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BEFORE THE ARIZONA CORPORATION COMMISSION

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TOM FORESE CHAIRMAN BOB BURNS COMMISSIONER ANDY TOBIN COMMISSIONER BOYD DUNN COMMISSIONER JUSTIN OLSON COMMISSIONER

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DOCKETED wAv z5 2018

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IN THE MATTER OF THE COMMISSION'S INVESTIGATION INTO THE BILLING PRACTICES AND WATER QUALITY ISSUES OF JOHNSON UTILITIES, LLC.

Docket No. WS-02987A-18-0050

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RUCO'S CLOSING BRIEF 11

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The Residential Utility Consumer Office ("RUCO') submits the following Closing

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Brief In response to the Arizona Corporation Commisslon's ("ACC', "Commlsslon") Order

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to Show Cause ("OSC") requiring Johnson Utilities, L.L.C. ("Johnson", "JU', 'Johnson

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Utilities' or "Company') to show cause why the Commission should not appoint an Interim

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Operator to Mn JU until the Commission determines otherwise. RUCO recommends the

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Commission appoint an Interim Operator.

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INTRODUCTION

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Johnson Utilities is a poorly Mn, high risk operation that has escaped effective and

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sound regulation for far too long. The hearing in this matter has made clear that local and

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state regulation to this point is fixated on compliance, and not enforcement which has

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created a culture at Johnson Utilities of continuing, repeated, and frequent environmental

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violations with little or no consequences and without effectively remedying the loot cause -1 -

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of the problems. Unfortunately, for the customers of Johnson and the people who work

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and live in and around the service area, these violations have created, among other things,

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health and safety concerns.

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As Paul Gardner, the Director of Utilities for the Town of Queen Creek testified, Johnson's wastewater system is a "horse" that "has been ran into the ground."' It is no wonder the system is a constant source of environmental issues. System disrepair and obsolescence, however, is not Johnson Utilities only Achilles heel. Johnson Utilities, as explained by the Town of Queen Creek's witnesses, is set up to fail. The Company is managed through a set of shell corporations, who funnel unwarranted and extreme amounts of unaccounted for management fees through to the upper management of these shell companies, which are primarily run by George Johnson's family and friends. See for example S-77. Surprisingly, no one who runs these companies can adequately explain the exact nature of the Companies, or account for the monies that pass through them, and the evidence shows that the questionable ratepayer's benefits, from the organizational structure, are dwarfed by the excessive costs. The costs, which for both the sewer and the water systems is at least half of the Company's total test year revenues, goes a long way in explaining why there is not adequate revenues to cover the repairs and improvements necessary to address the systems inadequacies. QC-12, QC-13. No matter how good JU's financial and operations people are, they cannot adequately address the systems' inadequacies without adequate financial resources. The Town of Queen Creek, after doing its own independent evaluation of JU as a possible acquisition, rejected the

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'Transcript at 1288. For ease of reference, trial exhibits will be identified like their identification in the Transcript of Proceedings. The transcript page number will identify references to the transcript.

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proposal, among other reasons, because it felt that the current ratepayers were paying

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twice for JU's services. Transcript at 1260-1261 .

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The time has come for the Commission to put an end to the nonsense, and to take

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direct and effective action. Without intervention, this utility will continue violating ADEQ

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and other governmental standards. Without Commission intervention, the best the

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Johnson ratepayers can hope for is more unanswered Sanitary Sewer Overflows ("SSO"),

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Notice of Violations ("NOVs"), hydrogen sulfide violations, excessive management fees,

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spikes in bills, and substandard service. The Commission must appoint an interim manager.

