Arizona Court of Appeals Division One Holds That the Corporation Commission Acted Within Its Plenary Ratemaking Authority in Enacting the REST Rules and Approving an APS Surcharge.

After several years of consideration, the Arizona Corporation Commission (“the Commission”) promulgated the 2006 Renewable Energy Standard and Tariff (“REST”) rules and approved an APS surcharge imposed under those rules.  After both the Arizona Supreme Court and the Arizona Court of Appeals declined jurisdiction over Plaintiffs’ petitions for special action, Plaintiffs filed a Complaint in Superior Court seeking to invalidate the REST rules and surcharge as exceeding the Commission’s authority and requesting declaratory, injunctive, and special action relief.  The trial court accepted special action jurisdiction and granted the Commission’s motion for summary judgment.  Plaintiffs appealed.  The Court of Appeals affirmed. 

Because Plaintiffs did not participate in the administrative proceedings, all parties and the Court of Appeals agreed that Plaintiffs could only seek judicial review on the limited issue of the Commission’s jurisdiction.  Further limiting Plaintiffs’ arguments on Appeal, the Court of Appeals also held that Plaintiffs’ lacked standing to attack the Commission’s jurisdiction on the basis of the managerial interference doctrine.  Although the Court recognized that the Commission generally lacks jurisdiction to promulgate rules that constitute an attempt to control the corporation rather than the rates, in this case no public service corporation had asserted that the rules interfered with its management and control.  To the contrary, APS actually filed an amicus brief arguing that Plaintiffs are not involved in the management of any utility and, therefore, cannot complain about “management interference.”  The Court of Appeals agreed, stating that it would be anomalous to allow APS customers to claim interference with managerial prerogative when APS itself embraces the “interference.” 

With these limitations in place, the Court of Appeals determined that the Commission acted within its plenary ratemaking authority in enacting the REST rules and approving the surcharge.  Article 15, Section 3 of the Arizona Constitution states that the Commission possesses plenary power to set “just and reasonable rates and charges” collected by public service corporations.  The Court of Appeals noted that substantial deference is afforded to the Commission’s determination of reasonably necessary regulations and that the Commission in this case made extensive factual findings in adopting the REST rules.  The Court found that the record established that the Commission’s findings outlined the potential adverse effects on ratepayers due to a failure to diversity electrical energy sources and determined that diversification through the use of renewable energy was directly linked to the “security, convenience, health and safety” of utility customers and the general public.  The Court of Appeals held that this record demonstrated a sufficient connection between the REST rules and ratemaking. 

The Court likewise rejected Plaintiffs’ challenges to two specific REST rules involving the requirement that utilities utilize distributed renewable energy resources and permitting customer reimbursement for self-directed renewable technologies.  The Court of Appeals determined that both of the challenged rules were sufficiently linked to utility rates and the stability of Arizona’s electrical power supply to fall within the Commission’s plenary powers. 

Judge Downie authored the opinion; Judges Portley and Orozco concurred.