Sun City Home Owners Association v. Acc ( 2021 )

IN THE
SUPREME COURT OF THE STATE OF ARIZONA
____________________________________________
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
Filed October 1, 2021
______________________________________________
Appeal from the Arizona Corporation Commission
No. WS-01303A-16-0145
AFFIRMED
_________________
Opinion of the Court of Appeals, Division One
1 CA CC-17-0002
Filed January 23, 2020
AFFIRMED IN PART; VACATED IN PART
_________________
SUN CITY HOME OWNERS ASSOC. V. AZ CORP. COMMISSION ET AL.
Opinion of the Court
COUNSEL:
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
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SUN CITY HOME OWNERS ASSOC. V. AZ CORP. COMMISSION ET AL.
Opinion of the Court
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
____________________
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SUN CITY HOME OWNERS ASSOC. V. AZ CORP. COMMISSION ET AL.
Opinion of the Court
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
∗ Before his retirement, Justice Andrew W. Gould (Ret.) was recused from
this case. Pursuant to article 6, section 3 of the Arizona Constitution, Judge
Garye L. Vásquez, Division Two, Arizona Court of Appeals, was
designated to sit in this matter.
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SUN CITY HOME OWNERS ASSOC. V. AZ CORP. COMMISSION ET AL.
Opinion of the Court
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.
1 Improvements to other districts are also planned.
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SUN CITY HOME OWNERS ASSOC. V. AZ CORP. COMMISSION ET AL.
Opinion of the Court
¶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 (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; (2) the consolidated rate is not
discriminatory, id. at 299 ¶ 23; and (3) the Commission did not act
arbitrarily or capriciously in adopting the consolidated rate, id. at 299–301
¶¶ 24–31. 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 (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
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Opinion of the Court
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 Reviewing the Commission’s Decisions
¶12 We tackle the second question on which we granted review
first, for it is the gateway through which we determine whether the
Commission’s actions in consolidating the districts and establishing rates
are constitutional.
¶13 The issue of whether the Commission is entitled to “extreme
deference” for its ratemaking decisions is a bit of a red herring, as none of
the parties (or even the Commission) argue that it is. Nor, as we determine
in Part II, is extreme deference necessary to find that the Commission’s
actions are consistent with its constitutional obligations. Indeed, even as it
purported to extend extreme deference, the court of appeals itself
acknowledged that de novo review applies to whether the Commission
exceeded its constitutional authority. Sun City, 248 Ariz. at 296 ¶ 13.
Because the court of appeals attributed the extreme deference requirement
to decisions from this Court, id. at 297 ¶ 13 (“[W]e remain mindful of the
extreme deference our supreme court has traditionally granted to the
Commission’s ratemaking authority.”), we take the opportunity to clarify a
court’s role in holding the Commission to its constitutional boundaries.
¶14 The creation of an elected Corporation Commission separate
from the other branches of Arizona government was a proud and
distinctive achievement of our Progressive-era constitution’s framers.
Johnson Utils., LLC v. Ariz. Corp. Comm’n, 249 Ariz. 215, 219 ¶¶ 13–14 (2020).
An early decision of this Court rather exuberantly proclaimed that the
Commission “is, in fact, another department of government, with powers
and duties as well defined as any branch of the government, and where it
is given exclusive power it is supreme.” State v. Tucson Gas, Elec. Light &
Power Co., 15 Ariz. 294, 306 (1914). “Its exclusive field,” the Court went on
to say, “may not be invaded by either the courts, the legislative, or
executive.” Id.7
SUN CITY HOME OWNERS ASSOC. V. AZ CORP. COMMISSION ET AL.
Opinion of the Court
¶15 This expansive view of the Commission’s power has led some
to erroneously characterize it as a fourth branch of government. See, e.g.,
Ariz. Corp. Comm’n v. Superior Court, 105 Ariz. 56, 60 (1969). To the contrary,
our Constitution is clear that we have only three branches of government:
legislative, executive, and judicial. Ariz. Const. art. 3.
