Johnson Utilities LLC v. Arizona Corporation

IN THE
SUPREME COURT OF THE STATE OF ARIZONA
JOHNSON UTILITIES, L.L.C., AN ARIZONA LIMITED LIABILITY COMPANY,
Petitioner,
V.
ARIZONA CORPORATION COMMISSION; TOM FORESE, BOB BURNS, ANDY
TOBIN, BOYD W. D UNN AND JUSTIN O LSON, IN THEIR OFFICIAL CAPACITIES
AS MEMBERS OF THE ARIZONA CORPORATION COMMISSION
Respondents.
No. CV-19-0105-PR
Filed July 31, 2020
Arizona Corporation Commission
No. WS-02987A-18-0050
The Hon. Sarah N. Harping, Administrative Law Judge
AFFIRMED
Opinion of the Court of Appeals, Division One
246 Ariz. 287 (App. 2019)
VACATED
COUNSEL:
Daniel E. Fredenberg, Christian C.M. Beams, Fredric D. Bellamy, (argued)
Fredenberg Beams LLC, Phoenix; Jeffrey W. Crockett, Crockett Law Group
PLLC, Phoenix, Attorneys for Johnson Utilities, L.L.C.
Robin R. Mitchell (argued), Naomi E. Davis, Maureen A. Scott, Wesley C.
Van Cleve, Phoenix, Attorneys for Arizona Corporation Commission
Jason D. Gellman, EPCOR Water Arizona, Inc.; and Michael T. Hallam,
Lewis Roca Rothgerber Christie LLP, Phoenix, Attorneys for Amicus Curiae
EPCOR Water Arizona Inc.
JOHNSON UTILITIES, L.L.C. V. ARIZONA CORPORATION COMMISSION, ET AL.
Opinion of the Court
Michele L. Van Quathem, Law Offices of Michele Van Quathem PLLC,
Phoenix, Attorney for Amicus Curiae Home Builders Association of Central
Arizona and Southern Arizona Home Builders Association
Meghan H. Grabel, Osborn Maledon, P.A., Phoenix, Attorneys for Amicus
Curiae Arizona Water Company
Evan Bolick, Jonathan Udell, and Court S. Rich, Rose Law Group, PC,
Scottsdale, Attorneys for Amicus Curiae Trilogy Encanterra Construction,
LLC
Scott S. Wakefield, Hienton & Curry P.L.L.C., and Daniel Pozefsky,
Residential Utility Consumer Office, Phoenix, Attorneys for Amicus Curiae
Residential Utility Consumer Office
Mark Brnovich, Arizona Attorney General, Jeffrey Cantrell, Assistant
Attorney General, Phoenix, Attorneys for Amicus Curiae Arizona
Department of Environmental Quality
Kent Volkmer, Pinal County Attorney, Kevin Costello, Deputy County
Attorney, Florence, Attorneys for Amicus Curiae Pinal County
Kevin Nguyen, Struck Love Bojanowski & Acedo, PLC, Chandler, Attorney
for Amicus Curiae National Association of Water Companies
JUSTICE GOULD authored the opinion of the Court, in which CHIEF
JUSTICE BRUTINEL, VICE CHIEF JUSTICE TIMMER and JUSTICES
LOPEZ, MONTGOMERY and PELANDER (RETIRED) * joined. JUSTICE
BOLICK concurred in part and dissented in part.
JUSTICE GOULD, opinion of the Court:
¶1 The Arizona Corporation Commission (“Commission”) has
permissive authority under article 15, section 3 of the Arizona Constitution
to “make and enforce reasonable . . . orders for the convenience, comfort, [ ]
∗ Justice James P. Beene has recused himself from this case. Pursuant to
article 6, section 3 of the Arizona Constitution, Justice John Pelander
(RETIRED), was designated to sit in this matter.
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safety, and . . . health” of the public at-large. We hold that this authority
permits the Commission to appoint an interim manager to operate a public
service corporation (“PSC”) for the purpose of remedying unsafe and
inadequate facilities, services, and equipment posing a health and safety
risk to its customers, employees, and the public.
¶2 As the parties conceded at oral argument, the sole issue before
this Court is whether the Commission has authority to appoint an interim
manager for a PSC. We therefore do not address whether the Commission’s
order appointing an interim manager for Johnson Utilities, LLC
(“Johnson”) was supported by the evidence or was a reasonable remedy in
this case. Thus, to the extent Johnson has preserved its right to appeal the
action under A.R.S. § 40-254, the factual findings and reasonableness of that
Order may be subject to review in superior court.
I.
¶3 Johnson is an Arizona PSC that provides water and
wastewater utility services in Pinal County pursuant to a Certificate of
Convenience & Necessity (“CC&N”) issued by the Commission. In
February 2018, the Commission opened an investigation involving
Johnson after receiving numerous complaints from its customers during
a public comment session. The investigation ultimately resulted in a
lengthy evidentiary hearing regarding Johnson’s financial management, as
well as the safety and adequacy of its services, equipment, and facilities.
¶4 On July 24, 2018, the Commission issued Decision Order No.
76785 (“Order”). The Order included findings that Johnson had engaged
in deficient billing practices and financial mismanagement. However, the
primary focus of the Commission’s findings was that it had failed to
provide service, equipment, and facilities that sufficiently protected “the
safety, health, comfort, and convenience of its patrons, employees, and
the public.” In making this finding, the Order documented Johnson’s
prior history of alleged health and safety violations, including seventy-
eight raw sewage overflows between 2010–2018.
¶5 Concluding that it was necessary to protect public health
and safety, the Commission’s Order appointed EPCOR Water Arizona as
an “interim,” or temporary, manager to conduct Johnson’s “business and
affairs.” The Order preserved Johnson’s right of ownership and stated that
either Johnson or EPCOR could seek to terminate the appointment upon
a showing that J o h n s o n ’ s services “are in all respects just, reasonable,
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safe, proper, adequate, and sufficient.”
¶6 The Commission and EPCOR entered an Interim Manager
Agreement on August 15, 2018. Under the Agreement, EPCOR
temporarily assumed management of Johnson, including control over
payments made by Johnson’s customers. Further, the Agreement requires
EPCOR to report solely to the Commission, and not Johnson.
