To: Editors, News Directors

Date: June 18, 2004

For: Immediate Release

Unanimous Vote in Arizona-American Rate Case

PHOENIX - After months of deliberation, testimony and public comment, the Commissioners reached a unanimous decision to approve a combination of rate increases and decreases for 10 Arizona-American Water Company systems.

An administrative law judge presided over a courtroom-style hearing that lasted for nine days. The judge issued a 74-page Recommended Opinion and Order. It recommended a combination of increases and decreases, based upon the costs to install, maintain and operate each of the separate water and wastewater systems.

Arizona-American acquired the water and wastewater systems formerly owned by Citizens Water Resources in January 2002. The firm operates water and wastewater systems in the Anthem community north of Phoenix, Sun City, Sun City West and Surprise. The company also serves portions of Bullhead City, Lake Havasu City and Tubac, Arizona. In November 2003, the Commissioners traveled to six locations around the state to take public comment from residents and interested consumer groups.

This is the first rate case filed by Arizona-American Water Company and some systems have not had any rate changes since the early 1990s. The company presented evidence that the costs of maintaining, operating and testing its water system to provide safe, reliable drinking water have increased and it sought Commission approval to raise rates. After a detailed audits and analysis by Commission staff and intervenors like the Residential Utility Consumer Office (RUCO), it was determined that some increases were warranted but that rates should be lowered for other systems.

The Commissioners also approved several amendments with unanimous votes. The sponsor of the amendment is listed in parentheses.

• Water Conservation - Arizona-American is ordered to notify customers of water conservation strategies that they can use to lower their bills and lower the amount of water they are using in the current drought. (Commissioner Jeff Hatch-Miller)

• Fire-Flow Task Force - Two amendments dealt with fire hydrant issues in the Sun City and Youngtown areas. Both communities have older areas with aging infrastructure that was installed when different fire control and water pressure standards applied. The Commissioners voted to have the company form a task force comprised of various consumer and stakeholder groups. The task force is asked to study whether water production capacity, storage capacity, water lines, water pressure and fire hydrants in Youngtown and Sun City are sufficient to meet the fire protection capacity desired by the communities. The other amendment requires Arizona-American and the local fire departments in these areas to test the hydrants periodically and submit annual reports to the Commission. (Commissioner Bill Mundell)

• Methods of Calculating Sewer Use - Some of the systems use a flat monthly rate for sewer use, which is quite common among utilities. There is no way to meter sewage outflow. For this reason, sewer rates are often flat or are calculated through a formula based on a percentage of water consumption. The Commissioners directed the company to examine whether tiered wastewater rates based on water consumption might be more appropriate for its systems. Any changes to the calculation methodology would take place through a future rate case. (Commissioner Mike Gleason)

Comments from the Commissioners

Commissioner Kristin Mayes cast a vote in favor of the decision, saying: "This is the first full rate case I've been involved in from the early stages, through the public comment period, to the hearing and then for the final decision. The process worked, people had input, we listened and this is a just result."

"It's difficult to approve increases that affect your own neighborhood," said Commissioner Mike Gleason who lives in Sun City West. "I hope my neighbors will view this decision in its proper context and know that we carefully evaluated every cost before reaching a decision to increase rates. We approved less than half of the rate increase that the company sought for the Sun City West systems. The last time rates went up was more than seven years ago."

Commissioner Jeff Hatch-Miller talked about the need to maintain reliable systems that deliver water where and when it's needed. "Water is too important a commodity to take the chance that systems will fall into disrepair because the company lacks the capital to maintain it properly. Sewer service is the same way. These are good, well-designed water and sewer operations, we needed to make sure the rates match the system and provide for its long-term health."

"We took to heart the concerns of the people in these communities. We heard their comments and directed our questions and amendments toward their concerns," Commissioner Bill Mundell said. "Water and sewer services are essential to modern life but we have to recognize that the cost to operate and maintain some systems increase over time, as was the case here. Equally important, though, is that we ordered decreases today in areas where the rates are too high."

"The rules we operate under require us to set just and reasonable rates that allow the utilities to provide reliable service to their customers," Commission Chairman Marc Spitzer said. "I am confident of the hard work by our staff and RUCO to analyze all of the raw data that goes into the rate calculation formulas. They worked hard to ensure that the rates we have in front of us today represent a fair result and not a penny more or less."

The attached summary shows the rates approved in today's decision using average residential consumption figures for each of the 10 systems.

Average Usage

Current Average Bill

Approved Increase or Decrease

New Bill

Az-American's Orig. Proposed Increase/Decrease

Total Bill if Az-Am's Original Request was Approved

System

Sun City West Water

7,171

$11.67

$1.67

$13.34

$5.17

$16.84

Sun City West Wastewater

$16.24

$4.32

$20.56

$9.03

$25.27

Sun City Water

8,361

$11.17

$2.84

$14.01

$9.92

$21.09

Sun City Wastewater

$12.87

-$1.89

$10.98

$1.61

$14.48

Agua Fria Water District

7,002

$22.46

-$1.68

$20.78

$1.67

$24.13

Anthem Water District

10,212

$36.42

-$6.34

$30.08

$6.16

$42.58

Anthem/Agua Fria  Wastewater

$30.00

$8.11

$38.11

$15.45

$45.45

Mohave Water

8,787

$20.18

-$3.48

$16.70

$2.74

$22.92

Havasu Water

7,659

$19.46

$2.21

$21.67

$8.93

$28.39

Tubac Water District

13,177

$39.19

$14.20

$53.39

$33.73

$72.92

Summary of Areas & Customers Served

Sub-system

Last Rate Change

Approx. # of Customers

Agua Fria Water (Surprise & vicinity)

May 1997

14,300

Anthem/Agua Fria Water

June 1998

4,400

Anthem/Agua Fria Wastewater

June 1998

4,300

Sun City Water

May 1997

22,000

Sun City Wastewater

May 1997

21,200

Sun City West Water

May 1997

15,300

Sun City West Wastewater

May 1997

14,900

Mohave Water

January 1992

13,600

Havasu Water

February 1990

1,200

Tubac Water

May 1997

485