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AV Water customers could see a 27% rate increase, hearing scheduled for Sept. 21

Hannah Grover
Farmington Daily Times

AZTEC — The New Mexico Public Regulation Commission staff said they would not normally support a 27% increase in water rates, but the situation with the struggling company AV Water is unique. In testimony filed in the PRC docket, staff members expressed support for the rate increase.

Hearing examiners will make a recommendation to the commissioners at a future date about whether to allow the hefty rate increase.

A hearing is scheduled for 9 a.m. on Sept. 21 and could continue into subsequent days if needed. People wishing to make comments who have not intervened in the case can do so at the start of the hearing at 9 a.m. Sept. 21. Those comments will be limited to three minutes per person and commenters should register in advance by emailing Ana.Kippenbrock@state.nm.us by 8:30 a.m. Sept. 21. Written comments can also be submitted by emailing prc.records@state.nm.us.

A link to watch the livestream of the hearing via YouTube will be posted at nmprc.state.nm.us.

More:Mediation hearing scheduled as AV Water seeks 27% rate hike to pay debt, cover expenses

Mediation hearing results in stipulation 

AV Water customers have been frustrated after a lengthy boil water advisory in 2016 and past mismanagement of the utility, all of which is documented in a PRC case that commissioners at the time described as one of the hardest cases they had ever heard.

A mediation hearing this summer resulted in a stipulation that includes several requirements to address ratepayer concerns, including a timeframe requirement for billing.

Terms of the stipulation state that the 27% increase will come in the form of $14.10 renewal and replacements charges — which can only be used for infrastructure improvements and repairs — and usage charges. Additionally, AV Water will be required to submit quarterly status reports to the signatories of the stipulation.

AV Water customer Gay Deen Graves' five-month water bill is pictured on Wednesday at her home in the Crouch Mesa area east of Farmington.

The stipulation requires AV Water’s bills to cover a 27 to 31-day period. This is important because in the past customers would go months without receiving a bill and then receive a bill for hundreds of dollars.

If AV Water doesn’t meet the timeframe stipulated, it will average the water use in gallons by the number of days in the billing cycle and then multiply that by 31. It will have to write off any additional usage as a cost of not getting the bills out in time.

More:Complaint: AV Water did not pay legal fees

In many parts of the service territory, the property owners have a second residential unit rented out on the property. Currently, those are served by the same meter. The stipulation allows property owners to request AV Water install a separate meter, allowing the rental unit to be billed separately. That would mean each unit would pay the residential rate rather than the multi-family rate. AV Water would pay for the meter installation but the property owner would be responsible for paying for the line to be installed from the meter to the rental unit.

Customers have been concerned about the lack of flushing lines and hydrants. The stipulation requires AV Water to develop a policy for regular flushing in consultation with New Mexico Environment Department. This will help address customers' concerns about water quality and dirty pipes.

Water system struggles to pay bills

In documents leading up to the hearing, C. Randel Lewis, the court-appointed receiver who is over the water utility, and representatives of Stonetown Animas Lenders, the loan company that AV Water owes millions of dollars, argue that the rate increase will put AV Water on a better footing to exit receivership and be sold.

Maxwell Key is the vice president of Stonetown Capital, which oversees Stonetown Animas Lenders. He filed testimony in the case docket in the PRC detailing the condition of the water system and what his company has done to help it.

“When the Receiver was appointed by the District Court, AVW was in operational and financial distress,” Key stated. “The system was understaffed to the point it could not complete monthly meter reads or send bills to customers. The lack of billing for water use created a steep revenue decline and that coupled with a growing list of past-due vendor accounts, including the City of Farmington to ensure continued water service, created a scenario where AVW had no working capital or operating cash.”

More:AV Water owner: Company is 'strapped for cash'

During the boil water crisis, customers reported not being billed for months and then receiving one large bill. Many customers began reading their own meters after being overbilled based on estimated meter readings rather than actual meter readings.

AV Water Co. customer Irene Gallegos talks Friday about the water barrels she used to store water in at her property in Crouch Mesa after her water service was cut off for nonpayment.

The court appointed Lewis as the receiver in January 2017, a few months after the boil water advisory was lifted by the current system served by AV Water.  At that time, the other system previously owned by AV Water, Harvest Gold, was not included in the receivership and later became a mutual domestic water company, meaning it is now owned by the community it serves. That allowed Harvest Gold to access public funding to repair the infrastructure and connect to the City of Bloomfield’s water supply.

After Lewis was appointed to be the receiver, Key said Stonetown advanced him $215,000 to reach agreements with creditors like the City of Farmington and to hire employees to read meters and send out bills. However, even after bills began being sent out, the current rates were not enough to meet operational costs, Key states. In 2018, Stonetown provided another $75,000 to cover operating deficits. This money has not been repaid, nor has AV Water been making payments on the debt it owes Stonetown.

Key said even with the 27% increase, which will lead to more than $400,000 in new revenue, AV Water will not be able to make payments to either Stonetown or Andrea Corporation, which it owes money for water rights.

More:Complaint: AV Water defaulted on water rights payments

In Lewis’ testimony, he states that AV Water’s interest-only debt service is $354,346, of which $150,000 is owed to Andrea Corporation and the remainder is owed to Stonetown. The only payment it has made on its debt to those two entities was nearly $13,000 in 2019. Lewis said the utility is operating at a loss and cannot pay its bills.

Margo Kaiser gets water from a filling station in June 2016 at McGee Park after AV Water customers were placed under a boil water advisory.

One reason AV Water struggles to pay its bills is that it pays the City of Farmington more money for each gallon of water than it charges customers, Lewis said in his testimony.

“AVW charges its customers $1.00 for 3,000 gallons of water but pays the City of Farmington $6.87 for this amount. This is not sustainable,” he states.

The stipulated agreement includes usage charges of $2.75 per thousand gallons for the first 3,000 gallons used by residential customers. Additional usage will result in $4 per thousand gallons up to 9,000 gallons of usage. After that, the rate will increase to $5.50 per thousand gallons up to 20,000 gallons of use and, after a customer has used 20,000 gallons, additional water will cost $9.75 per thousand gallons.

Hannah Grover covers government for The Daily Times. She can be reached at 505-564-4652 or via email at hgrover@daily-times.com.

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