Johnson Utilities protests takeover order

Johnson Utilities can’t be forced to turn over operations to an interim manager because doing so would interfere with the company’s ability to defend itself in lawsuits and take other actions that are the exclusive right of the owners, company lawyers argued Thursday.

The Arizona Corporation Commission last month ordered another water company, EPCOR USA, to step in as interim manager at Johnson Utilities because of a host of issues that have plagued the Pinal County water provider for years.

But Johnson has not allowed EPCOR to take over, and so the commission asked and received a restraining order last month from Pinal County Superior Court Judge Stephen McCarville.

The parties were back in his court Thursday, with the Corporation Commission lawyers asking McCarville to force Johnson Utilities to comply.

Johnson’s lawyers said, amid an often contentious and confrontational hearing, that the judge can’t order that.

“I’m having trouble wrapping my mind around what the injunction is going to look like,” Johnson Utilities lawyer Jason Kelly said. “I think we are all at a loss with respect to what this court is being asked to enjoin.”

Commission lawyer Wesley Van Cleve said the case was simple.

“This court issued a (temporary restraining order),” he said. “They (Johnson Utilities) have not complied with that action.”

Van Cleve said it was important for the court to act quickly because about $9.5 million in revenue at Johnson Utilities is “flowing out of the company” and, at commission hearings, company officials could not describe where it was going.

“The injury that will be suffered here will be the customers of Johnson Utilities,” Van Cleve said.

The water and sewer company that serves parts of Florence, Queen Creek and San Tan Valley has suffered from low water pressure, noxious gasses, sewer overflows and water quality that borders on violating federal pollution guidelines.

The order from the Corporation Commission directed Johnson Utilities to “cooperate” with EPCOR. Kelly said it was not enforceable and did not equate to handing full financial control to EPCOR.

EPCOR officials have said they can’t effectively run Johnson Utilities unless they have control of the revenue coming in from the 35,000 customers each month so that they have sufficient funds to pay employees and vendors and make needed repairs to the utility.

“The court has to say what ‘cooperate’ and ‘comply’ means,” Kelly said, adding that giving EPCOR control of the Johnson Utilities bank accounts would in effect be giving EPCOR more authority than the commission itself.

Furthermore, Johnson Utilities is facing a wrongful death suit and two class-action suits, and would not be able to pay for its legal defense in those actions if it turns over financial control to EPCOR, said another lawyer for Johnson, Daniel Fredenberg.

But witness Troy Day, EPCOR vice president of operations, said EPCOR could authorize funding for the defense in those cases if it were running Johnson Utilities.

McCarville opened the hearing by telling the parties that whether the commission has the constitutional authority to order in interim manager is not up to him.

Johnson has appealed a higher court’s decision on that matter.

McCarville said that absent a decision from the appellate court, the commission’s order is lawful and his scope is limited to whether Johnson Utilities is in compliance with the order.

McCarville described what he might issue as an order, including setting specific dates for Johnson Utilities to open doors and provide EPCOR access to bank accounts. He took the arguments under advisement and did not set a timeline for a ruling.

But McCarville did seem troubled by the idea of a lien that EPCOR proposes to place on Johnson Utilities’ assets to ensure EPCOR gets repaid for any investments it must fund while acting as interim manager.

Commission lawyers said they could issue a brief to explain how the lien proposal complies with the law.

George Johnson, the company owner, did not attend the hearing.

Andy Tobin was the only one of the five Arizona Corporation Commissioners to attend. Also in attendance was state Rep. Kelly Townsend, R-Mesa.