Arizona Public Service Co. v. Arizona Corp. Com'n, 1

• Decision Date: 14 July 1987
• Docket Number: No. 1,CA-CIV,1
• Citation: 746 P.2d 4,155 Ariz. 263
• Parties: ARIZONA PUBLIC SERVICE COMPANY, an Arizona corporation; and AZP Group, Inc., an Arizona corporation, Plaintiffs-Appellants, v. ARIZONA CORPORATION COMMISSION, Defendant-Appellee. 8922.
• Court: Arizona Court of Appeals

Page 4

746 P.2d 4

155 Ariz. 263

ARIZONA PUBLIC SERVICE COMPANY, an Arizona corporation; and AZP Group, Inc., an Arizona corporation, Plaintiffs-Appellants, v. ARIZONA CORPORATION COMMISSION, Defendant-Appellee.

No. 1 CA-CIV 8922.

Court of Appeals of Arizona,

Division 1, Department B.

July 14, 1987.

Review Granted Dec. 15, 1987.

[155 Ariz. 264] Snell & Wilmer by Steven M. Wheeler and Martha E. Gibbs, Phoenix, for plaintiffs-appellants.

Neal J. Beets, Chief Counsel, Arizona Corp. Com'n, Phoenix, for defendant-appellee.

Fennemore, Craig, von Ammon, Udall & Powers, Phoenix, for amici curiae, U.S. West, Inc. and Mountain Bell Holdings, Inc.

OPINION

HAIRE, Judge.

In this appeal, we review a summary judgment entered by the superior court affirming an order of the Arizona Corporation Commission (the "Commission"). The order, Decision No. 54504, requires AZP Group, Inc. ("AZP") and Arizona Public Service Company ("APS") to submit to the Commission detailed monthly reports concerning their past business activities and future plans.

FACTS

The parties submitted a joint statement of facts for the adjudication of their cross motions for summary judgment in the superior court appeal from the Commission's order. The joint statement shows that on March 15, 1985, APS, the largest public utility in the state of Arizona, announced that it would submit to its shareholders a plan for a major reorganization of its entire corporate structure. Under the restructuring plan, APS would make itself a wholly-owned subsidiary of AZP. AZP would also become the holding company for former APS subsidiaries El Dorado Investment Company, Energy Development Company, and Malapai Resources Company. The stockholders of APS approved the restructuring plan at their annual meeting, and on April 29, 1985, after APS filed amendments to its articles of incorporation, the restructuring became effective.

Pursuant to the restructuring plan, the owners of APS common stock exchanged their shares for a like number of shares of AZP stock. As a result, AZP acquired all of the common stock of APS. Initially, APS contributed approximately one hundred percent of the assets and one hundred percent of the revenues and earnings of AZP. ¹ The companies share other links as well. All members of the AZP board of directors are also members of APS's board, the officers of AZP are also officers of APS, and AZP and APS shared the same business office.

In response to the restructuring plan, the Commission requested information from APS and AZP about the proposed restructuring, including questions about the relationship between AZP and its subsidiaries, the role AZP would play in managing APS, and the plans of the companies to diversify their operations. APS and AZP responded in writing to the Commission's questions and sent a representative to a special open meeting convened by the Commission for the purpose of continuing the investigation.

The Commission convened a second special open meeting on April 24, 1985 to deliberate the text and terms of a recommended order that would require both APS and AZP to submit reports to the Commission, on a monthly basis, about certain future transactions and activities involving one or both companies. Before the second special open meeting, the Commission held no formal evidentiary hearing with respect to these reporting requirements and gave no special notice to APS or AZP that the Commission was contemplating the issuance of an order. At the end of the meeting, the Commission voted to impose the reporting requirements and five days later issued Decision No. 54504.

Decision No. 54504 requires APS to make monthly reports about transactions between APS and AZP or its subsidiaries, including information about financing, products, services, and personnel. The order also requires AZP to make similar reports concerning its transactions with its non-public service subsidiaries and further requires AZP to submit reports concerning its diversification activities and plans, all board resolutions and minutes reflecting those plans, as well as an analysis of the benefits and risks to APS and its customers from such proposed ventures. AZP, under protest, complied with the order by filing approximately two pages of reports, and APS complied by filing approximately thirty pages of reports for the period May 1985 through September 1985.

