Court ruling stalls Queen Creek acquisition of water company

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By Chase Kamp

Southeast Valley Ledger

A recent ruling by the state appeals court in a Marana water case has halted the efforts by the Town of Queen Creek to acquire H2O Inc., a local water company that currently serves 3.5 square miles of the town and large swaths of northern San Tan Valley. The acquisition, which officials say would enhance the Town’s municipal water system and better prepare for expected population growth, will now be put to the voters in a mail-only special election beginning Apr. 25.

Town manager John Kross said the Town completed an agreement with H2O Inc. to envelop the company’s assets and service area into the Town’s own municipal water company for $44 million in Dec. 2012.

However, a ruling passed down that month by the Court of Appeals in Town of Marana vs. Pima County that forced municipalities to ask voters for approval to expand on existing municipal water systems was upheld by the state Supreme Court in Jan. 2013.

H2O Inc. would ultimately serve about 20 percent of the Town population upon the completion of the Church Farms subdivision on Meridian and Rittenhouse Roads.

Kross argued that rounding out municipal water service for the entirety of the town would ease growing pains for the town’s anticipated population growth. “It shores it up so that there’s absolutely no question about it for many years in the future,” he said.

He said Queen Creek aims to provide sufficient utility services to future employers, as well as housing developments, and ample water supply is critical. “We’re trying to be much more than a bedroom community,” he said, “and these facilities are absolutely key to have ample number of employers for jobs in the region.”

H2O Inc. is a family-owned company that has served the Pinal and Maricopa County area for more than 40 years. In addition to Queen Creek service, the company’s service area includes large San Tan Valley subdivisions like Encanterra, Pecan Creek and Queen Creek Ranchos.

Kross characterized the enveloping of H2O Inc. as a doubling of the Town’s existing system, with the two having roughly the same amount of customers and infrastructure. He said H2O Inc. has about 9,500 accounts.

Filling out the town limits for water service not only corrects a service situation that is unusual for most municipalities, Kross said, but has practical implications. “It means we won’t have to expend $11.9 million in new capital infrastructure for new wells and pumps,” he added.

The Town has reiterated that should voters approve the deal, rates for current H2O customers would match the current rates paid by Queen Creek customers, resulting in little to no change for average users.

Kross said the Town would finance the acquisition through what he characterized as a self-financing deal, saying the town will be taking out low-interest Water Infrastructure Finance Authority loans for the company that would effectively be covered by the net annual revenues of H2O Inc.

“That was key for us because we were not interested in a situation where we would finance it through a rate increase for Queen Creek or H2O rate payers,” he said.

The Town established its own municipal water company in the mid 1990’s by voter approval through language Kross said was used by every other Arizona municipality. The ruling in the Marana case renders that language too broad to allow municipalities to expand service.

“For every single expansion of your system or to start something new, you have to ask that specific question of your residents and voters,” he explained.

The Town and the company had reached an agreement just before the ruling complicated the deal, Kross said. “We were already well down the road and the deal was done,” he said, adding that the acquisition was conveniently slated to close at the end of the summer, effectively accommodating the election process.

Should voters approve the acquisition, the Town will still need to perform a thorough audit of H2O Inc., apply for WIFA loans and get the purchase approved by the Arizona Corporation Commission.

Kross said he was optimistic that the ACC would approve the deal by Oct. of this year or sooner.

“We’re hoping because there’s been a fair amount of due diligence on our behalf, and H2O being an outstanding company, that there aren’t a lot of information gaps to close,” he said.

The official ballot and election materials will be mailed to all qualified electors beginning Apr. 25, 2013, with results tallied on May 21.

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