The City of Sedona on Thursday approved an amendment to its franchise agreement with Arizona Water Company that will give a 3% monthly credit on water statements to Sedona-system customers instead of the city collecting a 3% franchise fee.

Council said the move is intended to blunt the immediate financial impact on residents after the Arizona Corporation Commission, in a recent rate decision, assigned about $6 million of the construction cost for an east Sedona storage tank to customers in the Sedona system rather than spreading that portion across the larger regional customer base.

The credit will appear on customer bills as a “City of Sedona franchise fee credit.” City staff told council the change is a temporary suspension of collections; the franchise agreement itself remains in force. The city will stop receiving the 3% revenue while the credit is on customers’ bills. Council members said they favored the change because they saw the ACC action as a punitive allocation of costs to Sedona customers.

City Manager Kurt Harris told the council the commission’s decision “blindsided” both the city and the utility, and that the city had opposed assigning the additional $6 million specifically to Sedona customers during the ACC proceeding. Nick Liu of Arizona Water Company said the $6 million translates into roughly $3.92 per month on an average residential bill and that waiving the 3% franchise fee will partially mitigate that increase.

“By waiving the 3% franchise tax,” Liu said, “you’re removing roughly $1.75 from that monthly increase for the average customer — about a 45% mitigation of the specific $6 million allocation.”

Council members pressed staff for the details of how the franchise fee revenue has been used historically; staff said franchise-fee receipts had been recorded in the city’s general fund and had been earmarked in the past for fire hydrant work. Finance staff said the franchise-fee proceeds are not in a separate legally restricted fund but are tracked and can be reserved for items such as hydrant upgrades when needed.

Several councilors urged staff to track the suspended credit in the city’s financial forecasts so the issue does not disappear from future budget discussions. The council voted to approve the amendment and asked staff and Arizona Water Company to produce a joint public statement explaining the mechanics of the credit and how it affects bills.

Public commenters pressed the council to do more. Ernie Strow said the council should “do everything you can” to return the $6 million to Sedona ratepayers, and additional speakers criticized the ACC decision and urged council action to protect residents.

What the amendment does and does not do
- The amendment instructs Arizona Water Company to show a 3% credit on Sedona-system customers’ bills rather than remitting the 3% franchise fee to the city. It does not cancel the franchise fee permanently; it suspends the city’s receipt of that revenue while the credit is in effect.
- The Arizona Water Company said the $6 million allocation to Sedona customers is part of a larger roughly $20 million project. The larger project’s remaining costs are recovered across the broader customer base.

Council and next steps
Council voted to approve the amendment (motion carried). Staff said it will finalize the written amendment with the utility and distribute a joint press release explaining the action and the bill-level impacts.

The action affects every Sedona customer on the Arizona Water Company Sedona system; the credit will show on monthly statements so customers see the line item and the amount.

Ending
Council members described the amendment as an immediate, practical step to offset a decision the city opposed at the Arizona Corporation Commission. They directed staff to record the change in the city’s financial forecasts and to return to council if budget circumstances or future rate actions make reinstating the fee advisable.