One-On-One With Hardcastle

Controversial water company owner breaks decade of silence

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After several years of refusing Payson Roundup requests for face-to-face interviews, Brooke Utilities President Robert Hardcastle consented this week to an interview, and used the occasion to raise questions about the motives of some of those leading the effort to take over the Pine and Strawberry water companies.

“There are some who would like to get rid of all regulatory oversight,” he said, since the water companies would no longer answer to the Arizona Corporation Commission if acquired by the Pine Strawberry Water Improvement District. That means the district could drop the current building moratorium imposed by the ACC, with or without finding new water.

Hardcastle hinted that eliminating corporation commission oversight would benefit developers, real estate sales and possibly local government — but might ultimately harm customers.

“Connect the dots, you’ll see,” he said.

Hardcastle covered a range of topics in this in-depth interview, ranging from a defense of the state of repair of the Pine and Strawberry water system to insisting he intended to drill the controversial K2 Well himself, before the district came to him with the offer of $300,000 to finance the drilling.

“Do local residents really want to assume the substantial risks of owning and operating a water company?” he asked. “Are local residents willing to pay higher utilities rates that will not be subject to regulation by the corporation commission?”

In Pine, people supporting the takeover say the water meter moratorium imposed by the ACC should end so the two towns can continue to grow. Moreover, they say they have the support of most of the water users, citing the results of the spring recall and the recent election of board members.

Hardcastle also disputed the conclusions of an appraisal done by the consulting firm of Coe and Van Loo, which found the infrastructure of the PWC needs extensive repairs.

Hardcastle argues the system meets all national and state water standards. Although some upgrades need to be made, the system is in good operating order.

Hardcastle said the system works well now and an extensive upgrade could prove expensive.

“You can fix problems, but what if no one can afford to pay for them,” he said.

Hardcastle also defends his decision to partner with the water district for the K2 Well, and adds that he never asked for the $300,000 that PSWID agreed to put in escrow for the project.

Critics of K2 have denounced it as a sweetheart deal for the water company.

But Hardcastle claims, “We did not solicit that money for a deep well; they brought it to us.”

He also defended his decision to not actively negotiate a sales price with the PSWID board, which has made several purchase offers. Hardcastle said there will be no discussions about the purchase of the companies because the board does not have the money in hand or the financing to make the buy.

He compared the board’s purchase attempts to a consumer going to Walmart to buy something without money or a credit card.

“You can talk about buying something, but you can’t do it because you don’t have the money,” he said.

Finally, Hardcastle said he would give no more personal interviews due to impending litigation between Brooke Utilities and the board.

Pending legal actions include an arbitration hearing about the PSWID board’s decision to scrap the K2 project and the Joint Well Development (JDWA) contract.

BU has asked to reverse the board’s decision to cancel the contract. The first hearing is set for Feb. 9 through 12.

Here are our questions to Hardcastle, and his answers:

1. Do you think there is a deep aquifer near Pine and that it can be tapped as a 100-year water source?

 RTH – Maybe. At best, any deep aquifer likely exists below both Pine and Strawberry. Regardless of the comments of some of the special interests, the aquifer is unproven until placed under actual sustained usage conditions for extended periods of time. Any other conclusions are, at best, speculative. Water supplies always have an economic component as well as a hydrological component. Because a terrific water source is discovered doesn’t mean it is economically viable or affordable by those paying for its development, i.e. our customers.

2.  Allegations abound in Pine that the PWC water infrastructure is outdated, in need of repairs and generally run down. That seems to be borne out by the report Coe and Van Loo presented July 17 to the PSWID board. What would you like to say about the infrastructure, what condition it is in and any improvements being planned?

RTH — The performance of Pine’s water system speaks for itself. The national standard for water loss is 15 percent. The Arizona standard of water loss is less than 10 percent. Pine’s water system loss is less than either of these standards. It escapes me as to why community advocates want to replace water system components that perform at that level. Financially, operationally, regulatorily and economically, it doesn’t make sense. But, I understand, it makes for great community speeches and headlines.

 3. Are there any major improvements that have been done in the past couple of years? If so, at what estimated cost to BU?

