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George Johnson indicted for bribery to secure rate increase for Johnson Utilities

George Johnson indicted for bribery to secure rate increase for Johnson Utilities

2017-05-26 
| by James Hodl | Posted in STV News

Former ACC commissioner Gary Pierce, his wife and Johnson lobbyist Norton also indicted

George Johnson, owner of Johnson Utilities, has been indicted in federal court for allegedly bribing a member of the Arizona Corporations Commission (ACC) in order to secure a rate increase for the water and/or sewer services Johnson Utilities provides through much of San Tan Valley.

    Also indicted were Johnson’s alleged coconspirators: Former ACC member Gary Pierce, his wife Sherry Ann Pierce, and James Norton, a lobbyist who represents Johnson before the ACC and other government entities. The full charges made against the four defendants are bribery, conspiracy, mail fraud and wire fraud.

    As described in the 17-page indictment filed on May 23 in the U.S. District Court in Phoenix, the four defendants conspired to create a convoluted scheme to funnel money from Johnson to Pierce. This involved Norton acting as a middle man and recruiting an unindicted coconspirator to set up a shell company that would employ Mrs. Pierce. Between August 2011 and February 2012 Johnson allegedly cut five checks of $6,000 each to the unindicted coconspirator who deposited them in one bank account, transferred the funds to a second bank account, where a check for $3,500 was cut for Ms. Pierce, who reportedly did almost no work for what was billed as a consulting firm.

A total of $31,500 reportedly ended up with Pierce under this scheme. As part of the conspiracy, Pierce also was given the opportunity to purchase land valued at $350,000.

    In return, Pierce, then serving as ACC chairman, promoted to other ACC members two proposals favorable to Johnson that would enable Johnson Utilities to raise its water and sewer rates. One approved in September 2011 on a 3 to 1 vote with one ACC member dissenting increased the fair value of Johnson Utilities’ wastewater division rate base from $136,562 to $18,244,755, thus enabling the company to increase the utility’s revenues through a rate hike. The other approved by ACC on a 4-1 vote in February 2013 granted the owners and shareholders of small utilities incorporated as Chapter S corporations or LLCs (Limited Liability Corporations) to count their income tax expenses as a utility expense and thus adjust rates so ratepayers paid those taxes. This included Johnson Utilities.

    Both proposals were first considered by ACC in late 2010, but all members including Pierce voted against them. However, the indictment alleges that after the four defendants colluded in August 2011, Pierce changed his position on those issues and in his position as chairman worked to change the minds of other ACC commissioners. In both cases, the moves were opposed by studies conducted by ACC staffers and by Arizona’s Residential Utility Consumer Office.

    The lone opposition member in the 2013 vote was quoted in the indictment as saying, “Asking ratepayers to pay personal income taxes for shareholders of utilities is neither justifiable nor good public policy. Personal income taxes are not a utility expense.”

    Pierce left ACC at the end of 2014.

    The indictment came as Johnson Utilities has been long under fire not only for high rates and billing irregularities, but also for poor water quality (high levels of nitrates and e-coli) and sewage mishaps (including overflowing sewers in the Castlegate and Pecan Creek South subdivisions last year). ABC15 News reported in late April that Johnson Utilities has been cited for 150 such problems to ACC since 1999.

    Since the San Tan Valley Daily PRSS broke the story, Johnson and Pierce have refused comment on their indictment. Norton said that since he didn’t learn of the indictment until late on May 25 he couldn’t comment until he read the document.

    “Does this mean we can get our money back?” was the first comment on the indictment from Tisha Castillo, who has long locked horns with Johnson over issues with Johnson Utilities and on the issue of San Tan Valley incorporation as a city. “We have repeatedly pushed these issue with Johnson. Maybe something good will come from it.”

    Filed by Elizabeth R. Strange, Acting U.S. Attorney for the District of Arizona, the indictment was especially critical of how the ACC was perverted from its assignment task of providing “honest services” to utility ratepayers.

    The ACC has the ultimate responsibility for final decisions on the granting or denial of rate adjustments, enforcement of safety and public service requirements, and approval of securities matters, she noted. The ACC’s first duty is to utility consumers. This was not the case in the two actions that are the basis of this lawsuit.

    Johnson and the three other defendants are scheduled to be arraigned on June 7 in U.S. Court in Phoenix at 10 a.m. before Judge John Boyle.

Read the full indictment here.

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