Tonto Creek Estates Homeowners Ass'n v. Arizona Corp. Com'n

• Decision Date: 16 November 1993
• Docket Number: No. 1,CA-CV,1
• Citation: 864 P.2d 1081,177 Ariz. 49
• Parties: TONTO CREEK ESTATES HOMEOWNERS ASSOCIATION, an Arizona nonprofit corporation, Plaintiff-Appellant, v. ARIZONA CORPORATION COMMISSION, an agency of the State of Arizona, Defendant-Appellee. 91-0146.
• Court: Arizona Court of Appeals

Page 1081

864 P.2d 1081

177 Ariz. 49

TONTO CREEK ESTATES HOMEOWNERS ASSOCIATION, an Arizona nonprofit corporation, Plaintiff-Appellant, v.ARIZONA CORPORATION COMMISSION, an agency of the State of Arizona, Defendant-Appellee.

No. 1 CA-CV 91-0146.

Court of Appeals of Arizona Division 1, Department B.

Nov. 16, 1993.

[177 Ariz. 52] Ryley, Carlock & Applewhite, P.A. by George Read Carlock and Norman D. James, Phoenix, for plaintiff-appellant.

Arizona Corp. Com'n Legal Div. by Deborah Scott Engelby and Paul A. Bullis, Phoenix, for defendant-appellee.

OPINION

GRANT, Presiding Judge.

Tonto Creek Estates Homeowners Association(the "Homeowners Association") appeals from a decision of the superior court affirming an order of the Arizona Corporation Commission(the "Commission") ordering it to assume a certificate of convenience and necessity issued to other persons and ordering it to provide the same level of service to all customers in its entire service area.We are called upon to answer two questions: (1) Did the Commission act unlawfully in ordering the transfer of the certificate of convenience and necessity to the Homeowners Association, and (2) did the Commission act unlawfully in ordering the Homeowners Association to furnish water service to a subdivision that lies outside the boundaries of the original certificate of convenience and necessity?We hold that the Commission was without jurisdiction to order the transfer or modification of the certificate, but that the Commission may order the Homeowners Association to charge approved rates and provide nondiscriminatory services.

I.FACTS AND PROCEDURAL HISTORY

A. Tonto Creek Estates, the Certificate of Necessity and Convenience, and the Water System

Tonto Creek Estates is a 90-lot subdivision in Gila County.The Tonto Creek Estates partnership, composed of 22 couples, was formed in the late 1950s.The subdivision plat was recorded in 1959.John Kerr("Kerr") had bought the whole parcel and conveyed it to the partnership.The partners desired water for the land and appointed Larry M. Hamman("Hamman"), Fred S. Hickernell("Hickernell"), and R. Lee Foster("Foster") as trustees to obtain the necessary approvals.(We will sometimes refer to Hamman, Hickernell and Foster collectively as the "original certificate holders.")Each owned property within that subdivision.

In February of 1959, Hickernell, Hamman, and Foster applied for a certificate of convenience and necessity from the Commission to provide water service for an area of Gila County.They stated they were "doing business under the name and style of TONTO CREEK ESTATES WATER SYSTEM."In June of that year, in DecisionNo. 31597, the Commission granted the application and awarded a certificate of convenience and necessity to "Fred S. Hickernell, Larry M. Hamman and R. Lee Foster, dba Tonto Creek Estates Water System."The certificated area was described as:

Tonto Creek Estates, which is located in Sections 4and9, Township 11 North, Range 12 East, Gila and Salt River Base and Meridian, all in Gila County, Arizona.

As of the commencement of this action, the Commission has never amended the certificate it issued to Hamman, Hickernell and Foster.The Commission has never authorized the transfer of the certificate to any other person or entity.¹The Commission has not approved the company to limit the use of water to domestic use only, approved any moratorium or water restriction, nor authorized any specific assessments or individual contracts for service between the company and any person.

The Tonto Creek Estates partnership constructed and owned the water distribution system.The water system provides two types of services: water for interior domestic purposes and water for exterior, irrigation purposes.Interior water comes from a well which the partnership dug in approximately 1965.Exterior water is diverted from nearby Dick Williams Creek by a dam which was constructed by the Tonto Creek Estates homeowners with their own labor.The Homeowners Association rebuilt part of that system after a flood.The water from Dick Williams Creek does not service Tonto Rim Ranch.²

B. Tonto RimRanch and the Water System

Tonto Rim Ranch is a subdivision abutting Tonto Creek Estates on the south.It was acquired and subdivided in 1947 by Tonto Rim Ranch Partnership, a partnership composed of Kerr, Newell Stewart, Sam Wallace, and the Hammans.The partners divided the lots among themselves.

