Hohokam Irrigation & Drainage District v. Arizona Public Service Co.

SUPREME COURT OF ARIZONA
En Banc
HOHOKAM IRRIGATION AND DRAINAGE ) Arizona Supreme Court
DISTRICT, PINAL COUNTY, ARIZONA, a ) No. CV-02-0091-PR
political subdivision of the State )
of Arizona, ) Court of Appeals
) Division Two
Plaintiff/Counterdefendant/ ) No. 2 CA-CV 01-0026
Appellee, )
) Pinal County
v. ) Superior Court
) No. CV 98-046103
ARIZONA PUBLIC SERVICE COMPANY, an )
Arizona public service corporation, )
)
Defendant/Counterclaimant/ )
Appellant. )
____________________________________)
)
CENTRAL ARIZONA IRRIGATION AND )
DRAINAGE DISTRICT, a political )
subdivision of the State of )
Arizona; ELECTRICAL DISTRICT NO. )
ONE, Pinal County, Arizona, a )
political subdivision of the State )
of Arizona; ELECTRICAL DISTRICT ) O P I N I O N
NO. 3, Pinal County, Arizona, a )
political subdivision of the State )
of Arizona; ELECTRICAL DISTRICT )
NO. 4, Pinal County, Arizona, a )
political subdivision of the State )
of Arizona; ELECTRICAL DISTRICT )
NO. 5, Pinal County, Arizona, a )
political subdivision of the State )
of Arizona; and MARICOPA-STANFIELD )
IRRIGATION & DRAINAGE DISTRICT, )
Pinal County, Arizona, a political )
subdivision of the State of )
Arizona, )
)
Intervenors/Appellees, )
)
v. )
)
ARIZONA PUBLIC SERVICE COMPANY, an )
Arizona public service corporation, )
)
Defendant/Appellant. )
____________________________________)
)
THE HARQUAHALA POWER DISTRICT, a )
political subdivision of the State )
of Arizona; AGUILA IRRIGATION )
DISTRICT, a political subdivision )
of the State of Arizona; McMULLEN )
VALLEY WATER CONSERVATION AND )
DRAINAGE DISTRICT, a political )
subdivision of the State of )
Arizona; BUCKEYE WATER )
CONSERVATION AND DRAINAGE DISTRICT, )
a political subdivision of the )
State of Arizona; ROOSEVELT )
IRRIGATION DISTRICT, a political )
subdivision of the State of )
Arizona; ELECTRICAL DISTRICT NO. 7, )
a political subdivision of the )
State of Arizona; and ELECTRICAL )
DISTRICT NO. 8., a political )
subdivision of the State of )
Arizona, )
)
Intervenors/Appellees, )
)
v. )
)
ARIZONA PUBLIC SERVICE COMPANY, an )
Arizona public service corporation, )
)
Defendant/Appellant. )
)
____________________________________)
Appeal from the Superior Court of Pinal County
The Honorable William J. O’Neil, Judge
AFFIRMED
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Court of Appeals, Division Two
201 Ariz. 356, 35 P.3d 117 (2002)
VACATED
Brown & Bain, P.A. Phoenix
by Paul F. Eckstein
Dan L. Bagatell
Attorneys for the Petitioner, Hohokam Irrigation
and Drainage District, Pinal County, Arizona
Osborn Maledon, P.A. Phoenix
by Andrew D. Hurwitz
Warren Stapleton
Attorneys for the Respondent, Arizona Public
Service Company
Moyes Storey Phoenix
by Jay I. Moyes
Steven L. Wene
Attorneys for Maricopa County Intervenors
Harquahala Power District, et al.
Law Offices of Robert S. Lynch Phoenix
by Robert S. Lynch
and
Law Office of Paul R. Orme, P.C. Mayer
by Paul R. Orme
Attorneys for Pinal County Intervenors Central
Arizona Irrigation and Drainage District, et al.
