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Issue: acc

APS withholds spending in Corp Comm primary elections

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Light bulb on black background with copy text

The state’s largest utility is staying out of the Republican primary race for two open Arizona Corporation Commission seats, risking a shakeup that could have serious ramifications for the company.

Whether the literal powerhouse that is Arizona Public Service has had a change of heart about its history of election spending or recent events have given the company pause, only company insiders can know. A representative of the company declined to comment for this story.

But by not spending in the primary, APS leaves itself vulnerable to unfriendly newcomers and a commission willing to take another crack at retail electric deregulation.

That would open up the energy retail and generation markets to competition for utilities like APS that are currently allowed to operate as regulated monopolies.

Eight candidates are vying for the open seats this year, five of whom are running as Republicans.

Tom Forese (Photo by Katie Campbell/Arizona Capitol Times)
Tom Forese (Photo by Katie Campbell/Arizona Capitol Times)

Incumbents Tom Forese, commission chairman, and Justin Olson were running in the Republican primary as a slate but recently parted ways. Though Forese pushed back on rumors of the rift earlier this week, their split became clear when Olson criticized him during a Republican primary debate August 14.

Commission observers have speculated that Forese’s lackluster campaign could cost him the election.

That could be enough to pave the way for Rodney Glassman, who has staked out a clear anti-APS position on the campaign trail. Also in the running are Jim O’Connor and Eric Sloan, both of whom support reviewing last year’s APS rate hike.

Olson has also been known to take positions that conflict with the company’s interests, expressing willingness to dig into election spending in 2014 and opening the door to the deregulation conversation. Both are topics Commissioner Bob Burns is fond of as an ardent APS foe.

Three Democrats are also facing off in the primary. Former Commissioners Bill Mundell and Sandra Kennedy have teamed up against Kiana Maria Spears, who has been criticized for her campaign treasurer’s three-decade history with APS. Mundell previously served on the commission as a Republican but has said he switched parties because of APS’s influence over his GOP colleagues.

Ultimately, seven of these eight candidates are likely votes in favor of at least entertaining deregulation.

Competition would radically alter the environment in which APS currently operates.

As a legal monopoly regulated by the Corporation Commission, APS has guaranteed customers, guaranteed growth and guaranteed profits. The latter translated to spending power in the 2016 election cycle, during which APS was not shy about backing its allies and spending against its foes. However, the company has categorically refused to say if it was the source of millions in dark money spent in 2014.

But such activities have brought APS and its benefactors under scrutiny.

Vernon Parker
Vernon Parker (Photo by Evan Wyloge/Arizona Capitol Times)

Former Paradise Valley Mayor Vernon Parker said it was a bad move for APS to start spending in the Corporation Commission elections to begin with. Parker ran unsuccessfully for a seat on the commission in 2014. He said he has no doubt APS was the source of nearly $900,000 in dark money that was spent against him in the Republican primary that year – ironic because he said he likely would have sided with the company more often than not.

He said APS’s spending has tainted the commission and those perceived to be beholden to the company, offering Forese as an example. Now, Parker suspects the so-called “Ghost Lobby” trial in particular has made APS reticent and waiting to see what more could unravel.

“Operation Ghost Lobby” was the name given to the federal bribery case brought against former Corporation Commissioner Gary Pierce, his wife Sherry Pierce, lobbyist Jim Norton and utility owner George Johnson. The case went to trial but ended in a hung jury, and has since been dismissed.

Parker said that case just scratched the surface, and there’s more not yet known that could expose APS.

“Ghost Lobby” stemmed from “Operation High Grid,” a larger investigation into spending in the 2014 elections, widely believed to include APS’s involvement.

“Hopefully, they’ve seen that being involved in the Corp Comm races can drag them into things that they probably should not be involved in,” Parker said.

Then there’s the far more optimistic possibility he entertained: “No pun intended here, but hopefully they’ve seen the light that it’s best to let the voters make up their own minds.”

