Arizona Public Service Co. v. Arizona Corp. Com'n, CV-87-0420-PR

• Decision Date: 21 June 1988
• Docket Number: No. CV-87-0420-PR,CV-87-0420-PR
• Citation: 157 Ariz. 532,760 P.2d 532
• Parties: , 57 USLW 2044 ARIZONA PUBLIC SERVICE COMPANY, an Arizona corporation; and AZP Group, Inc., an Arizona corporation, Plaintiffs/Appellants, v. ARIZONA CORPORATION COMMISSION, Defendant/Appellee.
• Court: Arizona Supreme Court

Page 532

760 P.2d 532

157 Ariz. 532, 57 USLW 2044

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

No. CV-87-0420-PR.

Supreme Court of Arizona, In Banc.

June 21, 1988.

Reconsideration Denied Sept. 27, 1988.

Snell & Wilmer by Steven M. Wheeler, and Martha E. Gibbs, Phoenix, for plaintiffs/appellants.

Timothy M. Hogan, Chief Counsel, Arizona Corp. Com'n, Phoenix, for defendant/appellee.

HOWARD, Judge. ¹

This case involves the power of the Arizona Corporation Commission to order a non-public service corporation to submit detailed monthly reports concerning its past business activities and future plans. We have jurisdiction pursuant to Ariz.Const. art. 6, § 5(3) and A.R.S. § 12-120.24.

FACTS AND BACKGROUND

On March 15, 1985, Arizona Public Service Company (APS), the largest public utility in the State of Arizona, announced it would submit to its shareholders a plan for a major reorganization of its corporate structure. Under this plan, APS would become a wholly-owned subsidiary of AZP Group, Inc. (AZP). AZP would also become the holding company for Dorado Investment Company, Energy Development Company and Malapai Resources Company, which are subsidiaries of APS.

On April 29, 1985, the stockholders of APS approved the restructuring plan. Pursuant to the 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 the common stock of APS. Initially, APS contributed over 99 When the Arizona Corporation Commission (Commission) learned of the reorganization, it promulgated an "Initial Request for Background Information Regarding APS's Planned Corporate Restructuring," which consisted of several pages of questions concerning the reorganization. APS and AZP responded to the request in writing and sent their representative to an open meeting of the Commission at which the reorganization was discussed. Following this meeting, a second open meeting was held to deliberate the text and terms of a recommended order which would require monthly reports from APS and AZP. At the end of the meeting, the Commission voted to impose the reporting requirement and five days later issued Decision No. 54504.

[157 Ariz. 533] percent of the assets, revenues and earnings of AZP. All members of the AZP board of directors were also members of the APS board, the officers of AZP were also officers of APS, and AZP and APS share the same business office.

Decision No. 54504 requires APS to make monthly reports about transactions between APS and AZP or its subsidiaries, including information about financing, products, service and personnel. Section V of the order also requires AZP to make similar reports concerning its transactions with its non-public service subsidiaries and 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 AZP 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 30 pages of reports for the period from May 1985 through September 1985.

In the Decision, the Commission expressed concern over the formation of holding companies by public utilities. The Commission's primary concern was that its regulatory authority over public utility companies would be weakened and 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 public utilities' assets or credit by a non-regulated affiliate, the Commission anticipated a formal adoption of rules and regulations addressing the restructuring and diversification of public service corporations and their holding companies.

APS and AZP filed an action in the Maricopa County Superior Court challenging the authority of the Commission to enter Decision No. 54504. They subsequently moved for summary judgment, which the superior court denied, entering summary judgment in favor of the Commission.

AZP and APS appealed to Division One of the Court of Appeals, contending that the Commission (1) lacked jurisdiction to impose reporting requirements on AZP; (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 procedural due process by issuing the order without according them notice and an opportunity to be heard.

The court of appeals affirmed the portion of Decision No. 54504 requiring reports from APS concerning its activities but reversed section V of the Decision, which required disclosure of information about AZP's plans and activities. The court held that it was beyond the constitutional jurisdiction of the Commission to require reports of this nature from a non-public service company. It added, however, that its holding was not intended to limit or define the Commission's power to investigate by subpoena or call witnesses during rate-making or rule-making proceedings.

The Commission petitioned for review, contending that the court of appeals erred in holding that the Commission was without jurisdiction to enact section V of Decision No. 54504.

THE CONTENTIONS OF THE PARTIES

The Commission does not contend that AZP is a public service corporation so as to The Corporation Commission, and the several members thereof, shall have power to inspect and investigate the property, books, papers, business, methods, and affairs of any corporation whose stock shall be offered for sale to the public and of any public service corporation doing business within the State, and for the purpose of the Commission, and of the several members thereof, shall have the power of a court of general jurisdiction to enforce the attendance of witnesses and the production of evidence by subpoena, attachment, and punishment, which said power shall extend throughout the State. Said Commission shall have power to take testimony under commission or deposition either within or without the State. (Emphasis added.)

[157 Ariz. 534] subject it to the full panoply of Commission regulations contained in article 15 of the Arizona Constitution. It contends, however, that §§ 4 and 13 of article 15 give the Commission the authority to require reports from AZP. Article 15, § 4 states:

Article 15, § 13 concerns reports to the Commission and states:

All public service corporations and corporations whose stock shall be offered for sale to the public shall make such reports to the Corporation Commission, under oath, and provide such information concerning their acts and operations as may be required by law, or by the Corporation Commission. (Emphasis added.)

In addition to the constitutional provisions, the Commission also relies on A.R.S. § 40-202(A), which provides:

The commission may supervise and regulate every public service corporation in the state and do all things, whether specifically designated in this title or in addition thereto, necessary and convenient in the exercise of such power and jurisdiction.

APS and AZP contend that (1) the only time the Commission has the power to require reports from a non-public service corporation is when it makes its offer of stock; (2) the constitutional provisions are not self-executing and the legislature has not passed any legislation authorizing the Commission to require reports from a non-public service corporation; and (3) A.R.S. § 40-202(A) cannot be applied to require reports from a non-public service corporation.

THE RIGHT TO REPORTS

Wylie v. Phoenix Assurance Co., 42 Ariz. 133, 22 P.2d 845 (1933), is the basis for appellants' contention that the Commission can require reports from a non-public service corporation only in connection with its initial offering of stock. We believe this is a misreading of Wylie. In Wylie the issue was whether the Constitution gave the legislature the authority to delegate to the Corporation Commission the power to change the form of the New York standard insurance policy or the endorsements thereof, as the Commission might see fit. In dicta, the court stated:

The corporation commission is provided for by article 15 of the state Constitution. It is given very broad powers over public service corporations. Sections 1, 2, 3. Its jurisdiction over corporations other than public service is limited by section 4 of said article to the "power to inspect and investigate the property, books, papers, business, methods, and affairs of any corporation whose stock shall be offered for sale to the public"; and by section 5 it is given sole power to issue certificates of incorporation to domestic companies and licenses to foreign corporations to do business in the state, under such terms as the law may prescribe. The only powers conferred upon the corporation commission over corporations other than public utility are found in these two sections and these powers pertain to the right to investigate them when they are offering for sale to the public their stock, and to their qualifications to do business in the state. (Emphasis added.) Id. at 136-37, 22 P.2d at 846.

We believe that the phrase "whose stock shall be offered for sale to the public" as used in §§ 4 and 13 of article 15 does not refer to an initial or subsequent offering of stock but rather is intended to distinguish between publicly and privately held corporations. Wylie does not hold otherwise. Thus, the powers conferred upon the Commission to inspect and investigate under § 4 and to require reports under § 13 extend to all corporations which offer stock for sale to the public. They do not...