¶16 That the Commission is constitutionally created and invested
with certain powers hardly makes it unique. See, e.g., Ariz. Const. art. 4, pt.
2, § 1(3)–(23) (Independent Redistricting Commission). On matters
delegated specifically to an entity such as the Commission, the courts may
not intrude. See, e.g., Residential Util. Consumer Off. v. Ariz. Corp. Comm’n,
240 Ariz. 108, 111 ¶ 12 (2016) (“The Commission has full and exclusive
power to set ‘just and reasonable rates’ for public service utilities.”).
However, even when acting within their spheres of express authority, all
governmental bodies remain subject to constitutional constraints and
requirements, both general (such as due process) and those specific to the
entity. And the “courts bear ultimate responsibility for interpreting
[constitutional] provisions.” Forty-Seventh Legis. v. Napolitano, 213 Ariz. 482,
485 ¶ 8 (2006).
¶17 As to the ratemaking and classification powers at issue here,
the Commission’s authority is plenary. Johnson Utils., 249 Ariz. at 222 ¶ 25.
Because the Commission exercises quasi-judicial powers, we defer to its
findings of facts and may disturb its decision only if it is arbitrary, unlawful,
or unsupported by substantial evidence. Id. Moreover, the Court has
consistently ruled that the Commission’s decisions are entitled to a
presumption of constitutionality. See, e.g., Residential Util. Consumer Off.,
240 Ariz. at 111 ¶ 10.
¶18 But as to issues of constitutional and statutory compliance—
here, whether the Commission caused unlawful rate discrimination—we
do not defer to the Commission’s judgment. Our review of such questions
is de novo. Id.; cf. Stambaugh v. Killian, 242 Ariz. 508, 512 ¶ 21 (2017) (noting
that courts owe no deference to an agency’s interpretation of an
unambiguous statute). “Neither the text of section 3, the records of the
Arizona Constitutional Convention, nor our prior caselaw state that we
must defer to the Commission’s interpretation of its own ratemaking
authority. Although we certainly recognize the constitutional authority of
the Commission, it is our duty to interpret the limit and extent of that
authority, including whether the Commission’s actions are authorized
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Opinion of the Court
under section 3.” Johnson Utils., 249 Ariz. at 227 ¶ 52; see also Marbury v.
Madison, 5 U.S. 137, 177 (1803) (“It is emphatically the province and duty of
the judicial department to say what the law is.”). 2
¶19 A recent court of appeals decision put the point nicely: the
Commission’s ratemaking authority is plenary, but constitutional
requirements set “an outer limit for the Commission’s discretion.” Freeport
Mins. Corp. v. Ariz. Corp. Comm’n, 244 Ariz. 409, 411 ¶ 6 (App. 2018). Hence,
as the dissent in the court of appeals here correctly observed, ”it must still
be the province and the duty of the courts to determine (once a rate is
prescribed) whether it is just, reasonable, and not discriminatory,” as article
15, section 12 of the constitution requires. Sun City, 248 Ariz. at 303 ¶ 46
(Brown, J., dissenting).
II. The Commission’s Actions
¶20 Turning to the substantive question, we first note issues that
are not before us and that we therefore need not resolve. First, Sun City’s
petition for review asked whether the Commission’s decision to consolidate
the districts produced unlawful rate discrimination. The court of appeals
also focused on whether the Commission’s actions violated the
constitutional requirement of just and reasonable rates, but that question
was not raised in the petition. See Sun City, 248 Ariz. at 296–98 ¶¶ 13–18.
Also not before us is whether the Commission’s actions violate A.R.S.
§ 40-334(A) because Sun City did not raise the issue to the Commission and
thus has waived it. 3 Wales v. Ariz. Corp. Comm’n, 249 Ariz. 263, 269 ¶ 25
(App. 2020). Finally, Sun City does not contest the Commission’s factual
2 For that reason, contrary to the Commission’s argument, § 40-254.01(A),
requiring a challenger to make “a clear and satisfactory showing that the
order is unlawful or unreasonable,” does not apply in an adjudication of
the Commission’s constitutional authority. See, e.g., Tucson Elec. Power Co.
v. Ariz. Corp. Comm’n, 132 Ariz. 240, 243 (1982) (describing that language as
a standard of proof, not a constitutional standard).
