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To: Editors, News Directors |
Date: July
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For: Immediate Release |
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Frequently Asked
Questions: McLain Water Systems & Town Hall at Windemere Hotel July 18 at 6:00 PM |
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PHOENIX – Arizona Corporation Commissioners are holding a Town Hall briefing and comment session for Cochise County residents who are connected to seven water companies owned by Johnny A. McLain. Those companies are: · Miracle Valley Water Company · Cochise Water Company · Horseshoe Ranch Water Company · Crystal Water Company · Mustang Water Company · Coronado Estates Water Company and · Sierra Sunset Water Company
The meeting will be at 6:00 PM at the Windemere Hotel & Conference Center at 2047 South Highway 92 in Sierra Vista.
Residents in the area have frequently endured outages and low pressure situations due to broken or damaged equipment, pump failures, suspected vandalism and damage by third-party contractors. The Commissioners and their staff have been exploring every possible option in order to ensure the customers have reliable, consistent utility service. These options include special low interest loans, obtaining emergency funding from other state or federal sources and even possible acquisition by another company. The Commissioners have called for this meeting to provide an update on these options to the affected residents and give customers an opportunity to air their concerns. Residents who wish to speak to the Commissioners will be asked to fill out a speaker slip (available at the door) and turn it in before the start of the meeting. The Commissioners may limit speakers to three minutes per person to allow all residents who wish to speak a fair opportunity to address their concerns. What happened to bring us up to this point?
In response to numerous and repeated outages and several serious violations of state water quality and public health laws, the Arizona Corporation Commission in September 2003 approved an Order to Show Cause against Mr. Johnny A. McLain. This Commission Order took operational control of the companies away from McLain who is alleged to have been operating the systems out of compliance with Arizona Department of Environmental Quality and Commission regulations. The litany of problems cited at the time included frequent outages, substandard water pressure and failure to submit water quality tests.
The Commission searched for a company that would be willing to operate the systems on an interim basis. The Arizona Small Utilities Association (ASUA), a non-profit organization with the qualifications to operate water systems, stepped forward and agreed to operate the system on an interim basis.
What effect has McLain’s bankruptcy had on the situation?
McLain’s most recent bankruptcy filing of July 30, 2003 – which had been dismissed on September 2, 2003 – was reinstated on September 16, 2003. The bankruptcy filing was a roadblock that prevented the Commission from acting as quickly and decisively as the Commissioners wanted to install an interim manager. When McLain filed for bankruptcy, the Commission had to file pleadings with the bankruptcy judge arguing that continuity of service was essential and that an interim manager had to be appointed for all the water systems. Fortunately, the bankruptcy judge agreed. The Commission sought and received bankruptcy court approval to allow ASUA to operate the companies. ASUA started operating the systems in May 2004.
If there is a willing buyer, why can’t the companies be sold?
The companies can be sold or acquired by another company if the bankruptcy court approves. The bankruptcy judge has basically approved of the sale of McLain’s companies provided the creditors agree with the ultimate sale price. The Commissioners held an open meeting on July 12 to discuss the possible purchase of the water systems by a company called Algonquin. Corporate bankruptcies are complex and time-consuming. The McLain bankruptcy is finally at the point where a transfer of ownership could take place.
What did the Commissioners decide at the July 12 meeting?
The Commissioners discussed various strategies to allow the companies to be purchased. An essential step is to determine a rate base for the companies. But that’s only a starting point. There was testimony that Mr. McLain owes the state and county almost $1,000,000 in unpaid taxes. The Arizona Department of Revenue and Cochise County are the two largest creditors but there are others to whom McLain owes money. The creditors may be willing to accept less than the full amount of the debt but that possibility is still up in the air. Both the value of the existing plant, equipment and property and how much the state and county will accept are components of the eventual purchase price.
The Commissioners agreed to open a case to attempt to determine the rate base and work with the creditors (the state, county and others to whom McLain owes taxes) to see if they are willing to accept less than the full amount owed. The staff will be reporting to the Commissioners within 60 days on the rate base.
If there is a problem with a reliable water supply, why should the companies allow new residents to hook up to the system?
At the July 12 meeting, the Commissioners directed the staff to study whether a moratorium on new hookups would help ensure reliable, adequate water to the existing customers. The staff agreed to complete this study and report back to the Commissioners with a recommendation a few days following the receipt of essential water usage data from ASUA.
What else is the Commission doing to help our situation?
The Chairman and Commissioners continue to work with state, county and local officials to reach a long-term solution to the water shortages and infrastructure problems. Specifically:
Why isn’t the Arizona Corporation Commission down here running the systems?
The Commission is a regulatory body with authority over public utility service in Arizona. The Commission’s role is regulatory, not operational. Water company operators have to meet certain criteria to become “Certified Operators.” The Commission staff sought out and found a Certified Operator – ASUA – to run the water systems’ day-to-day operations.
We are angry and frustrated with this situation and believe ASUA is to blame for these problems. What does the Commission have to say about that?
The Commissioners certainly understand your frustration. Like you, we believe that water is an absolute necessity. ASUA has encountered repeated technical problems and endured numerous mechanical failures that result from years of neglect and poor choices of equipment (i.e. undersized well pumps that burn out prematurely). ASUA has reported incidents of vandalism to the Cochise County Sheriff’s office to help find and apprehend the vandal. ASUA has also had to repair damage caused by third-parties such as contractors who puncture lines or damage underground lines. The Commissioners and staff believe that ASUA is doing the best job possible under nearly impossible circumstances.
What is going to happen to my rates?
ASUA has spent far more money making repairs to the system than it is taking in under the current rate structure. The Commission is monitoring the situation very closely and has asked ASUA to file for emergency rate relief. An emergency rate case will result in an increase but how much is unknown at this time. A lot of the equipment needs to be replaced and new equipment such as storage tanks, wells and pumps will have to be installed.
Be assured that the Commission staff will review the filing very carefully to make sure you do not pay more than necessary. An additional safeguard will be put in place to allow for a “true up” or refund of any excess funds once a permanent rate case is filed, audited and ruled on by the Commissioners. It is important to note that you have been paying the same rates for a very long time – more than two decades in some cases. Because McLain owed back taxes, was out of compliance with Commission regulations and had very poor records, he did not file rate cases or they could not be ruled on due to a lack of information.
Besides McLain’s failure to pay back taxes, it also appears that he failed to make the necessary investment in infrastructure or perform the proper maintenance to ensure safe, reliable water service.
· Miracle Valley Water Company – Rates the same since April 1989 · Cochise Water Company – Rates the same since August 1985 · Horseshoe Ranch Water Company – Rates the same since August 1987 · Crystal Water Company – Rates the same since August 1985 · Mustang Water Company – Rates the same since August 1985 · Coronado Estates Water Company and – Rates the same since August 1985 · Sierra Sunset Water Company – McLain never filed for a Certificate of Convenience & Necessity (CC&N is required to provide service in a particular area). The Commission never approved rates for this system. |