¶7 After pursuing several unsuccessful lawsuits challenging the
Order, Johnson filed a special action in the court of appeals seeking to enjoin
its enforcement. The court of appeals accepted jurisdiction but denied
relief, holding that the Commission has both constitutional and statutory
authority to appoint an interim manager of a PSC. Johnson Utils. L.L.C. v.
Ariz. Corp. Comm’n, 246 Ariz. 287, 288 ¶ 2, 294 ¶ 24 (App. 2019). The court
stated that the Commission’s constitutional ratemaking powers under
article 15, section 3 authorize it to appoint an interim manager. Id. at 292
¶ 17. Additionally, the court stated that pursuant to A.R.S. § 40-321(A), the
legislature had delegated such authority to the Commission. Id. at 293
¶¶ 20-21.
¶8 We granted review because this case involves constitutional
and statutory issues of statewide importance. We have jurisdiction
pursuant to article 6, section 5(3) of the Arizona Constitution.
II.
¶9 Johnson argues that the Order exceeds the Commission’s
constitutional ratemaking authority. Johnson also asserts that the
legislature has not delegated authority to the Commission to appoint an
interim manager, and that only the superior court has been granted such
power. Finally, Johnson argues that the Order violates the managerial
interference doctrine because it impermissibly allows the Commission to
control Johnson’s internal affairs.
¶10 The Commission argues that its constitutional ratemaking
power authorizes it to appoint an interim manager whenever a PSC’s
inadequate services and operations might impact its rates. The
Commission also asserts that it has “permissive authority” to appoint an
interim manager under article 15, section 3 of the constitution. Finally, the
Commission claims that the legislature, pursuant to § 40-321(A), has
delegated such power to the Commission.
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¶11 We review the interpretation of constitutional and statutory
provisions de novo. City of Surprise v. Ariz. Corp. Comm’n, 246 Ariz. 206, 210
¶ 10 (2019) (statutory interpretation); Gallardo v. State, 236 Ariz. 84, 87 ¶ 8
(2014) (constitutional questions). In construing the Commission’s
authority, we apply the principle that the Commission “has no implied
powers and its powers do not exceed those to be derived from a strict
construction of the [c]onstitution and implementing statutes.” City of
Surprise, 246 Ariz. at 212 ¶ 20 quoting Commercial Life Ins. Co., v. Wright, 64
Ariz. 129, 139 (1946).
¶12 For the reasons discussed below, we conclude that based on
the text and purpose of article 15, section 3, together with cases interpreting
that provision, the Commission possesses authority to appoint an interim
manager to protect the health and safety of a PSC’s customers, employees,
and the public at-large. In reaching this holding, we recognize that there
has been some inconsistency and confusion in our jurisprudence regarding
the Commission’s authority under article 15, section 3. As a result, we
endeavor here to clarify this jurisprudence, as well as explain the extent and
limits of the Commission’s permissive authority under section 3, by
reviewing the creation of the provision and this Court’s prior
interpretations of it.
III.
A.
¶13 One of the primary concerns of the delegates attending the
Arizona Constitutional Convention of 1910 was to protect the public from
corporate abuses that had occurred in Arizona during the late nineteenth
and early twentieth centuries. See John S. Goff, The Records of the Arizona
Constitutional Convention of 1910, 718–22, 971–75 (December 17, 1991);
Terence W. Thompson, 6 Arizona Practice Series, Corporate Practice § 1.7,
Constitutional Convention. In the years leading up to the Convention,
Arizona had been the subject of “stock swindles involving mining,
telephone, wireless, and other industrial corporations.” Thompson, supra
at § 1.7 (internal quotations marks omitted). Thus, two important political
forces at the time, progressives and labor, “were firmly united on the need
to provide ample authority to regulate corporations.” John D. Leshy, The
Making of the Arizona Constitution, 20 Ariz. St. L.J. 1, 88 (1988). Consistent
with this purpose, the progressive delegates repeatedly expressed their
desire to protect the public from corporate abuses and overreaching. See
Goff, supra at 971-976.
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¶14 The Convention delegates, however, “were not content
simply to give the legislature power to regulate corporate activities.”
Leshy, supra at 88. Instead, they envisioned an elected Corporation
Commission “vested with broad powers to regulate the activities of
[PSC]s.” Id. (internal quotation marks omitted); see Gordon Morris Bakken,
The Arizona Constitutional Convention of 1910, 1978 Ariz. St. L.J. 1, 14–15
(1978) (noting that “the progressives sought a powerful [C]ommission for
the regulation of all corporations”). For example, delegate J. E. Crutchfield
asserted that corporations should be subject to “honest scrutiny by a
[C]orporation [C]ommission” to clear Arizona’s reputation from the taint
of “these corporations that have robbed the people of Arizona and enriched
themselves and in some instances made this state a laughing stock in the
eyes of the world.” Goff, supra at 974.
¶15 One area of concern among the delegates was dissatisfaction
with legislative control over the rates charged by railroads and other PSCs.
Thompson, supra at § 1.7. As one delegate noted, “the work of fixing rates
is the most complicated subject in the economic world.” Goff, supra at 979.
Four years after the Convention, the Arizona Supreme Court issued its first
decision interpreting the authority of the Commission in State v. Tucson Gas,
Elec. Light & Power Co., 15 Ariz. 294 (1914). Writing for the majority, Justice
Ross, who had also served as a delegate to the Convention, stated:
there has long existed a deep-rooted dissatisfaction with the
results obtained through the Legislatures . . . to adjust and
regulate rates and classifications between the general public
and public service corporations . . . . the lack of full
information on the part of the legislator, and inadequacy of
time and means of investigation, have tended to foster
litigation, with the result of suspending and often of defeating
the object . . . [of] secur[ing] just and reasonable
classifications, rates, charges, and regulations.
Id. at 305-06. Justice Ross further stated that:
[a]ll persons agree that the capital invested in public service
[corporations] should receive reasonable remuneration, and
that the services rendered should be efficient and practicable
and to all patrons upon equal terms and conditions. With a
full knowledge that these things had not been accomplished
under the laws heretofore existing in this and other
jurisdictions, the people in their fundamental law created the
Corporation Commission, and clothed it with full power to
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investigate, hear, and determine disputes and controversies
between public utility companies and the general public. This
was done primarily for the interest of the consumer.
Id.¶16 However, despite the progressives’ desire for expansive
regulation, “[t]he great majority of the Arizona framers were themselves
small businessmen and entrepreneurs,” and “[n]ot surprisingly, they
admired local entrepreneurship and small businesses.” Leshy, supra at 90.
