Arizona Water Co. v. ADWR

• Citation: 208 Ariz. 147,208 AZ 147,91 P.3d 990
• Decision Date: 14 June 2004
• Docket Number: No. CV-03-00321-PR.,CV-03-00321-PR.
• Parties: ARIZONA WATER COMPANY, an Arizona corporation, Plaintiff-Appellee Cross-Appellant, v. ARIZONA DEPARTMENT OF WATER RESOURCES, H.R. Guenther, in his capacity as Director of the Arizona Department of Water Resources, Defendants-Appellants Cross-Appellees, Arizona Corporation Commission, Intervenor-Appellee.
• Court: Supreme Court of Arizona

91 P.3d 990

208 Ariz. 147

208 AZ 147

ARIZONA WATER COMPANY, an Arizona corporation, Plaintiff-Appellee Cross-Appellant, v. ARIZONA DEPARTMENT OF WATER RESOURCES, H.R. Guenther, in his capacity as Director of the Arizona Department of Water Resources, Defendants-Appellants Cross-Appellees, Arizona Corporation Commission, Intervenor-Appellee.

No. CV-03-00321-PR.

Supreme Court of Arizona, En Banc.

June 14, 2004.

Arizona Department of Water Resources by W. Patrick Schiffer, Kenneth C. Slowinski, Nicole D. Swindle, Phoenix, Attorneys for Defendants-Appellants/Cross-Appellees Arizona Department of Water Resources.

Fennemore Craig by Timothy Berg, Norman D. James, Thomas R. Wilmoth, Phoenix, Attorneys for Plaintiff-Appellee/Cross-Appellant Arizona Water Company.

Salmon Lewis & Weldon PLC by M. Byron Lewis, Lisa M. McKnight, Phoenix, Attorneys for Amici Curiae Salt River Valley Water Users' Association and Salt River Project Agricultural Improvement and Power District.

OPINION

HURWITZ, Justice.

¶ 1 The issue in this case is whether the 1990-2000 management plan adopted by the Arizona Department of Water Resources ("ADWR" or the "Department") for the Phoenix active management area violated the Arizona Groundwater Code (the "Code"). We conclude that ADWR was statutorily authorized to promulgate those portions of the management plan in which per capita conservation requirements were directly imposed on water providers, but was not mandated by the Code to impose conservation requirements directly on all "end users." We also conclude ADWR may consider a provider's use of Central Arizona Project ("CAP") water in calculating that provider's total annual per capita water use.

I.

A.

¶ 2 The Groundwater Code, Ariz.Rev.Stat. ("A.R.S.") §§ 45-401 to -704 (2003 & Supp. 2003), was originally enacted as part of the Groundwater Management Act of 1980, 1980 Ariz. Sess. Laws, 4th Spec. Sess., ch. 1. In adopting the Code, the legislature found "that the people of Arizona are dependent in whole or in part upon groundwater basins for their water supply and that in many basins and sub-basins withdrawal of groundwater is greatly in excess of the safe annual yield." A.R.S. § 45-401(A). The legislature further found that these withdrawals were "threatening to destroy the economy of certain areas of this state and [were] threatening to do substantial injury to the general economy and welfare of this state and its citizens." Id.

¶ 3 The Code was designed to protect the state's economy and welfare, and to "provide a framework for the comprehensive management and regulation of the withdrawal, transportation, use, conservation and conveyance of rights to use the groundwater in this state." A.R.S. § 45-401(B). Responsibility for these critical matters was placed in the hands of ADWR, A.R.S. § 45-102(A) (2003), headed by a Director, A.R.S. § 45-102(B), with sweeping "general control and supervision" of groundwater, A.R.S. § 45-103(B) (2003).

¶ 4 The Groundwater Code established four initial "active management areas" ("AMAs"). A.R.S. § 45-411(A).¹ ADWR was required to adopt five successive conservation management plans for each AMA, one for each decade beginning in 1980.² A.R.S. § 45-563(A). For the Tucson, Phoenix, and Prescott AMAs, the Code's "management goal" was to establish "safe-yield," a balance between the amount of groundwater withdrawn and the amount naturally and artificially recharged, A.R.S. § 45-561(12), by no later than 2025. A.R.S. § 45-562(A).³

¶ 5 The Groundwater Code required, as part of the first management plan for the Tucson, Phoenix, and Prescott AMAs, that the Director establish "[a] conservation program for all non-irrigation uses of groundwater."⁴ A.R.S. § 45-564(A)(2). For municipal uses,⁵ the initial plans were to require "reasonable reductions in per capita use and such other conservation measures as may be appropriate for individual users." Id. For the second management period, the Director was required to "[e]stablish additional conservation requirements for all non-irrigation uses of groundwater." A.R.S. § 45-565(A)(2). With respect to municipal uses, the second plan "shall require additional reasonable reductions in per capita use to those required in the first management period and use of such other conservation measures as may be appropriate for individual users." Id.

