When the Town Council agreed at its Oct. 2 meeting to file a complaint against Chaparral City Water Company (CCWC) a central part of its argument related to the System Improvement Benefit (SIB) surcharge included in its rate package approved by the Arizona Corporation Commission this summer.

After the rate increase went into effect council members began hearing from numerous citizens about sudden increases to their water bill, seemingly far beyond what was approved for the water company.

Town Attorney Andrew McGuire said the complaint gets the process moving to resolve the issues.

“The complaint will be heard by the ACC in a similar manner to the rate case,” McGuire said. “Following its decision, a rehearing can be requested. The decision following rehearing can be appealed to the Arizona Court of Appeals.”

While there is no apparent direct relation to the new water rates and the increase in complaints about unexplained water usage spikes, the SIB is a tool included in the rate decision that allows for potential annual rate increases that previously could not occur.

In fact the state Residential Utility Consumer Office (RUCO) is challenging the use of the SIB in not just Fountain Hills, but other jurisdictions also.

In a presentation to the Town Council in August, RUCO staff outlined how SIB increases would add about 3.8 percent to water rates per year through 2019. That is nearly double the increase approved by the Arizona Corporation Commission this summer.

At issue is the fact that the SIB increases can come automatically, without ACC review or public comment.

While the ACC staff does review the company’s SIB plan the projects have already been approved. Once the company proves the improvements have been made, the increases will be added to the bill.

According to a legal analysis presented to the Town Council earlier this year, the SIB is designed to allow the CCWC to recover “pre-tax return on investment and depreciation expenses associated with water infrastructure improvements and plant retirements.”

CCWC’s five-year SIB plan was submitted to the ACC for review and approved. CCWC plans to complete the improvements prior to its next rate case.

Over RUCO’s objections the commission granted the SIB with its staff’s recommendation.

The proposed SIB projects are subject to a “usefulness and prudency review” in the next rate case, which the commission has ordered CCWC to file prior to June 1, 2018.

A generic list of water infrastructure related items which CCWC may recover costs using the SIB formula include supply mains, mains, services, meters and meter installations and hydrants.

All SIB projects must be reviewed by ACC staff and approved by the commission before being included in the surcharge.

SIB projects must be complete and placed in service prior to being included in the surcharge.

There is a cap which limits the annual SIB surcharge to 5 percent of the revenue requirement authorized by the ACC decision.

CCWC may not request an SIB surcharge for at least 12 months, and the firm is limited to a single request every 12 months.

RUCO chief counsel Dan Pozefsky said the agency has appealed a decision involving Arizona Water’s Eastern Division Case involving the SIB.

“All other appeals on the SIB, including the Chaparral case will be more or less decided by what the Appellate Court does in this appeal with Arizona Water,” Pozefsky told The Times.