Thus, the moderate delegates opposed the more extreme proposals of the
progressives as “ruinous to the industrial prosperity of Arizona,” and
“likely to put every small corporation in Arizona out of business.” Bakken,
supra at 15. For example, when one progressive delegate proposed making
“shareholders personally liable for corporate debts,” the proposal “was
defeated after newspapers suggested it would destroy any incentive for
outsiders to invest in Arizona business.” Leshy, supra at 90.
¶17 As a result, the “constitution which ultimately emerged from
the convention was tempered by compromise.” Bakken, supra at 26.
Indeed, “[t]he scope of the powers ultimately given the [Corporation]
[C]ommission was not nearly so great as that originally envisaged by the
progressives.” Id. at 15. Perhaps the biggest compromise occurred when,
contrary to the wishes of the progressives, the framers limited the
Commission’s “jurisdiction to public service [corporations] as opposed to
all private corporations.” Leshy, supra at 90 (internal quotation marks
omitted).
B.
¶18 Article 15 of the constitution creates the Commission and
grants it broad authority to regulate PSCs. Ariz. Const. art. 15, § 1; id. § 2
(defining PSCs). The Commission’s powers are set forth primarily in the
following two clauses of article 15, section 3 of the Arizona Constitution:
The [C]orporation [C]ommission 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, and make reasonable rules,
regulations, and orders, by which such corporations shall be
governed in the transaction of business within the state, and
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may prescribe the forms of contracts and the systems of
keeping accounts to be used by such corporations in
transacting such business, and make and enforce reasonable
rules, regulations, and orders for the convenience, comfort,
and safety, and the preservation of the health, of the
employees and patrons of such corporations . . . . (emphasis
added).
¶19 The first clause of section 3, which describes the
Commission’s authority to “prescribe just and reasonable
classifications . . . rates and charges” for PSCs, is referred to as the
Commission’s “ratemaking authority.” The second clause describes the
Commission’s power to regulate PSCs to protect the health, safety, comfort,
and convenience of their customers, employees, and the public, and is
referred to as the Commission’s “permissive authority.”
¶20 In addition to the powers enumerated in section 3, the
Commission is granted authority to inspect and investigate records for
publicly traded corporations and PSCs (art. 15, § 4), issue certificates of
incorporation and licenses (art. 15, § 5), require reports from publicly traded
corporations and PSCs (art. 15, § 13), ascertain fair property values for PSCs
(art. 15, § 14) and impose fines for violations of Commission rules,
regulations, and orders (art. 15, §§ 16, 19).
1.
¶21 The Commission’s ratemaking authority under article 15,
section 3 is plenary. The ratemaking clause states that the Commission has
“full power” to prescribe rules, regulations, and orders governing PSC rates,
charges, and classifications. (Emphasis added.) See Tucson Gas, 15 Ariz. at
297 (holding that the ratemaking clause, by its terms, provides the
Commission with “complete and perfect or plenary power” over
ratemaking); Ariz. E. R.R. Co. v. State, 19 Ariz. 409, 413–14 (1918)
((hereinafter Eastern Railroad) stating that “[t]o prescribe classifications,
rates, and charges of [PSCs] is the duty, and the exclusive duty, of the
Corporation Commission”).
¶22 The Commission’s ratemaking authority is also self-
executing. Specifically, because section 3 grants the Commission authority
to make rules, regulations and orders, no legislative action is necessary to
enable the Commission to exercise its ratemaking powers. Miller v. Wilson,
59 Ariz. 403, 408 (1942) (stating that in “determining whether a
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constitutional provision is self-executing,” courts examine whether the
provision “merely lays down general principles” or “grants a right which
can be put into operation without further legislative action” ); see also Phelps
Dodge Corp. v. Ariz. Elec. Power Co-op, Inc., 207 Ariz. 95, 110 ¶ 47 (App. 2004)
(holding that the Commission’s authority under article 15, section 14 to
determine the fair value of PSCs is self-executing because this provision
expressly grants the Commission power to determine fair value in setting
rates).
¶23 Finally, the Arizona Constitution, by its terms, makes
ratemaking the exclusive responsibility of the Commission; it cannot
delegate this authority to another agency or branch of government. See Jim
Rossi, The Brave New Path of Energy Federalism, 95 Tex. L. Rev. 399, 404 n.24
(2016) (discussing the distinction between plenary and exclusive powers);
see also Cal. Bankers Ass’n. v. Shultz, 416 U.S. 21, 59 (1974) (stating that
Congress’ plenary power to regulate foreign commerce may be delegated).
Specifically, the first clause of section 3 states that the Commission “shall
have full power to, and shall, prescribe” rates, charges, and classifications
for PSCs. Ariz. Const. 15 § 3. (emphasis added). The drafters stressed the
mandatory nature of the term “shall” in the ratemaking clause by using the
permissive term “may” in the second clause of section 3 to describe the
Commission’s authority over public health and safety. See Members of Bd.
Of Educ. of Pearce Union High Sch. Dist. v. Leslie, 112 Ariz. 463, 465 (1975)
(stating that when “may” follows “shall” in the same provision, a court
presumes that the drafters intended different meanings for different terms;
as a result, “shall” is given its ordinary permissive construction, and “may”
is construed as directory); see also Gutierrez v. Indus. Comm’n, 226 Ariz. 395,
398 ¶ 12 (2011) (to same effect).
¶24 The only instance in which the legislature may divest the
Commission of its exclusive ratemaking authority is with respect to
“incorporated cities and towns.” Ariz. Const. art. 15, § 3; see Tucson Gas, 15
Ariz. at 298 (stating that under section 3 the legislature is “definitely limited
and restricted” to authorizing municipalities to engage in ratemaking, and
that “in no other instance” is it permitted to interfere with the Commission’s
exclusive ratemaking authority); see also City of Surprise, 246 Ariz. at 211 ¶ 16
(disapproving of the Commission’s efforts to create a veto over municipal
acquisition of utilities as a result “at odds with our constitution’s clear
exclusion of municipalities from Commission regulation”).
¶25 Because the Commission’s ratemaking authority is plenary
and (except as to towns and cities) exclusive, the legislature has no power
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to enact statutes prescribing rates and charges, nor may it regulate the
timing, procedure, or methods the Commission uses in calculating rates.
