PHOENIX — The owners of Johnson Utilities are going to get a chance to argue that the takeover of the management of the firm by state regulators is illegal.
In an order Wednesday, the Arizona Supreme Court agreed to review a lower court ruling which concluded the Arizona Corporation Commission was within its power when it handed the day-to-day operations last year over to EPCOR, another utility. That other company is still running Johnson Utilities.
Wednesday’s order does not mean that George Johnson and family members will regain control. But it does give him the best chance so far, as he and his company have been rebuffed in prior legal fights.
Potentially more significant, it sets the stage for the state’s high court to decide once and for all exactly how much power regulators have to wrest control of an operating utility from its current owners, and over their objections.
The commission order follows a 14-day hearing last year which dealt with what regulators concluded were significant issues with the operation of the utility, including low water pressure and leaking sewage. Tied to that were questions of not just billing practices but also whether the company was spending the money necessary to ensure safe and reliable operation.
That order allows Johnson Utilities to regain control of the water and wastewater company that serves about 35,000 customers in the Florence, Queen Creek and San Tan Valley area only after showing it “would not present an unreasonable risk of service.’’
Attorneys for Johnson Utilities sued, contending that only a court has the power to give control of the company to someone else, even on an interim basis.
Earlier this year, the Court of Appeals rejected that claim.
Appellate Judge Peter Swann, writing for the court, said the Arizona Constitution gives broad powers to the commission. And he said that, in general, courts give deference to the commissioners in deciding what actions they need to take “to protect consumers from abuse and overreaching by public service corporations.’’
More to the point, Swann said there is no requirement for regulators to wait until the problems are so bad as to require immediate intervention. He said the commission is empowered to act to prevent problems.
It is that appellate court ruling that the Supreme Court will review.
In separate court fights, attorneys for the commission argued that there is precedent — albeit not recent — for regulators to step in as a manager.
But Sharon Moyer, one of the utility’s lawyers, said all those cases involved incidents where the owners of small companies had simply packed up and left town, leaving the utility and its customers stranded. Moyer has argued this is different, with the commission taking control of an operating utility and doing so over the objections of its owner.
There was no immediate reaction from the commission.
Since being granted control of the company, EPCOR has embarked on what it says is a capital improvement plan — using money from Johnson Utility ratepayers that otherwise would have gone to the family business — to ensure the equipment is sufficient to meet current and future needs.
Johnson was personally indicted along with former Commissioner Gary Pierce, Pierce’s wife Sherry, and Johnson Utility lobbyist Jim Norton on charges stemming from what the Department of Justice said was a scheme to bribe Pierce in exchange for his vote on two issues of interest to the utility. A jury was unable to reach a verdict last year and federal prosecutors did not seek a new trial.