What is the value of the Carefree assets?

In the May 20 edition of this paper there were two articles laying out vastly different values for the portion of the Cave Creek Water system that serves Carefree. The final value will be determined by an arbitration panel that will be hearing the case some time later this summer. Cave Creek purchased the entire Cave Creek Water Company for $19.5 million back in 2007 or just under $8,000 per meter.

Included in the purchase were approximately 2500 metered connections as well as a water treatment plant, 11-mile CAP pipeline and 4 CAP pump stations. This was after their own appraisal they commissioned in January of 2006 valued the complete system at $11 million. The Carefree portion represents approximately 530 metered connections and does not include any treatment plant or CAP pipeline and pump station assets. Roughly 50% of Cave Creek Water Company’s assets are treatment plant and CAP pipeline/pump station related. Cave Creek’s current valuation for the assets and severance costs for the portion of the system serving Carefree recently came in at $17.4 million while Carefree’s appraisal was $1.47 million.

To put these numbers in some context, of the water systems purchased in AZ between 2004 -2018, the average purchase price was $3,763 per meter and included all treatment plant and water transmission pipeline assets. Cave Creek is asking for something in the neighborhood of $33,000 per meter when all their “damages” are included. Carefree has offered approximately $2,800 per meter. At this point to try and guess at the final price tag and what the impact will be on Carefree and its rate payers is idle speculation. The process is nearing completion and needs to play out. What is not speculation is that there are 1000 Carefree residents who are subjected to water service that does not meet the standards enjoyed by the rest of the Town’s residents. This includes poor water quality, lack of industry standard fire hydrant maintenance, continued issues with water pressure both high and low and the reliance on a system that has not been properly maintained. Worst of all they have no political voice in the management and oversight of their most critical resource in the arid southwest.

This was not the case when many of us purchased our homes. What is now Cave Creek Water was owned by a private utility, Global Water, and the AZ Corporation Commission provided oversight and a venue for citizens to take their concerns. Carefree agreed to work with Cave Creek on their condemnation of Global Water with the idea that the IGA they entered into would protect its citizens and allow for the integration of the 1000 Carefree residents served by Cave Creek Water into the Carefree Water Company if they desired to do so at a future date. It was to be an “amicable” separation if and when Carefree chose to exercise its rights agreed to in the IGA. What is also not speculation is that Cave Creek has lagged in the maintenance of the water system. Cave Creek has not had a rate increase in over 10 years. Most water utilities have small increases in rates every couple of years to keep up with inflation and fund required capital expenditures.

The necessary ongoing capital requirements are typically spelled out in 5-year documents called a Capital Improvement Plans (CIPs). Cave Creek has not done this. There have been voices calling for both long term CIP’s and rate increases since at least 2014, but only since Cave Creek started their legal battle with Carefree in early 2018 have they begun to seriously pursue these processes. Don’t take my word for it, a review of the public record is quite informative. Keep in mind these are quotes from approved Cave Creek Town Council meeting minutes that the Mayor and Council review, have the opportunity to correct and must sign off on for accuracy.

1) Cave Creek Council Meeting June 18, 2018 Approved Meeting Minutes Agenda Item 6 – Adaption of Tentative Budget for 2018- 2019 It is worth reading the entire minutes of this agenda item (pages 26-42) as it is quite illuminating as to how the Cave Creek Water Company had been run the 11 years since its purchase in 2007. The first quote is from former Utilities Director Kaylor relative to maintenance done on the Town’s CAP pipeline/pump stations providing the Town’s ONLY SOURCE FOR WATER and is found on page 31: Kaylor: “If you look at the CAP pump stations, they’re 33 years old.

Not a drop of actual maintenance has occurred, so that is a high priority item. It’s the highest priority item that, its, it’s the only dog we have in the show we have right now to get water from the CAP canal into our CAP treatment plant” The next quote is from Mayor Bunch found on page 35 and is in response to a Council member Wright questioning a $3,000,000 increase in the budget and commenting that it is substantial.

Mayor Bunch: “It certainly is, because, cause we’ve ignored a lot of stuff for a lot of years and that, I think, because we didn’t think we had the money or the, or the, the um, desire to do more in the way of maintenance and, and, uh, improvements, hasn’t actually been there, where this Council is actually showing that desire. Yeah, its, its up. There is no doubt about it and we’re gonna look bad, there’s no doubt about it, but we have, have not done the best job in, in the, historically that, uh, that we should have been doing, I don’t think”

2) Cave Creek Council Meeting June 3, 2019, Approved Meeting Minutes – Agenda item 3 – Possible Adoption of Tentative 2019-2020 Budget: PG 11- Discussion by Finance Director Weddigen to clarify that the budget went from $21.4 million (not $18 million), to $30.4 million in response to comments from Councilman Morris: “The overall answer to Mr. Morris’ question is that there was a lot of foregone maintenance relative to the system, coming out of the recession and the pent-up demand for maintenance and repair, as well as establishing and maintaining routine maintenance and repair structure so that failures don’t happen, all that benefits the customers for a safer and reliable drinking water system.”

With the above quotes gleaned from the public record it should be of concern to all customers of the Cave Creek Water Company as to how the system has been managed. It is interesting to note, having been part of the Water Advisory Committee from 2013-2017, working with a talented group of people, pointing out all the deficiencies for years and serving on the Cave Creek Town Managers Rate Committee in 2016-17, we could not get the Mayor and Council to take corrective action.

It has not been until Carefree exercised its rights granted to them in the 2007 IGA to acquire the assets within our Town and provide proper water service to the 1000 impacted residents, that we now see Cave Creek attempting to try and correct 12 years of poor management. Cave Creek Water has identified somewhere in the range of $20 million dollars of critical projects in a 5 year CIP, not including the unbudgeted $2 million spent on special water treatment plant filters last year. However, the Mayor and Council only approved the first year of projects, have not provided firm time lines for completion of critical projects, the means to fund the projects or the impact on rates.

It appears they have a lot of catching up to do.

Tony Geiger