES LLC AND NON PUBLIC

SERVICE COMPANIES R&R PARTNERS

INC., JOHNSON INTERNATIONAL INC. wn192 w

I

DOCKETED B

Pursuant to the provisions ofA.R.S. §§40-246 and 40-248 and A.A.C. R14-3-l06(L),

Delton Munday and those similarly situated who have signed below ("Munday Group") hereby

files its formal Complaint against Johnson Utilities LLC, the Arizona Corporation Commission

("ACC") and non public service companies R&R Partners Inc. and Johnson International Inc.

and request that the ACC issue an order for the relief requested at the end of this complaint.

PARTIES

2.

l. Delton Munday and those signed below are users and consumers of water and

wastewater products provided by Johnson. They bring this Complaint on behalf of themselves

and all those similarly situated and seek class designation pursuant to AAC 14-3-104© and

Rule 23, ARCP.

Defendant R&R Partners Inc. is an Arizona corporation with its headquarters in

Maricopa County, Arizona and constituted under the laws of the State of Arizona. It is not a

public service company regulated by the ACC and at all times material, employed James

Norton.

3. Defendant Johnson Utilities L.L.C. is an Arizona limited liability corporation with its

headquarters in Maricopa County, Arizona and constituted under the laws of the State of

I

2

3

4

5

6

7

8

9

10

l l

12

13

14

15

1 6

1 7

18

1 9

20

2 1

22

23

24

25

26

27

28

Page I of 8

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 105 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Arizona. At all times material hereto, it was a public service company regulated by the ACC 

and employed George Johnson, who was also an owner. 

4. Defendant Johnson International Inc. is an Arizona corporation with its headquarters 

in Maricopa County, Arizona and constituted under the laws of the State of Arizona. At all 

times material hereto, it employed George Johnson, who was also an owner and it is also not a 

public service company regulated by the ACC. 

5. The Arizona Corporation Commission is a governmental body created by the 

Arizona Constitution, Article 15. 

JURISDICTION AND VENUE 

6. Jurisdiction and venue are proper in this forum under A.R.S. § 40-246 et. seq. 

GENERAL ALLEGATIONS 

BACKGROUND 

A. The Rate Case 

7. Garry Pierce ("Pierce") was a member of the ACC from 2007 to 2015. The 

Commission regulates utilities in Arizona, including water utilities and consists of five elected 

members. 

8. One of the water utilities regulated by the Commission is Johnson Utilities, which 

was owned and controlled by George Johnson. 

9. Prior to August, 2010, Johnson Utilities requested a fair value rate base increase for 

its wastewater division in the amount of $17,479,735. See ACC Decision #71854 at p. 4. 

Johnson also requested recovery of George Johnson's personal income taxes in the amount of 

$1,185,679. Id. at p. 45. 

10. The ACC staff and Arizona's Residential Utility Consumer Office both opposed the 

requested increases and other requested increases, citing numerous concerns with a lack of 

documentation, facilities not actually being in use and Johnson Utilities doing extensive 

business with other entities owned by George Johnson. Pierce and all other Commissioners 

rejected these requested increases on August 24, 2010. Id. at pp. 72-74. 

11. The standard for a grand jury indictment is "probable cause." Probable cause is 

Page 2 of 8 

1

I

Arizona. At all times material hereto, it was a public service company regulated by the ACC

and employed George Johnson, who was also an owner.

4. Defendant Johnson International Inc. is an Arizona corporation with its headquarters

in Maricopa County, Arizona and constituted under the laws of the State of Arizona. At all

times material hereto, it employed George Johnson, who was also an owner and it is also not a

public service company regulated by the ACC.

5. The Arizona Corporation Commission is a governmental body created by the

Arizona Constitution, Article 15.

JURISDICTION AND VENUE

6. Jurisdiction and venue are proper in this forum under A.R.S. §40-246 et. seq.

GENERAL ALLEGATIONS

BACKGROUND

The Rate Case

I

2

3

4

5

6

7

8

9

10

l l

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

A.

7. Garry Pierce ("Pierce") was a member of the ACC from 2007 to 2015. The

Commission regulates utilities in Arizona, including water utilities and consists of five elected

members.

8. One of the water utilities regulated by the Commission is Johnson Utilities, which

was owned and controlled by George Johnson.

9. Prior to August, 2010, Johnson Utilities requested a fair value rate base increase for

its wastewater division in the amount of $17,479,735. See ACC Decision #71854 at p. 4.

Johnson also requested recovery of George Johnson's personal income taxes in the amount of

$l,l85,679. Id. at p. 45.

10. The ACC staff and Arizona's Residential Utility Consumer Office both opposed the

requested increases and other requested increases, citing numerous concerns with a lack of

documentation, facilities not actually being in use and Johnson Utilities doing extensive

business with other entities owned by George Johnson. Pierce and all other Commissioners

rejected these requested increases on August 24, 2010. Id. at pp. 72-74.

l l. The standard for a grand jury indictment is "probable cause." Probable cause is

Page 2 of 8

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 106 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

defined as "evidence sufficient to cause a person of ordinary prudence and caution to 

conscientiously entertain a reasonable belief of the accused's guilt." US v. Infante, 782 

F.Supp.2d 815, 817-18 (D. Ariz. 2010). According to an indictment issued May 23, 2017, a 

grand jury reasonably concluded that between August 25, 2010 and September, 2011, Pierce, 

R&R Partners Inc. ("R&R") and Johnson Utilities conspired together for Johnson Utilities to 

bribe Pierce, through its agent Johnson International, in exchange for his vote to allow Johnson 

Utilities to raise their residential rates for both water and wastewater. According to the 

indictment, R&R arranged for and facilitated the bribe and Johnson International, which shares 

common ownership with Johnson Utilities, paid the bribe as an agent of Johnson Utilities. 

12. On February 28, 2011, Johnson Utilities petitioned to amend ACC Decision 71854. 

See ACC Decision #72579 at p. 1. On July 12, 2011, Pierce and a majority of the ACC voted 

to reopen ACC Decision #71854. Id. at p. 2. 

13. On August 9, 2011, Johnson Utilities filed a proposed amendment modifying ACC 

Decision #71854 concerning the relief requested. The amendment was adopted by Pierce for 

purposes of discussion and consideration at the August 11, 2011 Open Meeting. Id. at p. 3. 

14. On September 6, 2011, Pierce voted to increase the fair value rate base of Johnson 

Utilities' wastewater division by $17,133,992. He also voted to allow Johnson Utilities to 

request future reimbursement of George Johnson's income tax. He also voted to change the 

late fee from $40 to 1.5% of unpaid account balances, for an 8% rate of return on the fair value 

rate base of Johnson Utilities' wastewater division (which was higher than the previously 

approved 3%) and for the reinstatement of hook up tariffs for both the water and wastewater 

divisions. Id. at pp. 3-6. These new measures were projected to increase Johnson Utilities' 

annual revenue requirement by $1,904,866 and have now been in place for six years. Id. at pp. 

3-6. 

15. ACC Decision #72579 passed with three votes on a five member Commission and 

would not have passed without Pierce's vote. Commissioner Sandra Kennedy, dissenting, 

wrote: "The case and record before the Commission posed many concerns on how the company 

was operating and keeping vital business records. Due to those issues and concerns, in my 

Page 3 of 8 

U

\

defined as "evidence sufficient to cause a person of ordinary prudence and caution to

conscientiously entertain a reasonable belief of the accused's guilt." US v. Infant, 782

F.Supp.2d 815, 817-18 (D. Ariz. 2010). According to an indictment issued May 23, 2017, a

grand jury reasonably concluded that between August 25, 2010 and September, 201 l, Pierce,

R&R Partners Inc. ("R&R") and Johnson Utilities conspired together for Johnson Utilities to

bribe Pierce, through its agent Johnson lntemational, in exchange for his vote to allow Johnson

Utilities to raise their residential rates for both water and wastewater. According to the

indictment, R&R arranged for and facilitated the bribe and Johnson International, which shares

common ownership with Johnson Utilities, paid the bribe as an agent of Johnson Utilities.

12. On February 28, 2011, Johnson Utilities petitioned to amend ACC Decision 71854.

See ACC Decision #72579 at p. 1. On July 12, 2011, Pierce and a majority of the ACC voted

to reopen ACC Decision #71854. Id. at p. 2.

13. On August 9, 2011, Johnson Utilities filed a proposed amendment modifying ACC

Decision #71854 concerning the relief requested. The amendment was adopted by Pierce for

purposes of discussion and consideration at the August 11, 2011 Open Meeting. Id. at p. 3.

14. On September 6, 2011, Pierce voted to increase the fair value rate base of Johnson

Utilities' wastewater division by $17, 133,992. He also voted to allow Johnson Utilities to

request future reimbursement of George Johnson's income tax. He also voted to change the

late fee from $40 to 1.5% of unpaid account balances, for an 8% rate of return on the fair value

rate base of Johnson Utilities' wastewater division (which was higher than the previously

approved 3%) and for the reinstatement of hook up tariffs for both the water and wastewater

divisions. Id. at pp. 3-6. These new measures were projected to increase Johnson Utilities'

annual revenue requirement by $1 ,904,866 and have now been in place for six years. Id. at pp.

3-6.

I

2

3

4

5

6

7

8

9

10

l l

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

15. ACC Decision #72579 passed with three votes on a five member Commission and

would not have passed without Pierce's vote. Commissioner Sandra Kennedy, dissenting,

wrote: "The case and record before the Commission posed many concerns on how the company

was operating and keeping vital business records. Due to those issues and concerns, in my

Page 3 of 8

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 107 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

opinion, the original order issued on August 2010 (Decision No. 71854) was the correct one. 

While having said that, when the company petitioned the Commission for a rehearing, I voted 

to give the company another opportunity to present new evidence that was not part of the 

previous record. However, that did not occur. With no additional evidence or an amended 

recommended opinion and order presented to the Commissioners, there was nothing new to 

persuade me that we erred in Decision No.71854. Given the lack of new evidence or 

information, I do not believe the record supports the vote to amend Decision No. 71854 and the 

resulting increases in rates for Johnson Utilities' customers." 

B. Payments 

16. According to the indictment, on September 28, 2011, Pierce and his wife met with 

James Norton, an employee of R&R and a third party and formalized an agreement that had 

been reached previously, as follows: a) Johnson International would send $6,000 per month to 

the third party, who would then disburse $3500 of the money to Pierce's wife; b) Pierce's wife 

would sign a confidentiality agreement, to act as a shield against any inquiry into the source of 

the money; and c) Johnson Utilities, Johnson International or an affiliated entity acting as agent 

of Johnson Utilities would also purchase property worth $350,000 for the Pierces, in a manner 

that would withstand scrutiny at a later time. 

17. According to the indictment, Johnson International, acting for and on behalf of 

Johnson Utilities, made payments to the Pierces in the above described fashion on November 9, 

2011, December 8, 2011, January 13, 2012, February 9, 2012, March 20, 2012, April 11, 2012, 

May 1, 2012, June 5, 2012 and August 3, 2012 and the Pierces cashed and deposited all checks 

received from the third party. 

18. According to the indictment, on December 27, 2011 and December 29, 2011, Pierce 

communicated with the third party and with Norton, the employee of R&R, in order to move 

forward with the purchase of a $350,000 property, the funds for which would ultimately come 

from Johnson Utilities or its agent. Pierce and Norton also discussed structuring the 

transaction in a way which would hide the fact that the Pierces actually owned the property. 

C. Further Proceedings at the Commission 

Page 4 of 8 

I opinion, the original order issued on August 2010 (Decision No. 71854) was the correct one.

While having said that, when the company petitioned the Commission for a rehearing, I voted

to give the company another opportunity to present new evidence that was not part of the

previous record. However, that did not occur. with no additional evidence or an amended

recommended opinion and order presented to the Commissioners, there was nothing new to

persuade me that we erred in Decision No.7l854. Given the lack of new evidence or

information, I do not believe the record supports the vote to amend Decision No. 71854 and the

resulting increases in rates for Johnson Utilities' customers."

B . Payments

2

3

4

5

6

7

8

9

10

l l

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

16. According to the indictment, on September 28, 2011, Pierce and his wife met with

James Norton, an employee of R&R and a third party and formalized an agreement that had

been reached previously, as follows: a) Johnson International would send $6,000 per month to

the third party, who would then disburse $3500 of the money to Pierce's wife; b) Pierce's wife

would sign a confidentiality agreement, to act as a shield against any inquiry into the source of

the money, and c) Johnson Utilities, Johnson International or an affiliated entity acting as agent

of Johnson Utilities would also purchase property worth $350,000 for the Pierces, in a manner

that would withstand scrutiny at a later time.

17. According to the indictment, Johnson International, acting for and on behalf of

Johnson Utilities, made payments to the Pierces in the above described fashion on November 9,

201 l, December 8, 201 l, January 13, 2012, February 9, 2012, March 20, 2012, April l l, 2012,

May l, 2012, June 5, 2012 and August 3, 2012 and the Pierces cashed and deposited all checks

received from the third party.

