Former Arizona utility regulator indicted on bribery, fraud charges

A federal grand jury has indicted a former state utility regulator and his wife for taking bribes in exchange for his vote to approve giving more money in a rate-hike case to a family-owned utility company.

The indictment, unveiled Thursday, charges that Gary Pierce was given the opportunity to purchase land from George Johnson for below-market price in exchange for pushing through a policy to allow owners of small utilities, including Johnson Utilities, to pass on the cost of their personal income taxes to ratepayers.

That, according to the indictment, was only part of the deal. His wife, Sherry, was given what the indictment claims is essentially a do-nothing job for $3,500 a month by an unindicted co-conspirator, with the money going into the couple’s joint checking account.

The ultimate source of those payments, laundered through that unnamed and unindicted conspirator’s consulting firm, was Johnson, owner of Scottsdale-based Johnson Utilities, according to the indictment. That firm provides water and sewer service in Pinal County.

Johnson also was indicted on the same charges of conspiracy, bribery, mail fraud and wire fraud.

Also facing the same charges is Jim Norton, who was a lobbyist for Johnson utilities.

The indictment says Norton acted as a go-between his client and Pierce. Norton also is accused of trying to hide that transfer of property from Johnson to Pierce: It would be Norton’s name listed as buyer of what Johnson was selling, not that of Pierce.

Norton is now managing partner in Axiom Public Affairs.

Calls to the parties were not immediately returned.

The underlying issue involves small utilities which are organized as either “S” corporations or limited liability companies. Under federal tax law, the income is not attributable to the company but instead passes directly through to their owners.

Commission staffers had recommended against allowing the cost of owners’ income taxes to be included in what customers have to pay. In fact, the commission had rejected a similar proposal in 2009.

Despite that, Pierce and three other commissioners voted in 2013 to go ahead anyway, two years after the indictment says checks started going out to Sherry Pierce.

Back to homepage

Subscriber Login

Keep reading with a digital access subscription.

Subscribe now

The dissenting vote at that time was Brenda Burns, who said that it made no sense to give the owners of these small companies the same ability to charge ratepayers for their taxes that exists in larger corporations.

According to the indictment, Pierce’s vote was not independent.

It says that Pierce and his wife received $31,500 from Johnson, funneled through Norton “in exchange for defendant Gary Leonard Pierce’s favorable and unlawful official actions on matters before the Arizona Corporation Commission.”

Separately, the commission added a wastewater division plant valued at more than $18.2 million back into the company’s rate base. A higher rate base increases what the company can charge.

Pierce, a former lawmaker, was first elected to the commission in 2006 and re-elected four years later before retiring in 2014.

The indictment does not say what led to federal investigators looking at Pierce and the commission vote.

Capitol Media Services reported last year that the FBI interviewed Pierce, supposedly over election issues related to the 2014 bid by his son, Justin, for secretary of state.

Pierce said two agents showed up at his door with multiple questions. He told Capitol Media Services the focus was that election but said the federal agents asked him not to say more to others.

But it became apparent the inquiry was wider, with a spokeswoman for the commission saying at that time the agency had been contacted by the FBI and was “cooperating fully.”

The federal probe appears to have been an outgrowth of an investigation originally started with the state attorney general’s office.

That included allegations that Pierce, while a regulator, had meet secretly with Don Brandt, the chief executive officer of APS, and Don Robinson, his predecessor, while the utility was in the middle of a rate case before the regulator agency. These were laid out in a letter from a whistleblower, later identified as a former commission staffer, to Attorney General Mark Brnovich and others.

There also were charges by Wil Cardon, running in the Republican primary against Justin Pierce, that the utility regulator was using his position on the commission to get financial support for his son’s campaign from companies that are regulated by the panel.