Carefree balks at Cave Creek's rate increase for CAP water

By Linda Bentley | March 10, 2010

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jessica marlow'Perhaps it is appropriate at this time to terminate or amend the existing contract ...'

CAREFREE – On March 1, Cave Creek Utilities Manager Jessica Marlow sent a letter to Stan Francom, general manager, Carefree Water Company, for the purpose of informing him that Cave Creek intends to increase the charges for treated Central Arizona Project (CAP) water delivered to Carefree Water Company based on the Agreement for Treatment and Transportation of CAP Water.

Marlow stated, “Per the letter dated May 28, 2009, the town will be increasing the base rate based on 60 percent of the difference in the CPI from October 2002 to October 2009, with an effective date of March 1, 2010.”

According to Marlow’s calculations, that came to an increase of 11.7 percent over the current charge of $2.09 per 1,000 gallons, and, therefore, she said the new rate the town of Carefree will be paying for CAP water from the town of Cave Creek is $2.34 per 1,000 gallons.

A letter from Francom, dated March 1, responding to Marlow was included in the March 2 Carefree Water Company board meeting agenda packet as Item 3B, printed on the back of Marlow’s letter.

stan francomFrancom stated, “I have the following problems that will need to be addressed before accepting the calculations you have presented.”

He said there was a recent adjustment in the rate related to the increase in electrical and other pass-through costs amounting to 7.18 percent. Francom claims Marlow’s CPI adjustment includes those same pass-through costs and should be adjusted so as not to double increases already being collected.

He also stated it would not be proper for the town of Cave Creek to collect costs for periods of time that were prior to it owning the water company and said, “If that were to be allowed it would make the affect of current cost calculations retroactive and allow for the collection of costs that were never assessed, by mutual agreement, as evidenced by the existing rate for water prior to the change of ownership in the water company.”

Francom stated Carefree was having its attorney address “these and other issues in light of the existing contract,” and said, “Perhaps it is appropriate at this time to terminate or amend the existing contract so that it better represents the existing conditions. As you must be aware there are a lot of provisions of the contract that we have allowed to be superseded by day to day operations.”

Francom told the water board (Carefree Town Council) increasing rates is not something Carefree Water Company would want to do in the present or near future but said the cost of water is a significant factor in budgeting for next year.

According to Cave Creek Town Manager Usama Abujbarah, when the town purchased the water company it purchased all of its assets, liabilities and contracts.

Abujbarah said he had not seen Francom’s letter but would discuss the issue with Marlow.
However, Abujbarah said, if Carefree wishes to cancel its contract with Cave Creek and purchase its CAP water from Scottsdale instead, Scottsdale’s rates are approximately $2.65 per 1,000 gallons or roughly 13 percent more than Cave Creek would be charging.

He also said the town would be forwarding Francom’s concerns to Cave Creek’s attorney for review.

A few days later, Abujbarah said it seemed Sonoran News received a different letter than the town and asked for a copy.

Marlow said she only received an e-mail from Francom dated March 3 that began, “We appreciate the opportunity to address our views and position relating the proposed increase in water rates. Perhaps we need to sit down and discuss the following issues if you think it would be beneficial …

“First, we think than an inadvertent error has been made in the calculations presented in your letter and a typo error in the printing of the October CPI which should be 216.177.”

There was nary a mention of Carefree canceling or revising its contract with Cave Creek nor did Francom raise the issue of not wishing to include the period of time prior to the town’s purchase of Cave Creek Water Company.

Marlow responded, “We need to sit down and talk. The CPI for October that was used to calculate the increase was 216.777. The increase is 1.1956812, or 19.56812 percent. Sixty percent of that is 11.74 percent. Secondly, both of the provisions for cost increases would not have been included if they were not both necessary. The CPI does not consider electrical power when calculated because things like electrical power are completely independent of overall inflation and follow their own schedule, similar to the water rates. 

Nowhere in the contract does it say that any interim increases for electrical and other pass through operating costs can offset the allowed increases every other year for the CPI increases …”