18. According to the indictment, on December 27, 2011 and December 29, 201 l, Pierce

communicated with the third party and with Norton, the employee of R&R, in order to move

forward with the purchase of a $350,000 properly, the funds for which would ultimately come

from Johnson Utilities or its agent. Pierce and Norton also discussed structuring the

transaction in a way which would hide the fact that the Pierces actually owned the property.

c. Further Proceedings at the Commission

Page 4 of 8

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 108 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

19. On June 15, 2012, Pierce docketed a draft policy which would allow Johnson 

Utilities to recover George Johnson's income tax expenses through rates charged to customers. 

ACC Docket No. W-00000C-06-0149. ACC staff recommended against this change on June 

27, 2012. ACC Docket No. W-00000C-06-0149. Pierce, along with three other 

Commissioners, voted this policy through over staff objections and that of a dissenting 

Commissioner, on February 12, 2013. ACC Decision #73739. 

CLASS ALLEGATIONS 

20. The Munday Group asks that this body designate a class pursuant to AAC 14-3-

104© and Rule 23, ARCP, consisting of individuals who have actually paid an increased sum 

of money to Johnson Utilities as a direct and proximate result of the passage of ACC Decision 

#72579. They further ask that Delton Munday be appointed class representative. 

CAUSES OF ACTION 

COUNT ONE - A.R.S. § 12-248 (JOHNSON UTILITIES) 

21. The Munday Group repeats the allegations as if fully stated herein. 

22. The Munday Group and those similarly situated are entitled to total rescission of 

ACC Decision #72579, which obtained its third vote for passage only by means of an illegal 

agreement, culminating in bribery and fraud. 

23. The Munday Group and those similarly situated request full reparations of all 

charges which would not have been passed through, but for ACC Decision #72579 and interest 

thereon, pursuant to A.R.S. § 12-248. 

COUNT TWO - CIVIL RICO - A.R.S. § 23-1404 (ALL PARTIES) 

24. The Munday Group repeats the allegations as if fully stated herein. 

25. The Munday Group and those similarly situated have sustained reasonably 

foreseeable financial damages from a pattern of unlawful activity for financial gain consisting 

of an illegal agreement that culminated in nine continuous and related acts of bribery (A.R.S. § 

13-2601) as described herein and the acts undertaken by Pierce necessary to pass ACC 

Decision #72579. Said bribes were taken by Pierce while he was a member of the ACC, agreed 

to and arranged by Johnson Utilities prior to that time, actually paid by Johnson International as 

Page 5 of 8 

4

»

19. On June 15, 2012, Pierce docketed a draft policy which would allow Johnson

Utilities to recover George Johnson's income tax expenses through rates charged to customers.

ACC Docket No. W-00000C-06-0149. ACC staff recommended against this change on June

27, 2012. ACC Docket No. W-00000C-06-0149. Pierce, along with three other

Commissioners, voted this policy through over staff objections and that of a dissenting

Commissioner, on February 12, 2013. ACC Decision #73739.

CLASS ALLEGATIONS

20. The Munday Group asks that this body designate a class pursuant to AAC 14-3-

104© and Rule 23, ARCP, consisting of individuals who have actually paid an increased sum

of money to Johnson Utilities as a direct and proximate result of the passage of ACC Decision

#72579. They further ask that Delton Munday be appointed class representative.

CAUSES OF ACTION

COUNT ONE - A.R.S. § 12-248 (JOHNSON UTILITIES)

21. The Munday Group repeats the allegations as if fully stated herein.

22. The Munday Group and those similarly situated are entitled to total rescission of

ACC Decision #72579, which obtained its third vote for passage only by means of an illegal

agreement, culminating in bribery and fraud.

23. The Munday Group and those similarly situated request full reparations of all

charges which would not have been passed through, but for ACC Decision #72579 and interest

thereon, pursuant to A.R.S. § 12-248.

COUNT TWO _ CIVIL RICO _ A.R.S. §23-1404 (ALL PARTIES)

I

2

3

4

5

6

7

8

9

10

l l

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

24. The Munday Group repeats the allegations as if fully stated herein.

25. The Munday Group and those similarly situated have sustained reasonably

foreseeable financial damages from a pattern of unlawful activity for financial gain consisting

of an illegal agreement that culminated in nine continuous and related acts of bribery (A.R.S. §

13-2601) as described herein and the acts undertaken by Pierce necessary to pass ACC

Decision #72579. Said bribes were taken by Pierce while he was a member of the ACC, agreed

to and arranged by Johnson Utilities prior to that time, actually paid by Johnson International as

Page 5 of 8

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 109 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

an agent of Johnson Utilities and arranged and aided and abetted by R&R. 

26. The Munday Group and those similarly situated have been financially damaged by 

ACC Decision #72579, which would not have passed but for Pierce's vote, that was obtained 

only by means of an illegal agreement culminating in bribery, in light of Pierce's vote the 

previous year and the communications described in the indictment. 

27. All actions described herein were actually performed by directors and high 

managerial agents of Johnson Utilities, Johnson International, the ACC and R&R. 

COUNT THREE - CONSPIRACY (ALL PARTIES) 

25. The Munday Group repeats the allegations as if fully stated herein. 

26. Pierce, acting as a Commissioner of the ACC, George Johnson, acting as a high 

managerial agent and director of Johnson Utilities and Johnson International and Norton, acting 

as a director and high managerial agent of R&R agreed and conspired to engage in bribery, 

proximately causing damages to the Munday Group and those similarly situated. 

COUNT FOUR - CONSTRUCTIVE FRAUD (ACC and JOHNSON UTILITIES) 

27. The Munday Group repeats the allegations as if fully stated herein. 

28. Pierce, as a Commissioner of the ACC and Johnson Utilities, as a public service 

company, had fiduciary obligations to the Munday Group and those similarly situated. They 

breached those duties by conduct that was fraudulent and intended to and did deceive others 

and that violated public confidence and injured public interests, proximately causing damages 

to the Munday Group and those similarly situated. 

COUNT FIVE - AIDING AND ABETTING (R&R and JOHNSON INTERNATIONAL) 

29. The Munday Group repeats the allegations as if fully stated herein. 

30. The ACC and Johnson had duties toward the Munday Group and those similarly 

situated and breached said duties, as described herein. 

31. R&R and Johnson International knew the ACC and Johnson Utilities' conduct 

constituted a breach of duty and substantially assisted and encouraged said breach, causing 

damages. 

COUNT SIX - BREACH OF CONTRACT (JOHNSON UTILITIES) 

Page 6 of 8 

1

an agent of Johnson Utilities and arranged and aided and abetted by R&R.

26. The Munday Group and those similarly situated have been financially damaged by

ACC Decision #72579, which would not have passed but for Pierce's vote, that was obtained

only by means of an illegal agreement culminating in bribery, in light of Pierce's vote the

previous year and the communications described in the indictment.

27. All actions described herein were actually performed by directors and high

managerial agents of Johnson Utilities, Johnson International, the ACC and R&R.

COUNT THREE - CONSPIRACY (ALL PARTIES)

25. The Munday Group repeats the allegations as if fully stated herein.

26. Pierce, acting as a Commissioner of the ACC, George Johnson, acting as a high

managerial agent and director of Johnson Utilities and Johnson International and Norton, acting

as a director and high managerial agent of R&R agreed and conspired to engage in bribery,

proximately causing damages to the Munday Group and those similarly situated.

COUNT FOUR _ CONSTRUCTIVE FRAUD (ACC and JOHNSON UTILITIES)

27. The Munday Group repeats the allegations as if fully stated herein.

28. Pierce, as a Commissioner of the ACC and Johnson Utilities, as a public service

company, had fiduciary obligations to the Munday Group and those similarly situated. They

breached those duties by conduct that was fraudulent and intended to and did deceive others

and that violated public confidence and injured public interests, proximately causing damages

to the Munday Group and those similarly situated.

COUNT FIVE _ AIDING AND ABETTING (R&R and JOHNSON INTERNATIONAL)

29. The Munday Group repeats the allegations as if fully stated herein.

30. The ACC and Johnson had duties toward the Munday Group and those similarly

situated and breached said duties, as described herein.

31. R&R and Johnson International knew the ACC and Johnson Utilities' conduct

constituted a breach of duty and substantially assisted and encouraged said breach, causing

damages.

l

2

3

4

5

6

7

8

9

10

l l

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 COUNT SIX _ BREACH OF CONTRACT (JOHNSON UTILITIES)

Page 6 of 8

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 110 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

32. The Munday Group repeats the allegations as if fully stated herein. 

33. The Munday Group and those similarly situated had an enforceable contract with 

Johnson Utilities, with offer, acceptance, mutual consideration and capacity well established. 

Johnson Utilities' acts constitute a breach of said contract, with damages resulting to the 

Munday Group and those similarly situated. 

COUNT SEVEN - BAD FAITH (JOHNSON UTILITIES) 

34. The Munday Group repeats the allegations as if fully stated herein. 

35. The Munday Group and those similarly situated had an enforceable contract with 

Johnson Utilities, with offer, acceptance, mutual consideration and capacity well established. 

Said contract has an implied covenant of good faith and fair dealing. Johnson Utilities' acts 

constitute bad faith breach of said contract, with damages resulting to the Munday Group and 

those similarly situated. 

36. Johnson Utilities and the Munday Group and those similarly situated enjoy a 

"special relationship" akin to that which exists between common carrier and passenger. 

COUNT EIGHT - JOINT AND SEVERAL LIABILITY (ALL) 

37. The Munday Group repeats the allegations as if fully stated herein. 

38. All parties were acting as agents of one another and were acting in concert, as 

described in A.R.S. § 12-2506(d). 

Complainants pray for the following: 

a) refund of all monies which would not have been paid but for ACC Decision #72579; 

b) interest on said sum, pursuant to the Arizona Civil RICO Act and A.R.S. § 12-248; 

c) treble damages and attorneys fees, pursuant to the Arizona Civil RICO Act; 

d) attorneys fees, pursuant to the private attorney general doctrine, the common fund doctrine 

and A.R.S. § 12-341.01; 

e) punitive damages, pursuant to constructive fraud, bad faith and conspiracy; 

f) that all parties be held jointly and severally liable on all sums, pursuant to A.R.S. § 12-

2506(d); and 

g) rescission of ACC Decision #72579. 

Page 7 of 8 

I 32. The Munday Group repeats the allegations as if fully stated herein.

33. The Monday Group and those similarly situated had an enforceable contract with

Johnson Utilities, with offer, acceptance, mutual consideration and capacity well established.

Johnson Utilities' acts constitute a breach of said contract, with damages resulting to the

Munday Group and those similarly situated.

COUNT SEVEN _ BAD FAITH (JOHNSON UTILITIES)

34. The Munday Group repeats the allegations as if fully stated herein.

35. The Munday Group and those similarly situated had an enforceable contract with

Johnson Utilities, with offer, acceptance, mutual consideration and capacity well established.

Said contract has an implied covenant of good faith and fair dealing. Jolmson Utilities' acts

constitute bad faith breach of said contract, with damages resulting to the Munday Group and

those similarly situated.

36. Johnson Utilities and the Munday Group and those similarly situated enjoy a

"special relationship" akin to that which exists between common carrier and passenger.

COUNT EIGHT _ JOINT AND SEVERAL LIABILITY (ALL)

37. The Munday Group repeats the allegations as if fully stated herein.

38. All parties were acting as agents of one another and were acting in concert, as

described in A.R.S. § 12-2506(d).

Complainants pray for the following:

a) refund of all monies which would not have been paid but for ACC Decision #72579;

b) interest on said sum, pursuant to the Arizona Civil RICO Act and A.R.S. § 12-248,

c) treble damages and attorneys fees, pursuant to the Arizona Civil RICO Act;

d) attorneys fees, pursuant to the private attorney general doctrine, the common fund doctrine

and A.R.S. § 12-341.01,

2

3

4

5

6

7

8

9

10

l l

12

13

14

15

16

17

18

19

20

2]

22

23

24

25

26

27

28

e) punitive damages, pursuant to constructive fraud, bad faith and conspiracy,

f) that all parties be held jointly and severally liable on all sums, pursuant to A.R.S. § 12-

2506(d); and

g) rescission of ACC Decision #72579.

Page 7 of 8

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 111 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

I0 

II 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

DATED this 19'h day of June, 2017. 

