Arizona Public Service: State-Regulated Utility or 'Political Machine'?

In 2014, APS spent more than $10 million to get this guy, Tom Forese, and Doug Little elected to the Arizona Corporation Commission.
In 2014, APS spent more than $10 million to get this guy, Tom Forese, and Doug Little elected to the Arizona Corporation Commission. Gage Skidmore/Flickr
This story was originally published on April 19.

The people running every Arizonan's favorite utility, Arizona Public Service, are actually admirably creative political strategists, if playing dirty is your thing.

During the 2014 and 2016 election cycles, top executives at APS and parent company Pinnacle West plotted smear campaigns, attempted to feed questions to local media, and even scrutinized the Facebook profile photos of their preferred candidates, caches of documents released in recent weeks by the utility show.

All this is in addition to $10.2 million in dark money that the utility poured into the 2014 race, millions more it openly spent in 2016 on the Corporation Commission race, and more than $30 million in 2018 against renewable-energy ballot initiative Proposition 127, which failed.

APS wasn't just spending to influence the races — it was actively making campaign decisions to boost its favored (anti-solar) candidates and undercut the (pro-solar) candidates it opposed.

Arizona Corporation Commissioner Sandra Kennedy - ARIZONA CORPORATION COMMISSION
Arizona Corporation Commissioner Sandra Kennedy
Arizona Corporation Commission
Arizona Corporation Commissioner Chairman Bob Burns, who began demanding these records more than two years ago, said the commission is in the early stages of figuring what to do next. Commissioner Sandra Kennedy, who issued her own demands for documents in March, is still requesting documents.

"This is just the first task," Burns said. "We're taking a close look. We have additional questions already generated from what we've seen." Burns, whom APS supported in 2016, said that while he hadn't read through all 500-plus pages (so far) of the documents, he had looked at "a considerable amount of them." Legal and policy staffers — "the people that can pull more out of it than I can, I believe" — were reviewing them closely, he said.

Ultimately, his goal is to get APS and all utilities to disclose their political participation. If APS prevailed, he worried, "then other utilities might decide it would be beneficial for them to join, or on their own, do political activity."

"It definitely has to be a set of rules that covers all regulated utilities," Burns went on. He pointed out that the Arizona Constitution gives the Corporation Commission the power to "make reasonable rules, regulations, and orders, by which [public service] corporations shall be governed in the transaction of business within the state." It also gives the commission the power to investigate public service corporations, like APS.

Kennedy was not available for an interview, according to Corporation Commission spokesperson Holly Ward, but said by email, "I am reading through all the documents submitted and want to surmise [sic] it before I make a comment."

Most recently, on April 16, Kennedy requested that APS provide more information about documents it had destroyed, and she also had questions about the documents it had already provided about an FBI investigation into APS for its political participation in 2014.

Whatever steps the Corporation Commission is able or willing to take, critics of APS, including former Corporation Commission candidates who lost after being opposed and outspent by the utility, believe that the documents show that APS has grossly overstepped its bounds.

It is functioning more as a political heavyweight in Arizona politics than the electricity-provider it was created to be, they say, and the documents demonstrate a clear need for not just further investigation but also for the Corporation Commission to use its constitutional authority to rein in the monster.

"I think we vastly underestimated the amount of money and the depth of political planning by APS," said Bill Mundell, a former Corporation Commissioner and one of the candidates APS spent heavily to oppose in 2016. "To me, APS is a political machine masquerading as a public service utility."

"You had everyone from the CEO to the CFO to several senior VPs seemingly fixated on opposing these clean-energy candidates... You have to wonder who was minding the store.” — Kris Mayes, former commissioner

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He pointed to text messages in 2014, from Michael Vargas, who managed government affairs for the utility, to Jessica Pacheco, VP for state and local affairs, that they find a way to smear then-candidate Kennedy the same way they previously had Vernon Parker, a rival to the Republicans favored by APS.

During the primaries in August 2014, Kennedy received more votes than Doug Little, the top Republican candidate, Vargas texted Pacheco on August 27. Polling in mid-September also showed that Kennedy's favorability ratings made her one of the top two candidates, and a ballot test for the Corporation Commission race showed her winning a plurality of votes, emails showed.

"We gotta do the same to her as to Parker," Vargas wrote in a text message to Pacheco on September 21, 2014. "Make her look unethical. This works."