3 “A public service corporation shall not, as to rates, charges, service,
facilities or in any other respect, make or grant any preference or advantage
to any person or subject any person to any prejudice or disadvantage.”
§ 40-334(A). This Court has observed that the statute embodies the
nondiscrimination principle from article 15, section 12 of the Arizona
Constitution. Trico Elec. Coop., Inc. v. Senner, 92 Ariz. 373, 385–86 (1962).
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Opinion of the Court
finding that, after full consolidation, all EPCOR customers will receive the
“same exact service” regardless of the district in which they reside. See Sun
City, 248 Ariz. at 299 ¶ 22.
¶21 Thus, the legal issue before us is narrow: whether the
Commission caused rate discrimination in violation of article 15, section 12
of the Arizona Constitution by fully consolidating several districts served
by EPCOR. Whether rates and classifications are “just and reasonable,” as
required by article 15, section 3, is a separate issue, which is not before us.
A rate can be just and reasonable but still be discriminatory if consumers in
like circumstances are charged different rates. See Portland Ry., Light &
Power Co. v. R.R. Comm’n of Or., 229 U.S. 397 (1913) (better fares charged on
railway for some cities and not others). Unlike the “just and reasonable”
requirement, the prohibition on discrimination applies only to rates, not
classifications. See Ariz. Const. art. 15, § 12; § 40-334(B).
¶22 Sun City argues that full consolidation is unconstitutional
because it creates discriminatory rates, in that its residents will pay far
higher rates than before. This discrimination results, it asserts, because the
Commission disregarded “cost causation” in setting the rates—that is, the
amount it actually costs to provide service to the distinct communities
within the consolidated district. The Commission counters that it
considered multiple cost-causation studies, and that its aims were to reduce
rate disparity among the communities, reduce rate shock, and create a more
equitable system of paying for future capital expenditures. Ultimately, the
crux of the dispute is whether it is unconstitutionally discriminatory to
charge a uniform rate for components of a district that had divergent rates
before they were consolidated.
¶23 At first blush, it seems counterintuitive that rates that become
uniform can be discriminatory. But Sun City cites a case involving the
Federal Energy Regulatory Commission (“FERC”) for precisely that
proposition. In Alabama Electric Cooperative, Inc. v. FERC, the United States
Court of Appeals held that under the Federal Power Act § 205, 16 U.S.C.
§ 824d, a single rate for two wholesale groups may be discriminatory. 684
F.2d 20, 27 (D.C. Cir. 1982). “While the typical complaint of unlawful rate
discrimination is leveled at a rate design which assigns different rates to
customer classes which are similarly situated, a single rate design may also
be unlawfully discriminatory,” the court reasoned. Id. That would be true,
the court concluded, “[i]f the costs of providing service to one group are
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Opinion of the Court
different from the costs of serving the other.” Id.; cf. Glacier State Tel. Co. v.
Alaska Pub. Util. Comm’n, 724 P.2d 1187, 1191 (Alaska 1986) (holding that
“when the rate structure is such that one class of customers subsidizes
another, discrimination may pass beyond its permitted scope”).
¶24 The Federal Power Act, like our Constitution, mandates “just
and reasonable” rates. 16 U.S.C. § 824d(a). However, as to discrimination,
the Act states that no public utility shall “make or grant any undue
preference or advantage to any person or subject any person to any undue
prejudice or disadvantage” nor “maintain any unreasonable difference in
rates, charges, service, facilities, or in any other respect.” 16 U.S.C.
§ 824d(b).
¶25 By contrast, our Constitution provides that “no
discrimination in charges, service, or facilities shall be made between
persons or places for rendering a like and contemporaneous service.” Ariz.
