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Corp Comm’s interim takeover over of water utility in hands of judge

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A federal judge refused Thursday to block state utility regulators from seizing control of Johnson Utilities, at least for the time being.

In a brief order, Judge David Campbell concluded he does have the legal ability to consider the legal bid by George Johnson to stop in its tracks the move by the Arizona Corporation Commission to appoint an interim manager for the water and wastewater utility that services portions of Pinal County. That was not a given, as just a day before the judge said the failure to serve the commissioners with copies of the lawsuit, first filed Tuesday, raised questions of whether he had “personal jurisdiction” over them.

But Campbell, after a telephonic hearing Thursday afternoon, said he’s not yet convinced that he should issue a temporary restraining order to bar further commission consideration of the action.

Instead, the judge directed attorneys for the commission to file a response later today. And Campbell wants both sides to brief Judge Roslyn Silver, who will be taking over the case, on whether there is legal authority for the federal court to even get involved.

That move left the regulators free Thursday evening to direct commission staffers to proceed with its their recommendation to hire EPCOR, a private water and sewer company, for the interim manager role.

That decision, however, was not unanimous. Commissioners Andy Tobin and Justin Olson backed the joint proposal by the towns of Florence and Queen Creek.

“They actually had a price and a plan,” Tobin told Capitol Media Services after the meeting. Queen Creek city Attorney Scott Holcomb told regulators how the towns would link their current sewer and water systems into those of Johnson Utilities, improving service and reliability without the need to increase rates on customers.

But Robin Mitchell, the commission’s legal director, said there were potential pitfalls to having a private water company run by a pair of city governments. She said that would create a tension between the public officials’ obligations to their citizens and their obligations as managers of the utility.

Underlying the issue are a series of complaints by customers of the utility and others about poor service.

Just two weeks ago, a commission hearing officer recommended that the panel take control of the company and install its own interim manager. Sarah Harpring said the company that provides water and sewer service for San Tan, Florence and Queen Creek area homes “has failed to provide service and equipment that is in all respects just, reasonable, safe, proper, adequate and sufficient.”

Harpring also said some of that is due to the failure of the company to spend the money necessary for repairs and equipment.

That, in turn, is linked to questions of a structure where Johnson Utilities, which has only a single employee, is paying Ultra Management to perform certain services. And that company, in turn, pays money to Hunt Management which actually runs the utilities.

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

In seeking a federal court order to block the regulators from going through with the recommendation, attorneys for Johnson and the family trust that own the utilities said the move would amount to an unconstitutional “regulatory taking without providing just compensation.”

“This action by the Arizona Corporation Commission and its commissioners directly interferes with the ability of the George H. Johnson Trust to realize a fair profit from operating Johnson Utilities,” they argued. They also said that the move “markedly decreases the market value of Johnson Utilities, thereby having a profound economic impact and materially interfering with the trust’s investment backed expectations.”

The legal claims go beyond financial.

According to Johnson’s lawyers, nothing in the Arizona Constitution nor state statutes give the commission the authority to replace the manager of a utility, at least not on their own. If there is an option, they said, it would be for commissioners to go to court.

Johnson separately had asked the Arizona Supreme Court to intercede and block the commission action. But the justices rebuffed that with a brief order.

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