Tucson Gas, 15 Ariz. at 298; Ethington v. Wright, 66 Ariz. 382, 394-95 (1948).
And, although the Commission’s ratemaking decisions are subject to
judicial review, such review is limited to whether its determinations are
arbitrary, unlawful, or “supported by substantial evidence.” Simms v.
Round Valley Light & Power Co., 80 Ariz. 145, 154 (1956); Ariz. Const. art. 15,
§ 17 (stating that Commission orders may be appealed to state courts); see
also Ethington, 66 Ariz. at 394 (stating the Commission’s ratemaking
decisions are subject to judicial review).
2.
¶26 As noted above, the Commission’s authority under the
second clause of section 3 is permissive, not mandatory. Supra ¶ 23; see
Eastern Railroad, 19 Ariz. at 413 (holding that the second clause of section 3
is “permissive and discretionary”). Under the permissive clause, the
Commission has authority to regulate PSCs to preserve and protect public
health, safety, convenience, and comfort. Ariz. Const. art. 15, § 3; Ariz. Corp.
Comm’n v. Palm Springs Utility Co., 24 Ariz. App. 124 (1975) (stating that “the
regulatory powers of the Commission” under the permissive clause “are
not limited to making orders respecting the health and safety, but also
include the power to make orders respecting comfort, convenience,
adequacy[,] and reasonableness of service.”); see also Pac. Gas & Elec. Co. v.
State, 23 Ariz. 81, 84–85 (1921) (holding that the permissive clause of section
3 grants the Commission authority to protect public health and safety). The
Commission’s permissive authority, like its ratemaking authority, is self-
executing. See Eastern Railroad, 19 Ariz. at 414–15 (stating that under the
“permissive” clause of section 3, the Commission has the authority to
“make and enforce reasonable rules, regulations, and orders for the
convenience, comfort, and safety, and the preservation of the health of
employees and patrons of public service corporations”); Pacific Gas, 23 Ariz.
at 84 (same); Palm Springs, 24 Ariz. App. at 127–28 (same).
¶27 The Commission’s permissive authority is distinct from, and
unrelated to, its ratemaking powers. See Eastern Railroad, 19 Ariz. at 414–15
(stating that the words used to describe the Commission’s permissive and
ratemaking authority do not have “the same meaning and purpose,” and,
therefore, these “two grants of power not only admit of but demand two
separate senses”). For example, it is not plenary. In contrast to the
ratemaking clause, which specifically grants the Commission “full power”
to prescribe classifications, rates, and charges, such language is lacking in
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the permissive clause. Rather, section 3 simply states that the Commission
“may” make rules, regulations, and orders to protect public health and
safety. Ariz. Const, art. 15, § 3.
¶28 The Commission’s permissive authority is also not exclusive.
The permissive clause does not, either expressly or impliedly, limit or divest
the legislature of its police power to protect the health, safety, and welfare
of the public. See State v. Beadle, 84 Ariz. 217, 221–22 (1958) (stating the
legislature has the police power over “public health, safety[,] or welfare”);
Lincoln v. Holt, 215 Ariz. 21, 28 ¶ 25 (App. 2007) (same). Thus, the
Commission exercises its permissive authority concurrently with the
legislature. See Pacific Gas, 23 Ariz. at 84 (stating that concurrently with the
Commission, the legislature may also exercise the “police power of the state
for the safety, comfort, convenience, and health” of PSC employees); Corp.
Comm’n v. Pac. Greyhound Lines, 54 Ariz. 159, 176–77 (1939) (stating that the
“legislature retains power to govern [PSCs] in matters unrelated to [the
Commission’s] ratemaking authority”); Phelps Dodge Corp., 207 Ariz. at 111
¶ 5.
¶29 In addition to its section 3 permissive authority, the
Commission also shares other non-ratemaking powers under article 15
concurrently with the legislature. Specifically, several provisions in article
15 state that the Commission’s authority over PSCs is “subject to law,” or
“as may be prescribed by law,” meaning that the Commission’s authority
is subject to statutes enacted by the legislature. See Shute v. Frohmiller, 53
Ariz. 483, 488–90 (1939) (stating that when the Arizona Constitution states
the duties of the attorney general “shall be ‘as prescribed by law’
it . . . clearly makes it the duty of the legislature to say what they shall be”),
overruled on other grounds, Hudson v. Kelly, 76 Ariz. 255 (1953); see also State
ex rel. Conway v. Superior Court, 60 Ariz. 69, 75–76 (1942) (to the same effect)
overruled on other grounds by Adams v. Bolin, 74 Ariz. 269 (1952). Thus, for
example, section 13 provides that PSCs and publicly traded corporations
“shall” make reports to the Commission “and provide such information
concerning their acts and operations as may be required by law, or by the
[C]orporation [C]ommission.” (Emphasis added). See Ariz. Const. art. 15, §§
8, 9 (granting the Commission authority to regulate transportation and
transmission of messages between common carriers and “connecting
carriers” “as shall be prescribed by the [C]orporation [C]ommission, or by
law”); see also art. 15, § 5 (stating that the Commission has the power to issue
certificates of incorporation and licenses, “as may be prescribed by law”);
art 15, § 10 (stating that railroads and railways, as common carriers, are
PSCs “subject to control by law”).
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¶30 However, when there is a conflict between a Commission
regulation and a statute, the legislature’s police authority is “paramount,”
meaning it has the authority to override the regulations of the Commission.
Pacific Greyhound, 54 Ariz. at 176–77 (stating that apart from the
Commission’s ratemaking authority, “under the direct language of the
constitution and the police power inherent in the legislative authority, the
paramount power to make all rules and regulations governing PSCs not
specifically and expressly given to the[C]ommission by some provision of
the constitution, rests in the legislature”); see Ariz. Const. art. 14, § 2 (stating
that all corporations doing business in Arizona may “be regulated, limited,
and restrained by law”); see also State v. Harold, 74 Ariz. 210, 215–16 (1952)
(holding that the legislature has a duty to exercise its police power to enact
laws “reasonably necessary for the preservation of the public health, safety,
morals, or general welfare of the public”).
3.
¶31 Under article 15, section 6 of the Arizona Constitution, the
legislature may “enlarge” the powers of the Commission by delegating
additional powers to the Commission of the same “class” as those already
granted by the constitution. Compare Menderson v. City of Phoenix, 51 Ariz.
