Johnson Utilities, L.L.C. v. Ariz. Corp. Comm'n

• Decision Date: 31 July 2020
• Docket Number: No. CV-19-0105-PR,CV-19-0105-PR
• Citation: 249 Ariz. 215,468 P.3d 1176
• Parties: JOHNSON UTILITIES, L.L.C., An Arizona Limited Liability Company, Petitioner, v. ARIZONA CORPORATION COMMISSION; Tom Forese, Bob Burns, Andy Tobin, Boyd W. Dunn and Justin Olson, in Their Official Capacities as Members of The Arizona Corporation Commission Respondents.
• Court: Arizona Supreme Court

249 Ariz. 215

468 P.3d 1176

JOHNSON UTILITIES, L.L.C., An Arizona Limited Liability Company, Petitioner,

v.ARIZONA CORPORATION COMMISSION; Tom Forese, Bob Burns, Andy Tobin, Boyd W. Dunn and Justin Olson, in Their Official Capacities as Members of The Arizona Corporation Commission Respondents.

No. CV-19-0105-PR

Supreme Court of Arizona.

Filed July 31, 2020

Daniel E. Fredenberg, Christian C.M. Beams, Fredric D. Bellamy, (argued) Fredenberg Beams LLC, Phoenix; Jeffrey W. Crockett, Crockett Law Group PLLC, Phoenix, Attorneys for Johnson Utilities, L.L.C.

Robin R. Mitchell (argued), Naomi E. Davis, Maureen A. Scott, Wesley C. Van Cleve, Phoenix, Attorneys for Arizona Corporation Commission

Jason D. Gellman, EPCOR Water Arizona, Inc.; and Michael T. Hallam, Lewis Roca Rothgerber Christie LLP, Phoenix, Attorneys for Amicus Curiae EPCOR Water Arizona Inc.

Michele L. Van Quathem, Law Offices of Michele Van Quathem PLLC, Phoenix, Attorney for Amicus Curiae Home Builders Association of Central Arizona and Southern Arizona Home Builders Association

Meghan H. Grabel, Osborn Maledon, P.A., Phoenix, Attorneys for Amicus Curiae Arizona Water Company

Evan Bolick, Jonathan Udell, and Court S. Rich, Rose Law Group, PC, Scottsdale, Attorneys for Amicus Curiae Trilogy Encanterra Construction, LLC

Scott S. Wakefield, Hienton & Curry P.L.L.C., and Daniel Pozefsky, Residential Utility Consumer Office, Phoenix, Attorneys for Amicus Curiae Residential Utility Consumer Office

Mark Brnovich, Arizona Attorney General, Jeffrey Cantrell, Assistant Attorney General, Phoenix, Attorneys for Amicus Curiae Arizona Department of Environmental Quality

Kent Volkmer, Pinal County Attorney, Kevin Costello, Deputy County Attorney, Florence, Attorneys for Amicus Curiae Pinal County

Kevin Nguyen, Struck Love Bojanowski & Acedo, PLC, Chandler, Attorney for Amicus Curiae National Association of Water Companies

JUSTICE GOULD authored the opinion of the Court, in which CHIEF JUSTICE BRUTINEL, VICE CHIEF JUSTICE TIMMER and JUSTICES LOPEZ, MONTGOMERY and PELANDER (RETIRED)^* joined. JUSTICE BOLICK concurred in part and dissented in part.

JUSTICE GOULD, opinion of the Court:

¶1 The Arizona Corporation Commission ("Commission") has permissive authority under article 15, section 3 of the Arizona Constitution to "make and enforce reasonable ... orders for the convenience, comfort, [ ] safety, and ... health" of the public at-large. We hold that this authority permits the Commission to appoint an interim manager to operate a public service corporation ("PSC") for the purpose of remedying unsafe and inadequate facilities, services, and equipment posing a health and safety risk to its customers, employees, and the public.

¶2 As the parties conceded at oral argument, the sole issue before this Court is whether the Commission has authority to appoint an interim manager for a PSC. We therefore do not address whether the Commission's order appointing an interim manager for Johnson Utilities, LLC ("Johnson") was supported by the evidence or was a reasonable remedy in this case. Thus, to the extent Johnson has preserved its right to appeal the action under A.R.S. § 40-254, the factual findings and reasonableness of that Order may be subject to review in superior court.

I.

¶3 Johnson is an Arizona PSC that provides water and wastewater utility services in Pinal County pursuant to a Certificate of Convenience & Necessity ("CC&N") issued by the Commission. In February 2018, the Commission opened an investigation involving Johnson after receiving numerous complaints from its customers during a public comment session. The investigation ultimately resulted in a lengthy evidentiary hearing regarding Johnson's financial management, as well as the safety and adequacy of its services, equipment, and facilities.

¶4 On July 24, 2018, the Commission issued Decision Order No. 76785 ("Order"). The Order included findings that Johnson had engaged in deficient billing practices and financial mismanagement. However, the primary focus of the Commission's findings was that it had failed to provide service, equipment, and facilities that sufficiently protected "the safety, health, comfort, and convenience of its patrons, employees, and the public." In making this finding, the Order documented Johnson's prior history of alleged health and safety violations, including seventy-eight raw sewage overflows between 2010–2018.