THE ENTREKdN LAW IRM 

B. Lance Entrekin,r,sq. 

By: 

The Entrekin Law Firm 

5343 North 16th Street 

Suite 200 

Phoenix, Arizona 85016 

ORIGINAL AND FOUR COPIES 

FILED THIS 19Th DAY OF JUNE, 

2017 AT: 

The Arizona Corporation Commission 

1200 West Washington 

Phoenix, Arizona 85007-2996 

PURSUANT TO A.R.S. § 40-246(a), THIRTY 

THREE ACTUAL CONSUMERS OF JOHNSON 

UTILITIES' WATER AND WASTEWATER 

SERVICES HAVE AGREED TO ACT AS COMPLAINANTS 

AND SIGNED THEIR NAMES AND ADDRESSES HERETO, 

ALONG WITH A CERTIFICATION THAT THEY ACTUALLY 

PAY THE WASTEWATER AND WATER BILLS, WHETHER 

THEY OWN OR RENT AND FOR HOW LONG THEY HAVE 

DONE SO. EACH HAS BEEN PROVIDED WITH A COPY 

OF THE COMPLAINT AND HAD IT EXPLAINED TO THEM. 

Lance Entrelon 

Page 8 of 8 

I DATED this l9"' day of June, 2017.

ENTRE L AW ARM 4

THE

By:

B. Lance rte in, sq.

The Entrekin Law Firm

5343 North 16"' Street

Suite 200

Phoenix, Arizona 85016

ORIGINAL AND FOUR COPIES

FILED THIS 19TH DAY OF JUNE,

2017 AT:

The Arizona Corporation Commission

1200 West Washington

Phoenix, Arizona 85007-2996

PURSUANT TO A.R.S. § 40-246(a), THIRTY

THREE ACTUAL CONSUMERS OF JOHNSON

UTILITIES' WATER AND WASTEWATER

SERVICES HAVE AGREED TO ACT AS COMPLAINANTS

AND SIGNED THEIR NAMES AND ADDRESSES HERETO,

ALONG WITH A CERTIFICATION THAT THEY ACTUALLY

PAY THE WASTEWATER AND WATER BILLS, WHETHER

THEY OWN OR RENT AND FOR HOW LONG THEY HAVE

DONE s o. EACH HAS BEEN PROVIDED WITH A COPY

OF THE COMPLAINT AND HAD IT EXPLAINED TO THEM.

Lance Entre in _a 4

2

3

4

5

6

7

8

9

10

ll

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Page 8 of 8

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 112 of 134
EXHIBIT 5 

EXHIBIT 5 

EXHIBIT 5

 EXHIBIT 5 

 

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 113 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

-)7 

23 

24 

25 

26 

27 

28 

ORIGINAL 

FREDENBERG BEAMS 

Daniel E. Fredenberg — 020158 

Christian C. M. Beams — 019672 

Catherine S. Adams — 023463 

4747 N. 7th Street, Suite 402 

Phoenix, Arizona 85014 

Telephone: 602/595-9299 

Email: dfredenberg@fblegalgroup.com 

Email: cbeamsatblegalgroup.com 

Email: cadams a fblegalgroup.com 

Attorneys for Johnson Utilities, LLC, 

and Johnson International, Inc. 

RECEIVED 

AZ CORP COMMISSION 

DOCKET COH1T,OI 

7011 JUL I 0 P 11: I

il,! ,!1,111 1, 111 , ,

Arizona Corporation Commiss' 

DOCKETED 

JUL 10 2017 

DOCKETVD 

BEFORE THE ARIZONA CORPORATION COMMISSION 

COMMISSIONERS 

TOM FORESE, Chairman 

BOB BURNS 

DOUG LITTLE 

ANDY TOBIN 

BOYD W. DUNN 

FORMAL COMPLAINT OF DELTON 

MUNDAY AND THOSE SIMILARLY 

SITUATED AGAINST THE ARIZONA 

CORPORATION COMMISSION, 

JOHNSON UTILITIES LLC AND NON 

PUBLIC SERVICE COMPANIES R&R 

PARTNERS INC., JOHNSON 

INTERNATIONAL, INC. 

No. WS-02987A-17-0192 

MOTION TO DISMISS 

Respondents Johnson Utilities, LLC and Johnson International Inc. (collectively, 

-Johnson") hereby move to dismiss the Complaint filed herein pursuant to A.A.C. R14-3-

106(H) and Rules 12(b)(1) and (6), Ariz.R.Civ.P. This Motion is supported by the following 

Memorandum of Law. 

/// 

/// 

/// 

II IIIIIIIIIIIIIIIIIIII IIII 0IILIII0III0I II III III I ORIGINAL

REcT'/[f

AZ C099 CL 7 ; :Q ¢ ! nN

Dl'81,,\"T L . ; . . . "

Fm JUL 10 p 11i. I

9

I

Email: dfredcnbcrgfa f`blcgal,Qroup.com Yu "1

Arizona Corporation Commisi

DOCKETED

JUL 10 2017

rocKED

Attorneys for Johnson Utilities, LLC,

and Johnson International. Inc.

BEFORE THE ARIZONA CORPORATION COMMISSION

COMMISSIONERS

TOM FORESE, Chairman

BOB BURNS

DOUG LITTLE

ANDY TOBIN

BOYD W. DUNN

No. WS-02987A-I7-0192

MOTION TO DISMISS

FORMAL COMPLAINT OF DELTON

MUNDAY AND THOSE SIMILARLY

SITUATED AGAINST THE ARIZONA

17 CORPORATION COMMISSION,

JOHNSON UTILITIES LLC AND NON

PUBLIC SERVICE COMPANIES R&R

19 PARTNERS INC., JOHNSON

INTERNATIONAL, INC.

///

///

///

l FREDENBERG BEAMS

Daniel E. Freudenberg - 020158

2 Christian C. M. Beams - 019672

Catherine S. Adams - 023463

3 4747 N. 7th Street, Suite 402

Phoenix, Arizona 85014

4 Telephone: 602/595-9299

5 Email: cbeams(a tl'>le2algroup.com

Email: cadams@tblegal,<;roup.com

6

7

8

9

1 0

l l

1 2

1 3

1 4

1 5

1 6

18

20

21

22 Respondents Johnson Utilities, LLC and Johnson International Inc. (collectively,

"Johnson") hereby move to dismiss the Complaint filed herein pursuant to A.A.C. Rl4-3-

23

106(H) and Rules l2(b)(l) and(6), Ariz.R.Civ.I). This Motion is supported by the following

24 Memorandum of Law.

25

26

27

28

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 114 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

23 

24 

25 

26 

27 

MEMORANDUM OF LAW 

1. Introduction 

When stripped of hyperbole, the Complaint is a baseless smear campaign arising 

solely from false allegations which seek to impermissibly vacate a valid Decision entered 

pursuant to law by this administrative body (hereinafter, the "ACC" or "Commission") nearly 

six years ago. The Complaint also impermissibly seeks rescission of ACC Decision #72579 

(the "Decision"), in addition to claims for monetary relief under Arizona common law and 

statutes.' The Complaint, however, must be dismissed because: 1) jurisdiction over the 

unsupported claims lies exclusively in the Superior Courts of Arizona pursuant to A.R.S. 

§40-254(a); 2) the Complaint is time barred under A.R.S. § 40-254(A); 3) the ACC is 

constitutionally constrained from adjudicating civil claims pursuant to its limited grant of 

authority conferred by AZ Const. art. XIV, § 3; cl. 3.; and as a corollary, A.R.S. §12-122 

limits the power to adjudicate civil claims to the superior courts; 4) the civil claims fail on a 

substantive level as they are not recognized under Arizona law and fail to state claims upon 

N\ ilia any court may grant relief. 

II. Background. 

A. The Decision was amply supported by the record and properly entered by 

the Commission. It is not subject to review or collateral attack through the 

belated filing of the Complaint. 

On February 28, 2011, Johnson Utilities, LLC ("Company") filed with the 

Commission a Petition to Amend Decision No. 71854 pursuant to A.R.S §40-252. See 

Decision (Exhibit A), at13. Specifically, the Petition to Amend sought the following: 

• Amend the $40 per month late fee in the Company's wastewater 

division tariff to a late fee of 1.5% per month on the unpaid account 

balance, consistent with the Company's water division tariff; 

• Addition into the rate base wastewater division plant of $18,244,755. 

Such sum includes the addition back into rate base the $10,892,391 

disallowance for inadequately supported plant cost and the $7,352,364 

disallowance related to affiliate profit; 

The Decision 1br the Commission's ease of reference, is attached hereto as Exhibit A. 

2 

l

1

l

l

l

l

l

MEMORANDUM OF LAW

l. Introduction

1

l

\

l

i

l

l

II. Background.

A. The Decision was amply supported by the record and properly entered by

the Commission. It is not subject to review or collateral attack through the

belated filing of the Complaint.

•

•

Amend the $40 per month late fee in the Company's wastewater

division tariff to a late ice of 1.5% per month on the unpaid account

balance, consistent with the Company's water division tariff,

Addition into the rate base wastewater division plant of $l8,244.755.

Such sum includes the addition back into rate base the $l0.892.39 l

disallowance for inadequately supported plant cost and the $7.352364

disallowance related to affiliate profit,

l

2

3 Whcn stripped of hyperbole, the Complaint is a baseless smear campaign arising

4 solely from false allegations which seek to impermissibly vacate a valid Decision entered

5 pursuant to law by this administrative body (hereinafter. the "ACC" or "Commission") nearly

6 six years ago. The Complaint also impermissibly seeks rescission of ACC Decision #72579

7 (the "Decision"), in addition to claims for monetary relief under Arizona common law and

8 statutes.' The Complaint, however. must be dismissed because: 1) jurisdiction over the

unsupported claims lies exclusively in the Superior Courts of Arizona pursuant to A.R.S.

9 §40-254(a), 2) the Complaint is time barred under A.R.S. § 40-254(A), 3) the ACC is

10 constitutionally constrained from adjudicating civil claims pursuant to its limited grant of`

l l authority conferred by AZ Const. art. XIV, § 3: cl. 3., and as a corollary, A.R.S. §l2-122

12 limits the power to adjudicate civil claims to the superior courts, 4) the civil claims fail on a

13 substantive level as they are not recognized under Arizona law and fail to state claims upon

14 which any court may grant relief.

15

16

17

18

19 On Febr uar y 28. 201 l, J ohns on U tilities , LLC ( "C ompany") f iled with the

20 Commission a Petition to Amend Decision No. 71854 pursuant to A.R.S §40-252. See

2] Decision (Exhibit A). at 'H 3. Specifically. the Petition to Amend sought the following:

22

23

24

25

26

27

28 ' The Decision for the Comlnissionls ease of reference, is attached hereto as Exhibit A.

2

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 115 of 134
1 

3 

4 

6 

7 

8 

9 

10 

1 1 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

• Remove from the water division rate base $6,931,078 in unexpended 

test year hook-up fees; 

• Reinstate the Company's previously authorized hook-up fees for new 

water and wastewater divisions' connections; 

• Establish a rate of return for the Company based upon its weighted 

average cost of capital in the range of 8.18% to 11.89%; 

• Reclassify $2,201,386 of wastewater plant identified as post-test year 

plant to test year plant-in-service; 

• Include in plant-in-service post-test-year wastewater plant at 

$1,021,108, which the Company alleges is necessary to serve the test 

year-end level of customers; and 

• Include explicit language for Johnson Utilities to request income tax 

expense prospectively in a future A.R.S. § 40-252 Petition if the 

Commission changes its policy on imputed income tax expense. 

Notably, the Commission voted to reopen Decision No. 71854 at its July 12, 2011 

Open Meeting and directed Johnson to provide notice to its customers concerning: (a) the 

rate impacts of granting the relief requested, (b) a public comment session in Pinal County, 

and (c) the August 11, 2011 Open Meeting at which the Commission would consider the 

Company's request for relief. Decision at 5. Pursuant to Order from the Commission. 

Johnson filed a proposed amendment modifying Decision No. 71854 concerning the relief 

requested. The amendment was adopted by Chairman Pierce for purposes of discussion and 

consideration at the August 11, 2011 Open Meeting. Decision at 9. 

Contrary to the allegations of the Complaint, the Petition was not rubber-stamped. In 

fact, the Commission determined that certain of the Company's requested modifications to 

Decision No. 71854 did not warrant further Commission consideration. Decision at 11. 

Specifically, following a duly noticed proceeding, the Commission decided as follows: 

Upon due consideration of these matters pursuant to A.R.S. § 40-252, and in 

balancing the implicated public interest concerning the certainty of 

Commission orders with the opportunity to take appropriate regulatory 

ratemaking measures presented by the circumstances herein, we find and 

conclude that it is in the public interest to modify Decision No. 71854 as 

determined in this decision. 

Decision at 15. 

Simply put, the Commission made its decision after full notice and an open hearing, 

and the baseless insinuation otherwise is simply false. 

