A controversial proposal to drastically raise utility rates for residents of the small community of Ajo is headed toward a final decision by the Arizona Corporation Commission, with a new plan to soften the blow on residents of the former mining town.
A state administrative judge has proposed extending the phase-in of huge increases in rates for water, power and sewer service provided by Ajo’s main utility, Ajo Improvement Co.
The utility, which is owned by Phoenix-based mining giant Freeport McMoRan Inc., had proposed new utility rates that over five years would double customers’ electric bills, triple their water bills and increase their sewer bills fourfold.
The Arizona Corporation Commission is scheduled to take up the combined water, wastewater and electric cases for a possible vote at its next opening meeting Tuesday, May 21, and Wednesday, May 22.
Utility officials say the rate increases are necessary because rates haven’t been adjusted in years and the company needs to recoup about $48 million in system improvements over the past decade.
The company says its roughly 1,000 customers have been paying artificially low utility rates for years, citing comparative rates for neighboring utilities, and that its essential subsidy of rates led to an overall loss of $1.2 million in 2016.
But Ajo residents and community leaders say the rate increases would be devastating to residents of the small community about 100 miles west of Tucson, where nearly 30 percent of the roughly 3,500 residents live below the federal poverty line.
In a recommended order filed in April, Corporation Commission Administrative Law Judge Belinda Martin said the revenue increase and and resulting rates agreed to by Ajo Improvement and the commission’s utilities division staff are too high.
Martin recommended spreading out the rate increases for the three services over seven years, instead of five, and proposed cutting Ajo Improvement’s allowed operating profit margin to 5%, from 12% agreed to by the company and the commission staff.
For the median home customer at the end of seven years, the judge’s proposal would result in a 206% increase in water rates, a 334% increase in sewer rates and a 95% increase in electric rates.
The Corporation Commission can choose to adopt, reject or change the judge’s recommended order.
In a response filed in early May, Ajo Improvement said it could accept the seven-year phase-in but opposed the move to a 5% operating margin, saying it would not keep up with inflation and the company wouldn’t be able to cover its expenses until the sixth year of the phase-in.
Ajo Improvement said it sought only to recover its expenses plus a set operating profit margin, rather than earning a rate of return on its capital costs under traditional ratemaking rules, because of the magnitude of the cost relative to the utility’s small customer base.
The company — which had originally sought operating margins of 20% for water and wasterwater and 15% for electric — said that at an operating margin of 5%, it would forgo $7.6 million in revenues over the seven-year phase-in period.
The company also cited steps it has already offered to take to mitigate the impact of the bill increases, including returning $280,000 in surcharges for purchased power and fuel and renewable-energy programs to ratepayers in bill credits over three years; establishment of a $20,000 to $25,000 annual “bill assistance fund” funded by the company; and possibly offering a levelized billing option where customers pay the same monthly charge over the year.
Robert Sorrels, an Ajo resident who is an official intervenor in the Ajo Improvement rate case, said in a filing that even with the judges proposed longer phase-in, the proposed rates are unfair.
Sorrels said the proposed order “rewards incompetence,” makes fundamental errors both of data and analysis, and “savagely understates the devastating impact such an absurd rate request would have on the people of Ajo.”
He maintains that it is impossible to separate Ajo Improvement Co. from its parent, Freeport, and that Freeport promised Ajo residents that it would fix the town’s aging utility systems at no cost to ratepayers when it acquired Phelps Dodge Corp. in 2007.
Phelps Dodge built Ajo to house workers at its New Cornelia Mine, which began full-scale mining in 1917 and was closed in 1983.
Sorrels also alleges that Ajo Improvement has neglected and mismanaged the utility systems, blaming the company for leaky wastewater lines that were replaced in the mid-2000s and contending the company has understated the frequency of power outages.
Ajo Improvement says it has maintained safe and reliable service.
The impact of the rate increases for many full-time Ajo residents will be much bigger than company estimates, Sorrels said, because average usage figures include many Ajo residents who leave town during the hot summer months.
Pima County, which has opposed the Ajo rate increases on behalf of residents of the unincorporated community, said in a filing that though the judge’s proposal would cut the rate increase, it would still result in an overall 106 percent increase in median home utility bills over seven years.
Extending the phase-in period to 10 or more years, Deputy County Attorney Charles Wesselhoft wrote, “would greatly assist the ratepayers.”