James P. Paul Water Co. v. Arizona Corp. Com'n, 16383-PR

• Decision Date: 13 October 1983
• Docket Number: No. 16383-PR,16383-PR
• Citation: 671 P.2d 404,137 Ariz. 426
• Parties: JAMES P. PAUL WATER COMPANY, an Arizona corporation, Plaintiff-Appellant, v. ARIZONA CORPORATION COMMISSION, an Administrative Agency of the State of Arizona, Defendant-Appellee, and Pinnacle Paradise Water Company, Intervenor-Appellee.
• Court: Arizona Supreme Court

Page 404

671 P.2d 404

137 Ariz. 426

JAMES P. PAUL WATER COMPANY, an Arizona corporation, Plaintiff-Appellant, v. ARIZONA CORPORATION COMMISSION, an Administrative Agency of the State of Arizona, Defendant-Appellee, and Pinnacle Paradise Water Company, Intervenor-Appellee.

No. 16383-PR.

Supreme Court of Arizona,

In Banc.

Oct. 13, 1983.

Burch & Cracchiolo, P.A. by Arda S. Rutherford, Frank Haze Burch, Edwin C. Bull, Phoenix, for plaintiff-appellant.

Robert K. Corbin, Atty. Gen. by Thomas Prose, Lynwood J. Evans, Asst. Attys. Gen., Phoenix, for defendant-appellee.

Wright & Cluff by Lawrence C. Wright, David H. Cluff, Mesa, for intervenor-appellee.

GORDON, Vice Chief Justice:

The question before the Court is as follows: when may the Arizona Corporation Commission ("Commission") delete a portion of the area encompassed in a water company's certificate of convenience and necessity? Though we approve the Court of Appeals' disposition of this case, we granted review in order to examine and settle the law in this state on this question.

The issue arises in the following context. In 1969 or 1970, the Commission granted a certificate of convenience and necessity to plaintiff-appellant James P. Paul Water Company ("Paul"). This certificate gave Paul the exclusive right to supply domestic water to several sections of relatively undeveloped land in the area of Pinnacle Peak Road and Hayden Road in Maricopa County, Arizona, including the approximately 240 acres at issue in this case ("subject property").

On August 31, 1977, appellee-intervenor, Pinnacle Paradise Water Company ("Pinnacle"), holder of a certificate of convenience and necessity to supply domestic water to an area adjacent to the subject property, filed a petition with the Commission asking it to delete the subject property from the certificate held by Paul and include it in the certificate held by Pinnacle.

In response to this petition, the Commission ordered Paul to appear and show cause why the requested deletion should not be granted. Hearings were held on December 9, 1976. The Commission granted Pinnacle's request.

On April 4, 1977, having been denied a rehearing, Paul filed a complaint in the Superior Court of Maricopa County seeking to set aside the Commission's order. Pinnacle, the real party in interest, was allowed to intervene. On October 9, 1979, the Superior Court upheld the Commission's order. On October 12, 1982, the Court of Appeals reversed the Superior Court. The Court of Appeals denied Pinnacle's motion for rehearing on January 5, 1983. We granted Pinnacle's petition for review in order to supplement the Court of Appeal's discussion of Application of Trico Electric Cooperative, Inc., 92 Ariz. 373, 377 P.2d 309 (1962), and Davis v. Corporation Commission, 96 Ariz. 215, 393 P.2d 909 (1964). Jurisdiction is found pursuant to the Ariz. Const. art. 6, § 5(3) and Ariz.R.Civ.App.P. 23.

In Trico, appellant Trico Electric Cooperative, Inc. ("Trico") and Tucson Gas Electric Light & Power Company ("TGE") held certificates of convenience and necessity for adjacent areas. Because the certificates did not define the boundaries of the areas, Trico asked the Commission for a clear delineation of the area it was certified to serve. TGE simultaneously sought to serve part of Trico's area. The Commission granted Tucson's request without providing appropriate notice and other procedural requirements. ¹ Upon a writ of mandamus, this Court reversed the Commission because

"[t]he Commission was under duty to prohibit a [non-certificated] private utility under its jurisdiction from competing in that area, [certificated to another private utility], unless, after notice and an opportunity to be heard, it shall have been made to appear that [the certificate holder] failed or refused to render satisfactory and adequate service therein, at reasonable rates."