Gust Rosenfeld P.L.C. Phoenix
by Fred H. Rosenfeld
Richard A. Segal
Attorneys for Amicus Curiae Cortaro Marana
Irrigation District
Arizona Center for Law in the Public Interest Phoenix
by Timothy M. Hogan
Attorneys for Amicus Curiae
Arizona Consumers Council
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J O N E S, Chief Justice
INTRODUCTION
¶1 We granted review to determine whether irrigation
districts have authority, under the constitution and statutes of
Arizona, to provide electricity to customers outside established
district boundaries. Because we answer in the affirmative, we
vacate the decision of the court of appeals and reinstate the
trial court’s grant of summary judgment in favor of the Hohokam
Irrigation and Drainage District. We have jurisdiction pursuant
to Article 6, Section 5(3), of the Arizona Constitution.
FACTS/PROCEDURAL HISTORY
¶2 Hohokam Irrigation and Drainage District (“Hohokam”)
was formed in Pinal County in 1972. In 1997, Hohokam began
buying electric power on the wholesale market and reselling it
at retail. Arizona Public Service Company (“APS”) sells
electricity in areas covered by a certificate of public
convenience and necessity issued by the Arizona Corporation
Commission. This dispute arose because Hohokam began offering
competing electrical service outside district boundaries to
persons located in the APS service territory.
¶3 In 1998, Hohokam filed a declaratory suit against APS,
claiming the right to serve electricity to customers located
outside district boundaries and seeking an injunction to prevent
interference from APS. APS counterclaimed, seeking a
declaration prohibiting Hohokam from serving customers outside
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its boundaries. The trial court permitted intervention as a
matter of right to the Central Arizona Irrigation and Drainage
District; Electrical Districts Nos. 1, 2, 3, and 5 of Pinal
County; the Maricopa-Stanfield Irrigation & Drainage District;
Harquahala Power District; Aguila Irrigation District; McMullen
Valley Water Conservation and Drainage District; Buckeye Water
Conservation and Drainage District; Roosevelt Irrigation
District; Electrical District No. 7; and Electrical District No.
8 (“the Intervenors”).
¶4 On cross-motions for summary judgment, the trial court
entered judgment in favor of Hohokam, declaring that irrigation
districts have the constitutional and statutory authority to
provide electrical service outside district boundaries. The
court of appeals reversed, holding that by enacting Arizona
Revised Statute (“A.R.S.”) § 48-2978(15)(1997), the legislature
prohibited irrigation districts from selling electric power
outside district boundaries. Hohokam Irr. and Drainage Dist. v.
Ariz. Pub. Serv. Co., 201 Ariz. 356, 360, ¶14, 35 P.3d 117, 121
(App. 2002). Hohokam appeals.
DISCUSSION
A. Standard of Review
¶5 We review the grant of summary judgment de novo, and
view the evidence and all reasonable inferences in the light
most favorable to the party opposing the motion. Wells Fargo
Bank v. Ariz. Laborers, Teamsters and Cement Masons Local No.
-5-
395 Pension Trust Fund, 201 Ariz. 474, 482, ¶13, 38 P.3d 12, 20
(2002). Likewise, the interpretation of statutes and
constitutional provisions is an issue of law that we review de
novo. Ramirez v. Health Partners of S. Ariz., 193 Ariz. 325,
327-28, ¶6, 972 P.2d 658, 661 (App. 1998).
B. Irrigation District Powers
¶6 Irrigation districts are entities of statutory
creation. Enloe v. Baker, 94 Ariz. 295, 301, 383 P.2d 748, 752
(1963). Once organized they become political subdivisions of
the state. Id. They derive their powers from the constitution
and statutes of Arizona.
1. Arizona Constitution
¶7 Article 13, Section 7 of the state constitution is the
principal source of powers granted to irrigation and other
special purpose districts in Arizona:
Irrigation, power, electrical, agricultural
improvement, drainage, and flood control districts,
and tax levying public improvement districts, now or
hereafter organized pursuant to law, shall be
political subdivisions of the state, and vested with
all the rights, privileges and benefits, and entitled
to the immunities and exemptions granted
municipalities and political subdivisions under this
constitution or any law of the state or of the United
States . . . .