When Hamman, Hickernell and Foster applied for the certificate, Hamman and his parents owned several lots in Tonto Rim Ranch.At that time, Hamman's and his parents' houses in Tonto Rim Ranch utilized Tonto Creek for their source of water.Hickernell was acting on behalf of his father-in-law, Kerr.Kerr owned Rancho Tonto, a portion of Tonto Creek Estates, and several lots in Tonto Rim Ranch.Other members of Kerr's family owned lots in Tonto Creek Estates.

In 1964, the Hamman family installed a water line from the Tonto Creek Estates well-water system to their lots on the west side of the Tonto Rim Ranch.Larry Hamman's father handled the installation of the line and the Tonto Creek Estates partnership purchased at least part of the materials.The February 23, 1965 minutes of the Tonto Creek Estates Partnership indicate that $500 was borrowed "for extension of the existing water line to supply the L.M. Hammans."When the Hammans received this water, the Tonto Creek Estates Partnership did not inform Larry Hamman of any restrictions on its use.Although he has used this water to water his flower garden and a few trees, nobody ever threatened to cut off his supply because of that use.

In the 1960s and early 1970s, Kerr ran the water system and was known as the person to contact if one wanted water service.During the 1970s, John and Opal Kerr paid for the installation of lines which brought Tonto Creek Estates well water to their lots in eastern Tonto Rim Ranch.They intended to sell the lots and brought the water in to enhance their value.Lester Hayt("Hayt"), who bought a Tonto Rim Ranch lot from Kerr, testified that Kerr brought water to his lots "in order that he could offer these lots for sale by having water, power and roads available."Before buying a lot from Kerr, Hayt had discussed the water situation with him.Kerr informed Hayt that the only requirements to obtain service in Tonto Rim Ranch were to make a request and pay to extend the lines.Hayt ended up not having to pay for the extension because Kerr later extended the line on his own and also paid for an additional 10,000-gallon storage tank and other improvements to the system.Hayt was not informed of any limitation on the use of his water.

Residents of both Tonto Creek Estates and Tonto Rim Ranch have paid for upkeep of the system.In November 1985, the Homeowners Association assessed a $50-per-lot assessment to replace the pressure tank.On the assumption that he would eventually obtain service for each of his lots, Hayt paid $200, although he was receiving water service to only one of his four lots in Tonto Rim Ranch subdivision.

C.Operation of the Water System by the Homeowners Association

By 1973, most of the Tonto Creek Estates lots had been sold and the partnership was dissolved.The Tonto Creek Estates Homeowners Association, a non-profit corporation formed in 1973, has operated, maintained and exercised full control over the water system since about 1975.To be a member of the Homeowners Association one must own property in Tonto Creek Estates.Being an owner automatically entitles one to water service, both for domestic use and irrigation service, but one does not have to be a member of the Homeowners Association to receive water service.³The board of directors of the Homeowners Association decides whether to furnish water when a person in Tonto Rim Ranch requests water service.

After the Homeowners Association assumed the operation of the water system, it established a policy of being reluctant to provide water service outside of Tonto Creek Estates.This policy has continued to the present.⁴In accordance with this policy, the board prepared a form letter as a response to people outside the certificated area who might request service.The letter told them that if the Homeowners Association decided to furnish water, it would be under the conditions of interior domestic uses only, and terminable by Tonto Creek Estates at any time.

The Homeowners Association now provides water service to eleven lots in Tonto Rim Ranch subdivision.The water lines in Tonto Rim Ranch subdivision, operated by the Homeowners Association, are situated such that they may provide a water service connection to each lot in the subdivision except one, Lot 30.

There are several owners of lots in Tonto Rim Ranch who have applied for service from Tonto Creek Estates Water System, but because these people have not built homes on their lots, they cannot make any interior domestic use of water.Consequently, they cannot meet the requirements imposed by the Homeowners Association and are ineligible for service under the Homeowners Association's policy.

One of the persons who was turned down for service, Matthew Palenica, the owner of Lot 30, filed a complaint with the Commission in August 1987, stating that the water system had denied him service.On January 8, 1988, the Commission issued a complaint and order to show cause, alleging that the Tonto Creek Estates Water System had failed to provide water to a property owner within the company's service area.The water system was ordered to show cause "why the Arizona Corporation Commission should not require Tonto Creek to comply with Commission statutes and rules, reimburse customers for unlawful charges, make reparation for discriminatory charges, and further show cause ... why the Commission should not find Tonto Creek in contempt and fine it...."

The original certificate holders did not answer, but the ...