Arizona utility regulators may recommend jail time for Johnson Utilities’ managers

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Arizona utility regulators on Tuesday discussed whether to notify the Pinal County Superior Court that Johnson Utilities is violating a court order, which they warned could result in the utility managers facing “incarceration.”

The five members of the Arizona Corporation Commission were frustrated to hear from the company running Johnson Utilities, EPCOR USA, that Johnson managers were not cooperating when repairs were needed.

EPCOR USA is overseeing Johnson Utilities following an order from a Pinal County Superior Court Judge in August 2018, directing Johnson Utilities to cede control of the water and wastewater utility to EPCOR. Judge Stephen McCarville’s order said those interfering with EPCOR could be subject to arrest.

While Johnson Utilities ultimately obeyed that court order, EPCOR officials told regulators in a recent report that Johnson’s owners “routinely” ask utility staff to work on non-utility projects, and that it has affected EPCOR’s ability to run the water and wastewater company.

A lawyer for Johnson’s owners denied that accusation.

Johnson Utilities has about 38,500 sewer and 28,100 water customers in parts of Florence, Queen Creek and the San Tan Valley.

EPCOR says worker not available to shut off water

The latest conflict centers on a construction job to fix a leaking 8-inch waterline near Quartzite Road and Hunt Highway.

EPCOR Vice President of Arizona Operations Jeff Stuck said the work was scheduled for Jan. 28, but when they asked for a Johnson Utilities’ worker to shut off the water to the line, the worker was unavailable.

Stuck told regulators that Johnson Utilities had sent the worker to Johnson Estate Farms, another business entity owned by the Johnson family, who owns the water and wastewater utility and its affiliated management companies. 

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“Because the JU staff was working for the owner on non-utility work, the EPCOR lead had to postpone the project and call in additional contractors to take the place of the utility staff,” Stuck said. “This caused the repair work to be delayed and prolonged and added additional costs to the project.”

Johnson Utilities’ lawyer Jeffrey Crockett filed a letter with the commission refuting EPCOR’s claims. It said the workers were not notified of the waterline repairs, which is why a worker was not immediately available to shut the water off.

Crockett said Tuesday that Johnson’s owners have not interfered with EPCOR’s work.

“We simply don’t see the facts the way they’ve been presented here,” Crockett said. “I will admit there are potentially some communication issues that could be worked out.”

Regulators impatient with Johnson

The commissioners, who struggled to get Johnson Utilities to comply with orders to allow EPCOR to serve as the interim manager in 2018, seem to be losing patience with the company.

Commissioner Boyd Dunn said he “would be comfortable even with incarceration for a violation” of the commission’s orders, which could be the result of sending the case back to the Pinal court.

“Something narrow like that will end the ‘he said, she said’ situation,” Dunn said. “It is an absolute. They must be available during normal working hours.”

Commission Chairman Robert Burns requested the commission staff write up an order for commissioners to consider Feb. 20 that will force Johnson Utilities to ensure certain workers are available when needed. If they aren’t, the commission will file an “order to show cause” with the court declaring Johnson is not following the court order.

“We are in a situation where if we can’t have an interim manager that can respond quickly to problems in the utility, you are going to have a health and safety issue,” Burns said.

Company organization problematic

Part of the problem is that Johnson Utilities doesn’t have its own employees. It is owned by George Johnson, and utility work is done by a company called Hunt MGT, owned by his children, Chris and Barbara.

Prior to EPCOR taking over as manager, Hunt was paid to run the utility while another company controlled by the Johnsons, Ultra Management, was paid about $15 million a year in management fees, according to Corporation Commission filings and a state lawsuit against the companies.

EPCOR officials said since they took over the utility they pay Hunt and Ultra only for legitimate utility expenses with no additional management fees.

But EPCOR can’t control the Hunt contract workers since they are not technically employees of the utility they are managing.

The chief lawyer for the commission shared some concerns with Johnson owners overseeing workers that are managed by EPCOR.

“We have an injunction that says that EPCOR, as interim manager, runs the utility,” General Counsel Robin Mitchell said. “I see issues with having Johnson, the ownership part, having any say over these employees because we will find ourselves back in this position. They are just going to slow roll it and slow roll it and here we are back saying do we need to go back to Pinal and say they are in contempt?”

Dunn said the owners should not have a choice in whether the workers respond to orders from EPCOR.

“I don’t know if we need to negotiate anything,” Dunn said. “If we have another incident … I think the next step is to send it to Pinal County and have it be heard.”

Reach reporter Ryan Randazzo at ryan.randazzo@arizonarepublic.com or 602-444-4331. Follow him on Twitter @UtilityReporter.

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