Judge sides with commission in takeover of utilities company

PHOENIX – A federal judge rebuffed a bid by the family trust that owns Johnson Utilities to block state utility regulators from taking control of the water and sewage company.

Judge Roslyn Silver said it would be one thing if the Arizona Corporation Commission were taking ownership of the company from the George H. Johnson Revocable Trust. But Silver said the only thing the commission has voted to do is give control of the operations to another entity – and only for the time being.

"There is no ownership,'' she said during a hearing in federal court here. "It would only be temporary.''

And Silver said that if it turns out the move results in financial loss to Johnson, the commission is telling her that there is insurance to compensate the trust.

Wednesday's ruling does not end the matter. Silver said she will give Sharon Moyer, Johnson's attorney, a chance to prove to her that federal court intervention is necessary.

But the judge made it clear that, absent some significant new evidence between now and Sept. 5, she will dismiss the case.

Even if that happens, that does not end the legal maneuvers.

Lawyers for Ultra Management, paid by Johnson Utilities to manage operations, and Hunt Management, paid in turn by Ultra to do day-to-day operations, have filed suit in Maricopa County Superior Court to keep from being replaced. Both companies are owned by Chris and Barbara Johnson, who are George Johnson's children.

And the commission itself is asking a Pinal County Superior Court judge for an order to prevent Johnson Utilities or others from refusing to cooperate with turning over the operations. A hearing on that is set for this coming week.

The outcomes of all the lawsuits have implications beyond what happens to Johnson Utilities. It could determine whether the commission has the legal right to replace the management of any electric, gas, telephone, water or sewer company based on allegations that the public is not being served.

Andy Kvesic, the commission's chief legal counsel, said there is precedent – albeit not recent – for the commission to step in as a manager. He said it has happened at least six times in the past.

But Moyer told Silver all of those cases involved incidents where the owners of small companies had simply packed up and left town, leaving the utility and its customers stranded. She said if Silver allows the commission to wrest control of an operating utility – and over the objections of its owner – it would set new precedent.

Silver's ruling came just hours after the commission signed an agreement with EPCOR, a private water firm, to immediately go in and start looking around to see what changes need to occur in how Johnson Utilities operates.

A report by a commission hearing officer found a series of problems in the way the company is being operated, from low water pressure and inaccurate bills to sewage spills. It was that finding that led the commission to vote to put an interim manager in charge.

Silver told Moyer there is no basis for her claims that Johnson's property was being illegally seized in violation of federal law.

"It's not as if your client can't be compensated,'' she said if there are financial losses. More to the point, Silver said, "they're going to get the property back.''

Kvesic echoed that theme in his own arguments to the judge.

"This is a temporary manager being put in place ... that's going to go in there and fix the problems,'' he told Silver.

But Moyer said even if that's the case, what the commission is doing is improper – and illegal. She said the government can't simply oust a private company's management "just because they think they can run it better.''