¶5 Concluding that it was necessary to protect public health and safety, the Commission's Order appointed EPCOR Water Arizona as an "interim," or temporary, manager to conduct Johnson's "business and affairs." The Order preserved Johnson's right of ownership and stated that either Johnson or EPCOR could seek to terminate the appointment upon a showing that Johnson's services "are in all respects just, reasonable, safe, proper, adequate, and sufficient."

¶6 The Commission and EPCOR entered an Interim Manager Agreement on August 15, 2018. Under the Agreement, EPCOR temporarily assumed management of Johnson, including control over payments made by Johnson's customers. Further, the Agreement requires EPCOR to report solely to the Commission, and not Johnson.

¶7 After pursuing several unsuccessful lawsuits challenging the Order, Johnson filed a special action in the court of appeals seeking to enjoin its enforcement. The court of appeals accepted jurisdiction but denied relief, holding that the Commission has both constitutional and statutory authority to appoint an interim manager of a PSC. Johnson Utils. L.L.C. v. Ariz. Corp. Comm'n , 246 Ariz. 287, 288 ¶ 2, 294 ¶ 24, 438 P.3d 656, 657, 663 (App. 2019). The court stated that the Commission's constitutional ratemaking powers under article 15, section 3 authorize it to appoint an interim manager. Id . at 292 ¶ 17, 438 P.3d at 661. Additionally, the court stated that pursuant to A.R.S. § 40-321(A), the legislature had delegated such authority to the Commission. Id . at 293 ¶¶ 20-21, 438 P.3d at 662.

¶8 We granted review because this case involves constitutional and statutory issues of statewide importance. We have jurisdiction pursuant to article 6, section 5(3) of the Arizona Constitution.

II.

¶9 Johnson argues that the Order exceeds the Commission's constitutional ratemaking authority. Johnson also asserts that the legislature has not delegated authority to the Commission to appoint an interim manager, and that only the superior court has been granted such power. Finally, Johnson argues that the Order violates the managerial interference doctrine because it impermissibly allows the Commission to control Johnson's internal affairs.

¶10 The Commission argues that its constitutional ratemaking power authorizes it to appoint an interim manager whenever a PSC's inadequate services and operations might impact its rates. The Commission also asserts that it has "permissive authority" to appoint an interim manager under article 15, section 3 of the constitution. Finally, the Commission claims that the legislature, pursuant to § 40-321(A), has delegated such power to the Commission.

¶11 We review the interpretation of constitutional and statutory provisions de novo. City of Surprise v. Ariz. Corp. Comm'n , 246 Ariz. 206, 210 ¶ 10, 437 P.3d 865, 869 (2019) (statutory interpretation); Gallardo v. State , 236 Ariz. 84, 87 ¶ 8, 336 P.3d 717, 720 (2014) (constitutional questions). In construing the Commission's authority, we apply the principle that the Commission "has no implied powers and its powers do not exceed those to be derived from a strict construction of the [c]onstitution and implementing statutes." City of Surprise , 246 Ariz. at 212 ¶ 20, 437 P.3d at 871 quoting Commercial Life Ins. Co., v. Wright , 64 Ariz. 129, 139, 166 P.2d 943 (1946).

¶12 For the reasons discussed below, we conclude that based on the text and purpose of article 15, section 3, together with cases interpreting that provision, the Commission possesses authority to appoint an interim manager to protect the health and safety of a PSC's customers, employees, and the public at-large. In reaching this holding, we recognize that there has been some inconsistency and confusion in our jurisprudence regarding the Commission's authority under article 15, section 3. As a result, we endeavor here to clarify this jurisprudence, as well as explain the extent and limits of the Commission's permissive authority under section 3, by reviewing the creation of the provision and this Court's prior interpretations of it.

III.

A.

¶13 One of the primary concerns of the delegates attending the Arizona Constitutional Convention of 1910 was to protect the public from corporate abuses that had occurred in Arizona during the late nineteenth and early twentieth centuries. See John S. Goff, The Records of the Arizona Constitutional Convention of 1910 , 718–22, 971–75 (December 17, 1991); Terence W. Thompson, 6 Arizona Practice Series, Corporate Practice § 1.7, Constitutional Convention. In the years leading up to the Convention, Arizona had been the subject of "stock swindles involving mining, telephone, wireless, and other industrial corporations." Thompson, supra at § 1.7 (internal quotations marks omitted). Thus, two important political forces at the time, progressives and labor, "were firmly united on the need to provide ample authority to regulate corporations." John D. Leshy, The Making of the Arizona Constitution , 20 Ariz. St. L.J. 1, 88 (1988). Consistent with this purpose, the progressive delegates repeatedly expressed their desire to protect the public from corporate abuses and overreaching. See Goff, supra at 971-976.

¶14 The Convention delegates, however, "were not content simply to give the legislature power to regulate corporate activities." Leshy, supra at 88. Instead, they envisioned an elected Corporation Commission "vested with broad powers to regulate the activities of [PSC]s." Id . (internal quotation marks omitted); see Gordon Morris Bakken, The Arizona Constitutional Convention of 1910 , 1978 Ariz....