92 Ariz. at 387, 377 P.2d at 319. ²

It is this standard which is at the core of this controversy. Paul says the Commission failed to apply this standard and that its failure to do so was improper. The Court of Appeals agreed. Pinnacle, on the other hand, argues that the Trico standard is inapplicable for two reasons. It asserts that the Trico standard has been supplanted by Davis, supra, and that even if Trico has not been displaced, the facts of Trico distinguish it from the present case. We find no merit to these assertions.

In Davis, supra, the Commission deleted a substantial area from Davis Water Company's certificate of convenience and necessity and certified a competing water company to supply water thereon. In upholding the Commission's decision we stated that

"[t]he monopoly is tolerated only because it is to be subject to vigilant and continuous regulation by the Corporation Commission and is subject to rescission, alteration or amendment at any time upon proper service when the public interest would be served by such action." (Emphasis added.)

Davis, 96 Ariz. at 218, 393 P.2d at 911. Pinnacle correctly notes that the public interest is the controlling factor in decisions concerning service of water by water companies. Arizona Corporation Commission v. Tucson Ins. & Bond Agency, 3 Ariz.App. 458, 415 P.2d 472 (1966). However, its assertion that this represents a departure from Trico is incorrect. Davis does not establish a new standard. Instead, it states the rationale which underlies our holding in Trico.

In Trico we said a certificate holder was entitled to an opportunity to provide adequate service at a reasonable rate before a portion of its certificate could be deleted. A certificate holder is entitled to that opportunity because providing it with that opportunity serves the public interest. This is necessarily the case in light of Arizona's public policy with respect to public service corporations.

It is well established that Arizona's public policy respecting public service corporations, such as water companies, is one of regulated monopoly over free-wheeling competition. Corporation Commission of Arizona v. People's Freight Line, Inc., 41 Ariz. 158, 16 P.2d 420 (1932); Tucson Insurance and Bonding Agency, supra. Under this system, the Commission is statutorily required to investigate all applicants for a certificate of convenience and necessity for a given area, see A.R.S. §§ 40-281 to 285, and to issue a certificate only upon a showing that the issuance to a particular applicant would serve the public interest. Pacific Greyhound Lines v. Sun Valley Bus Lines, 70 Ariz. 65, 216 P.2d 404 (1950). Once granted, the certificate confers upon its holder an exclusive right to provide the relevant service for as long as the grantee can provide adequate service at a reasonable rate. If a certificate of convenience and necessity within our system of regulated monopoly means anything, it means that its holder has the right to an opportunity to adequately provide the service it was certified to provide. Only upon a showing that a certificate holder, presented with a demand for service which is reasonable in light of projected need, has failed to supply such service at a reasonable cost to customers, can the Commission alter its certificate. Only then would it be in the public interest to do so. ³ A system which did not provide certificate holders with an opportunity to provide adequate service at reasonable rates before deletion of a certificated area could be made would be antithetical to the public interest for several reasons. First, it would encourage price competition between public service corporations, the very mode of operation which the Legislature has rejected. Second, it encourages over-extensive development. In order to ensure that they will be able to supply service as the need arises, certificate holders will feel compelled to construct facilities before facilities are needed. The consuming public will ultimately pay for this needless construction which may, given the rate of technological development, prove to be obsolete by the time it is needed. Third, it fails to reward a public service corporation for taking on the risks and obligations concommittant to certification. Once certified to supply water to a parcel of land, a water company must comply with orders and regulations promulgated by the Commission in the public interest, see A.R.S. §§ 40-321 to 322, 331 to 332, 336, 338. Though these orders and regulations may mandate...