Regulators approve massive utility rate hikes for Ajo residents

Ajo residents say major water, sewer and electric rate increases will devastate the lower-income community.

Ajo residents would see major increases in their utility rates spread out over a longer phase-in period but would end up paying a little more, under a new proposal filed by Ajo Improvement Co.

Ajo Improvement Co. — a multi-utility company owned by mining giant Freeport McMoRan Inc. — has asked the Arizona Corporation Commission to reconsider its May 22 decision rejecting a modified rate plan for its roughly 1,000 customers.

The proposal denied by the utility panel would have raised water rates for home customers with median usage by about 207%, while hiking sewer rates 337% and electric rates about 95%, over a seven-year phase-in period.

Those proposed increases were far less than the company’s original request, but resident activists and other opponents said the increases would be devastating, particularly to the unincorporated community’s many low-income residents.

In a recent petition for reconsideration, Ajo Improvement agreed to base its requirement for new revenues on a 10% operating profit margin — compared with 5% in the rejected plan and 12% in an earlier agreement with commission staff — but it would extend the rate phase-in period to 10 years.

The company’s proposal would result in the same 207% increase in water rates as proposed in the rejected plan but phase them in over 10 years instead of seven, reaching $56.41 monthly in the tenth year from $18.40 now.

But Ajo Improvement’s flat-rate sewer charge would increase 369% over 10 years, from $16.10 now to $75.51, while electric rates would rise 113%, to $60.75 from $28.49 for median usage.

Overall, Ajo customers with median usage would pay nearly $193 per month for all utilities by the rate deal’s tenth year, compared with $63 now.

Opponents say the increases would hit some customers much harder, contending that overall usage figures are skewed lower by a large number of winter-only residents.

Ajo Improvement said “an increase in rates is mandated by Arizona law,” because the utility is losing money. The law requires the Corporation Commission to sets rates based on each utility’s operating costs plus an allowable return on their rate base, or assets used in providing service.

The utility says it needs higher rates to recover about $48 million in system improvements completed since the last rate cases. The company’s water and sewer rates were last changed in 2004, and its current electric rates were approved in 2000.

But resident activists and Pima County officials blamed the company for failing to file for new rates years ago, leading to the huge rate requests, and criticized the utility for failing wastewater equipment and poor electric service.

Under the latest proposal, Ajo Improvement says it would forego some $2.5 million in revenue by calculating rates based on a 10% operating margin, along with about $14.7 million in lost revenues over 10 years.

The company said its customers have been paying artificially low utility rates for years, noting that their electric rates wouldn’t reach the level of a neighboring customer of Arizona Public Service Co. for six years.

Ajo Improvement has also agreed to refund $200,000 in surcharges collected for purchased power and renewable-energy programs and set up a fund of up to $25,000 to help low-income customers pay their bills.

Contact senior reporter David Wichner at dwichner@tucson.com or 573-4181. On Twitter: @dwichner. On Facebook: Facebook.com/DailyStarBiz

Reporter

David joined the Star in 1997, after working as a consumer and business reporter in Phoenix for more than a decade. A graduate of Ohio University, he has covered most business beats focusing on technology, defense and utilities. He has won several awards.