But attorney Court Rich, of Rose Law Group, scoffed at the notion that APS has “seen the light” and decided that it’s inappropriate to spend in elections.

“Someone was seriously making that statement?” Rich said. “The idea that APS has decided to get out of politics – there’s no evidence to support that.”

Rich is the director of Rose Law Group’s Renewable Energy Department. His solar energy clients have fought APS for years. While APS hasn’t gotten involved in the Corporation Commission races just yet, it has spent millions on a campaign to keep the Clean Energy for a Healthy Arizona initiative off the ballot.

If approved, the initiative would mandate that 50 percent of electricity generated in Arizona come from renewable sources by 2030. APS and its allies argue that such a high mandate, which far exceeds current Corporation Commission mandates, would increase power costs.

And Rich anticipates APS will “continue to spend like crazy in the general election.” For now, the company seems comfortable with the race and is simply waiting to see who comes out on top after the primary. Perhaps then a negative campaign against its least favorite candidates would be the most prudent use of the company’s money, Rich said, or maybe APS doesn’t anticipate a major shakeup at the commission in any event.

No candidate will ever say he or she is beholden to APS, Rich said, but even an unwilling Republican would likely be better for the company than a Democrat on the commission.

“Certainly it’s fashionable for candidates on either side to not speak highly of APS right now,” he said. “But maybe they have a better feeling about some of the primary candidates and they don’t think they have to worry.”

With deregulation back on the table, though, APS may have to rethink its strategy entirely.

Bob Burns (Photo by Howard Fischer, Capitol Media Services)
Bob Burns (Photo by Howard Fischer, Capitol Media Services)

Commissioner Bob Burns, who will leave office in 2020 because of term limits, insists it’s re-regulation.

“That was a $5 million-plus word fought over in 2013,” he said, referring to the last time the commission considered the issue.

At first, all five commissioners at the time were on board, Burns recalled, but APS turned it into a “public political campaign.”

“And then all hell broke loose, and money started flying,” he said. “I guess you could say it was never in the control of the commission.”

The effort died soon after.

Then-Commissioner Gary Pierce flipped and moved to end discussion of the issue after the commission was advised that deregulation would likely require a voter-approved amendment to the Arizona Constitution. Then-Commissioner Brenda Burns was the only dissenting vote as her colleagues voted 4-1 to end the debate.

Bob Burns said APS sees the prospect of competition as a significant threat to its income.

He’s heard the phrase “utility death spiral” thrown around in years past, but he doesn’t hear that anymore and disagrees with the premise anyway.

Burns sees technology on the rise and capable of altering the status quo. Even if that means APS won’t be in the energy generation business in the future, he said distribution needs will still give the company space to function.

And that space may well be APS’s future: a distribution monopoly but perhaps not much more.

Choice for jury in bribery case: dirty politicians or humble servants

The bribery trial of former Arizona Corporation Commissioner Gary Pierce and his wife Sherry Pierce is a clash of political paradigms.

It pits conflicting narratives of the greedy, corrupt political operatives out only for themselves versus the humble public servants seeking to do right by the people.

The government’s opening statements in U.S. District Court in Phoenix today alleged the Pierces, strapped for cash, were willing to line the pockets of water utility owner George Johnson if it also meant lining their own.

“A scheme was devised and money was paid,” said Assistant U.S. Attorney Frank Galati. “It was that simple.”

Galati said the case is not about whether the Pierces are nice people or whether they have friends in high places – it’s about whether Gary Pierce’s actions on the Corporation Commission were “honestly taken or corruptly taken.”

The defense countered that the Pierces never would have put all they had worked so hard to accomplish on the line for little more than $30,000.

Gary Pierce
Gary Pierce

“The government would like you to believe that they would give all of that up… for $31,000,” Sherry Pierce’s attorney Ashley Adams told the jury. “Mrs. Pierce will tell you it wouldn’t have mattered if it was $31 million. That’s just not who she is.”

