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Hearing officer recommends Corp Comm take over Johnson Utilities

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George Johnson PHOTO BY JAKE KINCAID/PINAL CENTRAL

A state hearing officer recommends the Arizona Corporation Commission seize control of Johnson Utilities from the current management, at least temporarily, and install its own manager.

The finding by Sarah Harping comes after she concluded that the company that provides water and sewer for San Tan, Florence and Queen Creek area homes and businesses “has failed to provide service and equipment that is in all respects just, reasonable, safe, proper, adequate and sufficient.” Some of that, she said, is the failure of the company to spend the money necessary for repairs and equipment.

But Harping, while finding a laundry list of problems dating back more than a decade, said it would not be appropriate to impose fines and penalties on the firm.

Harping’s recommendation, by itself, changes nothing. Instead it gives utility executives until 4 p.m. on July 23 to contest the findings. After that, it will be up to the five-member commission to decide whether to adopt her recommendations or not.

Company attorney Jeff Crockett said he is still studying the 326-page report and has not had a chance to review it with Gary Drummond who, for the moment, is the utility’s manager and sole employee. But Crockett said the company, even when it was under control of George Johnson, who remains the owner, has resisted suggestions all along to name an interim manager.

“I don’t think there’s going to be any change in that position,” he said. And Crockett said he will be filing “exceptions” to Harping’s findings by the July 23 deadline.

All this is occurring against the backdrop of the federal court trial of Johnson on charges of bribing former utility regulator Gary Pierce. Both are awaiting the verdict of the jury.

The jurors also are weighing the fate of Pierce’s wife, Sherry, and lobbyist Jim Norton who all are accused of being a part of the scheme by Johnson to funnel money to Pierce in exchange for his favorable votes on two issues of interest to Johnson.

But while the criminal charges have no direct bearing on what the commission might do, Harping noted there is a connection of sorts.

She said that Johnson, after being indicted, named Drummond in his place. But she noted that while Drummond is an attorney, he “does not have either an educational background in water treatment and distribution or wastewater collection and treatment or prior experience working in the water or wastewater utility industry.”

And she said that Drummond spends 80 percent of his time at his Phoenix law office.

But Harping said the problems with the utility are deeper, citing problems going back more than a decade with water quality and pressure. And she said that from 2010 and earlier this year the company has about 78 spillages of raw sewage, each of which “posed a danger to public health and the environment,” including some that have reached Queen Creek Wash.

She also said there was evidence of systematic problems, which showed up in an analysis done by Carollo Engineering which was acting on behalf of the town of Queen Creek which was looking at acquiring the utility.

That report, Harping said, concluded that the company’s facilities “have not been properly maintained for the past decade.” It also found backup generators for water lift stations were acquired at the end of their useful lives, exposed rebar at lift stations due to corrosion, missing booster pumps and wells that were too small.

She said Queen Creek determined it would have needed to spend $36 million on the water system and $78 million on the wastewater system just to bring it up to municipal standards.

Harping also said some of the problems at Johnson Utilities may be due to the fact the company has a contract with Ultra Management to perform certain services. That company, in turn, then pays money to Hunt Management which does the actual managing of the utilities.

Both of those companies are owned by Chris and Barbara Johnson, who are George’s children.

Crockett acknowledged that arrangement is bound to come up.

“It’s a fair question for the commission to ask whether the utility is devoting enough money towards maintenance and operation and repair and replacement,” he said. But Crockett said the company’s position is that it has spent enough, and as necessary.

Other problems Harping found include:

– inaccurate bills;

– the inability of customers to make online payments and have them credited the same day;

– telephone hold times of up to 30 minutes.

The bottom line, she wrote, is that it would be “just and reasonable and in the public interest” for the commission to appoint an interim manager to operate the utility.

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