Arizona Corporation Commission

1. Arizona Corporation Commission IOWUA Meeting May 18, 2005 PRESENTED BY: COMMISSIONER KRISTIN K. MAYES

2. Today’s Agenda • Arsenic Standard • Recent town hall meeting in Tubac • On-going remediation efforts • Water Loss • Q & A

3. The ACC: Who is Affected? • Scope of the ACC’s Regulatory Authority • Number of ACC regulated water companies = > 350 • Number of ACC regulated water companies with arsenic levels exceeding the new 10 ppb standard = 78 • Some examples: • Arizona Water Company – Valle Vista – 45 to 50 ppb • Ajo – 75 ppb • Montezuma Estates – 38 ppb

4. The ACC: What Have We Done? • ACC Involvement in Implementing the New Standard • ACC Staff Task Force established in November 2001 • ACC conducted special open meeting in December 2001 • ACC participated in ADEQ’s Arsenic Master Plan • Staff Reports for rate case reviews include arsenic levels • ACC and ADEQ staff have conducted in-person visits with companies in advance of the January 23, 2006, deadline

5. The ACC: What Have We Done? • ACC Involvement in Implementing the New Standard, con’t • Continued meetings with the Governor, Congressional delegation, and ADEQ representatives seeking support for lessening the financial burden on affected parties • Sought funding from the federal government and the state government to help defray the cost of meeting the standard. • Continued dialogue with water companies on their plans and progress towards implementation • E.g., Commissioner Mayes’ April 11, 2005, letter to Arizona-American Water Co. regarding treatment options and technology

6. Private Water Companies: What Are They Doing? • Private Water Companies • Arsenic Removal Coalition • Conglomerate of private water companies hosting a series of vendor fairs to gain familiarity with the arsenic removal industry • The Treatment Dilemma – Centralized v. Point of Use • Centralized System • Point of Use (POU) – End of pipe treatment (individual household) • Pilot studies conducted at Black Canyon City, Michaels Ranch (Sedona), and on tribal lands in New Mexico • Study results indicated POU is only economically competitive with centralized systems up to about 300 connections; recent industry estimates suggest up to 500 connections (depends on nature of the community infrastructure and home types) • Examples of POU systems in use: Michaels Ranch, Montezuma Heights, numerous private well owners • ADEQ is in the final stages for issuing POUrules

7. Arsenic Townhall Meetings • On April 14, I held a townhall meeting in Tubac to discuss the arsenic issue with residents of the town, and representatives from Arizona American Water Company. • After this meeting, the Commission voted to hold a series of townhall meetings in various communities affected by the arsenic standard across the state. These meetings will take place this fall. • Proposed locations include: Tubac, Lake Havasu and Sun City • In addition to the Commissioners, these meetings will include representatives from ADEQ, WIFA and the private water companies.

8. Tubac: Where Do We Go From Here? • Hydrologic Options • Blending water (e.g., blend water from well #3 with well #4) • Depth-specific testing in existing and future wells • Alternative well site(s) • ACC Options • Incorporate capital costs in rate base (e.g., rate case) • Arsenic Impact Fee (e.g., Valley Utilities Water Company) • Other Options • Centralized v. POU treatment • Emerging technologies • E.g., Coal Ash: Berkeley National Laboratory was awarded a $250,000 grant for continued researchin the use of coal ash as an adsorptive media

9. Agency Authority to Regulate Water Loss Arizona’s Agency Authority 1) The Arizona Corporation Commission (ACC) 2) The Arizona Department of Water Resources (ADWR)

10. The ACC’s Role • Reviewing Water Loss • Statutory authority to regulate water loss for Private Water Companies comes from “just and reasonable” standard in establishing rates. On the hearing the commission shall by order establish the rates, fares, tolls, rentals, charges, classifications, contracts, practices, rules or regulations proposed, in whole or in part, or establish others in lieu thereof, which it finds just and reasonable, and which, if not suspended, shall, on the expiration of thirty days from the time of filing the order, or in such lesser time as the commission grants, become effective and be established, subject to the power of the commission to alter or modify the order. A.R.S. § 40-250(C)

11. ACC Water Loss Review • Two Methods for Water Loss Review at the ACC • 1) Annual Reporting by Private Water Companies • Request water use data (i.e., gallons sold v. gallons pumped) • 2) Rate Case Review • In-depth review of lost and unaccounted water • Unwritten policy that water loss shall be less than 10% (based on AWWA recommendation) • If water loss is at 10 – 15%, then burden is on the company to demonstrate why achieving 10% is infeasible • Water loss greater than 15% is per se unacceptable • It is not “just and reasonable” to incorporate excessive water loss (i.e., greater than 15%) into rate structures

12. The Persistent Problem: Reporting • Beardsley Water Company – Apache Junction, AZ • 1) 2003 Annual Report • File randomly selected • For the water year ending September 30, 2003, 5 million more gallons sold than pumped (net gain in water?) • For the period January through September, 2003, 1.5 million more gallons sold than pumped • No other sources of water listed; total storage equals 231,000 gallons • 2) Beardsley Water Company Rate Case, 2003 • For the period January through September, 2003,573,200 more gallons pumped than sold (1.9% water loss) • Which reported value for the period January through September, 2003, is correct?

13. The Persistent Problem: Reporting, cont. • Arizona Water Company – Superior, AZ • 15% water loss due to travel distance (pipe loss) and evaporative cooling of abnormally warm water before delivery to consumers • Infeasible for Arizona Water Company to upgrade their system, even to below 15% water loss • Exception to the rule

14. The Persistent Problem: Reporting, cont. • Gadsden Water Company – Somerton, AZ • 8.7% water loss • Acceptable water loss value • Is this value reliable?

15. ADWR’s Role • Mandating Water Conservation • Statutory requirement for ADWR to develop conservation programs for municipal uses. A.R.S. §§ 45-564(A)(2), 45- 565(A)(2), and 45-566(A)(2) • Water conservation does not necessarily equate to water loss mitigation • However, there is some agency review for Water Loss: Annual Water Withdrawal and Use Report • DWR reports only required for companies within AMAs

16. ADWR Water Loss Review • Beardsley Water Company – Apache Junction, AZ • ADWR Annual Water Withdrawal and Use Report, Provider Summary 2002: • Groundwater Withdrawn = 115.52 acre-feet • Water Delivered to Individual Users = 115.52 acre-feet • This is a physical impossibility!!! • Thus, are these reports reliable? Do the water providers take these seriously? What is enforceable about them?

17. Closing Remarks • Where to Go From Here • Incentivize cost recovery for applying conservation measures, renewable supplies, and minimizing water loss? • Distribution System Improvement Charge (DSIC)? • Enforcement of the just and reasonable standard? • 4) Implement new rules and regulations? • 5) Other?

18. Recommendations to ACC’s Water Task Force • Workshops expected at the end of August or beginning of October • Post workshop procedural schedule: • Issues could be divided into subcommittees • End result: Policies, rulemaking or proposed orders to be submitted to the Commission