280, 285, 290–91 (1938) (holding that the legislature could not enlarge the
Commission’s ratemaking authority to include a municipal transportation
carrier because section 3 “does not directly, nor by implication” grant the
Commission such authority “over transportation lines owned and operated
by municipalities”), with Tonto Creek Estates Homeowners Ass’n v. Ariz. Corp.
Comm’n, 177 Ariz. 49, 55–56 (App. 1993) (holding that because article 15
grants the Commission authority to regulate PSCs, the legislature may
“enlarge” its powers by delegating authority to issue CC&Ns to such
corporations).
¶32 Although section 6 permits the legislature to enlarge the
powers of the Commission, the legislature lacks the power to decrease the
Commission’s constitutional authority over PSCs. See Selective Life Ins. v.
Equitable Life Assurance Soc. of U.S., 101 Ariz. 594, 600 (1967) (stating that
“[t]he Arizona Constitution has entrusted the [C]orporation [C]ommission
with a certain minimum of power, and the legislature may not detract from
this power by placing it in itself . . . [or] by removing the [C]ommission's
control over an agency exercising a substantial part of that power”).
Additionally, section 6 provides that in the absence of legislative action, the
Commission’s rules and regulations govern.
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C.
¶33 Since the adoption of the Arizona Constitution, few cases
have addressed the Commission’s permissive authority under section 3.
Instead, most of our cases have dealt with the Commission’s ratemaking
powers. Unfortunately, the ratemaking cases have been, at times,
inconsistent and confusing.
¶34 In the decade following the adoption of the constitution, this
Court issued three opinions interpreting the limits and extent of the
Commission’s powers under section 3. The first case, Tucson Gas, addressed
the Commission’s ratemaking authority. There, a PSC was prosecuted for
violating a state law prohibiting PSCs from charging customers a
“minimum rate” for utility services (the PSC charged the customer “$1 for
illuminating gas for lighting purposes, whereas the gas actually furnished
him was of the value of 40 cents”). Tucson Gas, 15 Ariz. at 295. The PSC
successfully moved to dismiss the charges on the ground that only the
Commission had the constitutional authority to enact laws regarding rates
for utility services. Id. at 296.
¶35 This Court affirmed, holding that because the Commission’s
ratemaking authority under section 3 is plenary and exclusive, the
legislature had no authority to prescribe service rates for the PSC. Id. at
297–99, 308. Unfortunately, the Court incorrectly implied that the
constitution grants the Commission plenary, exclusive powers over PSCs
outside ratemaking. For example, the Court stated that “[i]t was clearly the
policy of the framers of the Constitution, and the people in adopting it, to
take the powers of supervision, regulation, and control of public utilities
from the legislative branch and vest them in the Corporation Commission.” Id. at
302 (emphasis added). The Court also stated that the Arizona Constitution
granted the Commission “extraordinary and unusual” authority to make
“reasonable rules, regulations, and orders by which [PSCs] shall be governed
in the transaction of business within the state.” Tucson Gas, 15 Ariz. at 304–05
(internal quotation marks omitted).
¶36 However, as the Court confirmed a few years later, Tucson Gas
is a “rate case,” and its holding is limited to the Commission’s ratemaking
authority. Pacific Gas, 23 Ariz. at 84. Indeed, Tucson Gas expressly held:
[w]e are of the opinion that the people, by their Constitution,
have said, in plain and unequivocal language, that the
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Corporation 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 collected, by
[PSCs] . . . and that the power therein granted to the
Commission is exclusive, and not to be exercised by the
Legislature.”
Tucson Gas, 115 Ariz. at 307 (emphasis added) (internal quotation marks
omitted).
¶37 Eastern Railroad was the first case to analyze the Commission’s
permissive authority under section 3. In that case, the legislature had
enacted a law limiting the maximum number of cars on a train to seventy.
19 Ariz. at 410. When the state brought an action against a railroad
company for exceeding the statutory limit, the company argued that the
statute was unconstitutional because it violated the Commission’s
exclusive, plenary authority to regulate PSCs (railroads, as common
carriers, are PSCs under article 15, section 2). Id. The superior court granted
judgment in favor of the state and the Commission appealed. Id.
¶38 This Court held that the statute was constitutional. In
reaching this holding, the Court stated that the statute regulated public
safety, an area where, unlike ratemaking, both the Commission and the
legislature exercised authority. Id. at 415–16. The Court noted that the
Commission’s “permissive” authority to regulate public health and safety
under section 3, as well as its authority to regulate common carriers under
section 10, did not divest the legislature of its police power to protect public
health and safety. Id. at 413, 415–16; see Pacific Gas, 23 Ariz. at 84 (stating
that Eastern Railroad “involved the power of the Legislature to regulate the
number of cars in a train[] and was clearly the exercise of the police power
of the state for the safety, comfort, convenience, and health of employees of
railroad companies”).
¶39 The Court examined the Commission’s permissive authority
again a few years later in Pacific Gas. There, the Commission issued an
order “regulating the placing, construction, and maintenance of telephone,
telegraph, signal, trolley, electric light and power lines within the state.” 23
Ariz. at 81. A few months later, the voters approved an initiative measure
(including criminal penalties) “regulating the placing, erection[,] and
maintenance of electric poles, wires, cables[,] and appliances.” Id. The state
filed criminal charges against Pacific Gas for violating the initiative
measure. Id. at 82. Although it was undisputed that the company had
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complied with the Commission’s regulations, the state alleged it did not
comply with the initiative measure. Id. at 82–83. Pacific Gas sought to
dismiss the charges on the ground “the power and authority to regulate the
placing, erecting, and maintaining of electric poles, wires, cables, and
appliances was vested by section 3, article 15, of the state Constitution in
the Corporation Commission exclusively,” and, therefore, “the initiative
measure was unconstitutional and void.” Id. at 85.
¶40 The Court held that “[i]n the present case both the
Commission and the Legislature have acted covering the same ground,”
and that both had authority to regulate in the subject area. Id. at 85. Citing
Tucson Gas, the Court stated that the “power to fix rates to be charged for
gas by public utilities [is] exclusively vested” in the Commission. Id. at 84.
The Court further stated, however, that “both the Corporation Commission
and the Legislature could lawfully and constitutionally, in the exercise of
the police power of the state, provide for the protection and safety of the
employees of public service corporations.” Id. at 84–85.