Const. art. 15, § 12. We are obliged to interpret constitutional language
according to its plain meaning. Morrissey v. Garner, 248 Ariz. 408, 410 ¶ 8
(2020). Our discrimination provision does not contain the undue
preference, advantage, or prejudice language contained in the Federal
Power Act. And while the Federal Power Act forbids companies from
maintaining “any unreasonable difference in rates,” our provision on its
face creates a categorical prohibition against “discrimination in charges . . .
for rendering a like and contemporaneous service.” 16 U.S.C. § 824d(b);
Ariz. Const. art. 15, § 12.
¶26 Arizona cases construing the discrimination provision are
sparse, but they apply our constitutional language categorically. In Town of
Wickenburg v. Sabin, the Court noted that “[t]he law on discrimination as
applied to public service corporations generally is well settled” and held
that “[t]he charges must be equal to all for the same service under like
circumstances.” 68 Ariz. 75, 77 (1948) (quoting 4 Eugene McQuillan, Mun.
Corps. § 1829 (2d. ed. 1937)). “A public service corporation is impressed
with the obligation of furnishing its service to each patron at the same price
it makes to every other patron for the same or substantially the same or
similar service.” Id.; accord Trico, 92 Ariz. at 386. This standard reflects
precisely the language of the discrimination provision.
¶27 The rates here satisfy that standard: following a transition
period, which presumably was established to avoid rate shock, the rates for
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Opinion of the Court
all EPCOR customers will be identical. The ultimate rate is based on the
Commission’s finding, undisputed here, that all patrons would receive “a
like and contemporaneous service.” 4 See Ariz. Const. art. 15, § 12. Under
those circumstances, had the Commission not established rate parity, the
disparate rates could be subject to a discrimination challenge. See Sabin, 68
Ariz. at 80 (concluding that charging one customer a deposit fee that was
not required of others similarly situated was discriminatory).
¶28 Sun City argues that combining multiple communities with
different costs of service into a single district with uniform rates renders the
consolidation impermissibly discriminatory. That argument fails for
multiple reasons.
¶29 First, the discrimination provision of article 15, section 12, by
its plain terms, pertains to “charges, service, or facilities.” By contrast, the
Commission’s power to consolidate emanates from article 15, section 3,
which gives the Commission “full power to . . . prescribe just and
reasonable classifications.” The term “classification” is undefined, but its
plain meaning is quite broad, encompassing any grouping. See
Classification, Black’s Law Dictionary (11th ed. 2019). Prescribing just and
reasonable classifications is part of the Commission’s plenary authority, see
Johnson Utils., 249 Ariz. at 221 ¶ 21, and we will find the Commission’s
actions pursuant to its plenary powers unlawful only if they are arbitrary,
unlawful, or unsupported by substantial evidence, id. at 222 ¶ 25. We
4 Sun City did not challenge this finding in its petition for review and we
did not grant review to consider its efficacy. Sun City did challenge the
finding in response to an amicus brief, but that is insufficient and too late
to put the matter before us. See Bennett v. Napolitano, 206 Ariz. 520, 525 ¶ 21
(2003). Even so, “like and contemporaneous service” in article 15, section
12 by its terms refers to the service provided, not its cost. Costs are properly
considered in the context of determining whether rates are just and
reasonable, which is not before us. Regardless, we accept the Commission’s
factual finding of like and contemporaneous absent an abuse of discretion,
which has not been demonstrated here. See § 40-254.01(A); Sun City, 248
Ariz. at 297 ¶ 14 (citing Simms v. Round Valley Light & Power Co., 80 Ariz.
145, 154 (1956)).
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reiterate that unlike rates, classifications are not subject to the
discrimination provision of article 15, section 12.
¶30 Likewise, cost causation is not pertinent to the discrimination
analysis. If the rates are equal for like and contemporaneous service, they
are not discriminatory. In contrast, cost of service—by well-established
Commission practice, as it has acknowledged here—is highly relevant to
setting just and reasonable rates. See e.g., Ala. Elec., 684 F.2d at 27 (observing
that “to determine whether rates are just and reasonable, it has come to be
well established that electrical rates should be based on the costs of
providing service to the utility’s customers, plus a just and fair return on
equity”). The court of appeals concluded that the record establishes that
the Commission considered cost-causation evidence, Sun City, 248 Ariz.
at 297–98 ¶¶ 15–18, and we agree.
