Ajo residents fret over proposed huge utility rate increases

Imagine if within five years, your water bill nearly tripled, your electric bill more than doubled and your sewer bill more than quadrupled.

The tiny former mining community of Ajo — one of Southern Arizona’s poorest communities — is facing just that situation under rate proposals by a utility owned by Phoenix-based copper giant Freeport McMoRan Inc.

The Ajo Improvement Co., or AIC, a Freeport subsidiary that serves about 1,000 Ajo-area homes with utility services, filed a rate case with the Arizona Corporation Commission in December 2017 that over five years would raise typical water bills by 364 percent, wastewater bills a whopping 464 percent and boost electric rates 121 percent.

After some delays, hearings on the rate requests are scheduled to start before an Arizona Corporation Commission hearing judge Nov. 15, with a final commission decision expected by early February.

Even with the company recently agreeing to somewhat smaller rate increases, residents say the sharply higher bills will pose a major hardship for residents of Ajo, an unincorporated community in northwest Pima County where nearly 30 percent of households live below the federal poverty line.

“Such a high increase that Ajo Improvement is asking for is unrealistic —there’s just no way,” said Cathy Hutton, owner of transit provider Ajo Transportation and a lifelong Ajo resident. “The adjustment that is being asked for will impact this town, and the trickle-down affect will crush all of us.”

Pima County Supervisor Sharon Bronson, whose district includes Ajo, said she’s very concerned about the impact of the proposed increases.

“This is an untenable situation if you look at the demographics of the community,” she said. “We have a lot of older people on fixed incomes and for them, this is going to be a choice between food, medicine or utilities.”

The company says its three utilities have lost money for many years and it needs the higher rates to recover $48 million in costs for improvements at all three utilities over the past decade, as well as higher operating costs.

“Since the last rate cases, AIC has significantly improved its utility infrastructure to continue to provide safe and reliable service,” Roy Archer, president of Ajo Improvement, said in a written reply to the Star’s queries. “The improvements required a full replacement of much of the original water and sewer facilities, which could no longer be effectively repaired.”

Archer noted that since its initial filing, the utility has agreed with the Corporation Commission utilities staff to lower its rate-increase request and extend the wastewater increase over seven years.

Ajo Improvement agreed to a lower allowed rate of return, will forego some $7.5 million in revenues during the phase-in periods and is refunding $200,000 in surcharges collected for purchased power and renewable-energy programs, Archer noted.

But even with the phase-in and lower increases, the potential monthly bill increases are eye-popping.

The typical Ajo Improvement customer with median usage of 3,500 gallons would see their monthly water bill rise from $18.40 now to nearly $32 by the third year and to more than $54 by the fifth year of the phase-in; wastewater bills would rise from about $16 a month to nearly $88 a month after five years.

For electric service, a proposed increase in the basic monthly service charge and higher usage rates will essentially double residential customers’ bills, from an average $45 per month to more than $90.

SMALL TOWN HIT HARD

Ajo was founded on copper mining in the early 1900 as the adjacent New Cornelia Mine became the first large open-pit copper mine in the state.

Phelps Dodge Corp. acquired the mine in 1931 and built up the town as it pulled 6 billion pounds of copper from New Cornelia before closing the mine in 1983, amid low copper prices and a contentious strike by miners.

As of 2016, 28 percent of Ajo’s roughly 3,500 residents lived below the federal poverty line, according to estimates by the U.S. Census Bureau.

And about 31 percent of Ajo residents were 65 years old or older, compared with a statewide average of about 16 percent.

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Ajo resident Robert Sorrels, who has filed as a formal party to the rate case, said many retirees moved to Ajo after the mine closed for the cheap housing, clean air and quiet.

“We don’t have rich people in Ajo,” said Sorrels, 69, a photographer and former college math teacher and dean who moved to Ajo about eight years ago. “They can afford to buy a house here, they live fairly simply and they love the town and they love the desert.”

On Sorrels’ street and nearly every other street in the 1-square-mile Ajo community center, you can find a mix of small miner’s bungalows, ranging from vacant, decaying hulks to expanded homes with stucco walls and gardens, and everything in between.

Sorrels faults Freeport for failing to properly maintain the Ajo Improvement utility systems and maintains it is required to do so under its agreement to acquire the assets of Phelps Dodge in 2007.

“AIC is not this poor, little utility company desperately trying to provide service — that’s a damned lie,” Sorrels said. “They are absolutely a Freeport accounting line — the CEO of Freeport is the CEO of AIC.”

Sorrels and Hutton say it’s apparent some rate increases may be justified, but they questioned why Ajo Improvement didn’t file for rate increases incrementally as the system upgrades were completed, to lessen the effect on rates.

Ajo Improvement’s rates for the water and wastewater divisions were set in June 2004 and its electric rates were set in August 2000, Archer noted in written testimony to the commission.

“If they already spent a bunch of money, then shame on them for not collecting it ahead of time; they should have filed a rate case 10, 15 years ago,” Hutton said.

In his response, AIC’s Archer said the company was trying to avoid subjecting customers to a series of rate cases.

“AIC chose to wait until most improvements were completed and implement a phased-in approach to the rate increase,” Archer said. “By doing so, AIC customers will see a more gradual increase in rates under the phase-in, giving customers time to plan for future increases.”

The company estimates it will be operating at a loss for four to six years after new rates are approved, he added.

Pima County, Ajo’s only local government authority, has intervened in the Ajo Improvement case on behalf of residents and the county itself, which maintains a courthouse, a sheriff’s substation and transportation facilities in Ajo.

“There needs to be some solution that doesn’t penalize those on limited or fixed incomes,” Bronson said, noting that parts of Ajo have been designated as “colonia” — a tag for low-income, unincorporated areas near the Mexican border.

Freeport essentially appears to be ending what has been a subsidy of Ajo utility services for years, she said.

Meanwhile, Ajo residents are worried about the potential for huge utility rate increases, said Lupe Alvarez, who chairs the Western Pima County Community Council, a governmental advisory body.

Alvarez, who grew up in Ajo and returned to retire after a career at Honeywell in Phoenix, says she hears from panicky residents at the council’s monthly meetings, and the threatened rate increases already are turning away potential newcomers.

“That’s going to kill us — Ajo’s not going to be here anymore,” she said. “There are people who have been trying to buy homes, and when they saw that in the news, they’re not buying, and the people here are selling their homes.”

The Corporation Commission has heard an earful from concerned Ajo residents at public-comment meetings held in June and October, and hundreds of residents have filed formal comments in the case, opposing the proposed rate hikes.

“This is one of those situations where the community needs help, and we need to find a public-private sector solution that doesn’t penalize those most in need of these services because of their inability to pay,” Bronson said.