¶41 Ultimately, the Court, applying a strained and confusing
analysis, incorrectly held that the Commission regulations overrode state
law. Specifically, it stated that the “people,” as the “principal,” had adopted
the Constitution authorizing its “agent,” the Commission, to regulate PSCs,
and therefore the Commission was “bound” to issue its order enacting the
subject regulations. Id. at 85–86. Additionally, the Court reasoned that
since Pacific Gas was operating under a valid order from the Commission
before enactment of the initiative measure, the charges should be
dismissed. Id. at 86.
¶42 Following Pacific Gas, this Court’s jurisprudence focused
almost exclusively on the Commission’s ratemaking authority. For
example, in Pacific Greyhound, we determined that because a statute limiting
the Commission’s authority to issue a CC&N was unrelated to its
ratemaking authority, it was constitutional. 54 Ariz. at 170–71, 176–77. In
reaching this holding, the Court recognized that the Commission has
constitutional powers unrelated to its ratemaking authority, and that these
powers are subject to the legislature’s “police power.” Id. at 169–70, 176–
77. At bottom, however, Greyhound’s holding is limited to the
Commission’s ratemaking authority; the Court never addressed the
Commission’s permissive authority under section 3. See Id. at 167–69.
¶43 In Ethington, the Court examined a statute specifying the
timing and methods the Commission used for ascertaining the fair market
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value of PSCs. 66 Ariz. at 392–94. The Court stated that article 15, section
14 of the Arizona Constitution requires the Commission to determine fair
value as “a necessary step in prescribing just and reasonable classifications,
rates, and charges.” Id. at 392, 395. Thus, the Court concluded, any statute
that interferes with the Commission’s duty under section 14 necessarily
interferes with its plenary, exclusive ratemaking authority under section 3.
Id. at 392, 395.
¶44 Next, in Simms, a PSC challenged the Commission’s formula
for calculating fair value. 80 Ariz. at 147–49. The Court held, however, that
“our constitution does not establish a formula for arriving at fair value,”
and that the Commission has a “range of legislative discretion” regarding
the method it uses to calculate it. Id. at 151, 154; see Ariz. Corp. Comm’n v.
Ariz. Pub Serv. Co., 113 Ariz. 368, 370–71 (1976) (stating that Simms stands
for the proposition that “[t]he determination of the formula to be used by
the Commission falls within their legislative function”).
¶45 Our precedents regarding the Commission’s ratemaking
authority remained essentially unchanged until Arizona Corporation
Commission v. State ex rel. Woods, 171 Ariz. 286 (1992). In Woods, the Court
addressed rules promulgated by the Commission in response to PSCs
forming holding companies. Id. at 289-90. Concerned that PSCs could use
holding companies to weaken and bypass “its regulatory authority,” the
Commission proposed rules requiring PSCs to “report information about,
and obtain permission for transactions with, its parent, subsidiary, and
other affiliated corporations.” Id. at 287, 288–90 (citation omitted). The
attorney general, however, refused to certify the proposed rules on the
ground they exceeded the Commission’s ratemaking authority. Id. at 288–
89. As a result, the Commission filed a special action challenging the
attorney general’s refusal. Id.¶46 Woods held that the Commission, under its ratemaking
authority, had the power to enact the proposed rules. Id. at 299. The Court
concluded that the Commission’s ratemaking authority was not strictly
limited to calculating fair value and setting just and reasonable rates. Id. at
295. Rather, it held that:
[g]iven the framers’ intent, historical background, and
precedent, we believe the Commission’s regulatory power
permits it to require information regarding, and approval of,
all transactions between a public service corporation and its
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affiliates that may significantly affect economic stability and
thus impact the rates charged by a public service corporation.
Id.¶47 The Court further stated that “in light of modern corporate
practices and regulatory realism,” to fulfill its purpose of protecting the
public from corporate abuses, the Commission “must have the power to
obtain information about, and take action to prevent, unwise management or
even mismanagement and to forestall its consequences in intercompany
transactions significantly affecting a [PSC’s] structure or capitalization.” Id.
at 296-97 (emphasis added).
¶48 Woods’ holding is flawed because it is based on the mistaken
view that Pacific Greyhound limited the Commission’s regulatory powers
under section 3 to its ratemaking authority. Specifically, the Court stated
that “we measure the Commission’s regulatory power by the doctrine
apparently established by Pacific Greyhound and its progeny—that the
Commission has no regulatory authority under article 15, section 3 except
that connected to its ratemaking power.” Id. at 294. According to Woods, it
was bound by this purported “doctrine” because it “has been precedent for
over fifty years.” Id. at 293, 294. But, as noted above, Pacific Greyhound
never addressed the Commission’s permissive authority under section 3.
Supra ¶42. Indeed, Woods itself observed that Pacific Greyhound “apparently
ignored language in [ ] Eastern Railroad that at least implied that the
Commission and legislature have concurrent power to regulate beyond the
scope of classifications, rates, and charges.” Id. at 293 n.6.
¶49 Rather than overruling Pacific Greyhound, Woods instead
expanded the Commission’s ratemaking authority to permit promulgation
of the proposed rules by emphasizing the framers’ intent to create a strong
Commission to protect the public from corporate abuse. Id. at 293. Thus,
Woods concluded, “[i]t would subvert the intent of the framers to limit the
Commission’s ratemaking powers so that it could do no more than raise
utility rates to cure the damage from inter-company transactions.” Id. at
296.
¶50 Woods’ analysis of the framers’ intent is inaccurate. There is
no evidence indicating that the framers envisioned the Commission’s
ratemaking authority as including management decisions about the
structure or organization of a PSC. Supra ¶¶ 13–17. And the text of the
constitution itself limits the Commission’s exclusive ratemaking powers to
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ascertaining the “fair value” of PSCs and prescribing classifications, rates,
and charges. Ariz. Const. art. 15, §§ 3, 13, 14; see Janson on Behalf of Janson v.
Christensen, 167 Ariz. 470, 471 (1991) (stating that the “best and most reliable
index of a statute's meaning is its language”); Phelps Dodge, 207 Ariz. at 109
¶ 42 (stating that “[a]rticle 15, [s]ection 3 requires the Commission to
‘prescribe just and reasonable . . . rates and charges,’ and that “[i]n
interpreting this provision, our primary focus is on the intent of the framers,
and we do not go outside the plain language of the provision unless the
language is unclear”) (citations omitted).
