PHOENIX — The biggest concern raised during opening statements in a hearing Wednesday on the possible sale of Johnson Utilities to EPCOR Water was an agreement to defer about $45 million in debt related to the sale and allow the new owners to recoup those debt costs through future rate cases.
Johnson Utilities serves a large area of Pinal County that includes San Tan Valley, Florence and Queen Creek. The utility has been in financial trouble for several years and allegations of the misuse of funds and mismanagement of the company have been made against the family that owned and operated the utility for many years. EPCOR was named as an interim manager for the business about two years ago.
EPCOR announced its intention to purchase the utility in October. In order for the sale to go through, it must be approved by the Arizona Corporation Commission.
In his opening statements before ACC Administrative Law Judge Sara Harpring, EPCOR representative Jason Gellman explained that the agreement would defer $45 million in debt for up to 15 years at a rate of 6% and that a surcharge could be applied in future rate cases brought by EPCOR to recover that debt. The agreement would also allow for the dismissal of three other ACC cases against the current Johnson Utilities owners for violations.
Several organizations that have filed as intervenors in the case, including local developers, the city of Queen Creek and Pinal County, raised concerns that recovering the debt through future rate cases would essentially be charging customers again for improvements that Johnson Utilities had promised to make and collected funds for in the past.
Gellman said the debt agreement and sale of the utility to EPCOR would offer a new and permanent path forward for all of the parties involved with Johnson Utilities including customers, developers, land owners and local government entities.
EPCOR has shown over the last two and a half years that it is a fit and proper entity to run the utility, Gellman said. Because EPCOR does not have the financial issues that Johnson has, it should be able to fund those improvements at a much lower rate than the current owners of Johnson could, he said. That plan includes decommissioning the Section 11 wastewater plant in Magic Ranch and replacing it with a construction of the Copper Basin plant.
Gellman said the $45 million debt agreement is necessary to make the sale commercially viable for both sides.
Jeff Crockett, a representative for the current owners of Johnson Utilities, agreed with Gellman that EPCOR is well qualified to take over the company because it has an intimate knowledge of all of the systems and has a good rapport with customers.
Nearly all of the cities, land developers and other organizations listed as intervenors in the case agreed that the sale was a good idea. They all agreed that EPCOR has done a good job running the company as an interim manager.
However, they all had concerns about various parts of the proposed debt deferment agreement.
Some representatives from various landowners and developers wanted to make sure that EPCOR would honor agreements for service that Johnson signed with some of them. Other developers wanted to make sure that they would be able to cancel those agreements if they found that EPCOR could not meet their needs and there was an alternative supplier available.
Scott Holcomb, the representative for the town of Queen Creek, and Deputy Pinal County Attorney Kevin Costello were concerned that the debt agreement would benefit the current owners of Johnson Utilities monetarily and that the dismissal of the other ACC cases against them would mean that the current owners would not be held accountable for the past mismanagement of the company. They were also concerned that ratepayers would essentially be charged twice for the same improvements to the system.
Gellman tried to assure the developers and local government officials that EPCOR could meet current demands for service and manage the company properly by bringing forward witnesses to testify to the company’s future plans. Those witnesses started to answer some questions from the interviewers late Wednesday afternoon before Harpring ordered the hearings to be continued to 9 on Thursday morning.
The hearing is expected to last until Friday. After the hearing is closed, Harpring will issue a recommendation to the ACC, which will make a final decision on the sale.