¶ 6 The Department's primary method of implementing the Code's conservation requirements has been the "Total Gallons Per Capita Per Day" ("GPCD") programs in the management plans. These programs limit the total quantity of water a provider may deliver to its customers each year.⁶ This approach places the principal burden of achieving reductions in groundwater use on water providers, who are charged in ADWR's management plans with reducing their total GPCD during each management period. While the second management plan ("SMP") for the Phoenix AMA directly regulates groundwater usage by some high-volume end users, the Phoenix SMP does not impose per capita conservation requirements directly on all end users.⁷

B.

¶ 7 Arizona Water Company ("AWC") is a private water company operating in the Phoenix AMA. See A.R.S. § 45-402(30)(a) (defining "[p]rivate water company"). Because AWC supplies groundwater for nonirrigation use, it is also classified under the Groundwater Code as a municipal provider. See A.R.S. § 45-561(10) (defining "[m]unicipal provider"). In 1988, AWC filed administrative petitions with ADWR seeking review and rehearing of the Director's order adopting the Phoenix SMP. The Director denied relief. In 1990, AWC filed suit in superior court seeking judicial review of the Director's decision.

¶ 8 AWC's complaint alleged that the SMP violated the Groundwater Code because it did not impose conservation regulations directly on AWC's end users. The complaint also challenged various other provisions in the SMP applicable to AWC's water utility companies. Shortly after the complaint was filed, AWC applied to ADWR for administrative review of the GPCD requirements imposed upon several of its water utilities, including its Apache Junction system. The superior court action was stayed pending the Director's review of AWC's administrative applications. AWC and ADWR eventually resolved all disputes except those pertaining to the Apache Junction system. The Apache Junction system remained out of compliance with the GPCD requirements of the SMP because of rapidly increasing nonresidential uses of water, primarily by golf courses, without proportionate increases in the population served by the utility.⁸

¶ 9 After the parties' failure to resolve the dispute over the Apache Junction system, an administrative law judge conducted a hearing and recommended a recalculation of the Apache Junction GPCD based on updated population estimates. Even after the recalculation, however, the Apache Junction system was still not in compliance with the SMP, and the judge recommended denial of AWC's other requests for relief. In 1999, the Director adopted the recommended decision of the administrative law judge, with minor modifications. AWC then filed suit in superior court seeking review of the 1999 decision, and the court consolidated this suit with the pending 1990 action.

¶ 10 AWC's superior court complaints alleged that the GPCD mandates in the SMP conflicted with requirements imposed by the Arizona Corporation Commission under AWC's certificates of necessity and convenience to serve customers in the Apache Junction area. The superior court therefore requested the Commission to intervene. The Commission did so and argued that ADWR had no authority to tell a water utility subject to Commission regulation which customers it could or could not serve. Despite its legal position, the Commission saw no present irreconcilable conflict between it and ADWR with respect to AWC's situation, and suggested that because it had worked collaboratively with "sister state agencies" in the past when issues of overlapping regulation were presented, it was confident that it would be able to work with ADWR should a conflict arise in the future.

¶ 11 In 2002, the superior court entered a judgment holding that the SMP was unenforceable "because it fails to address water utilization by end users."⁹ The court remanded the case to ADWR with directions to adopt an amended plan, and forbade the Department from enforcing the GPCD requirement for the AWC Apache Junction system "[u]ntil such deficiencies are corrected."

C.

¶ 12 ADWR appealed, and in a 2-1 opinion, the court of appeals affirmed the superior court judgment insofar as it held the SMP invalid for failure to impose conservation requirements on end users. Ariz. Water Co. v. Ariz. Dep't of Water Res., 205 Ariz. 532, 73 P.3d 1267 (App.2003). The majority acknowledged that "there is no specific statutory provision by which the legislature definitively ordered the Department to create and impose conservation measures for end users." Id. at 537 ¶ 18, 73 P.3d at 1272. Nonetheless, citing various provisions of the Groundwater Code, the majority below "develop[ed] a firm conviction that the legislature intended just that." Id. The majority concluded that

common sense dictates that if one is assigned the duty of conserving a limited resource like groundwater, one needs the authority, and one must assume the corresponding responsibility, to manage the resource throughout its entire cycle, from extraction to transportation to consumption and even recharge. And if the manager is to obtain the desired conservation result, all those participating in the cycle must be managed directly in regard to their conservation responsibility, including the customer who uses the groundwater and not just the provider who extracts, transports, and delivers it to him.

Id.

¶ 13 Judge Irvine dissented from this conclusion. He relied primarily on A.R.S. § 45-565(A)(2), which requires the SMP to include for municipal uses "additional reasonable...