The Pierces’ lives revolve around family, faith and service, Adams said, and “crime is not something that is in Sherry Pierce’s DNA.”

Adams and Pat Gitre, Gary Pierce’s attorney, said Sherry Pierce’s work for the firm established by indicted lobbyist Jim Norton’s wife and unindicted co-conspirator, Kelly Norton, was legitimate, that she earned the monthly payments of $3,500, that she was a knowledgeable political consultant continuing the sort of work she had done for years.

Sherry Pierce
Sherry Pierce

And all the while, her husband did his job for the Corporation Commission in good faith.

If the jurors believe that characterization – that Sherry Pierce did the work for which she was paid – Adams said that would mean there was no quid pro quo scheme, and they must find the defendants not guilty.

The story of the Nortons’ relationship stands in contrast to the Pierces.

Kelly Norton revealed the bribery scheme alleged in the indictment to federal investigators, admitting her own part in the web of payments that went from Johnson to the Pierces. The payments were allegedly in exchange for Gary Pierce’s favorable votes.

Kelly Norton was painted by her now ex-husband’s attorney, Ivan Mathew, as a scorned woman seeking revenge.

Kelly Norton
Kelly Norton

Mathew offered a post on Kelly Norton’s personal Facebook page on the day the defendants were arraigned as evidence. It was a poem titled “Karma.”

Each defendant – the Pierces, Jim Norton and George Johnson – have been charged with felony conspiracy, bribery, mail fraud and five counts of wire fraud. They were offered plea deals in exchange for their cooperation on a larger case from which their case, dubbed “Operation Ghost Lobby,” emerged. They rejected the offers and continue to maintain their innocence.

Johnson’s attorney Woodrow Thompson added to the narrative about the Pierces, arguing his client had a bona fide relationship with KNB Consulting, the firm established by Kelly Norton that employed Sherry Pierce for work in Pinal County.

Thompson said the Pierces claimed the income on their tax returns, and that documentation of the payments from Johnson to Norton to Pierce does not support the government’s account.

“You will not hear any evidence of fat envelopes stuffed under doormats,” he said. “This was all paid by check in plain view with a paper trail.”

But Thompson said little about Johnson himself, a man well-known – but not especially well-liked – in Pinal County where his company, Johnson Utilities, operates.

Lobbyist Jim Norton, who is under indictment in a bribery scheme, leaves U.S. District Court in Phoenix on June 7, 2017.
Lobbyist Jim Norton, who is under indictment in a bribery scheme, leaves U.S. District Court in Phoenix on June 7, 2017.

Galati said Johnson was not happy with two decisions by the Corporation Commission regarding a rate increase case and his bid for a tax pass-through policy to apply to his company.

So he bribed Gary Pierce, Galati said, and got what he wanted in the end.

Pierce voted in 2010 against the rate hike, but in favor of it in 2011 when he was chairman. And he voted to give Johnson Utilities owners the ability to pass their income tax liability on to customers.

But Thompson poked holes in the government’s timeline.

He said Gary Pierce’s affirmative vote on the rate case came months before his wife was hired by Kelly Norton, and he voiced a “philosophical attachment” to the tax pass-through policy change years before that.

Additionally, as he pointed out repeatedly, other commissioners also voted in favor of Johnson Utilities in those cases, yet their reasons for doing so were not called into question.

One such commissioner was Bob Burns, who currently sits on the Corporation Commission and who may be called to testify as may his wife, Gayle Burns, who was a “mother figure” Kelly Norton confided in about the alleged scheme.

George Johnson (Photo by Jake Kincaid/Pinal Central.com)
George Johnson (Photo by Jake Kincaid/Pinal Central.com)

The defense sought unsuccessfully to keep Gayle Burns from testifying, and the attorneys continue to question the credibility of Bob Burns.

In his opening statement, Ivan Mathew told the jury Bob Burns “has an ax to grind” against the commission itself.

