Sun City Home Owners Ass'n v. Ariz. Corp. Comm'n

• Decision Date: 01 October 2021
• Docket Number: No. CV-20-0047-PR,CV-20-0047-PR
• Citation: 496 P.3d 421,54 Arizona Cases Digest 10
• Parties: SUN CITY HOME OWNERS ASSOCIATION, Appellant, v. ARIZONA CORPORATION COMMISSION, Appellee, EPCOR Water Arizona, Inc. and Verrado Community Association, Inc., Intervenors.
• Court: Arizona Supreme Court

54 Arizona Cases Digest 10

496 P.3d 421

SUN CITY HOME OWNERS ASSOCIATION, Appellant,

v. ARIZONA CORPORATION COMMISSION, Appellee,EPCOR Water Arizona, Inc. and Verrado Community Association, Inc., Intervenors.

No. CV-20-0047-PR

Supreme Court of Arizona.

Filed October 1, 2021

Robert L. Ellman (argued), Ellman Law Group LLC, Phoenix, Attorney for Sun City Home Owners Association

Andy M. Kvesic, Chief Counsel/Legal Division Director, Maureen A. Scott, Deputy Chief of Litigation and Appeals, Wesley C. Van Cleve (argued), Assistant Chief Counsel, Stephen J. Emedi, Naomi D. Bentley, Arizona Corporation Commission, Phoenix, Attorneys for Arizona Corporation Commission

Michael T. Hallam, Lawrence A. Kasten (argued), Lewis Roca Rothgerber Christie LLP, Phoenix, Attorneys for EPCOR Water Arizona Inc.

Michele Van Quathem, Law Offices of Michele Van Quathem, PLLC, Phoenix, Attorney for Verrado Community Association, Inc.

Meghan H. Grabel, Osborn Maledon, P.A., Phoenix, Attorneys for Amicus Curiae Arizona Water Company

Timothy Sandefur, Scharf-Norton Center for Constitutional Litigation at The Goldwater Institute, Phoenix, Attorneys for Amicus Curiae Goldwater Institute

Timothy J. Sabo, Regulatory Counsel, Global Water Resources, Inc., Phoenix, Attorney for Amicus Curiae Global Water Resources, Inc.

Jay L. Shapiro, Shapiro Law Firm, P.C., Phoenix, Todd C. Wiley, Liberty Utilities (Sub) Corporation, Vice President and Associate General Counsel, Litchfield Park, Attorneys for Amicus Curiae Liberty Utilities (Sub) Corporation

Timothy J. Berg, Emily A. Ward, Fennemore Craig, P.C., Phoenix, Attorneys for Amicus Curiae Freeport Minerals, Inc.

Aditya Dynar, Litigation Counsel, New Civil Liberties Alliance, Washington, DC, Attorneys for Amicus Curiae New Civil Liberties Alliance

Clyde P. Halstead, Carpenter, Hazlewood, Delgado & Bolen, Tempe, Attorneys for Amicus Curiae Anthem Community Council

Daniel W. Pozefsky, Chief Counsel, Residential Utility Consumer Office, Phoenix, Attorney for Amicus Curiae Residential Utility Consumer Office

Scott Bales, Scott Bales LLC, Phoenix, Attorney for Amici Curiae Arizona Public Service Company and Tucson Electric Power Company

Raymond S. Heyman, Amanda Z. Weaver, Snell & Wilmer L.L.P., Phoenix, Attorneys for Amicus Curiae National Association of Water Companies

Andrew M. Jacobs, Michael W. Patten, Snell & Wilmer L.L.P., Phoenix, Attorneys for Amicus Curiae Water Utilities Association of Arizona

Mark Brnovich, Arizona Attorney General, Brunn (Beau) W. Roysden III, Solicitor General, Michael S. Catlett, Deputy Solicitor General, Phoenix, Attorneys for Amicus Curiae State of Arizona

Jeffrey W. Crockett, Crockett Law Group PLLC, Phoenix, Attorney for Amici Curiae The Town of Paradise Valley and The Sanctuary Camelback Mountain Resort & Spa, The JW Marriott Camelback Inn Scottsdale, The Omni Scottsdale Resort & Spa at Montelucia, The Andaz Scottsdale Resort & Spa, MS Resort Owner LLC D/B/A Mountain Shadows, and The Ritz-Carlton Paradise Valley

Doug Edwards, Fran Noe, Diane Smith, Pro Se, Amicus Curiae

JUSTICE BOLICK authored the Opinion of the Court, in which CHIEF JUSTICE BRUTINEL, VICE CHIEF JUSTICE TIMMER, and JUSTICES LOPEZ, BEENE, MONTGOMERY, and JUDGE VÁSQUEZ joined.^* JUSTICE BOLICK issued a concurring opinion.

JUSTICE BOLICK, Opinion of the Court:

¶1 In this case we hold that the Arizona Corporation Commission ("Commission") is not entitled to "extreme deference" in its utility ratemaking determinations. Even without such deference, however, its decision to consolidate several communities into a single service district, gradually increasing rates for some and lowering them for others to achieve uniform rates, does not violate the Arizona Constitution's prohibition against discriminatory rates.