Ariz. Const. art. 13, § 7 (adopted 1940).
¶8 This provision was adopted in response to our decision
in State v. Yuma Irrigation District, which held that the
legislature could not exempt irrigation districts from property
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taxes because no such power existed in the constitution. 55
Ariz. 178, 184, 99 P.2d 704, 706 (1940).
¶9 Although a primary purpose of section 7 was to grant
the legislature the power to exempt irrigation districts from
taxation, this was not its sole purpose or effect. Local 266,
Int’l Bhd. of Elec. Workers v. Salt River Project Agric.
Improvement and Power Dist., 78 Ariz. 30, 35, 275 P.2d 393, 396
(1954). Rather, the plain language of the provision vests
irrigation and other districts with powers and duties equal to
the powers and duties conferred on municipalities and political
subdivisions. See id. (stating that districts are “vested with
all the rights, privileges and benefits, and entitled to the
immunities and exemptions granted municipalities and political
subdivisions under the constitution or any law of the state or
of the United States”); see also Pinetop-Lakeside Sanitary Dist.
v. Ferguson, 129 Ariz. 300, 302, 630 P.2d 1032, 1034 (1981)
(“The unmistakable language of Article 13, Section 7 grants
improvement districts all immunities and exemptions.”); Maricopa
County v. Maricopa County Mun. Water Conservation Dist. No. 1,
171 Ariz. 325, 331 n.6, 830 P.2d 846, 852 n.6 (App. 1991)
(holding Article 13, Section 7's grant of tax exempt status to
districts is not the section’s sole purpose).
¶10 The constitution grants municipalities “the right to
engage in industrial pursuits.” Ariz. Const. art. 2, § 34. We
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have consistently held that Article 2, Section 34 confers on
municipalities the right to engage in industry “without
specifying any limitation whatever as to kind or character.”
Crandall v. Town of Safford, 47 Ariz. 402, 409, 56 P.2d 660, 663
(1936). In Crandall, we held that by virtue of Article 2,
Section 34, a municipality is authorized to distribute surplus
water outside its corporate boundaries. Id. at 411, 56 P.2d at
663. Similarly, in City of Phoenix v. Wright, solely on the
basis of Article 2, Section 34, we stated that even in the
absence of statutory authority, a municipal corporation is
authorized to furnish water to customers residing outside its
boundaries. 52 Ariz. 227, 233, 80 P.2d 390, 392 (1938). In
City of Phoenix v. Kasun, we further confirmed that “a municipal
corporation has the right to furnish water through its municipal
water plant to customers without, as well as within, its
corporate limits.” 54 Ariz. 470, 474, 97 P.2d 210, 212 (1939).
Read together, Article 13, Section 7 and Article 2, Section 34,
in clear terms, confer on irrigation districts the right to
engage in industrial pursuits. Certainly the sale of
electricity is an industrial pursuit and therefore within the
rights and privileges granted municipalities.
2. The Irrigation District Act
¶11 In addition to the broad powers granted irrigation
districts by the state constitution, the legislature conferred
specific statutory powers on these districts in the Irrigation
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District Act of 1921. A.R.S. §§ 48-2901 to -3256 (Supp. 2002).
The legislature first defined irrigation districts as “municipal
corporations for all purposes.” A.R.S. § 48-2901. Further, the
legislature declared:
In order to accomplish the purposes of the district
the board may:
. . . .
[p]rovide the district with water, electricity and
other public conveniences and necessities, and engage
in any and all activities, enterprises and occupations
within the powers and privileges of municipalities
generally.
A.R.S. § 48-2978(15).
¶12 APS argues, and the court of appeals held, that by
virtue of the first clause of subsection 15, “the legislature
has acted to limit the ability of irrigation districts to
provide electricity to customers only within the district.”