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JOHNSON UTILTIES HAS A LONG HISTORY OF THE SAME AND/OR SIMILAR ENVIORNMENTAL ISSUES

Typically, the purpose of a rate case is to ascertain a Company's revenue

13 requirement and approve residential, commercial and industrial charges through a rate

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14 design. Johnson's last rate case was the rare exception - the same or similar types of 15 environmental issues which are the subject of the present matter took center stage in 16 Johnson's last rate case. In Johnson Utilities, last rate case filed in 2008, ADEQ had 17 issued fourteen NOVs against the Company dating back to September 2004. See 18 RUCO's Opening Brief in Docket No. WS-02987A-08-0180 at 22. The Company admitted to 19

some of the allegations which clearly placed the public's health and safety at risk, 20 21

denied others, and claimed to be unaware of other potential violations. Back then

22 ADEQ had performed unannounced inspections on the Company's Section 11 23 Wastewater Treatment Plant. The inspections were made on September 25, 2008 and 24 October 7, 2008. id. at 24. The results of ADEQ's inspections served as the basis for -3-

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thirteen allegations that the Company had unlawfully disposed of sewage, sludge and/or

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bio solids.

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September 25, 2008, inspection revealed a significant amount of bio solids observed

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and scattered on a surface area of 750 x 50 feet ("disposal area"). id.

The disposal

area contained a large open area ("pit") and when the ADEQ staff walked into the pit

6 they were standing on top of bio solids that were covered with 2-3 inches of topsoil. ld. 7

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The site inspections mostly centered on the east side of the plant. The

The ADEQ staff also noted two additional pits in the disposal area where bio solids had 8 Q

been buried. Id.

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ADEQ dug boring samples and noted that several borings contained a strong

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sewage odor and were black in color. ld. The Company's employees then excavated

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several trenches and on several occasions according to the relevant ADEQ report the

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ground surface collapsed and the inspectors sank below the surface. id.

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Ultimately, the ADEQ inspectors concluded that the Company's officials were

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burying unknown quantities of bio solids on the east side of the property during what

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was believed to be the spring and summer of 2008. Id. at 25. The Company admitted

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there were bio solids on the surface at the time of the visit. Id. The Company also

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admitted there was a large pit that contained bio solids in it. Id. The Company arranged

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for the bio solids to be transported to the W W TP by the Roadrunner Transport

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Company. ld.

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disposal area had been excavated and the bio solids were gone. ld. When asked where

The ADEQ inspectors did a follow up inspection on October 7, 2008 and the entire

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the bio solid materials went, the Company's representative responded "what material".

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There were many, many other examples in that record which showed that the

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Company had acted with callous disregard and in a manner, that placed the public's

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health and safety in jeopardy. For example, the Company was issued a NOV for two

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sanitary overflows with a combined total of 10,000 gallons of untreated water sewage at 7

the Pecan W ater Reclamation Plant. Id. at 27. The sanitary sewer overflow ("SSO") 8

Q occurred during the weekend of May 17-18, 2008.

ADEQ's investigation into that

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matter determined that there were elevated levels of e. coli in the Queen Creek wash,

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where the sewage had leaked several months after the initial overflow. ld. Regarding

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the NOV associated with that incident, the Company claimed that "... the consent order

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that was associated with this has been closed in the fall of last year, 2008, but the NOV

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is still open." Id. In another incident during April 2009, approximately 9,000 gallons of

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effluent leaked out of a holding area into a retention basin at the Company's Pecan

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Water Reclamation Plant. Id. ADEQ had not issued an NOV on that incident at that time

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of the rate case. ld. Just prior to that, however, in February 2009, the Company also dealt with a 9,000-gallon sewage leak in the Cambrilla Ocotillo neighborhood caused by

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clogged sewer lines. ld. at 27 - 28. The Company had not been cited by ADEQ for that 20 incident at the time of the Company's last rate case hearing. 21

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Other "alleged" violations date back to 2004. During the second quarter of 2004,

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the Company was alleged to have exceeded the acceptable level of fecal Coliform on 58

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occasions. Id. at 28. According to the Company, fecal Coliform is found in any warm-5-

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blooded animal waste. Id. ADEQ issued an NOV and the matter had been closed. Id.

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Thereafter, during the third quarter of 2004, the Company again exceeded the

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acceptable level of fecal Coliform on 29 more occasions. A NOV was issued and had

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Despite the obvious history of health and safety concerns, the Company's then

6 Executive Vice President, Brian Tompsett opined in the rate case that he did not believe 7 the Company ever engaged in any unsafe practice in the provision of wastewater

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since been closed. Id.

