I think $500 on grocery seems high for two people too. We're vegetarian and spend maybe $250, but often less than $200. We also get a lot of fruits and veggies. It might because you're in AZ, though (we're in CA). I would think about joining a CSA and/or starting your own garden. There are a couple of choices for CSAs here, but I can do a share that will do 2 people for $35/month. Kind of a pain in the neck since you can only pick up on certain days between certain hours but it's cheap, local, and in my case organic (although one of the other CSAs in town is not organic). Hard to beat that price too. Farmer's markets will work if you can't do a CSA. At the farmer's market here, you can get $2 for a huge bag of salad greens that would cost you ~$6-7 in the store. Also have you looked into bulk foods? Dry beans, grind-your-own-nut-butters, spices, lentils, baking ingredients, dried fruit, nuts, seeds, etc., can all be had at much lower prices, and with less packaging waste. Also check out the frozen section for bags of frozen fruit & veggies. Depending on the season and the product, they're cheaper than fresh produce and will last longer, and some of them are quite convenient (like the peppers & onions mix, I just toss that in a hot pan with eggs, rice, and beans, spice to my liking, very inexpensive and also delicious and nutritious).
Utilities also seem high to me but you might have a big house and also, I know how hot AZ gets and how inhospitable hot places without A/C can be, so it seems reasonable.