$17.1 million purchase price facing town of Carefree

CAVE CREEK – Today in a Special Zoom Town Council Meeting, the Town’s water attorney, Joe Conner Esq., presented the Valuation Report for the Cave Creek Water System assets located within the Town of Carefree that serves 544 customers. The expert reports determined the fair market value and damages resulting from physically separating the assets in Carefree from the core Cave Creek System totaled $17.1 million.

The $17.1 million cost includes the value of the Cave Creek System assets taken at approximately $9.3 million, plus severance damages of nearly $7.8 million to separate the system, pay for stranded assets and new infrastructure to maintain the integrity of the remaining Cave Creek System.

Appraisers determined the value of Carefree Service Area System based on four value indications: adjusted total compensation paid by Cave Creek in 2007 for the entire system; discounted cash flow analysis; direct capitalization of cash flow; and replacement cost new less depreciation (RCNLD).

The severance damages were determined by totaling the cost resulting from disconnecting the Carefree Service Area from the Cave Creek System, including the cost of stranded assets and new infrastructure required to keep serving Cave Creek customers impacted from the disconnection. It also included costs associated with excess treatment capacity at the Cave Creek Water Treatment Plant (WTP) resulting from the loss of customers in the Carefree Service Area.

“Carefree customers are very important to the Town and the system,” said Conner at the meeting while explaining the damages the Town will incur if the separation of the integrated system happens. “This is a very unusual transaction. It’s a strain on both communities, both administrations and on finances.”

In 2005, the towns of Carefree and Cave Creek entered into an agreement in which Carefree consented to Cave Creek acquiring the portion of the private water system that served almost 500 residents in Carefree.
In 2005, Cave Creek filed a condemnation action to acquire the entire private water system at a substantial cost. In 2018, the Town of Carefree embarked on a campaign to break off a portion of the Cave Creek system that is physically located within the Town limits of Carefree.

Next Steps
The arbitration hearing to determine the total compensation and severance damages that Carefree must pay for the Cave Creek assets located within the Carefree city limits Is scheduled to begin on July 17, 2020 In Phoenix.

Notable quotes
“- Carefree has the perfect right to condemn the Carefree portion of the Cave Creek Water Company, but that does not make it the best option for its residents.

  • Both sides will come out as economic losers.
  • Cave Creek’s water counsel, Joe Conner, has done almost 30 condemnations. This is the only one where a Town has condemned another Town.
  • The Cave Creek Water Company has a solid record of safe and reliable water. Plus, major improvements are underway in every aspect of its operation. The current company is not the same one when Carefree started this action.
  • The agreement with Phoenix to back up the Cave creek water system will provide unprecedented water reliability in even extreme situations. Land has been purchased, the budget approved and engineering is underway so this improvement is coming soon
  • Both Towns should set aside past differences and find the best solution for both towns instead of this crazy arbitration. Cooperation, not condemnation, is in everyone’s best interests.” — Bob Morris