¶31 It may be that, in a given case, the Commission may establish
different rates for constituent classes within a single district based on cost
of service. In such circumstances, cost causation may be a defense to a claim
of discriminatory rates. See, e.g., Jung v. City of Phoenix, 160 Ariz. 38, 41
(1989); City of Riverside v. FERC, 765 F.2d 1434, 1440 (9th Cir. 1985). That is
not the scenario presented here.
¶32 We conclude that the rates approved by the Commission for
the fully consolidated EPCOR district do not violate article 15, section 12 of
the Arizona Constitution.
CONCLUSION
¶33 We affirm the Commission’s decision, and we affirm the
decision of the court of appeals, but we vacate paragraphs 13–14 and 19–23
of its opinion.
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JUSTICE BOLICK, Concurring
BOLICK, J., concurring:
¶34 It is hard not to commiserate with the Sun City residents who
face a massive rate hike. For that reason, I take the unusual step of writing
further to briefly examine the legal structure that compels our decision. Cf.
Gutierrez-Brizuela v. Lynch, 834 F.3d 1142, 1149 (10th Cir. 2016) (Gorsuch, J.)
(concurring in his own opinion to address the “elephant in the room”).
¶35 Our state’s policy, embodied in our constitution, “is one of
regulated monopoly over free-wheeling competition.” James P. Paul Water
Co. v. Ariz. Corp. Comm’n, 137 Ariz. 426, 429 (1983). Establishing an
independent, elected Corporation Commission was part of the effort by our
constitution’s framers “to protect the public from corporate abuses.”
Johnson Utils., 249 Ariz. at 219 ¶ 13. From my vantage point, the model has
not fulfilled this aspiration. See, e.g., id. at 232–239 ¶¶ 82–118 (Bolick, J.,
concurring in part and dissenting in part).
¶36 In a competitive market, were Sun City residents faced with
a sizable rate increase, their recourse would be simple: choose a different
company with lower rates.
¶37 In the current closed monopoly system, a simple phone call
hardly suffices. To obtain recourse for higher rates requires consumers to
engage in a costly, lengthy, and labyrinthian administrative process, facing
armies of lobbyists and lawyers with vast experiential and resource
advantages. It is a process in which the odds, to paraphrase The Hunger
Games, are decidedly not in their favor.
¶38 Indeed, Commissioner Bob Burns noted in his dissenting
opinion that nearly three-quarters of EPCOR’s customers opposed
consolidation. “In other words,” Commissioner Burns wrote, “the losers
greatly outnumbered the winners, which is an upside-down formula for
effective public policy-making.” But this is the system we have, and the
Court is constitutionally obliged to enforce it.
¶39 What we are not constitutionally obliged to do, however, is to
add to the already weighty burdens inherent in the system by applying a
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SUN CITY HOME OWNERS ASSOC. V. AZ CORP. COMMISSION ET AL.
JUSTICE BOLICK, Concurring
judicially manufactured presumption of constitutionality to government
decisions when they are challenged in court. Supra ¶¶ 17–18. As I have
argued elsewhere, “[i]t is essential to our system of justice, and to its
endurance, that every person enter the courtroom on a level playing field.”
State v. Arevalo, 249 Ariz. 370, 378 ¶ 30 (2020) (Bolick & Pelander, JJ.,
concurring). Our review of the constitutionality of the Commission’s
actions is not really de novo if we begin with the presumption that the
Commission will prevail. The presumption is especially discordant in a
state whose constitution endeavors relentlessly to prevent abuses of
government power, especially when exercised in concert with private
interests. Fighting city hall, much less a powerful state agency whose
regulatory sweep touches the lives of every Arizonan, is tough enough
without judicially created doctrines that make the burden more onerous.
15