3 

•

/

•

•

Remove from the water division rate base $6.93 l,078 in unexpended

test year hook-up fees,

Reinstate the Company's previously authorized hook-up fees for new

water and wastewater divisions' connections,

Establish a rate of return for the Company based upon its weighted

average cost of capital in the range of 8.l8% to l l.89°o,

Rcclassily $2,201,386 of wastewater plant identified as post-test year

plant to test year plant-in-service,

Include in plant-in-service post-test-year wastewater plant at

$1.02l,l08, which the Company alleges is necessary to serve the test

year-end level of customers, and

Include explicit language for Johnson Utilities to request income tax

expense prospectively in a future A.R.S. § 40-252 Petition if` the

Commission changes its policy on imputed income tax expense.

i

l

24

l

2

3

4

5

6

7

8

9

10

1 I Notably, the Commission voted to reopen Decision No. 71854 at its July 12, 201 1

12 Open Meeting and directed Johnson to provide notice to its customers concerning: (a) the

rate impacts of granting the relief requested, (b) a public comment session in Pinal County,

13 and (c) the August I l, 2011 Open Meeting at which the Commission would consider the

14 Company's request for relief. Decision at 5. Pursuant to Order from the Commission,

15 Johnson filed a proposed amendment modifying Decision No. 71854 concerning the relief

16 requested. The amendment was adopted by Chairman Pierce for purposes of discussion and

17 consideration at the August l l, 201 1 Open Meeting. Decision at 9.

18 Contrary to the allegations of the Complaint, the Petition was not rubber-stamped. In

19 fact, the Commission determined that certain of the Company's requested modifications to

20 Decision No. 71854 did not warrant further Commission consideration. Decision at l l .

21 Specifically, following a duly noticed proceeding. the Commission decided as follows:

22 Upon due consideration of these matters pursuant to A.R.S. §40-252, and in

balancing the implicated public interest concerning the certainty of

23 Commission orders with the opportunity to take appropriate regulatory

ratemaking measures presented by the circumstances herein, we find and

conclude that it is in the public interest to modify Decision No. 71854 as

25 determined in this decision.

26 Decision at 15.

27 Simply put, the Commission made its decision after full notice and an open hearing.

28 and the baseless insinuation otherwise is simply false.

3

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 116 of 134
1 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

77 

23 

24 

25 

26 

27 

28 

B. The Relief Sought. 

The Complaint seeks to vacate the Decision and alleges claims for civil monetary 

damages under Arizona statutory and common law. Rather than even attempt to make the 

necessary showing that the Decision is somehow unlawful — a showing that the Munday 

Group cannot make — the Complaint is entirely premised on irrelevant innuendo and editorial 

concerning mere allegations in a completely unrelated matter. Even a cursory review of the 

scurrilous allegations reveals their flimsy nature. The purported facts that the Munday Group 

seek to establish could not support the requested relief-even assuming the Complaint was 

timely filed and the ACC had jurisdiction: 

• Commissioner Kennedy wrote in dissent: "in my opinion, the original order 

issued on August 10 (Decision No. 71854) was the correct one." (Complaint at 

15) 

• Paragraphs 15-18 are based on an editorial version of an indictment in an 

unrelated proceeding. 

As revealed by the allegations themselves, the Complaint is a mere editorial piece and does 

not meet the required showing under either A.R.S. §§40-246, or 40-248, or A.A.C. R14-3-

106(L). As set forth more fully herein, the ACC doesn't reach the allegations because it 

lacks jurisdiction and the Complaint itself is time barred in any event. 

III. This action is time barred by the applicable statutes of limitation and is an 

unlawful collateral attack on a final and conclusive order of the Commission. 

Arizona law provides that to the extent a party in interest is dissatisfied with an order 

of the ACC, that party has thirty days, and no more, to commence an action in Superior Court 

or Court of Appeals (in the case of a claim pertaining to rate-making or rate-designing) after 

exhausting the party's administrative remedies. A.R.S. §§ 40-254(A) and 40-254.0 I (A). 

The Complainants have at least three fatal problems here which cannot be overcome. First, 

Complainants were not parties to the original proceeding in Docket WS-02987A-08-0180 

and therefore lack standing to challenge Decision 72579 at this late date. Second, Decision 

72579 was issued on September 15, 2011, and no party in the docket filed for rehearing of 

that decision within the 20-day period set forth in A.R.S. § 40-253(A).2 Thus, with no request 

2 A.R.S. § 40-253(A) states as follows: 

4 

l

l B. The Relief Sought.

2 The Complaint seeks to vacate the Decision and alleges claims for civil monetary

3 damages under Arizona statutory and common law. Rather than even attempt to make the

4 necessary showing that the Decision is somehow unlawtiil - a showing that the Munday

5 Group cannot make - the Complaint is entirely premised on irrelevant innuendo and editorial

6 concerningmere allegations in a completely unrelated matter. Even a cursory review of the

scurrilous allegations reveals their flimsy nature. The purported facts that the Munday Group

seek to establish could not support the requested relief-even assuming the Complaint was

timely filed and the ACC had jurisdiction:

•

Commissioner Kennedy wrote in dissent: "in my opinion, the original order

issued on August 10 (Decision No. 7 l 854) was the correct one." (Complaint at

15)

Paragraphs 15-18 arc based on an editorial version of an indictment in an

unrelated proceeding.

Ill.

7

8

9

10

1 1

12

13 As revealed by the allegations themselves, the Complaint is a mere editorial piece and does

14 not meet the required showing under either A.R.S. §§40-246, or 40-248, or A.A.C. Rl4-3-

15 106(L). As set l`orth more fully herein, the ACC doesn't reach the allegations because it

16 lacks jurisdiction and the Complaint itself is time barred in any event.

17 This action is time barred by the applicable statutes of limitation and is an

unlawful collateral attack on a final and conclusive order of the Commission.

2

18

19 Arizona law provides that to the extent a party in interest is dissatisfied with an order

20 of the ACC, that party has thirty days, and no more, to commence an action in Superior Court

21 or Court of Appeals (in the case of a claim pertaining to rate-making or rate-designing)after

22 exhausting the party's administrative remedies. A.R.S. §§ 40-254(A) and 40-254.0 l(A).

The Complainants have at least three fatal problems here which cannot be overcome. First,

23 Complainants were not parties to the original proceeding in Docket WS-02987A-08-0180

24 and therefore lack standing to challenge Decision 72579 at this late date. Second, Decision

25 72579 was issued on September 15. 201 1. and no party in the docket filed for rehearing of

26 that decision within the 20-day period set forth in A.R.S. §40-253(A).2 Thus, with no request

27

28 A.R.S. § 40-253(A) states as follows:

4

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 117 of 134
1 

2 

4 

5 

6 

7 

8 

9 

10 

1 1 

12 

13 

14 

15 

16 

17 

18 

19 

70 

21 

27 

23 

24 

25 

26 

27 

28 

for rehearing, Decision 72579 became final (and non-appealable) on October 5, 2011. A.R.S. 

§ 40-254(A) states in relevant part as follows: 

Except as provided in section 40-254.01, any party in interest, or the attorney 

general on behalf of the state, being dissatisfied with an order or decision of 

the commission, may within thirty days after a rehearing is denied or 

granted, and not afterwards, commence an action in the superior court in 

the county in which the commission has its office, against the commission as 

defendant, to vacate, set aside, affirm in part, reverse in part or remand with 

instructions to the commission such order or decision on the ground that the 

valuation, rate, joint rate, toll, fare, charge or finding, rule, classification or 

schedule, practice, demand, requirement, act or service provided in the order 

or decision is unlawful, or that any rule, practice, act or service provided in 

the order is unreasonable. (emphasis added) 

Similarly, A.R.S. § 40-254.01(A) states as follows: 

The attorney general on behalf of the state or any party to a proceeding before 

the commission who is dissatisfied with any order of the commission 

involving public service corporations and relating to rate making or rate 

design pursuant to sections 40-243, 40-246, 40-250 and 40-251 may file 

within thirty days after a rehearing is denied or granted, and not 

afterwards, a notice of appeal in the court of appeals to vacate, set aside, 

affirm in part, reverse in part or remand with instructions to the commission 

the order if the court of appeals determines upon a clear and satisfactory 

showing that the order is unlawful or unreasonable. (emphasis added)3

Nearly six years have passed since Decision 72579 became final. Thus, even if the 

Complainants' action were properly before the ACC, the limitations period ran years ago and 

the Complaint must be dismissed. 

After any final order or decision is made by the commission, any party to the action 

or proceeding or the attorney general on behalf of the state may apply for a rehearing 

of any matter determined in the action or proceeding and specified in the 

application for rehearing within twenty days of entry of the order or decision. 

Unless otherwise ordered, the filing of such an application does not stay the decision 

or order of the commission. If the commission does not grant the application within 

twenty days, it is deemed denied. If the commission grants the application, the 

commission shall promptly hear the matter and determine it within twenty days after 

final submission. (emphasis added) 

3 Complainants assert at page 1, line 13 of their Formal Complaint that they are filing under 

A.R.S. § 40-246 (among other statutes) which is one of the statutes specifically listed as a 

basis for appeal under A.R.S. § 40-254.01(A). 

5 

I

i

for rehearing. Decision 72579 became final (and non-appealable) on October 5, 201 l. A.R.S.

§40-254(A) states in relevant part as follows:

Except as provided in section 40-254.()l, any party in interest, or the attorney

general on behalf of the state, being dissatisfied with an order or decision of

the commission, may within thirty days after a rehearing is denied or

granted. and not afterwards, commence an action in the superior court in

the county in which the commission has its office, against the commission as

defendant, to vacate, set aside, affirm in part, reverse in part or remand with

instructions to the commission such order or decision on the ground that the

valuation, rate, joint rate, toll. fare, charge or finding, rule, classification or

schedule, practice. demand. requirement, act or service provided in the order

or decision is unlawful, or that any rule, practice, act or service provided in

the order is unreasonable. (emphasis added)

Similarly, A.R.S. § 40-254.0l(A) states as follows:

The attorney general on behalfofthe state or any party to a proceeding before

the commission who is dissatisfied with any order of the commission

involving public service corporations and relating to rate making or rate

design pursuant to sections 40-243. 40-246. 40-250 and 40-251 may file

within thirty days after a rehearing is denied or granted. and not

afterwards, a notice of appeal in the court of appeals to vacate, set aside.

affirm in part. reverse in part or remand with instructions to the commission

the order if the court of appeals determines upon a clear and satisfactory

showing that the order is unlawful or unreasonable. (emphasis added)3

Nearly six years have passed since Decision 72579 became final. Thus, even if the

Complainants' action were properly before the ACC, the limitations period ran years ago and

the Complaint must be dismissed.

s

l

2

3

4

5

6

7

8

9

10

l l

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

After any final order or decision is made by the commission, any party to the action

or proceeding or the attorney general on behalfofthe state may apply for a rehearing

of any matter determined in the action or proceeding and specified in the

application for rehearing within twenty days of entry of the order or decision.

Unless otherwise ordered. the filing of such an application does not stay the decision

or order of the commission. ll` the commission does not grant the application within

twenty days, it is deemed denied. If the commission grants the application. the

commission shall promptly hear the matter and determine it within twenty days after

final submission. (emphasis added)

3 Complainants assert at page l, line 13 of their Formal Complaint that they are filing under

A.R.S. 40-246 (among other statutes) which is one of the statutes specifically listed as a

basis for appeal under A.R.S. § 40-254.0l(A).

5

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 118 of 134
1 

2 

4 

6 

7 

8 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Finally, Decision 72579 remains a valid and final order of the Commission today. 

A.R.S. § 40-252 provides that "[i]n all collateral actions or proceedings, the orders and 

decisions of the commission which have become final shall be conclusive." Thus, the 

Complainants' action is an unlawful collateral attack on a final and conclusive order of the 

Commission, and the action should be dismissed. 

IV. Jurisdiction over the Complainants' claims regarding rates and charges lies 

exclusively with the Superior Court or Court of Appeals. 

Even if the Complainants could somehow overcome the fatal defects described in the 

preceding section, as a matter of clear and unequivocal Arizona law, appeals alleging that a 

requirement in a Commission order relating to rates and charges is unlawful must be brought 

in either the Superior Court or the Court of Appeals. See A.R.S. §§ 40-254(A) and 40-

254.01(A) and Arizona-American Water Co. v. Arizona Corp. Comm'n, 98 P.3d 624, 209 

Ariz. 189 (Ariz. App., 2004)(Appeals brought from Commission orders alleging "the 

valuation, rate, joint rate, toll, fare, charge or finding, rule, classification or schedule. 

practice, demand, requirement, act or service provided in the order... is unlawful, or that any 

rule, practice, act or service provided in the order is unreasonable" must be brought in 

Superior Court or in the Court of Appeals if the appeal "arise[s] from a process in which the 

Commission is involved in rate-making or rate-designing"). In sum, an order — precisely 

like the one the Munday Group challenges six years after the fact — cannot be directly 

appealed to the Commission. It simply lacks the authority of the legislature to hear them. 

V. Jurisdiction over the Complainants' remaining civil claims lies exclusively with 

the Superior Court. 

