Customers see dry taps, sewer issues amid utility owner’s trial

People living in the portion of the southeast Valley served by Johnson Utilities say they are living in turmoil, as taps run dry and sewers overflow while the company’s owner, George Johnson, faces unrelated charges of bribery in federal court.

The company’s manager says he is improving service and addressing problems, but a litany of complaints has regulators at the Arizona Corporation Commission considering whether to appoint an interim manager to run the company.

Johnson Utilities counts about 25,000 water customers and 35,000 sewer customers in Florence, the San Tan Valley area and Queen Creek.

The jury is now considering charges in the bribery trial. The separate proceedings at the Corporation Commission have highlighted a variety of operational issues, including frequent sewer overflows and noxious gas coming from a treatment plant.

In late May, a pump failure left customers, including an Eduprize charter school in Queen Creek, without water. Teachers at the school had to pour water into toilets to flush them for students.

Support for a new manager was growing before that outage.

“Johnson Utilities is a poorly run, high-risk operation that has escaped effective and sound regulation for far too long,” said Daniel Pozefsky, the chief lawyer for the state Residential Utility Consumer Office, which acts as an advocate for utility customers.

Pozefsky wrote a brief to state regulators arguing that the five elected Corporation Commission members should force their own manager onto the company to address the myriad problems.

Johnson Utilities disputes the need for any intervention, and said the water company is making big strides in improving customer service and operations, including water pressure.

“We do not foresee additional problems this summer,” Johnson Utilities attorney Jeffrey Crockett said in an interview with

He said a pump on a well failed May 31 and caused a variety of problems, all of which were addressed within a few days after a quick repair. Customers should be getting adequate water pressure now, he said.

Customers continue to complain about low pressure, however.

“We investigate all of those customers’ complaints that come either from the Corporation Commission or from the customer,” he said. “We go to the house and check the pressure. The company is mindful of the need to maintain an adequate water pressure.”

He said the company has been “extra vigilant” as of late to make sure all water valves in the neighborhood of a complaint are turned on, and that the com-

pany has spent money and hired a consulting firm to address other areas of customer complaints.

Utility regulators are waiting on a judge’s recommendation before voting on the interim manager, but support for a takeover of the company is growing. The staff at the Corporation Commission and town managers in Florence and Queen Creek concur with the consumer office that new leadership is needed.

The relationship between the company and Florence likely didn’t improve earlier this month, after Town Manager Brent Billingsley reported to police that Johnson threatened him after Billingsley took a photo of a company truck.

The town has not fulfilled a public-records request for the police report, and Billingsley has declined to explain the threat. George Johnson declined to comment on the incident.

Crockett, who also has testified at the bribery trial, argued that the commissioners don’t have a reason or the right to put a new manager in charge.

“Johnson Utilities is a company that is improving day by day under current management, that is working diligently and expeditiously to address problems as they arise, that has contracted for the consulting services of a third-party expert in the operation and maintenance of water and wastewater utilities,” Crockett wrote in a brief submitted to the Corporation Commission.

Appointing an interim manager is not a unique move for the commission. It has happened at least 15 times since 2003, according to data provided by the commission.

But Crockett also argues that the commissioners don’t have the authority to take that action.

Johnson, former utility regulator Gary Pierce, his wife, Sherry, and lobbyist Jim Norton all could face prison time if convicted in the bribery trial.

Prosecutors say Johnson bribed Pierce to twice approve higher rates for the water company.

After the federal indictment, Johnson reported to the commission that he was stepping away from operations and attorney Gary Drummond would replace him as manager.

Drummond said he has a verbal agreement with Johnson to run the company, and that he expects the two will discuss whether Drummond stays on once the jury returns with a verdict.

“I haven’t had any discussion with George Johnson concerning what his intentions are,” Drummond said. “We believe he is going to be exonerated.”

After the May 2017 indictment, the regulators at the Corporation Commission began reviewing the decisions from 2011 and 2013 that benefited Johnson Utilities. According to the federal indictment, those decisions were made as a result of Johnson bribing Pierce.