RTH — Obviously. Project Magnolia was completed in 2001 at a cost of slightly less than $500,000. That pipeline had been discussed since the early 1960s, but could not get built. Others talked about it. We built it. We’ve also been trying for more than two years to develop the K2 well project.

4. Given the water shortage and the moratorium in the two towns, why did you not drill the K2 well at your own cost?

RTH — PWCo was offered a public-private partnership arrangement with PSWID. That was a deal they brought to us. Of course, it was an opportunity to develop a project for the benefit of the local community and share the development risk. The balance of the deal also called for PWCo investing an additional $1 million. It amuses me when I hear community advocates say we have no risk in the project. Obviously, they know that it is not true. Again, it makes for great community speeches and headlines.  

5.  Do you think there is a hidden agenda or ulterior motives among those pushing for a takeover of the two companies? If so, what could they be?

 RTH — Don’t you? Think about it — real estate sales, development, local government, financing, nonregulated water sales. What does that say to you? One can’t help but wonder whether these interests really serve the best interest of Pine and Strawberry.

6. Some argue that PSWID board critic and unsuccessful candidate Sam Schwalm is a tool of BU. They allege that some of the extensive information he puts on his website is provided by someone at BU to throw a kink into the possible buyout of the two water companies. Please talk about those allegations. 

RTH — I think that is a disrespectful and demeaning accusation. BUI has helped Mr. Schwalm very little. The public, especially the PSWID board, can’t believe he has achieved his level of understanding on his own. Some people actually admit what they don’t know, and work hard to understand things. PSWID should have done the work Mr. Schwalm has done. He is right on many of his points. The community should pay more attention to his conclusions.  

7.  In retrospect, do you think the companies have an image problem in the two communities?

 RTH — Image problem? Our job is to deliver high quality water in sufficient quantities at a fair price. That is what we have done. That is what we will continue to do.

8. A consultant hired by the PSWID board filed a report that said one of the two water companies barely broke even in 2007 and the other lost $150,000. At the same meeting, CVL Vice President Ken Knickerbocker said he would offer just $200,000 if it was his own money. What do you think the water companies are worth?

RTH — I cannot comment on the valuation issues given the District’s pending condemnation lawsuit.  What someone would personally offer for an asset has no relevance to the situation in Pine. Besides, PSWID has no money and they have been unable to get financing. I’ve asked them for evidence to that effect for almost a year now. Still no evidence. What difference does it make what an asset is worth if you don’t have the ability to buy it? It’s all just rhetoric and speculation at the expense of the community. Without more money, it’s all just rhetoric .

9. Among the complaints being voiced about the two water companies are grievances about water shortages, lengthy outages, water hauling, huge monthly bills and an unresponsive automated customer service system with its roots in a foreign country. Are those allegations valid? 

RTH — There have been no lengthy outages or shortages. Outages due to repairs happen, and are kept to a few hours of customer inconvenience. Water hauling did not occur in 2008. In 2007, our water hauling was limited to the amount necessary to serve our customers. That did cause higher than normal bills in Pine only. Hauling is a pass-through cost. Pine Water Co. does not and cannot make a profit off of hauling water.

Each month hauling is required, the bills and accounting are submitted to ACC for approval before being sent to the customer. About the first of last year, our customer service operation was transferred to Costa Rica. Instead of being a contract service (as in the past), this is now an operation that works only for Brooke Utilities and our customers. Calls are being handled faster, with less return calls and with a greater satisfaction. The customer service representatives are well trained and not automated.

10. Is there anything you would like to say to the two towns’ water users?     

RTH — I can assure the members of the community that they are not being told the whole story about water in the area. I would encourage local residents and water customers to ask themselves whether it truly is in their best interests to own and operate a water utility serving over 3,000 customers.  

Do local residents really want to incur the millions of dollars in acquisition, operational and other costs associated with owning and operating a water utility? 

Do local residents really want to assume the substantial risks of owning and operating a water company? Are local residents willing to pay higher utility rates that will not be subject to regulation by the Corporation Commission anymore?  

The people of the community are going to get blindsided if they don’t insist on complete disclosure just like PSWID promised they would do. The PSWID board works for the community. Not the other way around.

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