The legislature has conferred upon the Superior Court the sole authority to adjudicate 

disputes pursuant to statute and common law. A.R.S. §12-122. Concordantly, the Arizona 

Constitution confers upon the ACC the power to "make reasonable rules, regulations, and 

orders, by which such corporations shall be governed in the transaction of business within 

the state. AZ Const. art. XIV, § 3; cl. 3. Also consistent with the separation of powers 

doctrine, the Constitution confers the exclusive right of appeals from orders entered by the 

commission "to the courts of the state." AZ Const. art. XIV, § 17. 

6 

WW

l

i

iv . Jurisdiction over the Complainants' claims regarding rates and charges lies

exclusively with the Superior Court or Court of Appeals.

Jurisdiction over the Complainants' remaining civil claims lies exclusively with

the Superior Court.

The legislature has conferred upon the Superior Court the sole authority to acliudicate

disputes pursuant to statute and common law. A.R.S. §l2-122. Concordantly. the Arizona

Constitution confers upon the ACC the power to "make reasonable rules, regulations, and

orders, by which such corporations shall be governed in the transaction of business within

AZ Const. an. XIV, § 3; cl. 3. Also consistent with the separation of Powers

doctrine, the Constitution confers the exclusive right of appeals from orders entered by the

commission "to the courts of the state." AZ Const. an. XIV § 17.

l Finally, Decision 72579 remains a valid and final order of the Commission today.

2 A.R.S. § 40-252 provides that "[i]n all collateral actions or proceedings. the orders and

3 decisions of the commission which have become final shall be conclusive." Thus, the

4 Complainants' action is an unlawful collateral attack on a final and conclusive order of the

5 Commission, and the action should be dismissed.

6

7

8 Even if the Complainants could somehow overcome the fatal detects described in the

preceding section, as a matter of clear and unequivocal Arizona law, appeals alleging that a

9 requirement in a Commission order relating to rates and charges is unlawful must be brought

10 in either the Superior Court or the Court of Appeals. See A.R.S. §§ 40-254(A) and 40-

l l 254.0l(A) and Arizona-American Water Co. v. Arizona Corp. Comm'n, 98 P.3d 624, 209

12 Ariz. 189 (Ariz. App., 2004)(Appeals brought from Commission orders alleging "the

13 valuation, rate, joint rate, toll, fare, charge or finding, rule, classification or schedule,

14 practice, demand. requirement, act or service provided in the order... is unlawful. or that any

15 rule, practice, act or service provided in the order is unreasonable" must be brought in

16 Superior Court or in the Court of Appeals if the appeal "arise[s] from a process in which the

17 Commission is involved in rate-making or rate-designing"). In sum, an order .- precisely

l g like the one the Munday Group challenges six years after the fact .- cannot be directly

19 appealed to the Commission. It simply lacks the authority of the legislature to hear them.

20 V.

21

22

23

24

25 the state.

26

27

28

6

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 119 of 134
1 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

VI. Setting aside the jurisdictional and statute of limitations issues, the Complaint 

fails to state claims upon which relief can be granted. 

A. Count One must be dismissed; no cause of action. 

Count One is entitled "A.R.S § 12-248" and is brought against the Company. 

However, there is no provision located at A.R.S. § 12-248. It is axiomatic that no cause of 

action can be maintained on a statute that does not exist. Accordingly, based on notions of 

common sense if nothing else, this cause of action must be dismissed. 

B. Count Two must be dismissed; no cause of action. 

Count Two is entitled "Civil RICO - A.R.S. § 23-1404" and brought against all 

parties. Like with Count One, there is no provision located at A.R.S. §23-1404, thus 

dismissal is warranted for the same reason as exists with regard to Count One. 

Further, to the extent it was intended to reference A.R.S. § 13-2314.04 — the proper 

Arizona statute governing such claims — the Commission lacks jurisdiction as such is within 

the exclusive jurisdiction of the Superior Court. A.R.S. 13-2314.04(B). 

C. Count Three must be dismissed; no cause of action for civil conspiracy in 

Arizona. 

The Arizona Supreme Court has long settled that "in Arizona, there is no civil action 

for conspiracy." Estate of Hernandez by Hernandez-Wheeler v. Flavio, 930 P.2d 1309, 1313, 

187 Ariz. 506, 510 (Ariz., 1997) Even assuming the propriety of jurisdiction here, Count 

Three should be dismissed as a matter of Arizona law. Moreover, the Commission lacks 

jurisdiction to award damages or provide a remedy for so-called civil conspiracy. 

D. Count Four fails to meet heightened pleading standard required 

by Rule 9(b), Ariz.R.Civ.P. 

The Complaint merely states that Johnson "breached those duties by conduct that was 

fraudulent and intended to deceive others. . All allegations of fraud must state the 

circumstances constituting fraud with particularity. Ariz. R. Civ. P. 9(b). While no "magic 

language" is required, a claimant must plead all the essential elements of fraud in the 

complaint. Green v. Lisa Frank, Inc., 221 Ariz. 138, 155-56 ¶ 53, 211 P.3d 16, 33-34 (App. 

2009). A showing of actual fraud requires: "(1) a representation, (2) its falsity, (3) its 

materiality, (4) the speaker's knowledge of its falsity or ignorance of its truth, (5) the 

speaker's intent that the information should be acted upon by the hearer and in a manner 

7 

l

l

W

v i . Setting aside the jurisdictional and statute of limitations issues, the Complaint

fails to state claims upon which relief can be granted.

Count One must be dismissed; no cause of action.

B. Count Two must be dismissed; no cause of action.

Count Three must be dismissed; no cause of action for civil conspiracy in

Arizona.

D. Count Four fails to meet heightened pleading standard required

by Rule 9(b), Ariz.R.Civ.P.

fraudulent and intended to deceive others..

1

2

A.

3 Count One is entitled "A.R.S § l2-248" and is brought against the Company.

4 However, there is no provision located at A.R.S. § 12-248. It is axiomatic that no cause of

5 action can be maintained on a statute that does not exist. Accordingly, based on notions of

6 common sense if nothing else, this cause of action must be dismissed.

7

8 Count Two is entitled "Civil RICO - A.R.S. § 23-1404" and brought against all

9 parties. Like with Count One, there is no provision located at A.R.S. §23-l404. thus

10 dismissal is warranted for the same reason as exists with regard to Count One.

1 1 Further, to the extent it was intended to reference A.R.S. § 13-2314.04 - the proper

12 Arizona statute governing such claims - the Commission lacks jurisdiction as such is within

13 the exclusive jurisdiction of the Superior Court. A.R.S. 13-23 l4.04(B).

14 C.

15 The Arizona Supreme Court has long settled that "in Arizona. there is no civil action

16 for conspiracy." Estate off-/ernandez by Hernandez- Wheeler v. Flavio.930 P.2d 1309, 13 l 3,

17 187 Ariz. 506, 510 (Ariz., 1997) Even assuming the propriety of jurisdiction here, Count

18 Three should be dismissed as a matter of Arizona law. Moreover, the Commission lacks

19 jurisdiction to award damages or provide a remedy for so-called civil conspiracy.

20

21 The Complaint merely states that Johnson "breached those duties by conduct that was

22 All allegations of fraud must state the

23 circumstances constituting fraud with particularity. Ariz. R. Civ. P. 9(b). While no "magic

24 language" is required. a claimant must plead all the essential elements of fraud in the

25 complaint. Green v. Lisa Frank. Inc., 221 Ariz. 138. 155-56 1153, 21 l l).3d 16. 33-34 (App.

26 2009). A showing of actual fraud requires: "(l) a representation, (2) its falsity, (3) its

27 materiality, (4) the speaker's knowledge of its falsity or ignorance of its truth, (5) the

28 speaker's intent that the information should be acted upon by the hearer and in a manner

7

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 120 of 134
1 

3 

4 

5 

6 

7 

8 

9 

10 

1 1 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

23 

24 

25 

26 

27 

reasonably contemplated, (6) the hearer's ignorance of the information's falsity, (7) the 

hearer's reliance on its truth, (8) the hearer's right to rely thereon, and (9) the hearer's 

consequent and proximate injury." Taeger v. Catholic Family & Cmty. Servs., 196 Ariz. 285, 

294, 995 P.2d 721, 730 (App. 1999). Dismissal of Count Four is therefore warranted. 

E. Count 5 must be dismissed as the Commission lacks jurisdiction 

over R&R Partners and Johnson International, Inc. 

Count 5 pertains to R&R Partners, Inc.. and Johnson International, Inc. Neither R&R 

Partners, Inc., nor Johnson International, Inc., are -public service corporations" as defined in 

Article 15, Section 2 of the Arizona Constitution and the Commission lacks jurisdiction over 

both entities. Thus, Count 5 must be dismissed. For the same reason, Counts 2, 3 and 8 must 

also be dismissed against R&R Partners, Inc., and Johnson International, Inc. 

F. Counts Six, Seven and Eight are based upon common law contract 

claims and the Uniform Contribution Among Tortfeasors Act. 

They must be adjudicated by the Superior Court. 

As set forth in Section IV, supra, the legislature has conscribed to the superior courts 

the sole power to adjudicate claims pursuant to statute and common law. See, A.R.S. §12-

122. These final claims should therefore be dismissed. 

V. Conclusion. 

For the foregoing reasons, the Complaint must be dismissed in its entirety, and 

because there is no ability to correct through an amended pleading, such dismissal must be 

with prejudice. 

RESPECTFULLY SUBMITTED this 10th day of July, 2017. 

FREDENBERG BEAMS 

----- (;)--' 

By: 

Daniel E. Frelenber 

Christian C. M. 

Catherine S. A 

Attorneys for Jo nson Utilities, LLC, 

and Johnson International, Inc. 

28 

8 

l

Count 5 must be dismissed as the Commission lacks jurisdiction

over R&R Partners and Johnson International, Inc.

i

l

i

Counts Six, Seven and Eight are based upon common law contract

claims and the Uniform Contribution Among Tortfeasors Act.

They must be adjudicated by the Superior Court.

Conclusion.

.

I

I

By:

\

l

FREDENBERG BEAMS

Q J K v~i' ` \

Daniel E. Fre ember f \

Christian C. M. ams

Catherine S. A ams

Attorneys for Jo neon Utilities, LLC,

and Johnson International, Inc.

reasonably contemplated, (6) the hearer's ignorance of the information's falsity, (7) the

2 hearer's reliance on its truth, (8) the hearer's right to rely thereon, and (9) the hearer's

3 consequent and proximate injury." Taeger v. Catholic Family & City. Serve., 196 Ariz. 285,

4 294, 995 P.2d 721, 730 (App. 1999). Dismissal of Count Four is therefore warranted.

5 E.

6 Count 5 pertains to R&R Partners, Inc., and Johnson International, Inc. Neither R&R

7 Partners, Inc., nor Johnson International, Inc., are "public service corporations" as defined in

8 Article 15, Section 2 of the Arizona Constitution and the Commission lacks jurisdiction over

9 both entities. Thus, Count 5 must be dismissed. For the same reason, Counts 2, 3 and 8 must

10 also be dismissed against R&R Partners, Inc., and Johnson International, Inc.

1 1 F.

12

13 As set forth in Section IV,supra. the legislature has conscribed to the superior courts

14 the sole power to adjudicate claims pursuant to statute and common law. See, A.R.S. §l2-

15 122. These final claims should therefore be dismissed.

16 v .

17 For the foregoing reasons, the Complaint must be dismissed in its entirety, and

lg because there is no ability to correct through an amended pleading, such dismissal must be

19 with prejudice.

20 RESPECTFULLY SUBMITTED this loch day ofluly, 2017.

21

22

23

24

25

26

27

28

8

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 121 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

1 1 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

"Y) 

13 

24 

25 

26 

27 

ORIGINAL and 13 copies of the foregoing filed 

This 10th day of July, 2017, with: 

Docket Control 

Arizona Corporation Commission 

1200 West Washington 

Phoenix, Arizona 85007-2996 

COPY of the forgoing sent by mail this 

10th day of July, 2017 to the following: 

B. Lance Entrekin, Esq. 

The Entrekin Law Firm 

5343 North 16"' Street, Suite 200 

Phoenix, AZ 85016 

28 

9 

ORIGINAL and 13 copies of the foregoing filed

This 10"' day of July, 2017, with:

Docket Control

Arizona Corporation Commission

1200 West Washington

Phoenix, Arizona 85007~2996

COPY of the forgoing sent by mail this

10th day ofjuly, 2017 to the following:

B. Lance Entrekin, Esq.

The Entrekin Law Firm

5343 North l 6"' Street. Suite 200

Phoenix, AZ 85016

/W

1

2

3

4

5

6

7

8

9

10

l l

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

9

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 122 of 134
EXHIBIT A 

1

W

¥

EXHIBIT A

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 123 of 134
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

HIN 

0000129725 

BEFORE THE ARIZONA CORPORATION C 

COMMISSIONERS 

GARY PIERCE, CHAIRMAN 

BOB STUMP 

PAUL NEWMAN 

SANDRA D. KENNEDY 

BRENDA BURNS 

Arizona Corporation Commission 

DOCKETED 

SEP 1 5 2011 

DOCKETED DY 

IN THE MATTER OF THE APPLICATION OF 

JOHNSON UTILITIES, LLC, DBA JOHNSON 

UTILITIES COMPANY FOR AN INCREASE IN 

ITS WATER AND WASTEWATER RATES FOR 

CUSTOMERS WITHIN PINAL COUNTY, 

ARIZONA. 

