Sierra Club—Grand Canyon Chapter v. Ariz. Corp.

• Decision Date: 23 July 2015
• Docket Number: No. 1 CA–CV 14–0003.,1 CA–CV 14–0003.
• Citation: 237 Ariz. 568,717 Ariz. Adv. Rep. 19,354 P.3d 1127
• Parties: SIERRA CLUB—GRAND CANYON CHAPTER, Plaintiff/Appellee, v. ARIZONA CORPORATION COMMISSION, Defendant/Appellant.
• Court: Arizona Court of Appeals

237 Ariz. 568

354 P.3d 1127

717 Ariz. Adv. Rep. 19

SIERRA CLUB—GRAND CANYON CHAPTER, Plaintiff/Appellee

v.ARIZONA CORPORATION COMMISSION, Defendant/Appellant.

No. 1 CA–CV 14–0003.

Court of Appeals of Arizona, Division 1.

July 23, 2015.

Arizona Center for Law in the Public Interest, By Timothy M. Hogan, Joy Herr–Cardillo, Phoenix, Counsel for Plaintiff/Appellee.

Arizona Corporation Commission, Legal Division, By Wesley C. Van Cleve, Charles H. Hains, Janet F. Wagner, Phoenix, Counsel for Defendant/Appellant.

Curtis Goodwin Sullivan Udall & Schwab, PLC, By William P. Sullivan, Trish Stuhan, Phoenix, Counsel for Amicus Curiae Reclamation Power Group, LLC.

Judge PATRICIA A. OROZCOdelivered the opinion of the Court, in which Presiding Judge SAMUEL A. THUMMA and Judge MICHAEL J. BROWN joined.

OPINION

OROZCO, Judge:

¶ 1 This appeal concerns the development of a proposed “waste-to-energy”(WTE) facility, which would generate electricity by burning landfill waste, and the classification of electrical power that would be produced by the proposed facility.The Arizona Constitution grants the Arizona Corporation Commission(the Commission) broad power to “prescribe just and reasonable” classifications and rates for services rendered by public service corporations.Ariz. Const. art. 15, § 3.We review the scope of that authority and the deference due a Commission decision, later vacated by the superior court, granting approval for the proposed WTE facility.For the reasons that follow, we reverse the superior court's decision and reinstate the Commission's decision to the extent it grants an application by Mohave Electric Cooperative, Inc.(Mohave) for a waiver to the Renewable Energy Standard and Tariff (REST) rules.

FACTS AND PROCEDURAL BACKGROUND

¶ 2 Arizona public utility corporations providing electricity are subject to the REST rules promulgated in Arizona Administrative Code(A.A.C.)sections R14–2–1801, et seq.These rules require affected corporations “to satisfy an Annual Renewable Energy Requirement by obtaining Renewable Energy Credits [ (Credits) ] from Eligible Renewable Energy Resources.”A.A.C. R–14–2–1804.A.A Credit is obtained for each kilowatt-hour “derived from an Eligible Renewable Energy Resource.”A.A.C. R14–2–1803.A.Although specific Eligible Renewable Energy Resources are listed in the rules, the Commission “may adopt pilot programs in which additional technologies are established as Eligible Renewable Energy Resources.”A.A.C. R14–2–1802.D.The Commission also “may waive compliance with any provision of [the REST rules] for good cause.”A.A.C. R14–2–1816.A.

¶ 3 Mohave filed an application asking the Commission to either (1) recognize a proposed WTE facility as a “pilot program,” or (2) waive the REST rules for the proposed facility “to the limited extent necessary to recognize energy produced [by the] facility as an ‘Eligible Renewable Energy Resource.’ ”Mohave's application stated that Reclamation Power Group, LLC(RPG), which intended to develop, own, and operate the proposed WTE facility in Maricopa County, could not provide “economically viable” power unless the Commission classified the municipal solid waste that would be used as fuel by the facility as a Credit-eligible “Renewable Energy Resource.”Appellee, Sierra Club–Grand Canyon Chapter (Sierra Club) successfully intervened to oppose Mohave's application.

¶ 4 The Commission's Utilities Division(Staff) produced a report on Mohave's application and drafted a recommended decision.The report stated that Mohave had provided Staff with a “breakdown, by category” of a waste sample from a landfill that Mohave claimed was representative of the waste composition the WTE facility would burn as fuel if the facility became operational.The report discussed how the Mohave “breakdown” showed ninety-five percent of the waste consisted of “biogenic material.”¹The Staff report concluded that burning waste of this composition would mean “the biogenic material contributes about [ninety-one] percent of the energy to the process while non-biogenic materials contribute about [nine] percent[.]”The report suggested that the ninety-one percent figure was high in relation to the results of other studies.As a result, Staff recommended that the Commission not grant “pilot program” status and instead grant a good-cause waiver of the REST rules to allow seventy-five percent of the kilowatts produced by the facility to be Credit-eligible “as being produced by an Eligible Renewable Energy Resource.”