Former Commissioners Kris Mayes, Brenda Burns – no relation to Bob Burns, Sandra Kennedy, Doug Little and Bob Stump are also on the list of witnesses.

On May 30, 16 jurors were selected to sit through the arduous court process as the parties debate the timeline and legitimacy of Sherry Pierce’s work.

They include ten women and six men. Four alternates will be selected at random at the conclusion of arguments and just before the final 12 jurors begin deliberations.

Several individuals said they had financial services backgrounds and experience with both non-disclosure and confidentiality agreements. Two have been divorced, and one woman was once a Johnson Utilities customer, though she said she had not developed an opinion about the company or its owner in that time.

Also among the jurors is a man who told the court during the selection process that he would have to reschedule a hip surgery to participate, and a graphic designer from Arizona State University who was not especially eager to serve – he anticipated his absence from work would put his department far behind in its summer workload.

But he’ll be there until at least June 29, when closing arguments are expected to conclude.

The defense in particular has expressed concerns that more time may be needed. If that is the case, U.S. District Court Judge John Tuchi said the case would be put on hold for the week of July 4 to resume the week of July 9.

Corp Comm may take another look at deregulation

The Corporation Commission may soon take another look at retail electric competition, just five years after its last foray into the issue ended with a whimper.

Commissioners Robert Burns, Boyd Dunn and Justin Olson have all submitted recent letters into an open docket asking that the commission explore possible changes to its retail electric competition rules. Those rules currently permit utilities such as Arizona Public Service to operate as regulated monopolies.

Justin Olson
Justin Olson

Olson said he believes the commission should consider opening up the energy retail and generation markets to competition, which would create competition for regulated monopolies like APS.

“If we’re going to be analyzing what the grid of the future is going to look like and what, if any, policy reforms do we need enacted at the commission in order to accomplish that, I think retail choice is certainly something that needs to be part of that discussion,” Olson said.

Burns said he believes technological advancements in recent years have created more of an impetus for re-regulation – Burns rejected the term “deregulation” – in the energy generation arena. He said he expects resistance from the utility, which he said spent millions fighting the last push for deregulation in 2013.

“It’s only natural that the utilities would be a little uptight about it, a little bit nervous. They’ve got a pretty good deal going,” Burns said.

Dunn said he’s keeping an open mind on the issue, but isn’t making any commitments on deregulation. He noted that he wasn’t on the commission the last time the issue came up, and wants to get some information on it as the Corporation Commission discusses the energy modernization plan that Commissioner Andy Tobin initiated.

“I felt like I’d like to look at the whole concept and just get the communication, get feedback without any sort of agenda on that issue,” he said.

Tom Forese (Photo by Katie Campbell/Arizona Capitol Times)
Tom Forese (Photo by Katie Campbell/Arizona Capitol Times)

Commission Chairman Tom Forese, who is widely viewed as an ally of APS, hasn’t made any official calls for the commission to explore deregulation. But he told the Capitol Times that he’s willing to discuss the idea, though he said he has a lot of questions, such as how deregulation would work in rural areas and how it would affect people who can’t afford utility services.

Nonetheless, he said there is merit in the idea of hearing from experts and finding out how deregulation has worked in other states.

“There’s no idea so dangerous that it can’t be discussed,” he said.

A spokeswoman for APS said the company has no comment on the issue.

While deregulation could give consumers the option of purchasing electricity from multiple utilities, Burns acknowledged that there will likely be a continued need for a monopoly that controls the transmission and distribution of electricity. It’s not feasible to have multiple utilities running electrical lines to the same house, he said.

Bob Burns (Photo by Howard Fischer, Capitol Media Services)
Bob Burns (Photo by Howard Fischer, Capitol Media Services)

Burns, a frequent critic of APS who has clashed repeatedly with the company, is the only member of the five-person commission who was in office during the last time it considered electric retail deregulation. In 2013, then-Commissioner Gary Pierce moved to end discussion of the issue after the Corporation Commission received legal advice that deregulation would likely require a voter-approved amendment to the Arizona Constitution. The commission voted 4-1 to end the debate, with then-Commissioner Brenda Burns as the only dissenting vote.

