Ryan Randazzo Arizona Republic
Published 7:15 p.m. UTC Aug 31, 2018
After a contentious legal battle, Johnson Utilities has given control of its troubled water and wastewater operations to the EPCOR USA water company, whose executives on Friday morning walked into the Johnson headquarters to take over the management.
It is the first time Arizona utility regulators have ordered such a takeover of an operation the size of Johnson, which has about 35,000 customers in parts of Florence, Queen Creek and the San Tan Valley area.
The takeover follows a years-long history of water and wastewater problems at Johnson Utilities that prompted the Arizona Corporation Commission to order the company to cede control to EPCOR last month.
Johnson put up a spirited legal defense involving five lawsuits in multiple jurisdictions fighting the order. It still has a pending appeal, but a Pinal County Superior Court judge on Tuesday told the company anyone denying EPCOR access to facilities or financials would be arrested.
“As of today we are going to be the interim manager,” EPCOR Vice President of Operations Troy Day said before he opened the Johnson Utilities headquarters door in northeast Phoenix for two of his colleagues Friday at about 7:50 a.m.
Day said EPCOR had access to all of the pertinent bank accounts as of Thursday, and there was money in the accounts.
“There is plenty of money to run the utility,” Day said.
A central theme of Johnson’s appeals in court and at the commission was that the company did not need to give EPCOR full control of the revenue to run the company.
But EPCOR officials said without control of the purse strings, they would not be able to effectively operate the utility.
“We preserved our legal rights while making sure we are entirely complying with the judge’s orders and continue to work closely with EPCOR as we’ve been doing since the end of July/end of August when the Corporation Commission first asked us to start working with them,” Johnson spokeswoman Kristin Greene said.
It’s unclear how long the arrangement will last, as EPCOR will need to report back to the Corporation Commission at some point. Giving managerial control of a utility with more than $10 million in annual revenue — against that company’s will — to an interim manager is uncharted territory for the Corporation Commission.
“Things have been going very well between (EPCOR and Johnson),” Greene said.
Moments after EPCOR officials entered the building, the acting manager of Johnson Utilities, Gary Drummond, pulled up, parked in a visitors spot, and followed them inside.
Drummond was hired by company owner George Johnson last year when Johnson was hit with a federal indictment accusing him of bribing a former utility regulator.
That issue ended in a mistrial in July, and federal prosecutors will not retry the case.
Multiple problems to fix
EPCOR officials are expected to assess the water and sewer systems and correct problems that have plagued Johnson Utilities customers, including low water pressure, sewer overflows, noxious gasses and borderline water quality.
At a hearing earlier this month, Shawn Bradford, EPCOR’s vice president of corporate services, showed regulators photos taken during a recent inspection of Johnson facilities. They revealed roofs in danger of collapse in water-treatment plants due to corrosion from hydrogen sulfide gases.
He also showed concrete infrastructure disintegrated by the gases, which can be harmful for workers and neighbors near the plants to breathe. They also create an explosion hazard.
Other problems included a hose connected to the potable-water system that was dropped into a sewer facility without any device to prevent backflow, which Bradford said is called a “cross connection.”
And he said concentrations of nitrate in drinking water provided by the company was on the edge of acceptable federal standards of 10 milligrams per liter. EPCOR said readings were at 9.9 mg/L.
Nitrates are a common water contaminant caused by agricultural runoff and leaking sewage. Health effects primarily are a concern for very young children, but the contaminant often is an indicator of other problems.
Control is temporary, for now
For now, EPCOR is only running Johnson in the capacity of “interim manager,” with the possibility that company owner George Johnson will get his utility back at some point.
EPCOR, whose parent company is based in Canada, has about 215,000 customers in 37 communities across Arizona, New Mexico and Texas.
But members of the Arizona Corporation Commission earlier this month appeared to reach a breaking point in their contentious dealings with Johnson.
They fined the company $600,000 for shutting off several irrigation meters without notice when the company was struggling to keep customer taps flowing. They also ordered the commission staff to review what it would take to revoke Johnson’s operating license.
A “certificate of convenience and necessity” gives a utility the right to serve a particular area and prevents a redundant water, electric or gas system from being built. Deleting or revoking CC&Ns is rare. It usually only happens to very small companies that provide inadequate service or are financially unable to run the system without charging unreasonable rates.
It’s unclear what would happen should the CC&N be revoked. The towns of Florence and Queen Creek wanted to act as the interim manager, and Queen Creek looked at purchasing the utility at one point.
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