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ACC=E2=80=99s Permissive Power Allows = ACC to Appoint an=20 Interim Manager to Remedy Threats to Public Health and Safety
The Arizona Supreme Court issued its long-awaited opinion in = Johnson=20 Utilities, L.L.C. v. Arizona Corp. Comm=E2=80=99n on Friday, July = 31, 2020,=20 vacating the Arizona Court of Appeals=E2=80=99 decision but affirming = the Arizona=20 Corporation Commission=E2=80=99s (=E2=80=9CACC=E2=80=9D) authority to = impose an interim manager for a=20 privately held public utility.
The Short = Story
The Arizona Supreme Court determined that the ACC had authority under = its=20 permissive state constitutional powers to order an Interim Manager = (=E2=80=9CIM=E2=80=9D). For=20 those following the Johnson Utilities (=E2=80=9CJohnson=E2=80=9D) and = EPCOR litigation, this=20 means that EPCOR can and will remain in place pending some other = challenge to=20 its actions. However, the Court held there are restrictions on the = ACC=E2=80=99s=20 permissive authority, including limitations on its ability that would = interfere=20 with other agencies=E2=80=99 concurrent statutory authority, such as = ADEQ. In this=20 opinion, the Court took the time to explain and correct flaws and=20 inconsistencies in prior case law concerning the scope of the = ACC=E2=80=99s exclusive=20 ratemaking and concurrent permissive authority under the Arizona=20 Constitution. As a result, this decision is = particularly=20 noteworthy as it resets the scope of, and basis for, the = Commission=E2=80=99s authority=20 to regulate public service corporations in other matters that are not = strictly=20 ratemaking.
A Deeper Initial = Dive
What follows is a summary of the most important points of the = opinion. The=20 Court began the opinion by walking through the history of the formation = and=20 purpose of the ACC and identifying important ACC case law involving its=20 ratemaking authority and permissive authority. The Court noted that much = of the=20 case law concerning the ACC=E2=80=99s authority was confusing and this = opinion aimed to=20 clear up some of the confusion and misapplication of law. To that end, = the Court=20 noted, in detail, why the Court=E2=80=99s reasoning in Woods = [regarding the=20 management interference doctrine] was incorrect.
Importantly, the Court held that the ACC=E2=80=99s ratemaking=20 authority[1]=20 does not authorize = the ACC to=20 appoint an IM to protect =E2=80=9Cthe safety, health, comfort, and = convenience of=20 [Johnson=E2=80=99s] patrons, employees, and the public=E2=80=9D because = it deemed Johnson=E2=80=99s=20 services, equipment, and facilities to be inadequate and = unsafe=E2=80=94this connection=20 to ratemaking authority was considered to be too much of a stretch. = However,=20 the Court recognized another avenue under the Arizona Constitution for = the ACC=20 to appoint an IM: =E2=80=9C[T]he Commission has the authority to appoint = an interim=20 manager pursuant to its permissive power under article 15, section = 3.=E2=80=9D=20 Opinion, at =C2=B6 57.[2]=20 =E2=80=9CThis broad grant of authority necessarily includes appointing = an interim=20 manager to remedy threats to public health and safety.=E2=80=9D = Id.
To prevent the impression that the ACC has unlimited permissive = powers, the=20 Court then discussed the important limits the Arizona Constitution = places on the=20 ACC=E2=80=99s permissive authority. These include the following: due = process, limiting=20 the ACC=E2=80=99s purpose in using its permissive powers to protecting = and preserving=20 the safety, health, comfort, and convenience of the public, and noting = that any=20 order the ACC issues must be =E2=80=9Creasonable.=E2=80=9D = Opinion, at =C2=B6 58. Permissive=20 authority is also limited by the legislature=E2=80=99s authority to = regulate public=20 health and safety. Opinion, at =C2=B6 59.
Explaining another limitation, the Court noted that the legislature = delegated=20 authority to ADEQ to enact and enforce water quality and wastewater = standards,=20 as well as enforce those standards with civil remedies and criminal = penalties:=20 =E2=80=9CAs a result, the Commission may not unilaterally exercise its = permissive=20 authority in a manner that divests ADEQ of its broad regulatory powers = over=20 water quality and wastewater.=E2=80=9D Opinion, at = =C2=B6 60.
