Miller v. Ariz. Corp.. Comm'n

• Decision Date: 07 April 2011
• Docket Number: No. 1 CA–CV 09–0789.,1 CA–CV 09–0789.
• Citation: 251 P.3d 400,227 Ariz. 21,605 Ariz. Adv. Rep. 16
• Parties: Roy MILLER; Thomas F. Husband; Jennifer Bryson; and Corpus Communications, Inc., Plaintiffs/Petitioners/Appellants/Cross–Appellees,v.ARIZONA CORPORATION COMMISSION; and Kristin Mayes, William Mundell, Jeff Hatch–Miller, Gary Pierce, and Mike Gleason, in their official capacities as members of the Arizona Corporation Commission, Defendants/Respondents/Appellees/Cross–Appellants.
• Court: Arizona Court of Appeals

227 Ariz. 21

251 P.3d 400

605 Ariz. Adv. Rep. 16

Roy MILLER; Thomas F. Husband; Jennifer Bryson; and Corpus Communications, Inc., Plaintiffs/Petitioners/Appellants/Cross–Appellees,

v.ARIZONA CORPORATION COMMISSION; and Kristin Mayes, William Mundell, Jeff Hatch–Miller, Gary Pierce, and Mike Gleason, in their official capacities as members of the Arizona Corporation Commission, Defendants/Respondents/Appellees/Cross–Appellants.

No. 1 CA–CV 09–0789.

Court of Appeals of Arizona, Division 1, Department C.

April 7, 2011.

Scharf–Norton Center for Constitutional Litigation By Clint Bolick, Carrie Ann Sitren, Phoenix, Attorneys for Plaintiffs/Petitioners/Appellants/Cross–Appellees.Arizona Corporation Commission Legal Division By Wesley C. Van Cleve, Ayesha Vohra, Janet F. Wagner, Phoenix, Attorneys for Defendants/Respondents/Appellees/Cross–Appellants.Arizona Center for Law in the Public Interest By Timothy M. Hogan, Joy Herr–Cardillo, Phoenix, Attorneys for Amicus Curiae.Arizona Public Service Company By Meghan H. Grabel, Phoenix, Attorney for Amicus Curiae.

OPINION

DOWNIE, Judge.

¶ 1 Roy Miller, Thomas Husband, Jennifer Bryson, and Corpus Communications, Inc. (collectively, “Plaintiffs”) are customers of Arizona Public Service Company (“APS”). In this litigation, Plaintiffs collaterally attack the 2006 Renewable Energy Standard and Tariff (“REST”) rules promulgated by the Arizona Corporation Commission (“Commission”),¹ as well as an APS surcharge imposed under those rules. In a cross-appeal, the Commission contends the superior court erred by reaching the substantive merits of Plaintiffs' claims. For the following reasons, we agree with the superior court's determination that the Commission acted within its plenary ratemaking authority under the Arizona Constitution in enacting the REST rules and approving the APS surcharge.

FACTS AND PROCEDURAL HISTORY

¶ 2 Over two decades ago, the Commission started to evaluate new sources of electrical generation. Since that time, the Commission has promulgated a series of rules relating to renewable energy. The 1996 Solar Portfolio Standard, for example, required that a percentage of retail electricity sold to Arizona customers by regulated utilities come from solar resources. The Commission later moved beyond solar power to consider other “environmentally friendly” resources, such as wind, landfill gas, and biomass generation. This expanded focus was reflected in the Commission's 2001 adoption of the Environmental Portfolio Standard (“EPS”), which replaced the Solar Portfolio Standard.

¶ 3 The Commission began considering amendments to the EPS in 2004, initially focusing on implementing relatively minor changes. A two-year evaluation process ensued. In a January 2006 report, Commission staff cited several reasons for more expansive changes, including reliability issues, post–9/11 security concerns, the need to diversify fuel supplies and technologies, and environmental and economic impacts.

¶ 4 In February 2006, the Commission proposed repealing the EPS and adopting the REST rules. On November 14, 2006, the Commission adopted the REST rules by majority vote. See Arizona Administrative Code (“A.A.C.”) R14–2–1801 to –1816. The rules were certified by the Arizona Attorney General in June 2007, and they became effective August 14, 2007. On April 28, 2008, the Commission approved APS's 2008 Renewable Energy Standard Implementation Plan and rate schedule, which included a customer surcharge authorized by the REST rules.

¶ 5 Renewable energy generation projects typically are large-scale facilities that use resources such as solar, wind, geothermal, biomass, and biogas to generate electricity. Distributed energy, which we discuss infra, is generated by systems located at customer premises. Generally speaking, the REST rules: (1) define eligible renewable energy resources; (2) require utilities to provide an increasing percentage of retail electricity sales from renewable resources; (3) mandate that a portion of the renewable energy requirements come from distributed energy systems; (4) create processes by which utilities set surcharges and customers seek reimbursement for renewable energy technologies; and (5) outline reporting requirements and noncompliance penalties.