BACKGROUND

¶2 Article 15, section 3 of the Arizona Constitution provides, in relevant part, that the Commission "shall have full power to, and shall, prescribe just and reasonable classifications to be used and just and reasonable rates and charges to be made and collected, by public service corporations." Article 15, section 12 conditions that power, stating that "[a]ll charges made for service rendered, or to be rendered, by public service corporations within this state shall be just and reasonable, and no discrimination in charges, service, or facilities shall be made between persons or places for rendering a like and contemporaneous service."

¶3 EPCOR Water Arizona Inc. ("EPCOR") provides water and wastewater services in various communities throughout Arizona. In February 2012, EPCOR acquired five wastewater districts: Agua Fria, Anthem, Mohave, Sun City, and Sun City West. All except Mohave are within the Phoenix metro area. Primarily, the communities are geographically distinct and serviced by separate wastewater treatment facilities, but EPCOR has centralized corporate services.

¶4 Each community pays different monthly wastewater rates, ranging from $22.11 per month in Sun City, to $71.16 per month in Agua Fria. The rates have also varied between communities using the same wastewater treatment facility. The communities paying higher rates urged the Commission to impose a consolidated rate.

¶5 To allow the affected parties and the Commission to evaluate whether to support consolidated rates, in December 2014 the Commission ordered EPCOR to file a rate application to include revenue requirements with cost-of-service studies for each district under three scenarios: (1) full consolidation into one district; (2) the existing "stand-alone" scenario, where the five districts would remain separate; and (3) full deconsolidation creating seven separate districts based on a single wastewater treatment facility serving each area. EPCOR filed the application in April 2016.

¶6 In February 2017, the Commission conducted a six-day evidentiary hearing addressing the consolidation. Evidence demonstrated that EPCOR's financing, operational, and administrative functions were centralized. Furthermore, evidence suggested that full consolidation would provide predictable uniform rate structures, reduce regulatory expenses, and increase efficiencies. Under full consolidation, EPCOR estimated the utility would save almost $1 million over five years, with most of the savings deriving from reduced rate case filings with the Commission. Moreover, EPCOR noted that most pipes in the Sun City district are nearing the end of their usability, which is an expense requiring about $57.5 million in improvements over the next ten years.¹

¶7 The Sun City Home Owners Association and the Residential Utility Consumer Office intervened, opposing full consolidation in favor of the existing stand-alone model. They argued that the consolidated rate would not reflect the actual costs for Sun City residents, which were much lower than the other districts. Likewise, they argued EPCOR's $57 million cost estimates for Sun City infrastructure improvements were speculative, and that in actuality, EPCOR projected spending more than $100 million on improvements in the other four water districts during the same time period. Of the affected parties, none supported full deconsolidation.

¶8 In a 4–1 decision, the Commission approved the full consolidation scenario. This was supported by EPCOR, the Commission staff, and the Agua Fria, Anthem, and Mohave districts. A five-year phase-in period to reach fully consolidated rates would affect consumers such that the monthly bill for Agua Fria customers would decrease from $71.16 to $38.59 over five years; the monthly bill for Anthem customers from $60.33 to $38.59; and from $71.07 to $38.59 for Mohave customers. However, the monthly bill for Sun City customers would increase from $22.11 to $38.59 over five years, and from $32.46 to $38.59 for Sun City West customers.

¶9 Sun City unsuccessfully applied for a rehearing and then filed an appeal. Verrado Community Association, Inc. and EPCOR were granted permission to intervene in support of the Commission's decision by the court of appeals. Sun City argued that (1) the Commission had breached its constitutional duty to set just and reasonable rates; (2) the consolidated rate discriminated against residents of Sun City; and (3) the Commission's adoption of the consolidated rate was arbitrary and capricious.

¶10 The court of appeals upheld the Commission's decision, affording it "extreme deference," stating that its actions were presumed to be constitutional, and applying a substantial evidence standard of review. Sun City Home Owners Ass'n v. Ariz. Corp. Comm'n , 248 Ariz. 291, 296–97 ¶¶ 13–14, 460 P.3d 283, 288–89 (App. 2020) (" Sun City "). The court concluded that (1) the Commission properly considered evidence concerning the increased cost of service and adopted the consolidated rate in accordance with such evidence, id. at 297–98 ¶¶ 15–18, 460 P.3d at 289–90 ; (2) the consolidated rate is not discriminatory, id. at 299 ¶ 23, 460 P.3d at 291 ; and (3) the Commission did not act arbitrarily or capriciously in adopting the consolidated rate, id. at 299–301 ¶¶ 24–31, 460 P.3d at 291–93. In a lengthy dissent, Judge Brown opined that the majority erroneously gave "excessive deference" to the Commission, and further concluded that the case should be remanded because the Commission failed to fully explain why a consolidated rate is not discriminatory. Id. at 301 ¶ 35, 311 ¶ 75, 460 P.3d at 293, 303 (Brown, J., dissenting).

¶11 We granted review to determine whether (1) the Commission caused unlawful rate discrimination by consolidating several districts served by one public service corporation into a single district, where substantial cost of service differences existed among the formerly independent districts; and (2) whether the Commission's constitutional status commands "extreme deference" to its decisions. These are recurrent issues of statewide concern. We have jurisdiction pursuant to article 15, section 17 of the Arizona Constitution and A.R.S. § 40-254.01(D).

DISCUSSION

I. Standards for...