US West Communications, Inc. v. ARIZ. CORP. COMMISSION

• Decision Date: 15 November 2001
• Docket Number: No. CV-00-0379-PR.,CV-00-0379-PR.
• Citation: 34 P.3d 351,201 Ariz. 242
• Parties: US WEST COMMUNICATIONS, INC., a Colorado corporation, Plaintiff-Appellant, v. The ARIZONA CORPORATION COMMISSION, an agency of the State of Arizona; Renz D. Jennings, Marcia Weeks, and Carl J. Kunasek, as members of the Arizona Corporation Commission; and Brooks Fiber Communications of Tucson, Inc., a Delaware corporation; MFS Intelenet of Arizona, Inc.; TCG Phoenix; Electric Lightwave, Inc.; MCI Metro Access Transmission Communications of the Mountain States, Inc.; GST Net (AZ), Inc.; American Communications Services of Pima County, Inc.; Sprint Communications Company, L.P.; Cox Wireless of Arizona, Inc., Defendants-Appellees.
• Court: Arizona Supreme Court

34 P.3d 351

201 Ariz. 242

US WEST COMMUNICATIONS, INC., a Colorado corporation, Plaintiff-Appellant, v. The ARIZONA CORPORATION COMMISSION, an agency of the State of Arizona; Renz D. Jennings, Marcia Weeks, and Carl J. Kunasek, as members of the Arizona Corporation Commission; and Brooks Fiber Communications of Tucson, Inc., a Delaware corporation; MFS Intelenet of Arizona, Inc.; TCG Phoenix; Electric Lightwave, Inc.; MCI Metro Access Transmission Communications of the Mountain States, Inc.; GST Net (AZ), Inc.; American Communications Services of Pima County, Inc.; Sprint Communications Company, L.P.; Cox Wireless of Arizona, Inc., Defendants-Appellees.

No. CV-00-0379-PR.

Supreme Court of Arizona, En Banc.

November 15, 2001.

Fennemore Craig by Timothy Berg, Janice Procter-Murphy, Theresa Dwyer, Phoenix, Attorneys for Appellant U.S. West Communications, Inc.

Janet F. Wagner, Janice M. Alward, Phoenix, Attorneys for the Arizona Corp. Comm'n.

Lewis & Roca, L.L.P. by Thomas H. Campbell, W. Todd Coleman, Phoenix, Thomas F. O'Neil III, Mark B. Ehrlich, William Single IV, Washington DC, Attorneys for Appellees MCI Metro Access Transmission Servs., Inc., Brooks Fiber Communications of Tucson, Inc. and MFS Intelenet of Arizona, Inc.

Gallagher & Kennedy, P.A. by Michael M. Grant, Todd C. Wiley, Phoenix, Attorneys for Appellee Electric Lightwave, Inc.

Ridge & Isaacson, P.C. by Steven J. Duffy, Phoenix, Attorneys for Appellee Sprint Communications Co., L.P.

Osborn Maledon, P.A. by Andrew D. Hurwitz, Joan S. Burke, Phoenix, Attorneys for Appellees AT & T Communications of the Mountain States and TCG Phoenix.

Roshka, Heyman & DeWulf, P.L.C. by Michael W. Patten, (formerly with Brown & Bain, P.A.), Phoenix, Attorneys for Appellees American Communications Servs. of Pima County, Inc. and Cox Arizona Telcom, Inc.

Arizona Center for Law in the Public Interest by Timothy M. Hogan, Phoenix, Attorney for Amicus Curiae Arizona Consumers Council.

Waterfall, Economidis, Caldwell, Hanshaw & Villamana, P.C. by Russell E. Jones, D. Michael Mandig, Tucson, Attorneys for Amicus Curiae Trico Elec. Coop., Inc.

OPINION

ZLAKET, Chief Justice.

¶ 1 We are called upon to address the following issues: (1) whether the Arizona Corporation Commission is constitutionally required to ascertain the fair value of a public service corporation's in-state property when setting rates; (2) if so, the extent to which such a fair value determination must be utilized in the rate-setting process; and (3) whether federal law preempts and precludes the application of this constitutional mandate to corporations in the telecommunications sector. We have jurisdiction pursuant to article VI, § 5(3) of the Arizona Constitution.

FACTS AND PROCEDURAL HISTORY

¶ 2 Until very recently, U.S. West and its predecessor occupied the status of a regulated monopoly in the Arizona telecommunications market. In setting U.S. West's rates, the Arizona Corporation Commission customarily determined the fair value of the company's in-state property and calculated a reasonable rate of return on those assets.

¶ 3 In 1995, the corporation commission adopted rules opening the door to competition in local service and interLATA¹ markets. See Competitive Telecommunications Rules, Ariz. Admin. Code §§ R14-2-1101 to -1115. The following year, Congress enacted the Telecommunications Act of 1996, Pub.L. No. 104-104, 110 Stat. 56 (codified at 47 U.S.C. § 151, et. seq.) to "promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies." See S. Res. 652, 104th Cong., 110 Stat. 56 (1996). This federal legislation bars any state law that would "prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service." 47 U.S.C. § 253(a) (2001 Supp.).

