Johnson Utilities LLC v. Ariz. Corp. Comm’n (3/7/2019)

March 27, 2019

Arizona Court of Appeals Division One holds that Arizona Corporation Commission’s broad ratemaking power under the Arizona Constitution and statutorily delegated power to determine a just remedy for inadequate public utility equipment, facilities, or services allow the Commission to impose an interim manager upon a utility under appropriate circumstances.

The Arizona Corporation Commission (the “Commission”) held a hearing on the adequacy of water and wastewater utility’s operation, equipment, and facilities.  Finding several significant concerns, the Commission appointed another water utility in the area to conduct the business and affairs of the water and wastewater utility, allowing the utility to end the interim management if it could show that its services were safe, proper, adequate, and sufficient, and did not present an unreasonable risk of service.  The utility filed several unsuccessful actions challenging the Commission’s order, and eventually filed a special action challenging the Commission’s authority to appoint an interim manager in the Supreme Court, which declined jurisdiction without prejudice to the utility refiling in the Court of Appeals.  The utility refiled in the Court of Appeals, and the Court of Appeals accepted jurisdiction.

The Court of Appeals denied relief.  Article 15, Section 3 of the Arizona Constitution affords deference to the Commission’s determination of whether a rule, regulation, or order, is reasonably necessary for the Commission to engage in effective ratemaking.  While courts are required to look with disfavor on a Commission order that interferes with internal management of a utility, there is no bright line rule that places this sort of interference outside the Commission’s jurisdiction, and courts look on each case separately to see if non-interference would have a deleterious effect on rates or the public welfare.  In certain urgent situations, imposing control on a utility may be necessary to control rates.  Further, even where the Constitution may not allow the Commission to impose an interim manager, A.R.S. § 40-321(A) gives the Commission the power to determine what is “just, reasonable, safe, proper, adequate, or sufficient” when it find a utility’s equipment, appliances, facilities or services are unjust, reasonable, unsafe, improper, inadequate, or insufficient, and to enforce that determination with an order.  This broad delegation is sufficient to authorize the Commission to appoint an interim manager.  

Judge Swann delivered the unanimous opinion of the court; Presiding Judge Jones and Judge Weinzweig joined.