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service. Id. at 29. Mr. Tompsett seemed to think that the Company was receiving so many NOVs because ADEQ was picking on the Company. Id. at 26. RUCO was genuinely concerned for the health and safety of Johnson's customers in the last rate case. RUCO made several recommendations themed at more regulatory

13 (Commission) oversight. Id. at 29-30. Sadly, the Commission, was not convinced, by 14 perhaps the law's lowest evidentiary threshold, that the Company's operations were 15 16 17 18 19

jeopardizing the public's health and safety. The evidence presented this proceeding (sic) regarding the NOVs issued by ADEQ is of great concern to this Commission. However, the evidence was not first-hand investigative evidence such as would be required for a Commission finding by a preponderance of the evidence, as urged by RUCO in its closing brief, that the Company's operations are jeopardizing the public's safety and health.

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Decision No. 71854 at 55.

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implementing RUCO's recommendation would lead to a result duplicative of ADEQ's

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The Commission went on to say that it believed that

role. ld. The Commission for the most part rejected Swing First's recommendations also

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and adopted Staff's recommendation which required the Company to notify the

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Commission and Staff to verify when the Company came into full compliance with

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ADEQ. Decision No. 71854 at 55-58.

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The Company dodged another bullet. JOHNSON UTILITIES ON-GOING ENVIORNMENTAL VIOLATIONS CONTINUE TO JEOPARDIZE THE HEALTH AND SAFETY OF ITS CUSTOMERS AND SUPPORT THE APPROVAL OF AN INTERIM MANAGER

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Déj8 Vu perhaps best describes the substance of the Commission's current Order

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To Show Cause. Been there done that - so what makes it different now? Staff now has

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presented overwhelming evidence (some first-hand) in this case of on-g oing

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environmental violations. The Town of Queen Creek has also provided forensic insight

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into the financial and managerial operations of JU which the Town has described and

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shown as dysfunctional.

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At best, even if JU's management is effective, which is giving it the benefit of the

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doubt given the evidence, it still is boot-strapped by its financial obligations to JU's

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familial management fees.

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Companies (Johnson Utilities, L.L.C., Ultra Management, L.L.C. ("Ultra") and Hunt

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Management, L.L.C. ("Hunt")) know about the purpose and finances of each of these

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Companies, and Johnson Utilities has yet to explain or make financial sense of any of it.

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Clearly, the organizational structure of JU needs to be reevaluated by the Commission

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as it directly effects the operation and maintenance of the water and wastewater

It is alarming how little the principles of each of the

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systems and JU's ability to provide safe, reliable and adequate service at a reasonable

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price. RUCO will address the organizational structure further below.

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In truth, not much has really changed since the last rate case to solve the on-

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going environmental health and safety concerns. The bottom line is that this Company

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continues to violate local and state environmental standards at an alarming rate. The

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Company pitches the same line about improvements and repairs to the system,

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improved system efficiencies and the like, but the sewage and unauthorized overflows

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continue and people are placed in unsafe conditions. The OSC included the following

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table illustrating the history of SSO's from January 2015 to November 2017.

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Date Re I I r e d 2/11/2015

Date of Incident 2/9/2015

2/11/2015

2/9/2015

2/25/2015

2/22/2015

3/1/2015

3/1/2015

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Dacription Al approximately ll AM, there was leak on Empire Rd near Gary Rd. The leak came from a force main due to a small \ crack in theI i 0 . A 0 l roximatel 50 allows were s filled. At approximately 8 AM, there was a spill near Judd Rd and Felix Rd. The spill came from a three-foot crack in the force main. Approximately 24,000 gallons were spilled and resulted in standing wastewater that measured approximately 100 feet long, 10 feet wide and eight inches deep. The wastewater was located in a farm field with minimum ex I 0 sure to the Ipublic. At approximately 8 AM, 6000 gallons spilled near Village Ln and Morning Sun Circle. The cause was determined to be a piece of manhole ladder rung stuck in a pump at the San Tan Water Reclamation Plant Lift Station. Ar approximately 5 PM, there was a 40-50-gallon spill near Hunt Hwy and Copper Mine Rd. A manhole was overflowing and the wastewater traveled to a retention basin that is five yards from the site. The Johnson Utilities crew uncle I I ed a manhole filled with Ase which caused the I