Hohokam, 201 Ariz. at 360 ¶14, 35 P.3d at 121 (emphasis added).
Hohokam counters that the language of the second clause is more
broad and permits irrigation districts to provide electricity to
outside customers.
¶13 The appellate court reasoned that the language in the
first clause, “may provide the district with . . . electricity,”
expressly limited the general grant of power contained within
the second clause, which allows the district to “engage in any
and all activities, enterprises and occupations within the
powers and privileges of municipalities generally.” Id. On
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this basis, the court concluded that the legislature restricted
the authority of irrigation districts to the sale of
electricity solely to customers inside district boundaries. Id.
¶14 Viewed as a whole, we conclude that our constitutional
and statutory scheme regulating the powers of irrigation
districts does not contain the prohibition found by the court of
appeals. The initial phrase of subsection 15 is at best vague
on the question and, significantly, by reason of its breadth,
the second phrase appears to contradict any notion that electric
sales must necessarily be confined to district lands.
¶15 Where the language of a statute is not clear, our
objective is to discern and give effect to underlying
legislative intent. Mail Boxes, Etc., U.S.A. v. Industrial
Comm’n, 181 Ariz. 119, 121, 888 P.2d 777, 779 (1995). We must,
if possible, give meaning to each word, clause or sentence,
considered in light of the entire act and the purpose for which
it was enacted into law. Frye v. South Phoenix Volunteer Fire
Co., 71 Ariz. 163, 168, 224 P.2d 651, 655 (1950).
a. History and Purposes of the Irrigation District
Act
¶16 The Irrigation District Act (“Act”), A.R.S. §§ 48-2901
to –3256, is modeled after the Wright and Bridgeford Acts of
California, which date back to the late 1800s. Cal. Stats.
1887, ch. 34, p. 29, Cal. Stats. 1897, ch. 189, p. 254. The
Arizona Legislature adopted the Act in 1921, at a time when
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Arizona was largely a rural, undeveloped state, with many areas
lacking access to the modern conveniences of water and
electricity. This remained true in 1931, when subsection 15 was
added. Given this context, we think it improbable that the
legislature intended to authorize irrigation districts to sell
electric power within district lines, but prohibit them from
selling it on the outside.
¶17 We need not rely solely on historical context. The
purpose of the Act was to provide for the formation of
irrigation districts with sufficient powers to develop strong
water systems to irrigate arid land. Porterfield v. Van
Boening, 154 Ariz. 556, 557, 744 P.2d 468, 469 (App. 1987); see
also Post v. Wright, 37 Ariz. 105, 112, 289 P. 979, 981 (1930)
(the Act provides for the organization of landowners desiring to
provide water to irrigate their lands). See generally John D.
Leshy, Irrigation Districts in a Changing West—An Overview,
1982 Ariz. St. L.J. 345, 353 (1982) (discussing the Wright Act
and the origins of irrigation districts generally). The Act did
this by granting irrigation districts the power to levy property
assessments, issue bonds to finance operations, and pledge
district lands as collateral for debt. See, e.g., A.R.S. § 48-
3185; Porterfield, 154 Ariz. at 557, 744 P.2d at 469. A central
objective of the Act was to give irrigation districts the
ability to generate the financing necessary to achieve their
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fundamental purpose. Porterfield, 154 Ariz. at 558, 744 P.2d at
470 (“The basic function of an irrigation district is to meter
and deliver water to lands within the district and to finance
the irrigation system.”).
b. Plain Statutory Language
¶18 Finally, the Act is broadly written. It first declares
that irrigation districts are given the powers of municipalities
for all purposes. A.R.S. § 48-2901. Next, the Act confers the
positive right to “[p]rovide the district with water,
electricity and other public conveniences and necessities, and
engage in any and all activities . . . of municipalities
generally.” A.R.S. § 48-2978(15) (emphasis added). Nowhere
does the statutory language prohibit the extraterritorial
delivery of these services.
