Phoenix, Ariz. —  The Arizona Corporation Commission voted unanimously at its July 24, 2025 Contingency Open Meeting to assign the responsibility of extra costs incurred for the construction of a new 1.5 million gallon underground water tank, solely on the Sedona customers of Arizona Water Company.  The utility requested and was approved a rate increase for its Northern District, which includes several northern Arizona communities such as Sedona, Pinetop Lakes, Munds Park, and Payson.  The Company spent approximately $20 million on the East Sedona Water Storage Tank and Booster Project, which was completed in March 2025.  To secure approval for a conditional use permit (CUP) by the Sedona Planning and Zoning Commission and City Council, the Company says it complied with the City of Sedona’s, and immediate surrounding community’s specific requests to bury the storage tank and “camouflage” the tank by building a structure on top of the tank that resembles a home for aesthetic purposes, so that it will blend in with the neighborhood and scenery.  The incremental costs of the City’s additional requirements totaled more than $6 million in costs that otherwise would not have been required, which the Commission decided should only be borne by the Sedona system customers, and not the entire Northern Group.

Arizona Water Company says it has taken nearly four decades for the Company to find a location that was agreeable with the City of Sedona and local residents for the new water tank.  The Commission deemed a new tank was prudent and appropriate, however, was adamant that the extra costs from the aesthetic requirements were not to be assigned to the other 15,000 customers who do not reside in Sedona.  The City and residents expressed disapproval for construction of an above ground water tank, which is the conventional design.  The Sedona Project is one of only three water tanks that have been undergrounded in the state, by Commission regulated companies. 

“Hopefully this is a strong signal to all water companies, local governments, and residents moving forward that if you require special conditions or place limitations on infrastructure based upon aesthetic preferences, you may be responsible for those extra costs,” said Chair Thompson. “I’m sympathetic to the majority of the Sedona customers who will be solely responsible for these added costs, but it is not an equitable requirement for the 15,000 customers in other communities to be responsible for millions in extra costs because a vocal minority didn’t like the way a water tank looked.”

“After a robust discussion today, the Commission reached a Decision in Arizona Water Co.’s Northern Group’s rate case that strikes a fine balance between ratepayer protections and company viability,” said Commissioner Rene’ Lopez.  “Thursday’s Decision also signals to ratepayers and local governments that, even in a consolidated group, the Commission will equitably allocate costs to certain customer groups when extraordinary expenses are incurred at their request or for their exclusive benefit. Nevertheless, the compromises and decisions made ensures ratepayers continue to have access to reliable and safe drinking water in some of Arizona’s most beautiful terrains.”

The Commission approved a return on equity (ROE) of 9.81% for Arizona Water Company, with a 0% fair value increment (FVI).  The company had originally requested a 10.3% ROE, with a 1.01% FVI.  The ROE establishes the return on the investment made in infrastructure for the company.

The average monthly bill for Sedona customers would increase by approximately 45%, bringing the average bill to a rough estimate of nearly $60 a month.  The rest of the Northern Group customers would an increase of around 34%, bringing the average monthly bill for that group to a rough estimate of $52 a month.

"The final determination of rates for Arizona Water came after a very thoughtful discussion at the Commission about the additional requirements by the City of Sedona for the undergrounding of the water tank and the appropriateness of the financial burden on other ratepayers within their northern division,” stated Commissioner Lea Márquez Peterson who voted in support of the amended case. “I am appreciative of my fellow Commissioners support for my amendment that requires the company to present possible improvements to their customer assistance programs within their next rate case."

"My job is to ensure expenses are just, reasonable, and prudent," said Commissioner Rachel Walden. "That is why I offered my amendment to ensure that non-operational aesthetic expenses will not be paid for by those who do not benefit from them.  I thank my fellow Commissioners for fully supporting my amendment."

"I’m pleased the Commission directed Arizona Water to engage in discussions with the City of Sedona about funds to help cover the incremental costs to bury the East Sedona Storage Tank,” said Vice Chair Nick Myers. “Because the City required and is directly benefitting from undergrounding the tank, it’s only fair that they contribute financially to cover the City-imposed aesthetic costs. Otherwise, the entire incremental cost of burying the tank will be borne by Arizona Water’s Sedona System customers.”   

All documents related to this rate case can be found at https://edocket.azcc.gov/, Docket No. W-01445A-24-0117.