The legal advice that led to Pierce’s motion stemmed from a 2004 ruling by the Arizona Court of Appeals in Phelps Dodge v Arizona Electric Power Cooperative. In that case, which lasted for seven years, the court struck down as unconstitutional rules that the commission adopted in the 1990s to govern a deregulated electricity market. The Constitution empowers the commissioner to set “just and reasonable rates,” and the court determined that the commission’s rules were an abdication of that responsibility.

Olson said he believes the commission can enact rules to allow competition in the retail electricity market without amending the state Constitution. Just because the commission’s previous rules were unconstitutional doesn’t mean any move by the commission toward deregulation and competition would be, he said.

And Burns and Olson both said the debate could turn out differently than it did in 2013 because there are different people in office now.

CORRECTION: A previous version of this story incorrectly identified Robert Burns as the only commissioner to vote against ending the deregulation discussion in 2013.

GOP Corp Comm candidates lead by less than 1 percentage point

In this photo of the Sept. 20, 2018, Arizona Corporation Commission debate on KAET-TV are from left Rodney Glassman, Republican, Sandra Kennedy, Democrat, Ted Simons, host, Kiana Sears, Democrat, and Justin Olson, Republican. The candidates are vying for two open seats on the commission. (Photo by Howard Fischer/Capitol Media Services)
In this photo of the Sept. 20, 2018, Arizona Corporation Commission debate on KAET-TV are from left Rodney Glassman, Republican, Sandra Kennedy, Democrat, Ted Simons, host, Kiana Sears, Democrat, and Justin Olson, Republican. The candidates are vying for two open seats on the commission. (Photo by Howard Fischer/Capitol Media Services)

The Arizona Corporation Commission will remain entirely red if Tuesday night’s early ballot results hold true, but less than one percentage point currently separates first and third place.

The two Republicans in the race, incumbent Commissioner Justin Olson and newcomer Rodney Glassman,are leading over Democrats Sandra Kennedy and Kiana Sears, but just barely. According to early ballot returns, Olson has claimed 25.96 percent of the vote, while Glassman has 25.88 percent.

But Kennedy is not far behind with 24.98 percent as of Wednesday morning. Sears is at the back of the pack with 23.18 percent.

Even without Democratic wins, though, the results of tonight’s ACC election could have serious consequences for the state’s largest public utility, Arizona Public Service.

Glassman staked out a clear anti-APS position on the campaign trail, a strategy that led him to claim one of two GOP primary nominations over current Commissioner Tom Forese.

Olson has also been known to take positions that run contrary to the company’s interests. Among them, Olson has expressed willingness to dig into the utilities election spending in 2014 and re-opening the door to talk of retail electric deregulation. The latter would open up the energy retail and generation markets to competition, not an ideal outcome for utilities like APS that are currently allowed to operate as regulated monopolies.

That and APS’ election spending habits are topics Commissioner Bob Burns is fond of. Burns is both a Republican and an APS foe, and he’s vying to be the commission’s next chair.

 

Arizona Corporation Commission by the numbers

Early votes 

Republican

Justin Olson 25.96 percent

Rodney Glassman 25.88 percent

Democrat

Sandra Kennedy 24.98 percent

Kiana Sears 23.18 percent

Judge’s decision in bribery trial opens door on larger probe

Gayle Burns will be allowed to testify in the so-called “Ghost Lobby” trial after U.S. District Court Judge John Tuchi determined the defense had opened the door to her testimony.

The judge’s decision is critical because it could take the trial down a path that leads to the investigation from which this case emerged, dubbed “Operation High Grid” in court records.

It has been widely known the FBI has been looking into certain statewide races in the 2014 election, and Gary Pierce has acknowledged talking to the FBI about the 2014 race for secretary of state, in which his son, Justin Pierce, was a candidate.