¶19 In further support of today’s reasoning, A.R.S. § 48-
2978(7) provides a broad grant of authority to engage in other
pursuits necessary to fulfill district purposes:
In order to accomplish the purposes of the district
the board may:
. . . .
[p]rovide for the construction, operation, leasing and
control of plants for the generation, distribution,
sale and lease of electrical energy, including sale to
municipalities, corporations, public utility districts
or individuals, of any electrical energy so generated.
The court of appeals rejected Hohokam’s contention under
subsection 7 that extraterritorial sale of electricity was
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contemplated. The court opined that “[c]onceivably, all
[entities] could be located within a single irrigation
district.” Hohokam, 201 Ariz. at 361 ¶17, 35 P.3d at 122. We
disagree. Although multiple entity locations within a district
may be possible, it is quite unlikely that this would have been
the case in 1921, when subsection 7 was enacted. At that time,
Arizona was rural, undeveloped, largely without electricity, and
potential electric users were scattered.
¶20 Given this perspective, the purposes of the Act, the
broad statutory language, the absence of specific language of
prohibition, as well as the broad powers conferred on irrigation
districts by the Arizona Constitution, cause us to conclude that
the irrigation district statutes permit the sale of electricity
to customers outside district boundaries. As stated in City of
Tucson v. Sims, “[n]othing short of an express prohibition or
clear implication to that effect could have this result.” 39
Ariz. 168, 177, 4 P.2d 673, 676 (1931).
¶21 Likewise, we decline to accept the argument that the
separate statutes granting electrical and power districts
express authority to sell electric power outside district
boundaries, by implication, prohibit irrigation districts from
doing so. See A.R.S. §§ 48-1545(E), -1751(A) (2000). There
appears no practical basis for that contention and no legal
reason to treat irrigation districts differently from other
political subdivisions.
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3. Irrigation District Powers Are Not Unlimited
¶22 The broad power granted to irrigation districts by the
constitution and statutes of Arizona is not without restriction.
Authority granted by Article 13, Section 7 is limited “to the
purposes justifying [the district’s] political existence. The
privileges and immunities granted extend only so far as they
have a legitimate relationship to the legal objectives for which
the District is organized.” Salt River Valley Water Users’
Ass’n v. Giglio, 113 Ariz. 190, 193, 549 P.2d 162, 165 (1976)
(quoting City of Mesa v. Salt River Project Agric. Improvement
& Power Dist., 92 Ariz. 91, 97, 373 P.2d 722, 726 (1962)).
¶23 This limitation is written into the Act as well, which
provides that irrigation district powers must be exercised in
order “to accomplish the purposes of the district.” A.R.S.
§ 48-2978. We interpreted this very language in City of
Scottsdale v. McDowell Mountain Irrigation and Drainage Dist.,
stating that “the power to engage in activities of
municipalities generally is proper only when acting pursuant to
the purpose of irrigating arid lands.” 107 Ariz. 117, 123, 483
P.2d 532, 538 (1971). Activities are thus permitted, but only
to the extent they are incidental to and in furtherance of the
primary purpose of the irrigation district. See Maricopa County
Mun. Water Conservation Dist. No. 1, 171 Ariz. at 329, 830 P.2d
at 850 (“The power to engage in the activities of a municipality
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generally is proper only when acting for a public purpose, and
when the activity is incidental to the primary purpose of the
district.”).
4. Extraterritorial Sale of Electricity
¶24 Thus, the power of irrigation districts to engage in
the activities of municipalities extends only to those
activities that are either necessary or incidental to achieving
the district’s primary purpose. The primary purpose of
irrigation districts is to irrigate arid land, providing water
for agriculture. City of Scottsdale v. McDowell Mountain Irr.
and Drainage Dist., 107 Ariz. at 123, 483 P.2d at 538; see also
Post, 37 Ariz. at 112, 289 P. at 981.