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4/6/2015

3/31/2015

4/11/2015

4/11/2015

4/24/2015

4/23t2015

5/3f2015

5/3/2015

6 7 8 9 10 11

W W

5/7f2015

6/14/2015

ws/2015

wvrzms

1/8/2015

8.'7f20l5

12 13 14 15 16

8/13/201$

8/12/2015

8/17/2015

8/12t2015

9/10t2015

9/9,2015

10r25/2015

10/24t2015

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10,000 gallons overflowed an Section I I WWTP. The cause was undetermined. At approximately 9 MM, 16.000 gallons spilled furn a leak in a force main located near Arizona Farms Road and Felix Rutland. 19,000 gallons spilled near Hunt Hwy due to a 90-degxnee pipe hleakin in Tb: maunholc. A! approximately 6:30 PM, 8.000 gallons spilled nm a retauion area near Village Lane and Momma Sun Cunck Tlu: cause was determined lo be a failed in fluem pump at the San Tan Wan Reclamation Play lift stallion. At approximately 3:30 PM. 12,000 gallons spilled at a gravity trench line near the Johnson Farms Lin Station. The muse was determined to be a broken force main due to ova excavation Al approximately 2:30 PM. 1.500 gallons spilled due Io submersible pumps overheating at Abe Miming Sun Farms Lift Swim. W USIEW IW I spill from the grit chamber and flowed to a retention Ann next to the 11li station. At approximately 6:30 PM, 2.000 gallons spilled in a ditch within a farm field located near Arizona Farms Road and Felix Rd. The cause was determined to be A cracked force main. At approximately. 3:30 PM. 10,000 gallons spilled near Hum llwy AnN Magma Road. Due wastewater spillevil into a retention area adjacent to the highway. The cause was determined to be a construction company that was boring and hi! theI i 4 n 13,500 gallons spill near the San Tan Wastewater Reclamation Plant Lift Station. The cause was clctczmined to be an unknown lrquxl m an the Lil! station causing a pump fauilune. At approximately 3:30 PM. 13,500 gallons spilled near Moving Sun Cirek and Village Lane. The cause was determined to be a till station backing up at the San Tan Water Reclamation Plant. A second pump failed to tum on due lo a layer of sewage caked on the influent vault. The I on the| MnI . coke vented I float switch from tomin At approximately 8 PM, 4.000 gallons spilled near Morning Sun Circle and Village Lute. The cause was determined to be a cracked force main near the Main Yard Lin Station. The wastewater formed a pool that was 250 feet long. 4 feel wide and 16 inch \ •. . At approximately 2 AM, l 17.000 gallons spilled near Tourmaline and Copper Mine Road The cause was determined to be a cracked force main The wastewater fbrmeda o 1 9l that was I 300 feet lon » et t t feet wide and