Regulators eventually decided that forcing Johnson to file a rate case would be the best way to investigate whether the rates are appropriate, and change them if not.

When Johnson Utilities filed that rate case Dec. 29, it asked to increase water rates 23 percent and wastewater rates 16 percent.

If granted, the average customer’s combined bill would jump about $14, from $70 today to $84. That bill impact is calculated for a customer using 6,380 gallons of water a month, according to the company.

Eventually, the staff at the commission will make a recommendation on what the rates should be, a judge also will make a recommendation, and the commissioners will vote.

About 170 Johnson customers spoke during publiccomment sessions in February regarding the company’s request for a rate hike, mostly in opposition and many of them citing problems with their service.

Following that testimony, commission Chairman Tom Forese ordered a separate investigation into the utility, and spent hours questioning company officials in hearings in late April and early May.

The administrative-law judge ordered a pause in the rate case pending the outcome of that investigation. In the second case, regulators now are deciding whether to put the company under control of an interim manager for two years or through the conclusion of the rate case.

But the company faced more problems amid those two cases and as the bribery trial began.

On June 8, the Corporation Commission opened yet another case to determine if the company has the managerial and technical capability to run a water company, based on the recent water outage.

That makes three active dockets, or cases, that commissioners are considering for the company, not counting individual customer complaints that have their own proceedings.

“I’m not sure what the full story is from Johnson Utilities,” said Matt O’Connell, one of many customers who complained of no water pressure in early June. “Is it just the motor they publicly declared broke, or are they low on capacity? They haven’t been very outspoken as far as keeping their customers in the loop.”

O’Connell has been a public critic of the utility, writing several letters to regulators regarding its air emissions from a sewage-treatment plant and water issues. But other customers are having problems as well. Samantha Zander said that at times, her San Tan Valley home doesn’t have enough water pressure at night to bathe her 4-year-old daughter.

Her family has only lived in the area about a year, and is just learning of the frequent problems with the utility.

“The water will trickle out of the kitchen faucet, trickle into the bathtub,” she said. “The washing machine will error out because it’s not getting enough water.”

The sheer volume of sewer overflows in Johnson Utilities’ territory also is a major concern for regulators.

The commission found the Arizona Department of Environmental Quality has recorded 36 sewage spills since February 2015. Some have occurred this year. Customers recently shared a video of a sewer drain overflowing in a parking lot of the Oasis at Magic Ranch neighborhood in Florence.

When a regulator visited a Florence wastewatertreatment plant in April, he could see wastewater spilling out of a pond, according to the commission.

The company has more sewer overflows than much larger wastewater operations in cities such as Tucson, Mesa and Scottsdale. It is second in the state only to the largest city, Phoenix.

“It is undisputed that Johnson Utilities has had the most notices of violation issued by the Arizona Department of Environmental Quality and the most sanitary

sewer overflows of any utility regulated by ADEQ, second only to the city of Phoenix, which is exponentially a much larger utility,” Corporation Commission staff said in a June 4 regulatory filing.

Drummond, the acting manager for the company, said some sewage overflows have been caused by construction workers opening manholes and dumping work-site trash into the sewers.

Drummond said the company has added a second “jetting crew” in recent months. The company’s two crews travel around the wastewater system and use highpressure water to ensure sewers are cleared.

“They are just systematically going around the system and jetting lines,” Drummond said. “We are trying to be more proactive in that regard.”

ADEQ records show that the company has long struggled to properly deal with raw sewage, with instances of the company dumping waste into Queen Creek as far back as 2008.

On March 27 of this year, 65,000 gallons of untreated wastewater overflowed from a manhole and got into the wash, according to ADEQ records.

“Queen Creek is the headwaters for the Queen Creek area, which means the sewage overflows can travel in the wash downstream and reach the community’s aquifer,” the commission staff wrote. “Bike paths and trails, moreover, circumvent the wash where these spills have been occurring. The exposure and risk that Johnson Utilities has created and continues to create for residents of that community is a risk to health and public safety.”

