Arizona is trying to achieve something that has stopped economists and resource managers for centuries - managing a valuable commodity without using price signals, and delivering a utility service without funding the investments required for that service. 

The state capitol of Phoenix, home to over a million residents in the middle of a desert, is in the midst of a mayoral election in which a leading candidate has made lower water bills one of the three tenets of his campaign.  The public utility commission, the ACC, has completed its work on water rates for all its largest water companies - and as a result the state was just named the worst state in the nation for water investment by Janney Montgomery Scott. 



The Janney analysis is eerily similar to the last two Standard & Poors' surveys of regulatory climates in the U.S., both of which placed Arizona in the bottom five for investment.



In the past year, two of the most highly regarded water companies in the state entered into deals to leave Arizona; the ACC debated whether or not to provide funding to recharge the water aquifer in the Tucson area - happily they decided it was worth $200,000 to make sure the wells don't run dry, sadly, it was a 3 to 2 decision; and the state decided that the acquisition costs of buying a water utility should be discounted against the rate base of the acquired company - so if a company spends $10 million to buy a company that has $10 million in plant, the new regulatory value of the company is $0.

It's an extraordinary confluence of events and for the 700,000 or so Arizonans who rely on water companies to provide safe, reliable water it's more than a bit alarming.  For the million-plus residents of Phoenix, the mayoral campaign should give them pause as they consider whether a city that is consisently rated one of the driest in the nation should really have "cheap water".

While it is true that if Arizona pulls this off and finds a way to manage water without money it will be a truly historic achievement; but it is a virtual certainty that the state will not find a way to make water cheap where it is scarce, and reliably available when there is no money to do so.  So in Arizona, we may soon find out the value of water when the wells run dry.

 Janney National PUC Evaluation for Water Regulation