¶ 4 In 1996 and 1997, competitive local exchange carriers (CLECs) filed applications with the corporation commission for certificates of convenience and necessity, allowing them to provide both local and interLATA service throughout Arizona. The commission issued the certificates, concluding that to do so was in the public interest. No effort was made to determine the fair value of any Arizona-based property of these eleven CLECs.

¶ 5 U.S. West filed separate actions, arguing that article XV of the Arizona Constitution compels a fair value finding with respect to each CLEC. Following consolidation, the trial court declared the fair value clause inapplicable because the CLECs were engaged in a competitive, rather than a monopolistic, environment. The judge also ruled that the fair value requirement would constitute a barrier to the telecommunications market in violation of the foregoing federal law. Thus, she granted pending motions to dismiss.

¶ 6 The court of appeals reversed, holding that article XV, section 14 of the Arizona Constitution requires the corporation commission to determine the fair value of each CLEC's Arizona property. US West Communications, Inc. v. Ariz. Corp. Comm'n, 198 Ariz. 208, 218, 8 P.3d 396, 406, ¶ 34 (App.2000).

We ... reject an interpretation of the fair value clause as discretionary because it disregards the nature of the constitutional imperative. Although the framers' expression of their purpose in imposing the fair value clause may be unusual, it does not abrogate the mandatory nature of the fair value clause itself. If fair value determinations were optional, it would have been pointless to include the fair value clause in the constitution in the first instance.

The framers may not have envisioned a competitive telecommunications market when they drafted article 15 of the Arizona Constitution. Fair value rate base determinations, and perhaps rate setting itself, may be anachronistic processes in a competitive market. Nevertheless, given that our supreme court has consistently held that the constitution requires fair value rate base determinations for public service corporations, but has never restricted such language to monopolies, the trial court erroneously disregarded constitutional authority in distinguishing this case from Simms and Scates ....

Id. at 216-17, 8 P.3d at 404-05, ¶¶ 24-25. The appellate court also reversed the judge's finding that a fair value determination would violate the federal Telecommunications Act of 1996. Id. at 217-18, 8 P.3d at 405-06, ¶¶ 28-30.

¶ 7 We granted review, owing to the statewide importance of these issues. Because they involve pure questions of law, we review them de novo. In re Hall v. Lalli, 194 Ariz. 54, 57, 977 P.2d 776, 779,

¶ 5 (1999).

ANALYSIS

A. The Arizona Constitution

¶ 8 The corporation commission's duties are outlined in article XV of the Arizona Constitution. Section 3 states 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 within the State for service rendered therein." Section 14 requires that "[t]he Corporation Commission shall, to aid it in the proper discharge of its duties, ascertain the fair value of the property within the State of every public service corporation doing business therein."

¶ 9 The commission and the CLECs claim that the court of appeals erred in mandating a fair value determination for each competitor. Asserting that the constitutional language in question was intended to govern a monopolistic market and is an anachronism in today's competitive environment, they argue that a fair value determination lacks utility and should no longer be required.

¶ 10 Unambiguous constitutional language, however, is to be given its plain meaning and effect. "Nothing is more firmly settled than under ordinary circumstances, where there is involved no ambiguity or absurdity, a statutory or constitutional provision requires no interpretation." Adams v. Bolin, 74 Ariz. 269, 273, 247 P.2d 617, 620 (1952); see also Pinetop-Lakeside Sanitary Dist. v. Ferguson, 129 Ariz. 300, 302, 630 P.2d 1032, 1034 (1981)

("[W]here a constitutional provision is clear, no judicial construction is required or proper."). Furthermore, the Arizona Constitution plainly dictates how it is to be applied: "The provisions of this Constitution are mandatory, unless by express words they are declared to be otherwise." Ariz. Const. art. II, § 32.

¶ 11 Section 14 states that the corporation commission shall make a fair value determination. This is an imperative. The commission is charged with an affirmative duty to act. The constitutional provision in question does not condition its mandate upon the presence of a monopolistic market, nor does it say or imply anything about the existence of discretion in the commission.

¶ 12 Should they think it wise, our citizens are free to amend the Arizona Constitution to reflect changed circumstances in the telecommunications industry. It is noteworthy, however, that the people have rejected such an amendment three times, most recently just a year ago.² Because neither this court nor the corporation commission possesses the power to ignore plain constitutional language, we hold that a determination of fair value is necessary with respect to a public service corporation.

¶ 13 But what is to be done with such a finding? In the past, fair value has been the factor by which a reasonable rate of return was multiplied to yield, with the addition of operating expenses, the total revenue that a corporation could earn. See, e.g., Scates v. Ariz. Corp. Comm'n, 118 Ariz. 531, 533-34, 578 P.2d 612, 614-15 (App.1978)

. That revenue figure was then used to set rates.

¶ 14 Our cases have historically supported such a method. Two years after the Arizona Constitution was adopted, this court stated:

The "fair value of the property" of public service corporations is the

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