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Sun City Home Owners Ass’n v. Ariz. Corp. Comm’n - 10/21/2021

Arizona Supreme Court holds decisions of the Arizona Corporation Commission are not entitled to “extreme deference.”

In 2012, a wastewater service corporation acquired five geographically distinct wastewater districts.  At the time of the acquisition, each of the five districts paid a different monthly rate for wastewater services.  The communities paying higher rates urged the Arizona Corporation Commission to impose a consolidated rate across the five communities.  To that end, the Commission ordered the service corporation to file a rate application including revenue requirements and cost-of-service studies for each district under three different scenarios: (1) full consolidation into one district; (2) the status quo scenario of keeping each of the five districts distinct; and (3) creating seven separate districts based on a single wastewater treatment facility serving each area.

After the service corporation filed its rate application, the Commission held an evidentiary hearing.  The Commission ultimately approved the full consolidation scenario, which had the support of the service corporation, Commission staff, and three of the five affected districts.

One of the dissenting districts appealed the Commission’s decision, arguing that the Commission had breached its duty to set just and reasonable rates, that the consolidated rate discriminated against the disaffected district, and that the Commission’s decision was arbitrary and capricious.  The court of appeals afforded the Commission “extreme deference” and affirmed the Commission’s actions on each argument.  The district sought review from the Arizona Supreme Court, which granted review on two questions: (1) whether the Commission is entitled to “extreme deference” in its decision making; and (2) whether the consolidated rate constituted unlawful rate discrimination.

The Court began by clarifying that the Commission was not entitled to extreme deference.  All governmental bodies, including the Commission, are subject to constitutional constraints, both general (such as due process) and specific.  Although the Commission exercises plenary power over ratemaking and classifications, which requires courts to defer to its findings of fact and only disturb its decisions if they are arbitrary, unlawful, or unsupported by substantial evidence, its decisions as to constitutional and statutory compliance receive no such deference.  Instead, a court’s review of such questions is de novo.

Nevertheless, the Court affirmed the Commission’s decision to impose a consolidated rate.  Under the plain language of Article 15, Section 12 of the Arizona Constitution, a single, uniform rate for similar services across the districts was, definitionally, not discriminatory.  Because the Commission’s finding that all customers would receive similar services was unchallenged, the uniform service rate was constitutional.  Indeed, the Court noted that the service corporation would be subject to a discriminatory rate challenge if it hadn’t imposed a uniform rate.  Thus, the Court affirmed the Commission’s decision to impose a consolidated rate.

Justice Bolick authored the opinion for a unanimous Court.  Justice Bolick also authored a concurring opinion highlighting his continued opposition to judicial presumptions of constitutionality afforded to governmental decisions.  

Disclosure: Osborn Maledon attorneys were involved with this case.

Posted by: Joshua J. Messer

Posted On: 11/3/2021