Anatomy of a water company acquisition

Cottonwood City Manager Brian Mickelsen detailed just about every aspect of the city's venture into the water business Monday for the group that will eventually issue the bonds to finance the project.

The three-member board of directors for Cottonwood's Municipal Property Corporation (MPC) held a work session to hear a status report on the city's continuing efforts in acquiring three local, privately owned water companies.

The MPC is an arm of the city that actually issues the bonds for purchasing municipal property. They will hold onto the debt as a corporation and lease the property back to the city. After the debt is paid off the assets, in this case the water companies, go to the city.

In reality, the city of Cottonwood will be taking on the debt and the MPC will not be held liable. But MPCs are state-structured mechanisms cities use to purchase utilities.

Mickelsen told the board the reasons the city initially decided to get into the water business have not changed.

"We're a small town and we've got four different water companies," Mickelsen said.

Each has a different policy and serves different parts of Cottonwood, he said.

"It's really not an easy way to run a city," Mickelsen said.

Fire protection was an issue early on in the process and the problem still exists today. Private companies aren't required to provide fire hydrants, he said.

Council members also deemed water resource development important at the early stages of the water company acquisition.

"As much as possible and practical, we want to build a water rights portfolio," Assistant City Manager Robert Hardy said.

Mickelsen said the distribution of that water is important as well. Since the Arizona Corporation Commission sets the rates for private companies, it is hard to get them adjusted. Privately held companies have a difficult time getting the money needed for capital improvements to the systems they run, Mickelsen said.

At a recent public hearing regarding the new rate structure for the municipal water company, many people expressed concern over the higher rates that will be charged by the city.

Mickelsen told the board that in the future the council hopes to somehow lower the rates for the lowest water users.

He also explained why the rates would go up from what customers are currently paying. New federal arsenic regulations are a big part of the reason.

In 2006 the new standards will come into effect. There will be no waivers or exemptions, even for privately held small companies. Some of the smaller companies could be able to get a delay, but everyone will be impacted, Mickelsen said.

"It has to be addressed," he said.

The proposed capital improvements are also a reason the rates are rising.

Council members have already approved the rates. The next step will involve the MPC board of directors adopting a resolution approving the bonds. Members of the city council will also have to adopt the resolution.

The privately held water companies are expected to become property of Cottonwood the week of Aug. 16.


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