In its order, the Commission did not find that the immediate adoption of the reporting requirements was necessary for the preservation of the public peace, health, or safety. The Commission, however, expressed its concern over the formation of holding companies by public utilities and recognized a need "to better define its role in the reorganization and diversification activities of the utilities it regulates." The Commission's primary concern was that its regulatory authority over public utility companies would be weakened or bypassed by the establishment of holding companies. To insure reliable utility service at fair and reasonable rates and to safeguard against such practices as the misuse of a public utility's assets or credit by a non-regulated affiliate, the Commission anticipated a later formal adoption of rules and regulations addressing the restructuring and diversification of public service corporations and their holding companies.

In their motion for summary judgment in the superior court and now on appeal, AZP and APS contend that the Commission (1) lacked jurisdiction to order AZP to comply with the reporting requirements, (2) impermissibly interfered with the internal management of both companies by requiring them to report strategic information concerning their business plans and activities, (3) lacked any factual or legal basis and failed to articulate its reasons for issuing the order, and (4) denied the companies their right to procedural due process by issuing the order without according the companies notice and an opportunity to be heard. The superior court found that:

"(1) As to both plaintiffs, the issuance of the reporting order is a valid exercise of the jurisdiction conferred upon the Commission by Article 15, §§ 3, 4 and 13 of the Constitution of the State of Arizona. Accordingly, the Court need not determine that AZP, Inc., is a public service corporation.

"(2) The reporting order is not a Rule requiring compliance with the APA [Arizona Administrative Procedure Act]. Neither are procedural due process rights implicated here.

"(3) The reporting order does not impermissibly discriminate against the plaintiffs ...." ²

JURISDICTION

The companies first claim that AZP has never been found to be a public service corporation, nor could it be. Accordingly, they urge that the Commission lacked jurisdiction to issue the order as to AZP because the order fell outside the scope of the Commission's jurisdiction over non-public service corporations. The Commission responds that it has explicit constitutional and statutory authority to require public service corporations and publicly held corporations to report information pertaining to their acts and operations and that, in any event, AZP could be found to be a public service corporation.

Public service corporations are defined, in relevant part, as "[a]ll corporations other than municipal engaged in furnishing gas, oil, or electricity for light, fuel, or power...." Ariz. Const. art. 15, § 2. The Commission itself may not give "public service" designation to businesses not specifically listed in art. 15, § 2, nor may the legislature expand the Commission's jurisdiction by giving "public service" designation to businesses falling outside the scope of the constitutional definition. Rural/Metro Corporation v. Arizona Corporation Commission, 129 Ariz. 116, 118, 629 P.2d 83, 85 (1981); Menderson v. City of Phoenix, 51 Ariz. 280, 285, 76 P.2d 321, 323 (1938). The parties concede that APS falls within the definition of "public service corporation," and thus within the Commission's jurisdiction. AZP, however, does not furnish electricity or any other service to the public, nor does it have the intent or authority to offer utility service to the public in any fashion. Its express business purpose, as set forth in its articles of incorporation, is "the acquisition and holding of securities of other corporations for investment purposes." Thus, AZP does not fall within the strict constitutional definition of a "public service corporation."

The Commission argues otherwise. First, the Commission asserts that AZP could be found to be a public service corporation because AZP is engaged in furnishing electricity to the public through its wholly-owned subsidiary, APS. In rejecting this argument, we simply note that the constitutional definition is to be strictly construed and that AZP itself does not provide any public service listed in the definition. See Ariz. Const. art. 15, § 2; Rural/Metro Corp., 129 Ariz. at 117, 629 P.2d at 84. Furthermore, the lower court did not make a finding as to whether AZP was a public service corporation and the Commission has pointed to no instance in which a holding company has been determined to be a public service corporation.

Second, the Commission directs our attention to the control AZP exercises over APS through stock ownership, virtually identical officers and boards of directors, and shared corporate headquarters. Equally important, it asks us to note that APS created AZP and remains the principal asset and producer of revenue for AZP. Therefore, the Commission urges, we should disregard the separate corporate identities and consider the two corporations as a single legal entity, in effect, "piercing the corporate veil."

A basic axiom of corporate law is that a corporation will be treated as a separate entity unless sufficient reason appears to disregard the corporate form. Standage v. Standage, 147 Ariz. 473, 475, 711 P.2d 612, 614 (App.1985). When the facts disclose undercapitalization or when...