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1/7/2016

1/7/2016

2112/2016

2/8/2016

3/3lf2016

3/31/2016

5f20f2016

5t20f2016

6/6/2016

6/5t2016

7/10/2016

'N9/2016

7f28/2016

7/24/2016

8/8/2016

8/4/2016

8/22/2016

8/18/2016

4 5 6 7 8 9 10 11

12 13 14 15 16 17 18 19 20

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one and hinlf fem d I . Asewalinebneakonliulu Hwy nearlohnsom Riluuucb Blvd resultedinthereleiueof an mndetexmined amomnu of wastewater be lied. At approximately 2:30 PM, 9,009 Wlons spilled no: Rittmnhlome and Combs Road. The cause was determined to boa broken alit neliefdlnimaged by a eonsmactiou company performing grading work. The wasnewaxer fonmield a pool Mar was t 00 f eet lon f our f eetwideand%inc h l •. At approximately 3 AM. 8.000 gallons spilled into a retention basin no Rousay Drive and Schnepf Road. The cause was determined lo be grease and debris build-up in the gravity sewer line. As approximately 6:35 AM, 9.000 gallons spilled near Rousay Drive and Schnepf Road. The cause was determined to be a bloc . Al approximately, 6 PM. L500 gallons spilled near the Pecan Water Reclamation Plant. 111: cause was determined to be submersible pump failure due to a blown 200-amp fuse aM failed motor savor. An alternator bah broke on the cash I I and the Bel! came alT. Al approximately 5:20 PM, 500 gallons spilled neo Muscovite Md Silverbell. The cause was determined be grease and wipes caught on manhole ladder rungs. The wastewater formed a pool than was 70 feet long. two feet wide and VS inch • 1. At approximately 3:45 PM. 300 to $00 gallons of wastewater were disclwtrgod from the Moving Sun Farms Lie Station. The wastewater traveled approximately 100 feet to an open din field where it Ev ..s I ed and I elated into the I 9 I At approximately 4 40 PM. 3.000 gallons spilled due to an alternator starter falling to trend a signal resulting in high water levels that overflowed. At approximately 10 AM. 3.000 gallons overflowed near Rittenhouse and Combs Road. The cause was determined to he a contractor performing grading activities and damaging a sewer air relief valve. _ At approximately 7:l$ AM, 100 gallons spilled near High Dunes Road and Escape Ave. The cause was determined to be a build-up of grease and baby wipes Ar the Iifl station which blocked floats from sending a Si I to ac tivaten uma . . At approximately 6°4$ AM. 6.000 gallons spilled near Ocotillo Road and Co OIC Road.

IOf3/2016

9/30/2016

11/4/2016

1 m/2016

ll/Z2/20l6

u/18n0n6 Al approximately l l:J0 AM, a Johnson Utilities employee notice discolored din along Hunt Hwy near Johnson Rims Blvd. 400 Ions I filled due to a crack in a force main. 12/2/2016 At approximately 8 AM, 8,000 gallons spilled and traveled to

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12/7/2016

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n Cnek Wash which is classified as "Waters of the an.; - . -

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I/17r2017

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uI3r2017

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nsphzalt. branches and construction debris blodring a mvity

2nn017

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zr9/2017

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2/10/2017

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vvslws nu. -0'v/.1411\~|a~\ Um'tod States" and the Enviwttrnewttd Protection Agency was notified. At approximately I l'30 AM, 1,500 gallons spilled near Hunt Hwy and Oasis Blvd The cause was determined to be

6/14/2017 a/I9/2017 11/15/2011

sewer line. At approximately ll:30 AM. 5,000 gallons spilled near the Ironwood Crossing Lily Station. The cause was determined xo be a grit chamber clogging due to mechanical plugs Ind debris. 2/4/'2017 At approximately 5:45 PM. I 1.000 gallons spilled near Chlnrtmiy Drive and Matthus Drive. The cause was determined xo be e crack in the force main. 2/7/l2017 At approximately 8:45 PM. 100 gallons spilled near Stonecreek and Desert Basin in a green bell area. The cause was dctennined to be a buikl-up ofgncase in a gravity sewer line. 6/14/2017 An unknown amount of wastewater spilled near Hunt Hwy Md Johnson Ranch Blvd. 8/19/2017 An uMnowm amount of wastewater I filled near Vale Drive. I 1/15/201'7 An unknown amount of wastewater spilled near Kcnwonliy and Ocotillo St. 2/1/2017

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Decision No. 76618 at 7-10. In total JU had 16 SSO's in 2015, 17 in 2016 and 7 in 2017.

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S-72 at 9-10. JU was eclipsed only by the city of Phoenix in the highest number of

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SSO's in the State.

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connections in 2016, whereas the City of Phoenix handles wastewater treatment

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operations for 2.5 million residents from five cities?

However, to put in in proper perspective, JU had 34,779

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In response, the Company points out the significant improvements in the reduction

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of SSO events over the past three years. J-2 at 15. According to the Company the

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number of SSO's reduced from 16 events in 2015, to 13 events in 2016 to 7 events in

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2017 to zero SSO events in the first 131 days of 2018. J-2 at 15.

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2 Smith Direct at 8. Staff was unable to obtain the number of wastewater treatment connections for the City of Phoenix. Id. -1 1 -

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The Company attributes the reductions in SSO's to installing the air relief and

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pressure valves where they were missing, replacing 1,500 feet of force main, increasing

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video and jet rodding activities, and increasing communication with customers and

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developers. J-2 at 15-16.

