Sierra Club v. Arizona Corporation Commission – 7/23/2015

August 6, 2015

Arizona Court of Appeals Division One holds that the Arizona Corporation Commission’s decision to waive the renewable energy rules for an experimental waste-to-energy facility is affirmed under the deferential standard of review applicable to Commission ratemaking decisions.

Arizona public electric utilities are subject to Renewable Energy Standard and Tariff (REST) rules.  The rules require that the utilities obtain part of their energy from Eligible Renewable Energy Resources.  The rules have a list of preapproved resources but the Arizona Corporation Commission can adopt pilot programs for additional technologies or it may waive compliance with the rules for good cause.

Mohave Electric Cooperative, Inc. (Mohave) sought approval for a waste-to-energy facility.  It asked the Commission to either recognize the facility as a pilot program using municipal solid waste as the Eligible Renewable Energy Resource or waive the REST rules.  The Sierra Club intervened in opposition.  A Commission staff report found that over ninety percent of the energy produced by the facility would come from biogenic material within the burning waste.  The Commission granted pilot program status under the REST rules and in the alternative granted a waiver from the REST rules.  It also granted renewable energy credits for ninety percent of the energy produced.

The Commission granted the Sierra Club’s rehearing request but denied relief.  The Sierra Club sought review in superior court, and that court vacated the Commission’s decision on several grounds.  The Commission then appealed to the Court of Appeals.

The Court of Appeals first clarified the standard of review.  It held that because the Corporation Commission is a distinct, popularly-elected branch of the government, the Commission’s decisions are not reviewed under the same standards as other administrative decisions.  Previous cases have held that de novo judicial review is limited when the Commission makes a “ratemaking” decision, and the Court held that the decision at issue here falls within the area of the Commission’s ratemaking authority.  In this limited de novo review, the challenging party must “show by clear and satisfactory evidence that [the Commission’s decision] is unreasonable or unlawful.”  A.R.S. § 40-254(E)

The Court of Appeals held that the Commission did not abuse its discretion in finding good cause for a waiver of the REST rules.  The Commission’s decision was supported by its staff’s position based on the experimental nature of the program and a weighing of potential benefits and consequences.  The Sierra Club focused primarily on whether solid waste may be considered “renewable” under the REST rules and did not establish clear and satisfactory evidence that a good cause waiver of the REST rules was unwarranted.  Although the Court of Appeals found that the REST rules did not specifically exclude solid waste as a renewable energetic source, the Court did not reach the issue of whether the facility qualified as a pilot program under the REST rules because it held that those rules were waived.

Finally, the Court of Appeals rejected the Sierra Club’s contention that no credible evidence supported the decision to consider ninety percent of the solid waste as a renewable energy source.  The Commission’s decision was supported by substantial evidence including nine witnesses and data generated from the examination of thousands of pounds of municipal waste.  The Sierra Club’s primary argument was that the ninety percent figure is higher than results from other parts of the country, but the Commission has the constitutional responsibility to resolve such conflicting evidence in making ratemaking determinations.  Further, the Commission established a procedure for periodic reporting on actual fuel consumption, leaving open the opportunity to amend the renewable energy percentage if warranted.

Judge Orozco authored the opinion; Presiding Judge Thumma and Judge Brown concurred.