Open Meeting 

September 6, 2011 

Phoenix, Arizona 

BY THE COMMISSION: 

DOCKET NO. WS-02987A-08-0180 

DECISION NO. 72579 

ORDER AMENDING 

DECISION NO. 71854 

FINDINGS OF FACT 

1. Johnson Utilities LLC ("Johnson Utilities" or "Company") is engaged in providing 

water and waste water service within Pinal County, Arizona. 

2. Johnson Utilities current rates were approved in Decision No. 71854 entered August 

25, 2010. 

3. On February 28, 2011, Johnson Utilities filed with the Arizona Corporation 

Commission ("Commission") a Petition to Amend Decision No. 71854 pursuant to A.R.S § 40-252. 

4. Johnson Utilities' Petition to Amend requested that the Commission modify Decision 

No. 71854 in the following manner: 

a. Change the $40 per month late fee in the Company's wastewater division tariff 

to a late fee of 1.5% per month on the unpaid account balance, consistent with 

the Company's water division tariff. 

b. Add back into rate base wastewater division plant of $18,244,755 which was 

Decision No. 

r

I

l Irrrlrlrrrrlrrrlrrrrrr Iioiljlrolrio err r re

BEFORE THE ARIZONA CORPORATION C _..-.-»v~Av T

COMMISSIONERS

Arizona Corporation Commission

DOCKETED

E

r

r

GARY PIERCE, CHAIRMAN

BOB STUMP

PAUL NEWMAN

SANDRA D. KENNEDY

BRENDA BURNS

SEP 15 2011

DQCI(ETE[;1;Y

Q,

l

2

3

4

5

6

DOCKET no. WS-029877-08_0180

DECISION no. 72579

7 IN THE MATTER OF THE APPLICATION OF

JOHNSON UTILITIES, LLC, DBA JOHNSON

8 UTILITIES COMPANY FOR AN INCREASE IN

ITS WATER AND WASTEWATER RATES FOR

9 CUSTOMERS WITHIN PINAL COUNTY,

ARIZONA.

10 9 ORDER AMENDING

DECISION no. 71854

3

Open Meeting

September 6, 201 l

Phoenix, Arizona

1

1

B Y T H E C O M M I S S I O N : l

l

1

FINDINGS OF FACT

I

I

|

I

.

r

4W

l

l

l

l

l

i

l

b.

l 1

12

13

14

15

16

17 1. Johnson Utilities LLC ("Johnson Utilities" or "Company") is engaged in providing

18 water and waste water service within Pinal County, Arizona.

19 2. Johnson Utilities current rates were approved in Decision No. 7]854 entered August

20 25, 2010.

21 3. On February 28, 201 l, Johnson Utilities filed with the Arizona Corporation

22 Commission ("Commission") a Petition to Amend Decision No. 71854 pursuant to A.R.S §40-252.

23 4. Johnson Utilities' Petition to Amend requested that the Commission modify Decision

24 No. 71854 in the following manner:

25 a. Change the $40 per month late fee in the Company's wastewater division tariff

26 to a late fee of 1.5% per month on the unpaid account balance, consistent with

27 the Company's water division tariff

28 Add back into rate base wastewater division plant of $18,244,755 which was

1 Decision No.

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 124 of 134
Docket No. WS-2987A-08-0180 

disallowed in the rate case. This sum includes the addition back into rate base 

2 the $10,892,391 disallowance for inadequately supported plant cost and the 

3 $7,352,364 disallowance related to affiliate profit. 

4 c. Remove from the water division rate base $6,931,078 in unexpended test year 

5 hook-up fees. 

6 d. Reinstate the Company's previously authorized hook-up fees for new water and 

7 wastewater divisions' connections. 

8 e. Establish a rate of return for the Company based upon its weighted average 

9 cost of capital in the range of 8.18% to 11.89%. 

10 I f. Reclassify $2,201,386 of wastewater plant identified as post test year plant to 

11 test year plant-in-service. 

12 g. Include in plant-in-service post test-year wastewater plant at $1,021,108, 

13 which the Company alleges is necessary to serve the test year-end level of 

14 customers. 

15 h. Include explicit language for Johnson Utilities to request income tax expense 

16 prospectively in a future A.R.S. § 40-252 Petition if the Commission changes 

17 its policy on imputed income tax expense. 

18 5. At its July 12, 2011 Open Meeting, the Commission voted to reopen Decision No. 

19 71854, and directed the Company to notice its customers concerning: (a) the rate impacts of granting 

20 the relief requested, (b) a public comment session in Pinal County, and (c) the August 11, 2011 Open 

21 Meeting at which the Commission would consider the Company's request for relief. 

22 6. Johnson Utilities noticed its customers as directed by the Commission and filed proof 

23 of notice in the docket. 

24 7. On July 26, 2011, Johnson Utilities filed an Amendment to Petition to Amend 

25 Decision No. 71854. The amendment modified its Petition to Amend to request a rate of return based 

26 upon a weighted average cost of capital of 8.0%. 

27 8. On August 4, 2011, Chairman Pierce mailed and docketed a letter to the parties 

28 requesting proposed amendments to aid in the Commission's consideration of the Petition. 

2 Decision No. 72579 

Docket No. WS-2987A-08-0180

I

l

c.

r

l

d.

l

I

|

e .

l

f.

1

g.

disallowed in the rate case. This sum includes the addition back into rate base

the $10,892,391 disallowance for inadequately supported plant cost and the

$7,352,364 disallowance related to affiliate profit.

Remove from the water division rate base $6,931 ,078 in unexpended test year

hook~up fees.

Reinstate the Company's previously authorized hook-up fees for new water and

wastewater divisions' connections.

Establish a rate of return for the Company based upon its weighted average

cost of capital in the range of 8.18% to ll.89%.

Reclassify $2,201,386 of wastewater plant identified as post test year plant to

test year plant-in-service.

Include in plant-in-service post test-year wastewater plant at $l,02 l ,108,

which the Company alleges is necessary to serve the test year-end level of

h.

customers.

Include explicit language for Johnson Utilities to request income tax expense

prospectively in a future A.R.S. §40-252 Petition if the Commission changes

l

5.

i

1

2

3

4

5

6

7

8

9

10

l 1

12

13

14

15

16

17 its policy on imputed income tax expense.

18 At its July 12, 2011 Open Meeting, the Commission voted to reopen Decision No.

19 71854, and directed the Company to notice its customers concerning: (a) the rate impacts of granting

20 the relief requested, (b) a public comment session in Pinal County, and (c) the August 1 l, 2011 Open

21 Meeting at which the Commission would consider the Company's request for relief.

6. Johnson Utilities noticed its customers as directed by the Commission and filed proof

I

!

l

1

i

I

22

23 of notice in the docket.

24 7. On July 26, 201 1, Johnson Utilities filed an Amendment to Petition to Amend

25 Decision No. 71854. The amendment modified its Petition to Amend to request a rate of return based

26 upon a weighted average cost of capital of 8.0%.

27 8. On August 4, 2011, Chairman Pierce mailed and docketed a letter to the parties

28 requesting proposed amendments to aid in the Commission's consideration of the Petition.

2 Decision No. 72579

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 125 of 134
Docket No. WS-2987A-08-0180 

1 9. On August 9, 2011, Johnson Utilities filed a proposed amendment modifying Decision 

2 No. 71854 concerning the relief requested. The amendment was adopted by Chairman Pierce for 

3 purposes of discussion and consideration at the August 11, 2011 Open Meeting. 

4 10. At the August 11, 2011 Open Meeting, the Commission discussed and considered the 

5 proposed amendment to Decision No. 71854 in accordance with A.R.S. § 40-252, and provided all 

6 parties an opportunity to be heard concerning the requested relief. 

7 11. The Commission determined that certain of the Company's requested modifications 

8 to Decision No. 71854 did not warrant further Commission consideration, but voted to direct the 

9 Utilities Division ("Staff') to prepare and docket an order incorporating the following requested 

10 modifications to be considered at September, 2011 Open Meeting: 

11 a. The change of the wastewater late fee from $40 per month to 1.5% per month. 

12 b. The addition back of $ 18,244,755 in disallowed wastewater plant, which 

13 includes the $10,892,391 disallowance for inadequately supported plant and 

14 the $7,352,364 disallowance related to affiliate profit. 

15 c. The reinstatement of hook-up fee tariffs for water and wastewater divisions. 

16 d. The determination of a rate of return of 8.0% for the wastewater division. 

17 e. The inclusion of language permitting the Company to request income tax 

18 expense prospectively in a future A.R.S. § 40-252 Petition if the Commission 

19 changes its policy relating to imputed income tax expense. 

20 12. The Commission also determined that if the relief requested was granted, that new 

21 rates should go into effect October 1, 2011, and that the Company could not a file a rate case with a 

22 test year ending earlier than December 31, 2012. 

23 13. The Commission directed Staff and the Company to meet, discuss and analyze the rate 

24 impacts concerning the remaining requested modifications to Decision No. 71854, and thereafter for 

25 Staff to docket a report concerning the resulting revenue and rate design analysis. 

26 14. On August 26, 2011, Staff docketed its report as directed by the Commission. 

27 15. Upon due consideration of these matters pursuant to A.R.S. § 40-252, and in balancing 

28 the implicated public interest concerning the certainty of Commission orders with the opportunity to 

3 Decision No. 72579 

1I

Docket No. WS-2987A-08-0180

|

a.

b.

c.

d.

e.

i

l

!

1 9. On August 9, 2011, Johnson Utilities filed a proposed amendment modifying Decision

2 No. 71854 concerning the relief requested. The amendment was adopted by Chairman Pierce for

3 purposes of discussion and consideration at the August l 1, 2011 Open Meeting.

4 10. At the August l 1, 2011 Open Meeting, the Commission discussed and considered the

5 proposed amendment to Decision No. 71854 in accordance with A.R.S. §40-252, and provided all

6 parties an opportunity to be heard concerning the requested relief .

7 l l. The Commission determined that certain of the Company's requested modifications

8 to Decision No. 7 l854 did not warrant further Commission consideration, but voted to direct the

9 Utilities Division ("Staff') to prepare and docket an order incorporating the following requested

10 modifications to be considered at September, 2011 Open Meeting:

11 The change of the wastewater late fee from $40 per month to 1.5% per month.

12 The addition back of $ 18,244,755 in disallowed wastewater plant, which

la includes the $10,892,391 disallowance for inadequately supported plant and

14 the $7,352,364 disallowance related to affiliate profit.

15 The reinstatement of hook-up fee tariffs for water and wastewater divisions.

16 The determination of a rate of return of 8.0% for the wastewater division.

17 The inclusion of language permitting the Company to request income tax

18 expense prospectively in a future A.R.S. §40-252 Petition if the Commission

19 changes its policy relating to imputed income tax expense.

20 12. The Commission also determined that if the relief requested was granted, that new

21 rates should go into effect October l, 2011, and that the Company could not a file a rate case with a

22 test year ending earlier than December 31, 2012.

23 13. The Commission directed Staff and the Company to meet, discuss and analyze the rate

24 impacts concerning the remaining requested modifications to Decision No. 71854, and thereafter for

25 Staff to docket a report concerning the resulting revenue and rate design analysis.

26 14. On August 26, 201 l, Staff docketed its report as directed by the Commission.

27 15. Upon due consideration of these matters pursuant to A.R.S. §40-252, and in balancing

28 the implicated public interest concerning the certainty of Commission orders with the opportunity to

3 Decision No. 72579

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 126 of 134
Docket No. WS-2987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

take appropriate regulatory ratemaking measures presented by the circumstances herein, we find and 

conclude that it is in the public interest to modify Decision No. 71854 as determined in this decision. 

16. The Company's hook up fee tariffs for its water and wastewater in effect prior to 

Decision No. 71854 are reinstated, with the condition that new tariffs be filed with wording in 

conformance with the hook-up fee templates on the Commission's website. 

17. The Company is permitted to request income tax expense prospectively in a future 

A.R.S. § 40-252 Petition if the Commission changes its policy relating to imputed income tax 

expense. 

18. The Company's wastewater division current tariff for a $40 late payment fee is 

modified to a late fee of 1.5% on the unpaid account balance, consistent with the similar tariff for the 

Company's water division. 

19. The Company's wastewater rate base shall be increased to allow the additional 

inclusion of plant in the amount of $18,244,755. As a result, the Company's adjusted fair value rate 

base ("FVRB") for its wastewater division is modified, and is determined to be $17,270,554, an 

increase of $17,133,992 over $136,562 authorized in Decision No. 71854. 

