Power Struggle

Freeport-run utility looks to dramatically increase electric and other utility rates in a town where one-quarter live below poverty line

Mari Kaestle says she would have to choose between air conditioning or buying food if the Arizona Corporation Commission approves a proposed utility rate increase requested by the Ajo Improvement Company.

"Not only will it affect me, but there are a lot of retired residents who live here on fixed incomes," says the 72-year-old retiree, who's lived in Ajo, Arizona for 11 years and receives water, waste water and electric utilities from the Ajo Improvement Company, or Ajo IC.

If the Corporation Commission, the body of elected officials which decides utility rates, approves the rate hikes, many residents may find themselves in financial turmoil. Some community members say the increased rates would cause the Ajo economy to plummet and force residents to leave their homes.

Sewer charges for a typical Ajo resident will increase from roughly $16 to $100 per month. Water charges could increase from $18 to $82 a month, and electric customers may see an increase from $45 to $106 per month, according to a memorandum filed by Pima County Wastewater Reclamation in August.

Ajo's population is approximately 3,696, with a median age of 48, 11 years higher than Arizona's average of 37, according to Data USA, an online platform that analyses government data.  In 2016, 28.1 percent of Ajo's population lived below the poverty line, which is higher than the national average of 14 percent.

For nearly a year since the rates were first proposed in December 2017, Kaestle and many other Ajo residents have sent letters to the Corporation Commission protesting the proposed 507.4 percent rate hike in wastewater, 356.97 percent increase in water utilities and 132.47 percent increase in electricity charges over a five-year period.

Ajo residents Adrianna Delgado and her partner Bevin LyBauger have also been sending letters and postcards to the Corporation Commission opposing the increases. Delgado says that every business and family in Ajo would be brought to a complete halt since many residents already struggle to pay the current rates, adding that the service is subpar.

"For the service we are receiving and the continuous neglect of the company, any increase is not appropriate or affordable for the people who live here," Delgado says.

Freeport-McMoRan Mining Co. is the Ajo IC's parent company and owns two underground water wells seven miles north of Ajo, according to Roy Archer, the president for Water and Electric Utilities at Freeport-McMoRan. The company has a long history of copper mining in Ajo, but the mine discontinued operations in 1984 after decades of production that provided jobs and other contributions to the town.

The Ajo IC had waited roughly 18 years to apply for a rate increase, and Pima County Administrator Chuck Huckelberry suggested the large time frame between rate increases may be why the increases are so high and could be needed to allow the Ajo IC to adequately and safely continue to operate.

"So it's logical that the rate should increase anyway but not in the order of magnitude that is now being proposed," Huckleberry said.

The Ajo IC provides utilities for numerous Pima County facilities, including the Ajo jail and a public health clinic. According to the county's memorandum, the rate increase could be passed on to people using county facilities receiving Ajo IC utilities.

As well, the Ajo IC appears to be giving operations run by Freeport-McMoRan a "special utility rate" due to previous capital investments, according to a Pima County memorandum filed in August. The mining company has spent nearly $60 million replacing aging water lines, sewer lines and electric facilities, according to Archer. He says the Ajo IC doesn't foresee any more significant capital needs for many years and that the utility company didn't increase rates during the improvements to avoid putting customers through a series of increases.

"However, unlike most utilities, AIC is not seeking any return on its large investment," Archer says. "Rather, the requested rates are intended to recover operating expenses."

The last time the Ajo IC requested a rate increase was for electric utilities in 2000 then again in 2004 for wastewater and water, according to Archer. Archer says those increases allowed the company to make significant improvements in water, sewer and electric facilities to continue providing safe and reliable services.

Archer says the special rate for Freeport-McMoRan has been in place since it was approved by the Corporation Commission in 1996, and would only apply towards the utilities used to pump water.

"The water pumping provides the raw water for the Ajo IC," Archer said. "If the contract rate were increased, it would increase the cost of raw water to the Ajo IC and would increase water rates."

The Ajo IC is proposing a five- to seven-year phase-in for the new rates. Archer said that by doing so, their customers will see a gradual increase in rates giving residents the "opportunity to plan for the increased costs."

Ajo residents currently pay approximately $16 in an average sewage bill, according to the Pima County memorandum filed in August. If the rate hike is approved, Ajo residents will have to pay roughly $100 a month at the end of the five-year period.

By comparison, the Pima County Wastewater Reclamation Department currently charges residential users $38.40 in an average monthly sewer bill, according to the director Jackson Jenkins.

According to a county memorandum, TEP customers paid about $130 last June for electric, and Ajo IC customers paid about $117. With the increases, an Ajo IC customer's June bill would be about $155.

Joseph Barrios, TEP media relations supervisor, says TEP offers customer assistance programs including discounts for limited-income customers and energy efficiency programs that helps customers lower their electric bills.

In Ajo, residents can also receive financial help in utility bills through the Pima County Community Action Agency, responsible for assisting low-income families.

Ajo residents LyBauger and Delgado are both disabled, living on fixed incomes and already receive financial assistance from Pima County because they aren't able to afford their electric bill as is.

"We couldn't afford to live here, we would have to move," LyBauger says. "One of the reasons why we moved here was because of its affordability and that would no longer be the case."

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