¶ 6 In June 2008, Plaintiffs filed a petition for special action in the Arizona Supreme Court, challenging the Commission's authority to enact the REST rules or approve the APS surcharge. The supreme court declined jurisdiction. Plaintiffs then filed a petition for special action in this Court, which also declined jurisdiction. In November 2008, Plaintiffs filed a complaint in the Maricopa County Superior Court, seeking declaratory, injunctive, and special action relief. Plaintiffs sought to invalidate the REST rules and the APS surcharge, arguing the Commission had exceeded its authority.

¶ 7 Plaintiffs moved for summary judgment in the superior court. The Commission filed a cross-motion for summary judgment. The superior court accepted special action jurisdiction, denied Plaintiffs' motion for summary judgment, and granted the Commission's cross-motion. The court concluded that the REST rules and the APS surcharge fall within the Commission's constitutional plenary power as “reasonably necessary steps” in ratemaking. Plaintiffs timely appealed, and the Commission timely cross-appealed.²

DISCUSSION

A. The Scope of a Collateral Attack

¶ 8 The only Commission member to vote against the REST rules nonetheless recognized that the rules had been thoroughly evaluated, stating: “The process by which the REST Rules were developed and adopted was one of the most thoroughly deliberated rulemaking dockets in the history of the Commission.” The record supports this characterization.

¶ 9 Over a roughly two-year period, the Commission and its staff held numerous workshops and open meetings, presented draft proposals, and considered public comments. Ratepayers and organizations intervened and participated in Commission proceedings. See, e.g., A.A.C. R14–3–105 (“Persons, other than the original parties to the proceedings, who are directly and substantially affected by the proceedings” may participate as intervenors upon securing an order from the Commission). APS and other utilities raised concerns that were considered during the lengthy vetting process. Hundreds of individuals and entities filed public comments and sent e-mails. Plaintiffs, however, did not participate in the Commission proceedings. Plaintiffs recognize that, because they did not participate in the administrative proceedings, this legal challenge is a collateral attack on the Commission's decisions. As such, the scope of our review is relatively limited.

¶ 10 Parties to an administrative proceeding may seek judicial review on significantly broader grounds than litigants who collaterally attack a final decision. An aggrieved party to the underlying Commission proceedings, for example, might argue on appeal that the Commission's decisions were not supported by substantial evidence, were arbitrary and capricious, or were legally erroneous. In a collateral attack, though, the challengers may question only the Commission's jurisdiction. The Arizona Supreme Court has discussed collateral attacks on Commission orders as follows:

The complaint [before us] is a collateral attack upon an order of the Corporation Commission and if it had jurisdiction to set aside the order of revocation, plaintiff must fail for the reason that any order which the Commission has [the] power to make is conclusive unless the statutory procedure for review is followed. On the other hand, a decision of the Commission which goes beyond its power as prescribed by the Constitution and statutes is vulnerable for lack of jurisdiction and may be questioned in a collateral proceeding.

Tucson Warehouse & Transfer Co. v. Al's Transfer, Inc., 77 Ariz. 323, 325, 271 P.2d 477, 478 (1954) (citation omitted); see also George v. Ariz. Corp. Comm'n, 83 Ariz. 387, 392, 322 P.2d 369, 372 (1958) (because the Commission's action was “a bare usurpation of power ... the rule prohibiting collateral attack has no application”); State ex rel. Dandoy v. City of Phoenix, 133 Ariz. 334, 338, 651 P.2d 862, 866 (App.1982) (distinguishing between legal error that is not subject to collateral attack and a challenge to jurisdiction).

¶ 11 Because of the procedural posture of this case, we do not consider whether the REST rules represent prudent public policy or make economic sense. ³ Nor do we address purported errors of fact or law that might have occurred at the Commission level. See, e.g., Ariz. Pub. Serv. Co. v. S. Union Gas Co., 76 Ariz. 373, 381, 265 P.2d 435, 440 (1954) (“The test of jurisdiction is whether or not the tribunal has power to enter upon the inquiry; not whether its conclusion in the course of it is right or wrong.” (citations omitted)). With this analytic framework in mind, we turn to Plaintiffs' contention that neither the Arizona Constitution nor state statutes give the Commission authority to enact the REST rules.⁴ We review this legal claim de novo. See U.S. W. Commc'ns, Inc. v. Ariz. Corp. Comm'n, 197 Ariz. 16, 22, ¶ 25, 3 P.3d 936, 942 (App.1999).

B. The Commission's Authority

¶ 12 “The Arizona Corporation Commission, unlike such bodies in most states, is not a creature of the legislature, but is a constitutional body which owes its existence to provisions in the organic law of this state.” Ethington v. Wright, 66 Ariz. 382, 389, 189 P.2d 209, 214 (1948). The Commission's authority “is limited to those powers given it by the Constitution and statutes of the state.” Tucson Warehouse & Transfer, 77 Ariz. at 326, 271 P.2d at 478. The Commission possesses judicial, executive, and legislative powers. Ariz. Corp. Comm'n v. State ex rel. Woods, 171 Ariz. 286, 291, 830 P.2d 807, 812 (1992). It “exercises its executive, administrative function in adopting rules and regulations, its judicial...