20. The rate of return on the Company's wastewater division adjusted FVRB shall be 8.0 

percent. This rate of return applied to the Company's adjusted wastewater division FVRB results in 

an increase to the Company's Required Operating Income in the amount of $1,091,034 over the 

$290,610 authorized in Decision No. 71854. The new Required Operating Income is determined to 

be $1,381,644. 

21. Because we make these modifications in this decision, the new revenue requirement is 

determined to be 11,591,861, which is an increase of $1,904,866 over the $9,686,995 authorized in 

Decision No. 71854. 

22. In Staff's August 26, 2011 filing, Staff sets out an analysis with a revised rate design 

with new rates intended to provide the Company the opportunity to earn the return authorized herein. 

We approve the new rates as set out by Staff and attached to this decision as Exhibit A, and shall 

require the Company to file new tariffs reflecting these approved rates. 

23. Under the new rates approved by this decision, a residential wastewater customer on a 

4 Decision No. 72579 

I

Docket No. WS-2987A-08-0180

\

i

l

l

l

l

z I

l

K

i

1 take appropriate regulatory ratemaking measures presented by the circumstances herein, we find and

2 conclude that it is in the public interest to modify Decision No. 71854 as determined in this decision.

3 16. The Company's hook up fee tariffs for its water and wastewater in effect prior to

4 Decision No. 71854 are reinstated, with the condition that new tariffs be filed with wording in

5 conformance with the hook-up fee templates on the Commission's website.

6 17. The Company is permitted to request income tax expense prospectively in a future

7 A.R.S. §40-252 Petition if the Commission changes its policy relating to imputed income tax

8 expense.

9 18. The Company's wastewater division current tariff for a $40 late payment fee is

10 modified to a late fee of 1.5% on the unpaid account balance, consistent with the similar tariff for the

11 Company's water division.

12 19. The Company's wastewater rate base shall be increased to allow the additional

13 inclusion of plant in the amount of $18,244,755. As a result, the Company's adjusted fair value rate

14 base ("FVRB") for its wastewater division is modified, and is determined to be $17,270,554, an

15 increase of$17,133,992 over $136,562 authorized in Decision No. 71854.

16 20. The rate of return on the Company's wastewater division adjustedFVRB shall be 8.0

17 percent. This rate of return applied to the Company's adjusted wastewater divisionFVRB results in

18 an increase to the Company's Required Operating Income in the amount of $1 ,091,034 over the

19 $290,610 authorized in Decision No. 71854. The new Required Operating Income is determined to

20 be $1,381 ,644.

21 21. . Because we make these modifications in this decision, the new revenue requirement is

22 determined to be l 1,591,861 , which is an increase of $1,904,866 over the $9,686,995 authorized in

23 Decision No. 71854.

24 22. In Staffs August 26, 2011 filing, Staff sets out an analysis with a revised rate design

25 with new rates intended to provide the Company the opportunity to am the return authorized herein.

26 We approve the new rates as set out by Staff and attached to this decision as Exhibit A, and shall

27 require the Company to file new tariffs reflecting these approved rates.

28 23. Under the new rates approved by this decision, a residential wastewater customer on a

I

4 Decision No. 72579

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 127 of 134
Docket No. WS-2987A-08-0180 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

% inch meter would experience an increase of $6.56 or approximately 20% over the rates approved in 

Decision No. 71854, from $32.79 to $39.35 per month. 

24. We find and conclude that the modifications made herein to Decision No. 71854 result 

in just and reasonable rates for the Company and its ratepayers. 

25. We further find and conclude that the modifications made herein to Decision No. 

71854 shall be effective prospectively, and all other provisions, terms and rates in Decision No. 

71854 remain in full force and effect except where inconsistent with this Decision on rehearing. 

26. We further find and conclude that because we make these modifications to Decision 

No. 71854, the public interest requires a stay out provision that prohibits the Company from filing a 

future rate increase application that uses a test year ending earlier than December 31, 2012. 

27. We further find and conclude that it is in the public interest that new rates and tariffs 

resulting from this Decision shall be effective for all service rendered on and after October 1, 2011. 

CONCLUSIONS OF LAW 

1. Johnson Utilities is a public service corporation within the meaning of Article XV of 

the Arizona Constitution and A.R.S. §§ 40-250, 40-251, 40-367, 40-202, 40-321, and 40-361. 

2. The Commission has jurisdiction over Johnson Utilities and the subject matter set 

forth in the Company's rate application and in the Company's Petition to Amend Decision No. 

71854 pursuant to A.R.S. § 40-252. 

3. Pursuant to A.R.S. § 40-252, the Commission, having reviewed the Petition and the 

Staffs Memorandum dated August 26, 2011, concludes that it is in the public interest to approve the 

modification to Decision No. 71854 as discussed herein. 

ORDER 

IT IS THEREFORE ORDERED that Decision No. 71854 is modified by the Commission in 

the manner determined by this Decision. 

IT IS FURTHER ORDERED that Johnson Utilities shall not file for an increase in rates using 

a test year ending earlier than December 31, 2012. 

IT IS FURTHER ORDERED that all other matters set forth in Decision No. 71854 continue 

to be in full force and effect except where inconsistent with the Decision. 

5 Decision No. 72579 

Docket No. WS-2987A-08-0180

i

i

i

1

1

2

3

% inch meter would experience an increase of $6.56 or approximately 20% over the rates approved in

Decision No. 71854, from $32.79 to $39.35 per month.

24. We find and conclude that the modifications made herein to Decision No. 71854 result

4 in just and reasonable rates for the Company and its ratepayers.

We further find and conclude that the modifications made herein to Decision No.

i

5 2 5

6 71854 shall be effective prospectively, and all other provisions, terms and rates in Decision No.

7 71854 remain in full force and effect except where inconsistent with this Decision on rehearing.

26. We further find and conclude that because we make these modifications to Decision

1

4

1l

I

8

9 No. 7 l854, the public interest requires a stay out provision that prohibits the Company from filing a

10 future rate increase application that uses a test year ending earlier than December 3 l , 2012.

l l 27. We further find and conclude that it is in the public interest that new rates and tariffs

12 resulting from this Decision shall be effective for all service rendered on and after October l, 2011.

CONCLUSIONS OF LAW

1.

i

I

l

13

14 Johnson Utilities is a public service corporation within the meaning of Article XV of

15 the Arizona Constitution and A.R.S. §§ 40-250, 40-251, 40-367, 40-202, 40-321, and 40-361.

16 2. The Commission has jurisdiction over Johnson Utilities and the subject matter set

17 forth in the Company's rate application and in the Company's Petition to Amend Decision No.

18 71854 pursuant to A.R.S. §40-252.

19 3. Pursuant to A.R.S. §40-252, the Commission, having reviewed the Petition and the

20 Staffs Memorandum dated August 26, 201 l, concludes that it is in the public interest to approve the

21 modification to Decision No. 71854 as discussed herein.

ORDER

E

22

23 IT IS THEREFORE ORDERED that Decision No. 71854 is modified by the Commission in

24 the manner determined by this Decision.

25 IT IS FURTHER ORDERED that Johnson Utilities shall not file for an increase in rates using

26 a test year ending earlier than December 3 l , 2012.

27 IT IS FURTHER ORDERED that all other matters set forth in Decision No. 71854 continue

28 to be in full force and effect except where inconsistent with the Decision.

5 Decision No. 72579

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 128 of 134
2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Docket No. WS-2987A-08-0180 

IT IS FURTHER ORDERED that Johnson Utilities shall file a tariff in conformance with this 

Decision for rates as shown in Exhibit A to go into effect for all service rendered on and after 

October 1, 2011, and notice its customers of the new rates on or before September 23, 2011. 

IT IS FURTHER ORDERED that in the event the Commission alters its policy to allow Scorporation and LLC entities to impute a hypothetical income tax expense for ratemaking purposes, 

Johnson Utilities may file a motion to amend this Order prospectively, and Johnson Utilities' 

authorized revenue requirement hereunder, pursuant to A.R.S. § 40-252, to reflect the change in 

Commission policy. 

IT IS FURTHER ORDERED that Johnson Utilities shall file new hook-up fee tariffs for both 

water and sewer with wording conforming to the wording on the Commission's hook-up fee 

templates on its website and the charges shall be the same as those on Johnson Utilities' former hookup fee tariffs. 

IT IS FURTHER ORDERED that this Decision shall be effective immediately. 

6 Decision No. 72579 

Docket No. WS-2987A-08-0180

l

r i

1

I

1 IT IS FURTHER ORDERED that Johnson Utilities shall file a tariff in conformance with this

2 Decision for rates as shown in Exhibit A to go into effect for all service rendered on and after

3 October l, 201 l , and notice its customers of the new rates on or before September 23, 2011.

4 IT IS FURTHER ORDERED that in the event the Commission alters its policy to allow S5 corporation and LLC entities to impute a hypothetical income tax expense for ratemaking purposes,

6 Johnson Utilities may file a motion to amend this Order prospectively, and Johnson Utilities'

7 authorized revenue requirement hereunder, pursuant to A.R.S. §40-252, to reflect the change in

g Commission policy.

9 IT IS FURTHER ORDERED that Johnson Utilities shall file new hook-up fee tariffs for both

10 water and sewer with wording conforming to the wording on the Commission's hook-up fee

11 templates on its website and the charges shall be the same as those on Johnson Utilities' former hook12 up fee tariffs.

13 IT IS FURTHER ORDERED that this Decision shall be effective immediately.

14 . . .

15 ...

16 . . .

17 . . .

is .

19 ...

20 . . .

21 .

22 . . .

23 . . .

24 . . .

25 .

26 . . .

27

28 . . .

4

l

x 72579 6 Decision No.

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 129 of 134
Docket No. WS-2987A-08-0180 

BY ORDER OF THE ARIZONA CORPORATION COMMISSION 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

AN COMMISSIONER 

COMMISSIONER 

DISSEN 

DISSENT: 

Commissioner Burns 

4 esamdadn— Abstained 

COMMISSIONER COMMISSIONER 

IN WITNESS WHEREOF, I, ERNEST G. JOHNSON, 

Executive Director of the Arizona Corporation Commission, 

have hereunto, set my hand and caused the official seal of this 

Commission to be affixed at the Capital, in the City of Phoenix, 

this /5f r' day of 54,pic,#4,,_ 2011. 

Executive Director 

7 Decision No. 72579 

Docket No. WS-2987A-08-0180

I

I

BY ORDER OF THE ARIZONA CORPORATION COMMISSION

l

CAI AN COMMISSIONER

I

I

I

Q I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

COMMISSIONER

Commissioner Burns

Abstained

COMMISSIONER

I

I

I

I

I I

I

I

I

I N WITNESS W HEREOF, 1, ERNEST G. JOHNSON,

Executive Director of the Arizona Corporation Commission,

have hereunto, set my hand and caused the official seal of this

Commission to be affixed at the Capital, in the City of Phoenix,

t h i s / 3 day of c , " . 2011. I

I

. I I

I G.

I

I

E S N

Executive Director

I

I

I

I

I

I

I

I

I

I

l

2

3

4

5

6

7 COMMISSIONER

8

9

10

I I

12

13

14

15

16

17

18

19 DISSEN

20

21 DISSENT:

22

23

24

25

26

27

28

I

7 Decision No. 72579 I

I

I

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 130 of 134
Johnson Utilities L.L.C. - Wastewater Division 

Docket No. WS-02987A-08-0180 

Test Year Ended December 31, 2007 

EXHIBIT A 

WASTEWATER DIVISION 

EXHIBIT A 

Page 1 of 2 

Monthly Minimum Charge 

PER 

DECISION NO. 71854 

NEW RATES PER 

ARS 40-262 

Meter Sizes (All Zones and Classes) 

5/8 Inch $ 29.8100 $ 35.7700 

3/4 Inch $ 32.7900 $ 39.3500 

1 Inch $ 41.7300 S 50.0800 

1 1/2 inch $ 53.6508 $ 64.3900 

2 Inch $ 86.4400 $ 103.7300 

3 Inch $ 327.8700 $ 393.4700 

4 Inch $ 625.9300 $ 751 1700 

6 inch $ 864.3700 $ 1,037.3300 

8 inch $ 1,092.6000 $ 1,430.8000 

10 inch $ 1,748.3300 $ 2.056 7800 

Effluent per 1,000 gallons $ 0.5280 $ 0 6300 

per acre foot $ 170.3200 $ 205 2900 

Service Charges 

Establishment $ 25 00 $ 25 00 

Establishment (After hours) $ 40.00 $ 40 00 

Deposit Requirement (Residential) (a) (a) 

Deposit Requirement (Non Residential Meter) (a) (a) 

Deposit Interest (b) (b) 

!Re-Establishment (With-in 12 months) (c) (c) 

Re-Establishment (After Hours) (c) (c) 

NSF Check 15.00 15.00 

Deffered Payment, Per Month 1.50% 1.50% 

After Hours service charge, per Rule R14-2-603D Refer to Above Charges Refer to Above Charges 

Late Charge per month 40.00 1.50% 

Service-Line Connection Charge 350.00 350.00 

Main Extension Tariff, per Rule R14-2-6069 

except refunds shall be based upon five percent (5%) of 

gross revenues from bonafide customers, 

until all advances are fully refunded to Developer. 