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2018 and at the time Mr. Cole wrote his testimony in March of 2018, claimed JU's efforts

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had eliminated SSO's "in the past 5 months." J-2 at 16. The Company boasted that it

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met its goal of zero SSO's through the first quarter of 2018.

The Company struts that it has set a goal of zero SSOs in

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RUCO would never discredit or even discourage the Company efforts to repair

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and improve the wastewater system and address the NOVs, SSOs and other issues. In

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fact, RUCO would only encourage it. However, from what RUCO can tell, it seems like

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the Company is so quick to claim success that it overlooks reality.

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On January 25, 2018 ADEQ did a site inspection at Johnson. S-1. Among other

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things ADEQ observed Recharge Basin #4 was overflowing at the northwest corner and

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effluent was flowing west towards the dirt road. Id. at 2. Neither Recharge Basins 4 or 5

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had freeboard visible as required by JU's Aquifer Protection Permit ("APP"). ld. Further,

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effluent was overflowing at the southeast corner of Recharge Basin #7 with the drainage

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pattern indicating the effluent flowing towards a wash identified as storm water detention

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basin. id. These same conditions were observed slightly less than three years earlier

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on March 6, 2015 resulting in a NOV dated May 11, 2015. Id.

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Despite the Company's claims throughout the hearing that it takes immediate

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action when sanitary overflows occur and that it takes each one of these instances

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seriously, the re-occurrences and the same and/or similar types of incidents over time -12-

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suggest otherwise. See for example Transcript at 3092.

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Operations and Maintenance Manual or its current APP on site as required by its APP.

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Again, with a history as long and rich as this Company, why at this point is JU not in

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compliance? Pictures attached to the subject ADEQ report show effluent overflowing at

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recharge basins #4, #5 and #7 as well as effluent water observed along the detention

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basins. S-1 at 4, 5, 6 and 7. ADEQ issued a Notice of Violation based on its January 25,

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2018 visit. S-2.

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JU also did not have

On February 23, 2018, ADEQ inspected the Pecan Water Reclamation Facility in

10 response to a complaint where it was observed that a recharge basin was being filled up 11 with water which raised the public's concerns of mosquitoes and improper filtration. S12 89 at 2. ADEQ observed visual evidence of hazardous unauthorized discharges that 13 occurred around the lift station facility. ld. at 1. There was also visual evidence of small 14 spills coming out of the lift station, and the aeration trains had excessive solids on the 15 surface. ld. at 2, 4 and 5. 16

On March 7, 2018, an unauthorized sewage spill discharge report was filed with

17 ADEQ by the Company. J-44. The Company determined that Section 11's effluent vault 18 spilled 200 gallons of sewage due to a main circuit breaker defaulting. id. The same 19 day there was also a 9000-gallon unauthorized spill when Section 11's effluent vault ii

spilled and effluent left the boundaries of the Northeast corner effluent stream - the final

22 location was a drainage ditch. J-59. 23 24 -13-

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The next "unauthorized sewage spill" occurred on March 13. This time it was only

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1000 gallons that spilled out of recharge basin #4 due to excessive winds splashing

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effluent into the recharge basins berm - eventually ending up in the rode way. J-60.

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On March 26, 2018, a Sanitary Sewer Overflow occurred at the Section 11 plant. According to the ADEQ SSO Report, a malfunction of the wastewater treatment plant lift

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station control system occurred resulting in a spill of approximately 65,000 gallons of 7

untreated wastewater from a manhole overflow on the corner of Kelly Lane and Harold 8

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Drive in the Pecan Creek North subdivision. J-63 at 1, 3. The wastewater traveled from

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the manhole to the storm water drainage channel and entered the Queen Creek W ash

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to the south. ld. at 3. So much for the Company's zero SSO "performance goal."

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Four days had not even passed when the Company experienced its next SSO.

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On March 30, 2018, a customer called to report untreated wastewater overflowing from

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a manhole. J-64 at 1. This spill involved just under 500 gallons and the untreated

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wastewater traveled from the manhole located at East Dust Devil Road and North

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Bareback Trail to the concreate channel and into the rock