Johnson Utilities sold to EPCOR, changes name
EPCOR USA has acquired the troubled Johnson Utilities water and sewer company in the East Valley, ending a decades-long saga between the utility company and regulators that affected tens of thousands of utility customers.
The water utility founded by George Johnson in 1997 to serve developments in the San Tan Valley area between Queen Creek and Florence had issues with sewage spills, water quality, odors and effluent discharges, and racked up an exhaustive record of violations with state regulators.
The company has about 30,000 wa
ter and 40,000 wastewater customers, with some customers getting one and some getting both services from the company, according to EPCOR.
The deal closed Friday.
“This is the beginning of a new chapter. We are fully committed to bringing these customers safe, reliable service that is consistent with customer expectations, our brand and company values and we’re eager to get started,” EPCOR USA President Joe Gysel said in a prepared statement. “We’re honored to be part of these vibrant communities where values that are important to EPCOR — family and community — are both the foundation and the future.”
Johnson issued a statement wishing EPCOR well. “George Johnson wishes EPCOR success with the purchase of the assets of Johnson Utilities,” the statement said. “George’s vision for the growth of the San Tan Valley will continue with EPCOR’s leadership, and he now looks forward to the future and new endeavors.”
Some of the people affected by the years of turbulence at the utility praised the sale.
“This sale closing is the most important thing to happen to the San Tan Valley area in recent memory,” said Court Rich, an attorney with Rose Law Group who represented several homebuilders and land developers that were prevented from building in the area because the utility couldn’t supply fresh water or sewer service for additional customers.
“There have been studies done that showed that the problems caused by Johnson Utility’s inability to provide reliable service was costing that area hundreds of millions of dollars in economic opportunity and thousands of jobs. Hopefully this sale unlocks that immense economic potential and job-creating potential.”
The utility is no longer “Johnson Utilities.” Instead, it is EPCOR’s “San Tan Water and Wastewater districts.”
Some customers were concerned with the sale price, but many urged regulators to approve the sale to EPCOR.
“EPCOR has done a good job fixing the issues with the Johnson Utilities and would make a quality operator,” San Tan homeowner Mike Brodock said in a letter to the Arizona Corporation Commission. “Further, as a resident served by the Pecan (sewer) Plant, I am pleased that EPCOR has committed to funding the plant expansion as soon as this transaction is approved. The entire region will benefit when a reliable community partner like EPCOR owns Johnson Utilities.”
EPCOR, a subsidiary of a Canadian company, took over management of the company in 2018 when regulators at the Arizona Corporation Commission finally had enough of the poor service and operational issues.
Johnson Utilities mounted a spirited legal challenge to having another company take control of its operations. It fought both EPCOR’s ability to spend millions upgrading the utility system and to interconnect with neighboring utilities to help alleviate demand on the struggling Johnson pipes, pumps and treatment plants.
But the Arizona Supreme Court on July 31 affirmed the Corporation Commission’s authority to impose a different company to act as a manager of the utility, and by October, Johnson had reached an agreement to sell his company to EPCOR for about $110 million.
Before the deal could close, the Arizona Department of Environmental Quality had to agree to settle several outstanding problems with the utility, which is the most cited public utility in the state since 2017.
The ADEQ and Arizona Attorney General’s Office hit Johnson with a $100 million lawsuit in 2019, seeking to force Johnson to fix and upgrade the utility infrastructure that was causing perennial problems, from sewage spills to customer taps running dry.
Johnson and EPCOR needed to address the deficiencies targeted by that lawsuit for the ADEQ to sign off and for the sale to transpire.
Among the terms of the deal are that EPCOR and Johnson will pay 30%, or up to $21 million, toward the cost of a new wastewater treatment plant, and that the expense will not get passed to customers.
Johnson also agreed to contribute $15 million in land to either locate the new treatment plant or to raise revenue to build it, according to ADEQ.
The company also must write off $10.3 million in equipment expenses, which it can’t recover in future rate hikes.
It appears Johnson himself will not walk away with much from the sale, at least for now. That’s because a class-action lawsuit from customers has convinced the U.S. District Court in Arizona to “freeze” about $95 million of the sale proceeds.
Johnson has said in court documents that the company will collect only about $100 million initially, with $10 million to be paid in a promissory note, and that Johnson could have a tax liability of about $33 million from the sale. But a judge declined to release more of the funds because of the pending suit.
EPCOR has agreed to bring the water and sewer facilities into compliance with state law as directed by ADEQ.
The utility needs more than $138 million in work that EPCOR plans over the next three years, including the construction of a new treatment facility and the expansion of another, according to the company.
“Execution of these agreements represents the end of a long chapter in Johnson Utilities’ history and will ensure residents of San Tan Valley will have safe and reliable water and wastewater service moving forward and allow critical economic development in the area to continue,” Corporation Commission Chairwoman Lea Márquez Peterson said in a prepared statement.
ADEQ noted in a press release that “EPCOR has made significant improvements” to the utility since taking control in 2018.
Still, the deal is not without detractors. The town of Queen Creek asked the Corporation Commission to reconsider the deal, which did not happen, and Pinal County Supervisor Mike Goodman echoed the town’s concerns with the sale price.
“In this monopoly system, the rate payer needs to be protected,” Goodman wrote to the commission. “Hastily moving forward in approving this transaction without fully vetting the details is a failure to our constituents who we are elected to protect.”