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Susan Bitter Smith, a member of the Arizona Corporation Commission, said providing provide water utilities with scheduled rate increases to replace and repair equipment would benefit companies and consumers. (Photo by Kyle O'Donnell/Cronkite News)

PHOENIX -- Some Arizonans, especially those in rural areas, face having their water bills dramatically increase when providers need to finance infrastructure improvements.

To solve this problem, the Arizona Corporation Commission wants to provide companies with scheduled rate increases to replace and repair equipment.

For example, a water company could get on a five-year schedule with an annual 2 percent rate increase as opposed to a large increase in one year.

"This is a very inexpensive way for Arizona water companies and Arizona water customers to know they have a water future," said Susan Bitter Smith, a member of the Corporation Commission.

Dubbed the System Improvements Benefits mechanism, the program is still under consideration due to an appeal by the state's Residential Utility Consumer Office.

Water companies would be required to immediately repair or replace infrastructure if they choose to participate, Bitter Smith said. The guaranteed rate increases serve as assurances that companies will have money to pay off loans for infrastructure replacement.

Historically, water companies have filed one-time rate increases because they didn't have the rate structure necessary to replace their infrastructure, Bitter Smith said. As a result, she said, customers sometimes experience an 80 to 90 percent increase in water costs for the same usage.

Bitter Smith said the Corporation Commission has faced water companies threatening to close if they didn't get immediate rate increases to finance new equipment, Bitter Smith said.

Joe Gysel, president of EPCOR Water USA, a water company that operates in several areas of Arizona including Maricopa County, said that the program would make it more efficient for water companies to finance improvements.

"I think that it's a very good program," he said.

Under the one-time rate adjustment system, water companies have to wait as long as four years to adjust rates, Gysel said.

Pipe needs to be in the ground for a year before a company can begin to file a rate case, he said. The filing process and the commission's review can each take up to 18 months.

Despite the approval from the Corporation Commission and water companies, Patrick Quinn, director of the Residential Utility Consumer Office, said that a rate case with all of the facts and figures is needed to fairly set rates.

The economics also don't work, Quinn said.

The program has an efficiency credit that pays back 5 percent to consumers for decreased maintenance expenses of new equipment, Quinn said. RUCO maintains that 5 percent isn't enough.

Although the program is intended to address extremely dilapidated equipment, companies could theoretically replace relatively new infrastructure under the program's current design, Quinn said.

"There are probably cases where this applies, but it is not every case," he said.

Paul Walker, chairman of Arizonans for Responsible Water Policy, a trade group of some the largest privately owned water and wastewater companies in Arizona, said that there hasn't been evidence of companies doing this. The program has provisions so that the Corporation Commission and RUCO can see if a company has bad operation and management systems in order to prevent such an occurrence, Walker said.

The program is under consideration because RUCO filed for a rehearing of the rate case for Arizona Water Co., a company with 18 different systems in the state, Quinn said. Under that case, the Corporation Commission allowed the company to adopt the new program as well as a 10.55 percent return on equity.

RUCO argued that the Arizona Water Co. shouldn't be given both increases, Quinn said.

Despite the appeals process, several private water companies have already filed to participate in the System Improvements Benefits program, Bitter Smith said.

"I'm very confident ultimately it will be in place," Bitter Smith said, "and we'll process those applications pretty rapidly."

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