Johnson Utilities explained in its closing brief on the case that the March 27 overflow was a surprise because it involved a usually reliable piece of equipment.

Sewer overflows, while dramatic, are not the only reason regulators are concerned with the company’s operations.

Officials from the Arizona Corporation Commission say the company is struggling to keep its infrastructure working because the owners have siphoned off millions in profits through redundant management companies.

The money, the officials said, should have been spent on keeping the water utility’s pipes and equipment in working order.

The financial arrangements of the company were discovered when the town of Queen Creek explored buying the utility in 2016. Town officials related their findings in hearings for the company this year at the Corporation Commission.

George Johnson was the only employee of Johnson Utilities. His company pays about $15.5 million a year to a company called Ultra Management, which is run by Johnson’s son, Chris, and daughter, Barbara. Ultra also has no employees, and pays Chris and Barbara Johnson for their role as managers.

Ultra, in turn, pays yet another company, Hunt Management, also run by Chris Johnson and Barbara Johnson, to provide about 100 employees who run the utility.

Chris Johnson and Barbara Johnson also own Roadrunner Transit, a company Johnson Utilities uses to haul water.

The town of Queen Creek, upon seeing that about half of all the revenue from Johnson Utilities goes into these management deals, decided not to buy the company Johnson Utilities owner George Johnson leaves court after being arraigned last year. because it was not financially viable.

The management obligations prevent the company from having enough cash to maintain the pipes, lift stations, sewer plants and other infrastructure, the town’s finance director told the commission.

“An organizational system set up this way works against the ratepayers’ interests,” the Residential Utility Consumer Office said in its brief in the case. “While the commission should not interfere where the company’s management is providing safe and reliable service at reasonable rates, when the service is not safe nor reliable, nor the rates reasonable because ratepayers are paying excessive management fees, the commission can, and must act.”

Commission staff said Johnson Utilities obstructed efforts to investigate the relationship between the affiliated companies.

But Johnson Utilities contends the companies run by George Johnson’s adult children don’t fit the technical definition of “affiliates.”

“We certainly don’t agree that there’s anything in the structure of Johnson Utilities that diverts money in a way that harms the company’s ability to provide service or that harms the ratepayers,” Crockett said.

Problems extend from the water to the air, too.

The Section 11 Wastewater Treatment Plant off Hunt Highway in Florence was fined $20,000 by Pinal County in August for hydrogen sulfide emissions. The gas has the smell of rotten eggs and can cause a variety of health problems when inhaled, including breathing issues, headaches and a loss of the sense of smell.

Odor from the watertreatment plant is one of the main complaints from nearby residents in the Oasis at Magic Ranch development.

Crockett said the company is planning to shut the troublesome plant, expand its Anthem treatment facility and build yet another in the Copper Basin community.

The company also told regulators that it spent about $300,000 last year on chemicals to treat the water at the plant and prevent the air emissions.

“The addition of this chemical is working,” the company said in a brief.

The company said that while there were 100 days where the hydrogen sulfide emissions from the plant exceeded the county’s air-quality standards from June 2016 to July 2017, there have been only four in the first 150 days of this year.

“This is tremendous progress by any standard,” the company brief said. But commission staff is not buying it.

“Johnson Utilities’ claim that the company’s issues are due to ‘growing pains’ is belied by the record, which demonstrates the company’s history of non-compliance in the face of growth over a decade ago,” the staff brief said.

The rate case is on hold until the outcome of the investigation of service problems. The judge’s recommendation in the service-problems case is pending. And in the case of the company’s water outage, a hearing has been scheduled for July 16.

Relief can’t come soon enough for Jean Stockton, who has lived in her Johnson Ranch home in San Tan Valley for about eight years.

Some Johnson customers said the water pressure has gotten better since the pump was repaired in early June, but when Stockton got up in the night June 23, she had no water in her toilet.

“You cannot flush the toilet a second time,” she said. “This is not a Third World country. When you can’t use the bathroom and wash your hands, that is a problem.”