Cost 

N/A 

Cost 

(d) 

Off-site Facilities Hook-up Fee 

(a) Residential - two times the estimated average monthly bill. Non-residential - two and one-half times the estimated 

maximum monthly bill. 

(b) Interest per Rule R14-2-603(B). 

(c) Minimum charge times number of full months off the system per Rule R14-2-603(6). 

(d) New wastewater installations. May be assessed only once per parcel, service connection, or lot within a subdivision. 

Decision No. 72579 

3

I

EXHIBIT A

Pogo 1 of 2

Johnson Wlltln L.LC. Wastewater Division

Docket No. ws-o29a1A-os01 to

Tut Y-r Ended Dscombor 31, 2oo1

EXHIBIT A

WASTEWATER DIVISION

\ v v

Monthly Minimum Charge DECISION no. 71854 ARS 40-252

Meter Slzes (All Zones and Classes)

5/8 Inch

3/4 Inch

1 Inch

1 1/2 Inch

2 Inch

3 Inch

4 inch

6 Inch

8 lndl

10 inti

s 35.7700

s 39.3500

s 50.0800

$ 64.3900

$ 103.7300

s 393.4700

s 7511700

s 1037.3300

s 1430.B000

s 2.056 7800

s 29.8100

s 32.7900

s 41 .7300

s 53.6508

s 86.4400

s 327.8700

s 825.9300

s 864.3700

s 1.092.6000

s 1748.3300

Effluent 0.5280

170.3200

0 B300

2052900

s

s

s

s

per 1,000 gallons

per acre toot

Service Cha es

s

s

s

s

Establishment

Establishment (After hours)

Deposit Requirement (Residential)

Deposit Requirement (Non Residential Meter)

.Deposit Interest

'ReEstablishment (Within 12 months)

RBEs!Bblishm6nt (After Hours)

NSF Chad(

Differed Payment Per Month

After Hours sewioe charge per Rule R142-603D

2500

40.00

(am

(B)

(b)

in)

(C)

15.00

1.50%

Refer to Above Charges

25.00

40.00

Ka)

(a)

(b)

(c)

(c)

15.00

1 .50%

Refer to Above Charges

40.00

350.00

1.50%

350.00

Cost

N/A

Cost

(d)

Late Charge per month

Service Line Connection Charge

Main Extension Terlff per Rule R14~2-6068

except refunds shall be based upon five percent (5%) of

gross revenues from bonalide customers

until dl advances are fully refunded to Developer.

Off-site Facilities Hook-up Fee

(a) .8£§!gggljgI two times the estimated average monthly bill. n-r i d n I two and one-half times the estimated

maximum monthly bill.

(b) interest per Rule R14-2-503(B).

(c) Minimum charge times number of full months off the system. per Rule R142803(B).

(d) New wastewater installations. May be assessed only ono per parcel sewioa connection. or lot within a sub

division.

l

I

l

l

l

I

Decision No. 72579

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 131 of 134
Johnson Utilities - Wastewater Division 

Docket No. W-02987A-08-0180 

Test Year Ended December 31, 2007 

EXHIBIT A 

Page 2 of 2 

COMPARISON OF RATE BASE AND REVENUE REQUIREMENT PER DECISION NO 71854 AND ARS 40-25; 

Gross Plant-in-Service 

[Al 

DECISION 

NO. 71854 

(B) 

ARS 40-252 

IC) 

CHANGE 

$ 95,566,588 $ 113,811,3.44 $ 18,244,756 

Accumulated Depreciation (6,375,814) (7,486,577) (1,110 763) 

Net Plant in Service $ 89,190,774 $ 106,324,766 $ 17,133,992 

Advances in Aid of Construction (52,231,631) (52,231,631) 

Net Contribution in Aid of Construction (36,822,5821 (36,822,582) 

Rate Base $ 136,562 $ 17,270,554 $ 17,133,992 

Operating Margin Rate of Return 

Required Operating Margin/Rate of Return 3.00% 8.00% 

Required Operating Income $ 290,610 $ 1,381,644 $ 1,091,034 

Operating Income Deficiency $ (1,631,136) $ 232,727 $ 1,863,863 

Tax Gross-up Factor 1.0220 1.0220 

Gross Revenue Increase (Decrease) $ (1,667,020) $ 237,847 $ 1,904,867 

Adjusted Test Year Revenue $ 11,354,014 $ 11,354,014 $ 

Revenue Requirement $ 9,686,995 $ 11,591,861 $ 1,904,866 

Percentage Increase in Revenue Requirement(Decrease) -14.68% 2.09% 19.66% 

Impact on 3/4 Inch Residential Bill 

Average 3/4 Inch Residential Bill 32.79 39.35 6.56 

Decision No. 72579 

W

l

I

I

I

I

i

EXHIBIT A

Page 2 of 2

Johnson Utilities Wastewater Division

Docket No. W-02987A-08~0180

Test Year Ended December 31 2007

compARison OF RATE BASE AND REVENUE REQUIREMENT PER DECISION NO 71854 AND ARS 40252

IB]

s

s

Gross Plant~ln-service

Accumulated Depreciation

net Plant In Service

ARS 40252

s

s

[Al

DECISION

NO. 71854

95,566,588

(6375814)

89190774

113,811 ,344

(7485577)

106324766

[C]

CHANGE

s 182447756

<1 .110.763)

s 17133992

s

Advances in Aid of Construction

Net Contribution In Aid of Construction

Rate Base

(52231 631)

l36822582)

136552 s

(52231 831 )

(a6.a22,582)

17,270,554 s 17,133,992

Rate of Recur

8.00%

s 1.381 .644

s

s

232727 s

s

s

1091 034

1,863863

1.0220

237,847 1,904,867

11.354.014

s

s

s

s

s

s

s

s

11,591851 s 1.s04.sss

Operating Margin

3.00%

290810

(1 631 .138)

1.0220

(1,667,020)

11354014

91886,995

14.68% 2.09% 19.86%

Required Operating Margin/Rate of Return

Required Operating Income

Operating Income Deficiency

Tax Grossup Factor

Gross Revenue Increase (Decrease)

Adjusted Test Year Revenue

Revenue Requirement

Percentage Increase in Revenue Requirement(Deaease)

s 32.79 s 39.35 s 6.56

lnrlpad an 3/4 Inch Residential am

Average 3/4 Inch Residential Blll

A

9

I

e

l

Decision No. 72579

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 132 of 134
COMMISSIONERS 

GARY PIERCE - Chairman 

BOB STUMP 

SANDRA D. KENNEDY 

PAUL NEWMAN 

BRENDA BURNS ARIZONA CORPORATION COMMISSION 

September 14, 2011 

Arizona Corporation Commission 

Docket Control 

WS02987A-08-0180 

Re: Johnson Utilities; Dissent Letter 

WS-02987A-08-0180 

SANDRA D. KENNEDY 

COMMISSIONER 

Direct Line: (602) 542-3625 

Fax: (602) 542-3669 

E-mail: skennedy@azcc.gov 

To all Interested Parties; 

I am submitting my dissent letter explaining my No vote of September 6, 2011 on the rehearing 

of Johnson Utilities Company's (Company) application for an increase in its Water and 

Wastewater Rates for Customers within Pinal County, AZ. 

The case and record before the Commission posed many concerns on how the company was 

operating and keeping vital business records. Due to those issues and concerns, in my opinion, 

the original order issued on August 2010 (Decision No. 71854) was the correct one. 

While having said that, when the company petitioned the Commission for a rehearing, I voted to 

give the company another opportunity to present new evidence that was not part of the previous 

record. However, that did not occur. 

With no additional evidence or an amended recommended opinion and order presented to the 

Commissioners, there was nothing new to persuade me that we erred in Decision No.71854. 

Given the lack of new evidence or information, I do not believe the record supports the vote to 

amend Decision No. 71854 and the resulting increases in rates for Johnson Utilities' customers. 

I am concerned that the manner in which the Commission reversed several key ratemaking 

components will lead to a precedent that may be used or referenced by other companies when 

they do not support their rate cases with proper documentation. As I mentioned earlier, the 

record was very clear on the fact the company was not maintaining appropriate day-to-day record 

keeping, and raised with concerns that transactions with affiliates and related parties may lack 

needed transparency and were not conducted at arms length. For me, the Commission's 

Decision based on the record presented did not support a finding that amending Decision No. 

71854 is in the public interest. 

1200 WEST WASHINGTON. PHOENIX, ARIZONA 05007-2996 / 400 WEST CONGRESS STREET, TUCSON, ARIZONA 85701 1347 Decision No. 72579 

WWW 112CC gov 

I

4 1 A

I

I

I £3o

*s SANDRA D. KENNEDY

COMMlS$lONER

;»°* €M 3/>

I3 1 . ma §» r Q

>>;::5 i3

983817 49

COMMISSIONERS

GARY PIERCE Chairman

BOB STUMP

SANDRA D.KENNEDY

PAUL NEWMAN

BRENDA BURNS ARIZONA CORPORATION COMMISSION

Direct Line: (602) 5423625

Fax: (602) 5423669

Email: skennedy@azcc.gov

September 14, 201 I

Arizona Corporation Commission

Docket Control

WS02987A-08-0 I 80

i

Re: Johnson Utilities; Dissent Letter

VVS-02987A-08-0180

To all Interested Parties,

I am submitting my dissent letter explaining my No vote of September 6, 201 l on the rehearing

of Johnson Utilities Company's (Company) application for an increase in its Water and

Wastewater Rates for Customers within Pinal County, AZ.

The case and record before the Commission posed many concerns on how the company was

operating and keeping vital business records. Due to those issues and concerns, in my opinion,

the original order issued on August 2010 (Decision No. 71854) was the correct one.

While having said that, when the company petitioned the Commission for a rehearing, l voted to

give the company another opportunity to present new evidence that was not part of the previous

record. However, that did not occur.

With no additional evidence or an amended recommended opinion and order presented to the

Commissioners, there was nothing new to persuade me that we cried in Decision No.71854.

Given the lack of new evidence or information. I do not believe the record supports the vote to

amend Decision No. 71854 and the resulting increases in rates tor Johnson Utilities' customers.

l

I am concerned that the manner in which the Commission reversed several key ratemaking

components will lead to a precedent that may be used or referenced by other companies when

they do not support their rate cases with proper documentation. As l mentioned earlier, the

record was very clear on the fact the company was not maintaining appropriate day-to-day record

keeping, and raised with concerns that transactions with affiliates and related parties may lack

needed transparency and were not conducted at arms length. For me, the Commission's

Decision based on the record presented did not support a finding that amending Decision No.

71854 is in the public interest.

l

72579 1200 wEsT WASHINGTON. PHOENIX. ARlZONA 850072996I 4 oo wEst CONGRESS STREET. Tucson AnlzonA envoi 1fl47De¢i5i0n No

www.au:c.gov

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 133 of 134
J'age 2 

Johnson Utilities WS02987A-08-0180 

I know this rate case has been a learning process for Johnson Utilities. The company seems 

committed from this point on to conduct their business in a professional manner. I believe this is 

evident by the Company's statements that they have made reorganizational changes. However, 

that was not the record before us and I could not vote for a decision that will increase the 

wastewater rates that lack the proper documentation. 

Our job as Commissioners is to find just and reasonable rates that are in the public interest, to 

allow investors the opportunity to get a reasonable return on their investments. However, the 

utility that holds a monopoly has a responsibility to show that it indeed made those investments. 

Without adequate documentation, it is unfair to make the ratepayers bear that burden. 

It is because of these facts I voted against increasing the rates. 

Sincerely, 

Corporation Commissioner 

Sandra D. Kennedy 

Decision No. 72579 

I

Page 2

Johnson Utilities WS02987A-08-0180

I know this rate case has been a learning process for Johnson Utilities. The company seems

committed from this point on to conduct their business in a professional manner. I believe this is

evident by the Company's statements that they have made reorganizational changes. However,

that was not the record before us and I could not vote for a decision that will increase the

wastewater rates that lack the proper documentation.

Our job as Commissioners is to find just and reasonable rates that are in the public interest, to

allow investors the opportunity to get a reasonable return on their investments. However, the

utility that holds a monopoly has a responsibility to show that it indeed made those investments.

Without adequate documentation, it is unfair to make the ratepayers bear that burden.

It is because of these facts I voted against increasing the rates.

Sincerely,

<448

Corporation Commissioner

Sandra D. Kennedy

l

l

l

I

I

Decision No. 72579

Case 2:17-cv-04688-DLR Document 96-1 Filed 01/07/19 Page 134 of 134