Earlier that year, a series of letters from Parker and his campaign partner Lucy Mason to CEO Donald Brandt demanded answers from APS about its suspected involvement in the Corporation Commission race — they were accurate accusations over that involvement, the new documents prove.

In response, APS anonymously funded campaign mailers claiming that Parker lacked integrity, citing statements from the U.S. Small Business Administration.

Those mailers were paid for by a group called Save Our Future now, to which APS anonymously funneled $3.5 million through a Scottsdale law firm, Goldman & Zwillinger, in 2014, the newly released documents show. It also contributed another $13,000 to the group, not through the law firm. At the time, the Arizona Republic reported that Save Our Future Now spent $82,000 on those fliers.

That fall, a survey by Summit Consulting Group homed in on Kennedy. It's unclear from the documents whether APS commissioned the survey, but the results focused on the races for governor and for Corporation Commission.

Those survey findings noted that Kennedy was popular. "We don't have a silver bullet as none of the negative message tests against Kennedy had much intensity," they added. Among those tests were claims about lawsuits and her voting record. Nevertheless, it found that "after a series of negative tests, the ballot performs more to our liking," with Tom Forese and Little beating out Kennedy.

Kennedy ultimately did not win in 2014, losing to APS-backed Little and Forese. Throughout the race, Vargas and lobbyists from groups that APS funded, like the Arizona Cattle Feeders' Association ($1.37 million from APS in 2014), used the polling, as political strategists are wont to do, to shape their decisions.

In September, two days after Vargas texted Pacheco suggesting they smear Kennedy, Vargas texted Bas Aja of the Cattle Feeders' Association, noting that Kennedy was "strongest with R's [Republicans] in Maricopa and these numbers were boosted by women."

APS wasn't just paying attention to the opposition, of course. In 2014, it even took note of the Facebook profile photos of Forese and Little, one text message shows. Although the context is unclear, Vargas wrote Pacheco in early August 2014, "It would be smart if Forese/Little did this too for FB profile photos?"

In October, Vargas also texted Aja to ask for more Forese/Little signs — 100 of them, to be specific — to be installed in the east Valley. He sent the message about an hour after Pacheco had texted Vargas saying, "Jeff wants more Forese Little signs ... Possible to get a new wave of signs in the east valley [sic]? That is where he lives." (It was not immediately clear who "Jeff" referred to.)

It's also unclear whether or not the idea to change Facebook profile photos was ever presented to Forese or Little, but if it was, that would raise the potential for coordination, Mundell said. Because APS was making independent expenditures supporting those candidates, it would have been illegal for them to coordinate with the candidates.

"U.S. law enforcement (and) the FBI need to do further investigation," said Mundell, referencing the fact that APS has been under FBI investigation since 2016 for its involvement in the 2014 elections.

APS was more openly involved in the 2016 race, but that didn't stop its executives from trying to sway races from behind the curtain.

That year, Barbara Lockwood, the vice president of regulation, suggested planting an insider or two at a press conference held by Mundell and his running partner, Tom Chabin, pro-solar candidates who had criticized APS and were also funded by Solar City.

Executives also discussed sending questions to reporters for them to ask. After that election, in November, Pacheco sent CEO Brandt a recap of the efforts by the Arizona Coalition for Affordable Electricity, to which Pinnacle West contributed more than $4.1 million in independent expenditures. She included details like the number of doors knocked on and phone calls made.

"Good stuff, thanks," Brandt replied.

Kris Mayes, a former Corporation Commissioner, said she could not believe how much time APS executives had devoted to undermining the pro-solar candidates it opposed in 2014 and 2016.

“You had everyone from the CEO to the CFO to several senior VPs seemingly fixated on opposing these clean-energy candidates when they should’ve been running the utility," she said. "I mean, you have to wonder who was minding the store.”

She was optimistic that although earlier attempts to curtail APS' political participation had failed, this year could be different, now that three out of five commissioners have begun prying open APS' books.

“APS has spent the last eight years essentially undermining our democracy. It may take some fairly strong measures by the corporation commission to put an end to that,” she said. "I do have a lot of hope that this commission is going to be very different from previous commissions."
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Elizabeth Whitman was a staff writer for Phoenix New Times from March 2019 to April 2020.