Johnson Utils., L.L.C. v. Ariz. Corp. Comm’n (7/31/2020)

August 3, 2020

Arizona Supreme Court holds that the Arizona Corporation Commission has constitutional authority to appoint an interim manager of a public service corporation for health and safety purposes.

Under the Arizona Constitution, the Arizona Corporation Commission has authority to regulate utility companies.  This authority includes two broad powers.  One is a ratemaking power:  The Commission “shall” prescribe reasonable rates for utility companies and make reasonable rules and orders governing their business.  Ariz. Const. art. 15 § 3.  The other is a permissive power:  The Commission “may” make reasonable rules and orders “for the convenience, comfort, and safety, and the preservation of the health, of the employees and patrons” of utility companies, among other things.  Id.

Historically, the Arizona Supreme Court has interpreted the Commission’s ratemaking power broadly, while offering little guidance on its permissive power.  This case was different in both respects.

In this case, the Commission appointed an interim manager for a water and wastewater utility company, after finding health and safety violations.  The utility company sought a special action review, claiming that the Commission lacks constitutional or statutory authority to appoint interim managers.  The Court of Appeals rejected these claims, holding that the Commission’s ratemaking authority permits it to appoint interim managers in some situations, and so does a certain statute.

The Arizona Supreme Court reached the same result, but on different grounds.  First, the Court disapproved of its previous broad interpretations of the Commission’s ratemaking authority, especially Arizona Corporation Commission v. State ex rel. Woods, 171 Ariz. 286 (1992).  The Court explained that these broad interpretations extended the Commission’s ratemaking authority to “virtually every management decision” of a utility company “that might affect rates,” a result inconsistent with the text and history of the Arizona Constitution.  The Court concluded that appointing interim managers to remedy health and safety concerns is not within the Commission’s ratemaking authority because it cannot be “reasonably considered ratemaking.”

The Court then held, however, that appointing interim managers to remedy health and safety concerns is within the Commission’s permissive authority because the Constitution expressly empowers the Commission to make reasonable rules and orders for the “safety” and “health” of utility company patrons.  Moreover, this authority is self-executing, so it does not matter whether the Legislature separately authorized the Commission to appoint interim managers.

The Court noted that the Constitution places limits on the Commission’s permissive authority.  For example, exercise of this authority must be “reasonable” and limited to protection of “health” and “safety.”  The Commission must give utility companies due process before appointing interim managers.  The Legislature may prescribe its own limits on the Commission’s authority to appoint interim managers, and the Commission may not exercise its authority in a way that supplants the Legislature’s delegation of police powers to administrative agencies.

For the most part, the Court did not decide whether, in this case, the Commission transgressed these limits on its permissive authority, leaving the issues for lower courts.

Justice Bolick concurred in part and dissented in part.  He agreed that appointing interim managers for health and safety purposes is beyond the Commission’s ratemaking authority.  In his view, however, that power is also beyond the Commission’s permissive authority.  He reasoned that no such power has been “expressly conferred” to the Commission either in the Constitution or by statute.

Justice Gould authored the opinion, in which Chief Justice Brutinel, Vice Chief Justice Timmer, and Justices Lopez, Montgomery, and Pelander (Ret.) joined.  Justice Bolick concurred in part and dissented in part.