¶ 5 Both Mohave and Sierra Club filed exceptions to the Staff recommendation.Following an open meeting, the Commission held a three-day evidentiary hearing before an administrative law judge (ALJ).Seven witnesses testified, including representatives from Staff and acting President of RPG Ronald Blendu.Following the evidentiary hearing, the Commission adopted most of the Staff findings and recommended decision, with two important changes: the Commission (1) granted the WTE facility “pilot program” status under the REST rules, noting that “[a]lthough we disagree with Staff that a waiver of the REST Rules is necessary to approve [Mohave's] application ... we recognize and acknowledge that Staff's analysis ... provides an independent and alternative basis upon which to approve this application[,]” and (2) granted Credits for ninety percent of the kilowatt hours that would be produced by the facility.

¶ 6Sierra Club petitioned for a rehearing, which the Commission granted.Another evidentiary hearing was held, with extensive testimony from several witness, once again including representatives from Staff and Ronald Blendu.Following the rehearing, the Commission affirmed its initial decision “in its entirety.”The Commission denied Sierra Club's petition for rehearing on that decision.

¶ 7Sierra Club then sought review of the Commission's decision in superior court pursuant to Arizona Revised Statutes(A.R.S.)section 40–254(West 2015).²Sierra Club and the Commission requested judgment on the record created before the Commission.Following briefing and oral argument, the superior court vacated the Commission's decision, stating that “the authorities and arguments provided by [Sierra Club] are well-taken, and this Court adopts those authorities and arguments in support of its decision.”The superior court further awarded Sierra Club its attorney fees and costs.After entry of judgment by the superior court, this timely appeal followed.We have jurisdiction pursuant to A.R.S. § 12–2101(B)(West 2015).

DISCUSSION

I.Appropriate Standards of Proof and Review

¶ 8 The Commission first contends that its constitutional ratemaking authority entitled its decision to a more deferential standard of review than it received from the superior court.Additionally, the Commission argues that the superior court erred by applying ambiguous standards of proof and review.The proper standards of proof and review for challenges to Commission decisions are legal questions we review de novo.SeeTucson Elec. Power Co. v. Ariz. Corp. Comm'n.,132 Ariz. 240, 242–44, 645 P.2d 231(1982).

¶ 9 The Commission occupies a unique place in Arizona's government, with our state constitution expressly stating the Commission's purpose and powers.See generallyAriz. Const. art. 15.Our supreme court has described the Commission as “another department of government, with powers and duties as well defined as any branch[.]”State v. Tucson Gas, Elec. Light & Power Co.,15 Ariz. 294, 306, 138 P. 781(1914);see alsoAriz. Corp. Comm'n v. State ex rel. Woods,171 Ariz. 286, 290, 830 P.2d 807(1992)(recognizing that “[t]he [Arizona Constitution's] framers established the Commission as a separate, popularly-elected branch of state government”).This special status makes the judicial review process for the Commission's decisions distinct from the process for reviewing other administrative decisions, although they share many similarities.SeeTucson Elec. Power Co.,132 Ariz. at 243, 645 P.2d 231;compareA.R.S. § 12–905(A)(West 2015)withA.R.S. § 40–254(A)(West 2015).

¶ 10 A further distinction exists concerning the scope of judicial review for Commission decisions.As set forth in Tucson Electric Power Company,a court's de novo review is “limited” when the reviewing court is examining a ratemaking decision.132 Ariz. at 243–44, 645 P.2d 231.Here, Sierra Club asserts that the Commission's ratemaking authority is limited to particular elements, none of which apply to decisions about “pilot programs” or waivers under the REST rules.But Arizona case law has not restricted “ratemaking” as such.SeeWoods,171 Ariz. at 294, 830 P.2d 807(concluding that “even assuming we restrict the Commission's regulatory power to its ratemaking function, we must give deference to the Commission's determination of what regulation is reasonably necessary for effective ratemaking”).Indeed, this court recently concluded that the Commission promulgated the REST rules pursuant to its ratemaking power.SeeMiller v. Ariz. Corp. Comm'n.,227 Ariz. 21, 29, ¶ 33, 251 P.3d 400(App.2011).Sierra Club contends that the court's holdings in Miller are inapposite because that case concerned a collateral attack on the Commission's power to enact the regulations.It follows, however, that rules enacted under the Commission's ratemaking power are also reviewable under the standards for reviewing ratemaking decisions.As a result, we conclude the Commission decision here was made under the Commission's ratemaking power.We now turn to the appropriate standards of proof and review for ratemaking cases.³

¶ 11 The applicable standard in reviewing a Commission decision is found in A.R.S. § 40–254(E), which provides that “[i]n all trials, actions and proceedings the burden of proof shall be upon the party adverse to the [C]ommission or seeking to vacate or set aside any determination or order of the [C]ommission to show by clear and satisfactory evidence...