Scottsdale studies water company take-over

Scottsdale officials green-lighted a study this week into the possibility of running Arizona American Water Co. out of town and taking over service to the private water utility's customers in the city.

In a separate action, the City Council also approved the issuance of $230 million in bonds to pay off an unfavorable and expensive verdict in the Toll Bros. eminent domain trial and for capital projects.

Arizona American provides drinking water to about 12,000 people in a 9.5-square-mile area that includes parts of Scottsdale and Paradise Valley. The discussion of a potential takeover of the system comes at the behest of City Councilman Ron McCullagh, an Arizona American customer, in the aftermath of two recent incidents at the company's Miller Road Treatment Facility at Miller Road and McDonald Drive. At least one of the incidents allowed elevated levels of the suspected cancer-causing chemical trichloroethylene, or TCE, into customers' tap water.

McCullagh said Arizona American is driven by financial concerns rather than concern for customers.

"These are just a symptom of a management pattern that disregards the public interest," McCullagh said Wednesday.

The council voted unanimously Tuesday to draft a report analyzing the company's system, appraising its assets and listing options for financing a potential city buyout or condemnation. The study is expected to take several months, McCullagh said.

"What I wanted to do was take the study to the next level," he said.

Todd Walker, a spokesman for Arizona American, said the utility is not for sale.

"Arizona American is willing to work with the city of Scottsdale to address all concerns," Walker said. "We strongly oppose any attempt to acquire the system by the city."

Scottsdale's options include letting Arizona American continue to operate the system, but increasing city oversight; switching the water lines of Scottsdale's Arizona American customers over to the city's water system; acquiring a portion or all of the utility's Scottsdale facilities; acquiring the whole system, and then coming to some agreement with Paradise Valley on water delivery; or jointly acquiring the system with Paradise Valley.

Preliminary city estimates peg the cost of a potential takeover well in excess of $50 million.

Also, the council voted 6-1 to authorize three bond issues this year totaling $230 million, with Councilman Tony Nelssen casting the dissenting vote. Of that, $20 million will go toward paying Toll Bros. developers the balance of an $82 million jury verdict in a recent eminent domain trial. The city had estimated the land - 383 acres in north Scottsdale condemned in 2004 for the McDowell Sonoran Preserve - to be worth $34 million.

The second bond, a $100 million general obligation bond, breaks down into $36 million for libraries and parks, $14 million for scenic corridors and $50 million for transportation.

Officials also plan a $110 million issue for water and sewer improvements, including $24 million for a 100-year lease of water rights from the Gila River Indian Community to help cover Scottsdale's needs through 2035; $40 million to cover a major expansion to treat drinking water at the Scottsdale Water Campus, 8787 E. Hualapai Drive; $11 million for a reservoir, pump stations and a pipeline in north Scottsdale; $10 million for sewer improvements on Miller Road in south Scottsdale; $15 million to expand a sewage-treatment plant on 91st Avenue in Phoenix, where south Scottsdale sends its sewage; and $10 million for cost increases.

None of the proposed bonds would have to be approved by voters, since the general obligation and McDowell Sonoran Preserve bonds are part of larger, previously approved bond issues and the water/sewer bond is a municipal corporation bond that only needs City Council approval, officials have said.