¶51 Woods also selectively relied on prior caselaw to support its
strained construction of the ratemaking clause. For example, Woods
construed Ethington as holding that any act by the Commission that is
conducive to preserving its control over rates while also protecting
consumers from financial mismanagement is a “reasonably necessary
step[]” in ratemaking. Id. at 294–95. But Ethington simply held that, as a
“necessary step” in performing its ratemaking duties, the Arizona
Constitution requires the Commission to determine the fair value of PSCs.
Supra ¶ 43. Likewise, Woods misconstrued Simms as holding that the
Commission’s “legislative” power to set rates grants it broad discretion to
regulate corporate finances and management. 171 Ariz. at 294–96. Simms,
however, was limited to holding that the Commission has “legislative”
discretion in determining the methods it uses to calculate fair value. Supra
¶ 44.
¶52 Finally, Woods states that based on the framer’s intent, the
Commission’s powers under section 3, and our prior caselaw, courts “must
give deference to the Commission’s determination of what regulation is
reasonably necessary for effective ratemaking.” 171 Ariz. at 294 (emphasis
added). This is incorrect. 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
under section 3. Marbury v. Madison, 5 U.S. 137, 177 (1803) (stating that “[i]t
is emphatically the province and duty of the judicial department to say
what the law is”); see Forty-Seventh Legislature v. Napolitano,
213 Ariz. 482, 485 ¶ 8 (2006) (stating that “[a]lthough each branch of
government must apply and uphold the constitution, our courts bear
ultimate responsibility for interpreting its provisions”).
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¶53 Woods, of course, recognized that it could not hold that the
Commission’s ratemaking authority was limitless. Thus, relying on a
doctrine known as the “managerial interference doctrine,” Woods held that
the Commission could not use its ratemaking power to control the internal
affairs of a corporation. 171 Ariz. at 297; see Miller v. Ariz. Corp. Comm’n,
227 Ariz. 21, 26 ¶ 19, 27 ¶ 23 (App. 2007) (same). Specifically, Woods stated
that although the Commission could enact rules and regulations attempting
“to control rates,” it was prohibited from enacting rules and regulations
attempting “to control the corporation.” 171 Ariz. at 297.
¶54 Post-Woods, the Commission has become increasingly
involved in corporate management decisions to ostensibly exercise its
ratemaking authority. And, in fidelity to Woods, some courts have
incorrectly upheld that practice. Thus, for example, in US West
Communications, Inc. v. Arizona Corporation Commission, the court of appeals,
citing Woods, held that rules requiring telecommunications companies to
obtain approval from the Commission before discontinuing or abandoning
certain services emanated from the Commission’s ratemaking authority.
197 Ariz. 16, 24–25 ¶¶ 30–36 (App. 1999). The court of appeals reasoned
that because such a decision could affect a company’s profitability, it might
also impact its rates. Id. Similarly, in Miller, the court, once again relying
on Woods, held that there was “a sufficient nexus between” the
Commission’s renewable energy rules and its ratemaking authority. 227
Ariz. at 28–29 ¶¶ 30–31. The court stated that since the subject rules were
designed to promote the financial stability of electrical utility companies by
requiring them to diversify their electrical energy sources, they would also
serve to protect consumers by restraining “upward pressure” on electricity
rates. 227 Ariz. at 28–29 ¶¶ 29–31.
¶55 As these cases illustrate, because Woods extends the
Commission’s ratemaking authority to virtually every management
decision that might affect rates, courts are frequently asked to decide
whether the Commission’s actions “constitute an attempt to control the
corporation rather than an attempt to control rates.” 171 Ariz. at 297.
However, determining precisely when the line has been crossed between
controlling rates and controlling the corporation itself “can be difficult to
precisely discern.” Phelps Dodge, 207 Ariz. at 113 ¶ 64.
IV.
¶56 We conclude that here, the Commission’s ratemaking power
does not authorize the Order appointing an interim manager for Johnson.
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The Commission purportedly appointed an interim manager to protect
“the safety, health, comfort, and convenience of [Johnson’s] patrons,
employees, and the public” because it deemed Johnson’s services,
equipment, and facilities to be inadequate and unsafe. Supra ¶¶ 4–5. We
recognize that the safety and adequacy of Johnson’s services and facilities
may affect its financial stability, and, as a result, might impact consumer
rates. But there must be some limit to what can be reasonably considered
ratemaking, and that line has been crossed here.
¶57 We hold, however, that the Commission has the authority to
appoint an interim manager pursuant to its permissive power under article
15, section 3. Section 3’s permissive clause specifically addresses the
problem the Commission’s Order seeks to redress—namely, protecting the
public from Johnson’s alleged inadequate and unsafe services, equipment,
and facilities. Supra ¶ 26. Additionally, the permissive clause states that
the Commission can “make and enforce . . . reasonable orders” to protect
public health and safety. Ariz. Const. art. 15, § 3; see also Palm Springs, 24
Ariz. App. at 128 (stating that the Commission’s permissive authority
under section 3 includes the power to make reasonable “orders pertaining
to particular situations or to particular [PSCs]”). This broad grant of
authority necessarily includes appointing an interim manager to remedy
threats to public health and safety.
¶58 Notably, the constitution places important limits on the
Commission’s permissive authority. As an initial matter, before the
Commission may issue an order appointing an interim manager, it must
provide a PSC with basic due process protections, including notice, a
hearing, and the opportunity to present evidence and cross-examine
witnesses. S. Pac. Co. v. Ariz. Corp. Com’n, 98 Ariz. 339, 346–48 (1965)
(stating that orders and other “judicial determination[s]” by the
Commission require due process). Section 3, by its terms, mandates that
any order, including one appointing an interim manager, must be
predicated on, and limited to, protecting and preserving the safety, health,
comfort, and convenience of the public. Ariz. Const. art. 15, § 3.
Additionally, section 3 expressly requires that any such order must be
“reasonable” under the circumstances of each case. Id.
¶59 The Commission’s permissive authority is also subject to the
paramount authority of the legislature to regulate public health and safety.
Supra ¶ 30. Thus, the legislature may prescribe procedures for the
Commission to follow in appointing interim managers, as well as enact
laws limiting the powers that such managers may exercise. Ariz. Const. art.
