RESIDENTIAL UTILITY CONSUMER OFFICE (RUCO) PAT QUINN DIRECTOR

Water/Wastewater What You Need to Know September 17, 2014 Agenda 1. EPCOR Agua Fria Wastewater Consolidation Docket No. SW-01303A EPCOR’s Pending Sun City Rate Case Docket No. WS-01303A Arizona Corporation Commission’s Docket on Changing the Way APS Files Rate Cases

AGUA FRIA WASTEWATER CONSOLIDATION EPCOR CASE Cost of Service -Rate Base X Return + Expenses -Cost of service varies by community -Consolidation does not use cost of service by community but by total company costs RUCO Position -Represents all residential customers -Any change in rates requires full cost of service rate case -Stale test years -Commission and Company want to open up the rate cases from 2008, 2010 and a just filed Cost savings of consolidation -Current revenue requirement considering all factors and parties -Current rate design

EPCOR – CONSOLIDATED WASTEWATER RATE PROPOSAL CURRENT RATES RECOMMENDED SYSTEM TOTAL Note (3) RATEINC (DEC) PERCENT Agua Fria Note (1) $ $ ($ 87.61) ( %) Anthem Note (2) $ $ ($ 21.95) ( %) Mohave WWater $ $ ($ 48.49) ( %) Sun City $ $ $ % Sun City West $ $ $ % Note: (1) Agua Fria and Anthem – Current rates reflect rates scheduled to go into effect on January 1, Note: (2) Mohave Wastewater -- Current rates reflect pending increase in rates as filed in Docket No. WS-01303A Note: (3) All rates based on average usage of 7,000 gallons per month

AGUA FRIA CONSOLIDATED What can you do? -Contact the Corporation Commissioners -Let them know your position through s, calls or voic s, letters, petitions Timeline -It appears the commission wants to hear this quickly, before end of the year -Cost of service rate case would take minimum of a year -It was on the open meeting for September 9th but was pulled -It will probably show up in some form on the October open meeting

EPCOR 2014 RATE CASE FILING Recent Commission decision in EPCOR's Chaparral rate case (Fountain Hills) -Majority of Commissioners sided with the company on rate of return and depreciation. -against recommendations of the ALJ, Staff and RUCO -two adjustments alone increased the rates over 26% -Approved a System Improvement Benefit (SIB) ◦-doubles rates over the next 5 years -Approved several other increases tank maintenance and declining usage -All this added up to a 43% increase for the residential customer, Order approved by Commission says a 20.3 % -Fountain Hills reviewing options

BUT IT’S GOING TO GET WORSE CURRENT INITIAL SIB INCREASE INCREASE ADJUSTED YEAR RATE PER MONTH PERCENTAGE RATES 2014 $ $ $ $ $ %$ $ $ %$ $ $ %$ $ $ %$ $ $ %$ The Order as approved by the Commission states that the rate increase on the average residential ratepayer is $7.68 per month or 20.3%. In reality, the rates increase each year and at the end of year five the rate has increased to $54.11, a percentage increase of 43.0%.

WE’RE NOT FINISHED YET COMMISSIONERS APPROVAL vs. ALJ Additional Depreciation Expense through the use of the Group Depreciation Method as opposed to the modified Vintage method, and the continuation of over- depreciating Utility Plant Assets. Changing the Rate of Return on Rate Base from 8.06 percent to 8.95 percent. ADDITIONAL APPROVALS Declining Usage$ 22,174 Tank Maintenance Expense (18years)$ 202,184 Additional Post Test Year Plant over what RUCO recommended $ 2,278,882 System Improvement Benefit $ 1,502,514

EPCOR 2014 SUN CITY RATE CASE What is in the Sun City rate case -Filing includes all the issues that were approved in Chaparral case ◦-Tank maintenance, declining usage, SIB, depreciation, post test year plant -Adds new issues: Obama Care (insurance cost increases) -Actual rate increase over next 5 years is double because of SIB ◦- $3.82 vs $ % vs 44% -All numbers come from the EPCOR filing

REVENUE PROPOSED BY EPCOR Current Revenues $ 10,265,553 Total Revenues Requested (this filing) $ 11,912,007 Company Increase Requested $ 1,646,454 Percent Increase - Overall % Percent Increase – Residential (Note 1) % SIB Revenue Increases (over 5 years) $ 1,233,692 Percent Increase - Overall With SIB % Percent Increase - Residential With SIB % (Note 1 – 5/8’ X ¾” and ¾” = 90% of residential ratepayers)

SIB RATE INCREASE TO RESIDENTIAL RATEPAYERS INITIAL SIB CURRENT INCREASE ADJUSTED YEAR RATE PER MONTH RATES 2014 $ $ 3.82 $ $ $.79 $ $ $.76 $ $ $.84 $ $ $.70 $ $ $.72$ Overall increase from current rates 44.03%

EPCOR 2014 SUN CITY RATE CASE Current Status -Original schedule ◦-Filed case found sufficient 4/4/14, interveners' testimony due 10/3, hearing 12/2 -Schedule suspended 9/12 -Staff and RUCO been working with company since April -Company can't defend the accuracy of their beginning numbers -Numbers constantly changing -Not ready to file case -They will have to file new accurate data and schedules -Numbers we have shown you today will change but we don't know degree or direction -Schedule is now on a month to month process where the company, staff and RUCO meet with ALJ to discuss where we are and how to proceed -Watch docket and we will try to keep you advised

APS REQUEST TO CHANGE RATE CASE PROCESS Requested change -Normally in a rate case the revenue requirement and the rate design are looked at simultaneously -APS wants to bifurcate the rate design from the revenue requirement determination -Based on discussion at the September 9th open meeting it appears that the majority of the Commissioners support this idea -There was no written document describing this new process -Everyone at the meeting besides the Commission, the Staff and APS spoke against the proposal -The Commission didn't vote on the item but instead directed the Staff to draft a proposal -All parties will get a chance to make comments on the proposal -We will keep you informed to the schedule since this could move pretty fast