ANTHEM, AZ Homeowners in the Anthem community in Maricopa County, north of Phoenix, upset over a substantial increase in their water bills that they claim was hidden from them when they purchased their homes, have brought a class action lawsuit against Del Webb/Pulte, and Arizona American Water Company.
The lawsuit, filed under Arizonas Consumer Fraud statutes, alleges that the defendants failed to disclose that the cost of the water and wastewater infrastructure developed to serve the community was excluded from each homes price in order to keep prices low.
The homeowner plaintiffs, represented by Kasdan Simonds Weber & Vaughan, LLP, allege in the lawsuit recently filed in Maricopa County Superior Court that Arizona American is now requesting substantial rate hikes to repay hidden infrastructure obligations that it owes to Del Webb/Pulte; the homeowners are seeking damages equal to the repayment costs, or approximately $100 million.
Del Webb/Pulte and Arizona American agreed to artificially set the initial water rates at Anthem at approximately $70 per home so as not to shock potential purchasers with the true cost of supplying water to the homes, explained Sr. Partner Ken Kasdan of the Kasdan Simonds Weber & Vaughan law firm. He said the total infrastructure costs exceeded $150 million.
Specifically, the lawsuit alleges that Defendants failed to properly disclose to Anthem home purchasers the existence of the Agreement and the fact that home purchasers would bear the cost of the loan repayment to Del Webb/Pulte through future rate hikes instead of having the infrastructure costs of the Water Facilities be included within the cost of homes. Kasdan noted, The bottom line is, Del Webb/Pulte concealed the true cost of the homes from the homeowners.
Arizona American recently applied for and obtained the first of several anticipated rate increases, Kasdan said. The rate increase applies primarily to the base rate and not to the gallons used by the individual homeowners. Arizona American sought an annual increase of $18,720,193 in their 2007-08 rate increase application.
According to the lawsuit, Del Webb/Pulte and Arizona American entered into a private agreement on September 29, 1997, under which Del Webb/Pulte and Arizona American would construct water and wastewater infrastructure for the Anthem project. Under the agreement, which was never disclosed to the Anthem homeowners, Del Webb/Pulte advanced the costs of the infrastructure to Arizona American, with the monies being repaid after the build out of homes at Anthem. The undisclosed plan called for the homeowners to fund the repayments through increased water rates.
The lawsuit alleges that the Arizona Subdivision and Public Reporting statutes require a developer to disclose to potential homebuyers whether the cost of water infrastructure needed to provide water to the home is included in the price of the home. Kasdan said that in its Public Report, Del Webb/Pulte falsely disclosed to some early purchasers at Anthem that the cost of the water infrastructure was included in the purchase price of the home. For later purchasers, Del Webb/Pulte made no disclosure at all.
Kasdan said the build out at Anthem is now approaching completion with about 10,500 homes, and Arizona American must now repay its debt to Del Webb/Pulte. The exact amount of the obligation is unknown to the homeowners at this time, but is believed to exceed $100 million, he said.
Del Webb/Pulte has maintained and continues to maintain that the disclosures or lack thereof of the cost of the infrastructure has nothing to do with the current Arizona American utility rate case. Del Webb/Pulte has stated to Anthem homeowners: Please be assured that the developer of Anthem followed Arizona Department of Real Estate (DRE) disclosure requirements regarding water and services.
However, Arizona American cites the cost of the infrastructure and the repayment obligation to Del Webb/Pulte in its rate increase application. The application also reports that Del Webb/Pulte and Arizona American developed a methodology that provided for reasonable, but high initial rates, followed by a series of rate increases as the number of homes sold increased.
At the June 4, 2008, Special Open Meeting before the Arizona Corporation Commission regarding the requested rate increase, Commissioner Kristin Mayes stated:
This rate increase is patently unfair. It asks current customers to pay a bill they didn't know was coming, didn't have a chance to protest and didn't have an opportunity to prepare for... I would add that there is no evidence that any utility in the State of Arizona has ever been financed in such a patently unfair way to consumers.
And I think it is important to note that by leaving the [repayments] in the rate base, we are subjecting, we are forever allowing them to be in the rate base and subjecting all future ratepayers to paying for those unfair costs. . . . . This is an extraordinary case. Never before has this commission approved such a large rate increase on such flawed circumstances.br />