Tuchi has taken steps to keep the larger investigation out of the ongoing trial, and he advised attorneys on both sides to avoid the other investigation in their questioning.

But that may prove difficult moving forward.

Former Arizona Corporation Commissioner Gary Pierce, with bottle, and wife Sherry Pierce, both of whom stand accused in a bribery scheme, leave U.S. District Court in Phoenix after their arraignment on June 7, 2017.
Former Arizona Corporation Commissioner Gary Pierce, with bottle, and wife Sherry Pierce, both of whom stand accused in a bribery scheme, leave U.S. District Court in Phoenix after their arraignment on June 7, 2017.

The government has alleged that former Arizona Corporation Commissioner Gary Pierce was bribed in exchange for his votes favorable to water utility owner George Johnson in 2011 and 2012. The alleged scheme included Pierce’s wife, Sherry Pierce, who the government says was given a “no-show job”  at a firm through which $31,500 was funneled to her husband. The firm, KNB Consulting, was operated by Kelly Norton, an unindicted co-conspirator turned star witness for the government, who said she was “bullied” into the arrangement by her then-husband, lobbyist Jim Norton.

The Pierces, Johnson and Jim Norton are now facing charges of felony conspiracy, bribery, mail fraud and five counts of wire fraud.

Before the trial began, they were offered plea deals in exchange for their cooperation on the “High Grid” investigation, but they rejected the deals and maintain their innocence.

Burns was a “mother figure” to Kelly Norton, who confided in Burns about the alleged scheme. Burns was subsequently interviewed by the FBI about what Norton disclosed to her and when – the latter being of significance.

Norton has said she told Burns about the alleged scheme while it was ongoing, expressing to her that she knew it was wrong from the beginning. But Jim Norton testified that his then-wife did not raise concerns about impropriety until they were in the middle of a divorce. Burns, presumably, will be able to clarify the timeline.

And if she is called to testify to that effect, Sherry Pierce’s attorney, Ashley Adams, told the court the defense will call Gayle Burns’ husband, Corporation Commissioner Bob Burns, who was previously stricken from the witness list.

Bob Burns explains why he was the lone vote against selecting Tom Forese as new chairman of the Arizona Corporation Commission (Capitol Media Services photo by Howard Fischer)
Bob Burns

The inclusion of Bob Burns and any testimony Gayle Burns may offer regarding when Norton told her about the alleged scheme both get at the heart of a central question: Was the scheme just a fabrication by Kelly Norton?

A fabrication the defense suggested the Burnses were involved in.

“We think that the Burnses had some influence over Kelly Norton to come forward in this case,” Adams said.

Jim Norton’s attorney, Ivan Mathew, suggested they had a reason to go along with a false story after legal battles Bob Burns fought with “the other utility,” namely Arizona Public Service, were fruitless.

Burns has sought the disclosure of charitable and campaign spending by APS , particularly in regard to the 2014 election cycle.

Mathew further suggested that because they were fruitless, Bob Burns enlisted the government’s help to accomplish his goals. According to Mathew, Burns has been interviewed by the FBI at least five times.

Assistant U.S. Attorney Fred Battista flatly denied that Bob Burns has driven or directed the investigation, but from the defense’s perspective, he has at least sought to participate in and influence it.

In addition to Bob Burns, Adams noted former Corporation Commission Bob Stump and “our clients” could be called, though she did not specify who she was referring to; Sherry Pierce and Jim Norton have already testified, but Gary Pierce and George Johnson have not.

The defendants’ attorneys had previously expected to rest their case on June 22, but with additional witnesses proposed, that may no longer be the case.

The case is currently scheduled to run through June 29. After that date, the attorneys risk losing up to two jurors being of scheduling conflicts, which would leave them without alternate jurors as they head into deliberations.

If 12 jurors are not remaining to debate the case, a mistrial will be declared.