The Court expressly declined =E2=80=9Cto extend = Woods=E2=80=99 construction of the=20 managerial interference doctrine as imposing a limit on the = Commission=E2=80=99s=20 permissive authority.=E2=80=9D Opinion, at =C2=B6 61. The Court = also noted that the=20 managerial interference doctrine has only been applied by Woods = and its=20 progeny to limit the ACC=E2=80=99s ratemaking authority; it has never = been applied to=20 the ACC=E2=80=99s permissive authority under Section 3. Id.
The Court then spent a significant amount of time explaining why the = majority=20 (which included all the Justices save one) disagreed with the partial = dissenting=20 opinion (written by Justice Bolick). It summarized the = majority=E2=80=99s opinion thus:=20 =E2=80=9CTo summarize, the power of the Commission to issue an order = appointing an=20 interim manager falls within its permissive authority under article 15, = section=20 3. However, the exercise of that authority has limits. Section 3 = expressly=20 requires that any such order must be =E2=80=98reasonable=E2=80=99 and = confined to circumstances=20 predicated on, and limited to, protecting and preserving the safety, = health,=20 comfort, and convenience of the public. Judicial review is available to = assess=20 whether such an order is thereby =E2=80=98reasonable.=E2=80=99 = Furthermore, issuing such an=20 order is subject to basic due process protections, including notice, a = hearing,=20 and the opportunity to present evidence and cross-examine = witnesses.=E2=80=9D=20 Opinion, at =C2=B6 66.
Conclusion
The Court=E2=80=99s holding was limited to the legal question of = whether the ACC has=20 the authority, under any circumstances, to issue an order appointing an = IM; the=20 Court did not look at nor touch the factual issues underlying the legal=20 question. Opinion, at =C2=B6 72. =E2=80=9CWhat is clear is that = Johnson, as a PSC=20 operating under a CC&N, has dedicated its property to public use in = exchange=20 for being granted a monopoly in its service area=E2=80=A6.As a result, = Johnson=E2=80=99s=20 property is subject to regulation by the Commission, including any = regulation=20 necessary to protect public health and safety.=E2=80=9D = Opinion, at =C2=B6 73. The=20 opinion offers helpful insight and clarity into the confusion in past = Arizona=20 Supreme Court decisions on ACC=E2=80=99s ratemaking authority and paves = a new path for=20 future decisions under the ACC=E2=80=99s limited permissive power.
You can read the Arizona Supreme Court=E2=80=99s opinion in full = here: https://www.azcourts.gov/P= ortals/0/OpinionFiles/Supreme/2020/CV-19-0105-PR%20Johnson%20Utilities%20= Opinion.pdf=20
[1]=20 Ariz. Const. art. 15, =C2=A7 3.
Power of commission as to = classifications, rates and charges, rules, contracts, and accounts; = local=20 regulation
Section 3. The corporation commission shall have full power = to, and=20 shall, prescribe just and reasonable classifications to be used and just = and=20 reasonable rates and charges to be made and collected, by public service = corporations within the state for service rendered therein, and make = reasonable=20 rules, regulations, and orders, by which such corporations shall be = governed in=20 the transaction of business within the state, and may prescribe = the=20 forms of contracts and the systems of keeping accounts to be used by = such=20 corporations in transacting such business, and make and enforce = reasonable=20 rules, regulations, and orders for the convenience, comfort, and safety, = and the=20 preservation of the health, of the employees and patrons of such = corporations;=20 Provided, that incorporated cities and towns may be authorized by law to = exercise supervision over public service corporations doing business = therein,=20 including the regulation of rates and charges to be made and collected = by such=20 corporations; Provided further, that classifications, rates, charges, = rules,=20 regulations, orders, and forms or systems prescribed or made by said = corporation=20 commission may from time to time be amended or repealed by such = commission.=20 (Italics added).
[2]=20 Ariz. Const. art. 15, = =C2=A7 3.