¶25 We have long recognized that electricity is necessary
for the operation of a modern irrigation system. Orme v. Salt
River Valley Water Users’ Ass’n, 25 Ariz. 324, 339, 217 P. 935,
940 (1923). We have also recognized that an irrigation
district’s authority to sell electricity is incidental to its
primary purpose of providing water for irrigation. Santa Cruz
Irr. Dist. v. City of Tucson, 108 Ariz. 152, 153, 494 P.2d 24,
25 (1972) (citing City of Mesa v. Salt River Project Agric.
Improvement and Power Dist., 92 Ariz. at 104, 373 P.2d at 733).
¶26 The question, then, is whether the extraterritorial
sale of electricity purchased on the wholesale market also
qualifies as an activity that is incidental to Hohokam’s primary
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purpose. An assertion of fact, uncontested in the summary
proceedings before the trial court, demonstrates that the
purpose of Hohokam’s entry into the electric power business in
1997 was to generate revenues exclusively committed to reducing
the cost of irrigation water to the district’s member-farmers.
See Hohokam’s Statement of Facts in Support of Motion for
Summary Judgment, ¶3. On the record before us, we therefore
conclude that Hohokam’s sale of electric power is incidental to
and in furtherance of the district’s primary purpose.
¶27 We recognize that the question whether a given revenue
generating activity is incidental to and in furtherance of a
district’s primary purpose would normally require a specific
determination by the trier of fact. See City of Scottsdale v.
McDowell Mountain Irr. and Drainage Dist., 107 Ariz. at 123, 483
P.2d at 538; Santa Cruz Irr. Dist. v. City of Tucson, 108 Ariz.
at 153, 494 P.2d at 25; and City of Mesa v. Salt River Project
Agric. Improvement and Power Dist., 92 Ariz. at 97, 373 P.2d at
726. This, however, is a declaratory judgment suit that raises
a question of law to be determined on stipulated facts. Further
fact finding in the instant case is therefore unnecessary
because the trial record establishes as undisputed the facts
that control this issue.
5. A.R.S. § 9-516
¶28 Finally, we do not agree that A.R.S. § 9-516 (1996)
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requires Hohokam first to acquire APS’s property and plants
before extending electrical service to areas covered by the APS
certificate of public convenience and necessity. We have
previously held that by its express language, section 9-516
applies only to cities and towns, not to all municipal
corporations. Davis v. Brittain, 92 Ariz. 20, 30, 373 P.2d 340,
347 (1962). The statute simply does not apply to irrigation
districts.
¶29 APS also contends that allowing Hohokam to sell
electricity without complying with section 9-516 grants Hohokam
rights superior to the rights of cities and towns. We disagree.
Hohokam’s rights should simply be characterized as different.
Hohokam’s right to engage in the activities of municipalities is
limited to activities that are incidental to and in furtherance
of Hohokam’s primary purpose. In contrast, the rights granted
to cities and towns are more comprehensive and relate to a wide
array of functions.
¶30 Our interpretation of Article 13, Section 7 does not
limit the ability of the legislature to create special purpose
districts. It remains the legislature’s responsibility to
define the primary purposes of all constitutionally authorized
districts. In so doing, the legislature retains the authority
to define the extent of each district’s powers.
CONCLUSION
¶31 The wholesale purchase and retail sale of electric
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power by irrigation districts is a new circumstance, perhaps not
yet fully evaluated by the Arizona Legislature. While it is a
new practice, not previously addressed by this court, we
conclude that under today’s constitution and statutory scheme,
the practice is not prohibited. We therefore hold that an
irrigation district is authorized to market and sell electric
power to customers outside its boundaries. This right is
limited, however, and may be exercised only to the extent that
it is incidental to and in furtherance of the district’s primary
purpose. This matter is remanded to the superior court with
instructions to enter judgment for Hohokam consistent with this
opinion.
________________________________________
Charles E. Jones, Chief Justice
CONCURRING:
____________________________________
Ruth V. McGregor, Vice Chief Justice
____________________________________
Rebecca W. Berch, Justice
____________________________________
Michael D. Ryan, Justice
____________________________________
Stanley G. Feldman, Justice (retired)
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