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 will see huge utility rate increases spread out over 10 years, under new rates for Ajo Improvement Co. approved by the Arizona Corporation Commission on Wednesday.

Revisiting a rate plan it rejected in May, the utility panel approved a modified version of a rate order recommended by an administrative law judge that raises water rates for home customers with median usage by about 207%, while hiking sewer rates 337% and electric rates about 95%.

But those rate increases will be phased in over 10 years, instead of seven in the rejected order, under an amendment proposed by Commissioner Sandra Kennedy, and the company has agreed to develop discounted rates for disabled veterans and deployed military members.

Wholly owned by mining giant Freeport-McMoRan Inc., Ajo Improvement has around 1,000 utility connections in Ajo, a community of about 3,000 located about 130 miles west of Tucson.

Monthly bill impacts under the approved rate plan, which goes into effect Aug. 1, were not immediately available.

Under the scrapped seven-year phase-in, the monthly bill for residential customers with median usage would have risen from $18.40 currently to $23.06 in the first year and to $56.41 by year seven; median sewer bills would have gone from $16.10 currently to $23.89 initially and to $70.32 at year seven; and median electric bills would rise from $62.99 now to $75.67 initially and to $182.31 in the final year.

But because the increases will be phased on over an additional three years, the incremental rate increases will be somewhat lower than those in the judge’s original proposed order.

The commissioners rejected an amendment by new commission member Lea Márquez Peterson of Tucson that would have cut the increases further by setting the company’s operating profit margin to zero, instead of the 5% margin set in the judge’s proposed order.

Ajo Improvement opposed the lower profit margin, and commission member Justin Olson argued that setting rates based on a zero operating margin could run afoul of provisions in the state Constitution requiring rates that allow a reasonable rate of return, since Ajo Improvement likely wouldn’t be able to cover its costs.

“One could argue that this is a confiscatory rate, that it is a taking of private property,” Olson added.

The three other commissioners agreed and voted down Márquez Peterson’s proposed amendment.

The utility may not be able to recover its costs even under the 5% operating margin, but that is not expected to raise legal issues because Ajo Improvement agreed to that plan, Olson and other commissioners said.

Similarly, Márquez Peterson’s alternate request to delay the vote to further study customer impacts found no support.

“This is still a great rate shock for customers in Ajo, and this whole process has been flawed,” she said.

In asking for reconsideration of its earlier rejection of the judge’s proposed rate order, Ajo Improvement had sought to extend the rate phase-in period to 10 years but wanted a 10% operating margin, resulting in somewhat higher rates at the end of the phase-in period.

Ajo Improvement opposed a proposal by Kennedy to develop a special discount rate for low-income customers, which ultimately failed to gain traction.

Michael Patten, an attorney representing Ajo Improvement, said its plan to help low-income customers — providing $20,000 in periodic bill assistance to low-income customers in the first two years of the rate plan and $25,000 annually thereafter — would avoid shifting costs to more affluent customers while helping low-income residents when they need it most.

The final order, which also prohibits Ajo Improvement from filing a new rate case for eight years, was approved on a 4-1 vote, with Commission Chairman Bob Burns joining Olson, Kennedy and commissioner Boyd Dunn in approving the plan, and Márquez Peterson voting against it.

“I’m still disappointed we didn’t take more time with this, and I’m still concerned about the impact on customers,” said Márquez Peterson, who was appointed to the commission by Gov. Doug Ducey in late May to replace Andy Tobin when he was named director of the state Department of Administration.

Ajo Improvement says it needs the increases to pay for about $48 million utility system improvements it funded over the past decade, but it was willing to forgo millions of dollars in revenue to soften the blow on customers.

But the company has been faulted by commission members and local residents for making major improvements without winning prior approval by filing incremental rate cases. Ajo Improvement’s water and sewer rates haven’t changed since 2004 and its current electric rates were approved in 2000.

Ajo resident Robert Sorrels, who opposed the rate increases as a formal party to the case, said he believes the increases will hit most customers much harder than the bill impacts based on median usage, because many of Ajo’s residents only live there for a few months in the summer.

Sorrels, who lives alone, noted that his last monthly electric bill was $182. He asked the company to delay the matter for a month for further study.

“If you triple my water bill, I don’t know what I’m going to do,” he said, noting he has a garden and planted fruit trees on his property partly to shade his house and lower his cooling bill.

Sorrels also reiterated his contention that Ajo Improvement Co. is an integral part of Freeport and the copper company should pay for improvements since it neglected the utility systems for years. He said Freeport would be the main beneficiary if it decides to reopen the adjacent New Cornelia Mine, which was closed by Freeport predecessor Phelps Dodge in 1983.

Sorrels urged the commission to delay a decision for a more detailed analysis of the impact of the proposed rate increases on low-income customers.

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.