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15, § 6. Additionally, because the legislature has delegated its authority to
regulate public health and safety to certain administrative agencies, the
Commission may not attempt to supplant or deprive such agencies of their
delegated authority.
¶60 For example, the legislature has delegated authority to the
Arizona Department of Environmental Quality (“ADEQ”) to enact and
enforce water quality and wastewater standards, as well as enforce those
standards with civil remedies and criminal penalties. See, e.g., A.R.S. §§ 49-
104, -203, -221 (delegating broad authority to ADEQ to enact water and
wastewater safety standards and rules); §§ 49-261, -262, -263 (describing
ADEQ’s civil and criminal powers to enforce rules and standards regarding
water quality); §§ 49-781, -782, -783, -791 (describing ADEQ’s civil and
criminal enforcement powers regarding violation of wastewater health and
safety standards). As a result, the Commission may not unilaterally
exercise its permissive authority in a manner that divests ADEQ of its broad
regulatory powers over water quality and wastewater.
¶61 We decline, however, to extend Woods’ construction of the
managerial interference doctrine as imposing a limit on the Commission’s
permissive authority. Woods, 171 Ariz. at 297. At bottom, this doctrine is a
judicial construct and, as such, cannot be used to lessen or abrogate the
Commission’s express constitutional authority to “make and enforce
reasonable . . . orders for the convenience, comfort, [ ] safety,
and . . . health” of the public at-large. Additionally, the managerial
interference doctrine has only been applied by Woods and its progeny to
limit the Commission’s ratemaking authority; it has never been applied to
the Commission’s permissive authority under section 3. See Woods, 171
Ariz. at 297; Phelps Dodge, 207 Ariz. at 113 ¶ 64; Miller, 227 Ariz. at 26 ¶ 19,
27 ¶ 23. But see Corp. Comm’n v. Consol. Stage Co., 63 Ariz. 257, 260–63 (1945)
(stating in a non-ratemaking case that the Commission lacks authority to
interfere with management decisions regarding the ownership and
transferal of stock).
¶62 Nevertheless, our dissenting colleague argues that the
management interference doctrine must, as a means to limit the
Commission’s permissive authority, be used to prohibit the Commission
from making interim manager orders. Infra ¶ 102. We will not, however,
weaponize this doctrine to abrogate the Commission’s authority under
section 3. And none of the reasons the dissent provides for taking such an
extraordinary action are justified by our prior case law. For example, the
dissent’s reliance on Southern Pacific for the proposition that doctrine
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applies here is misplaced. Although Southern Pacific acknowledged the
tension between “management of a corporation” and the Commission’s
“responsibility of requiring that [PSCs] be operated in the public interest,”
the Court ultimately concluded that the Commission may issue orders
interfering with a PSC’s management when necessary to ensure that the
public is provided adequate services. Southern Pac. Co. v. Ariz. Corp.
Comm’n, 98 Ariz. 339, 342 (1965).
¶63 Similarly, Consolidated Stage Co. has no bearing on this case.
There, the court simply held that the Commission has no authority to
transfer stock ownership in a PSC from one party to another. Consol. Stage
Co., 63 Ariz. at 259–61, 263. But the Commission’s interim manager order
does not transfer Johnson’s ownership in its company; rather, the order
preserves it. Supra ¶ 5.
¶64 Our dissenting colleague’s other reasons for applying the
doctrine to the Commission’s permissive authority are misplaced. His
claim that the doctrine is “dictated by the Constitution” is nothing more
than a circular argument that relies on his own construction of the
Commission’s permissive authority. For example, he claims that because
the Commission lacks the authority to appoint an interim manager, the
doctrine is needed to prevent the Commission from making such an order.
But since section 3 does grant the Commission authority to issue an interim
manager order when appropriate, the doctrine serves no purpose here.
And because orders issued under the Commission’s permissive authority
must be reasonable and limited to protecting the public, it is unnecessary to
apply the doctrine here—section 3 already limits the Commission’s ability
to interfere in a PSC’s management.
¶65 Similarly, the dissent asserts that the management
interference doctrine is necessary to prevent unconstitutional takings and
protect private property rights. See infra ¶ 73. But given Johnson’s status
as a PSC, there is no taking here. Finally, we disagree with the dissent’s
claim that the doctrine is needed to preserve the authority of the courts to
issue receivership orders. That reasoning fails because the Commission’s
authority to make an interim manager order is separate and distinct from
the judiciary’s authority to issue a receivership order. Infra ¶ 68.
¶66 To summarize, the power of the Commission to issue an order
appointing an interim manager falls within its permissive authority under
article 15, section 3. However, the exercise of that authority has limits.
Section 3 expressly requires that any such order must be “reasonable” and
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Opinion of the Court
confined to circumstances predicated on, and limited to, protecting and
preserving the safety, health, comfort, and convenience of the public.
Judicial review is available to assess whether such an order is thereby
“reasonable.” Furthermore, issuing such an order is subject to basic due
process protections, including notice, a hearing, and the opportunity to
present evidence and cross-examine witnesses.
V.
¶67 Johnson argues that the Order is unconstitutional because the
legislature has expressly delegated to the courts the authority to appoint
“receivers,” and that this legislative exercise of authority conflicts with and
is paramount to the Commission’s permissive authority to appoint interim
managers. See A.R.S. § 12-1241 (stating that the superior court has the
authority to appoint a receiver); see also A.R.S. § 12-1242 (listing procedure
for appointing and the powers of a court-appointed receiver); Ariz. R. Civ.
P. 66 (to same effect). We disagree.
¶68 The receivership statute is irrelevant to this case. It does not
address the Commission’s constitutional authority to appoint an interim
manager, nor does it, either expressly or impliedly, displace or override the
Commission’s authority to make such an order. See Ariz. Const. art. 15, § 6
(stating that in the absence of legislative action, the Commission’s rules and
regulations govern). Rather, it simply states that the superior court “may
appoint a receiver to protect and preserve property or the rights of parties.”
A.R.S. § 12-1241 (emphasis added). Indeed, rather than limiting the
Commission’s authority to make interim manager orders, the legislature
has enacted laws generally supporting and enhancing the Commission’s
exercise of such authority. See A.R.S. § 40-321(A) (stating that “[w]hen the
[C]ommission finds that the equipment, [] facilities or service of any [PSC]”
are “unsafe,” it “shall determine what is . . . safe . . . and shall enforce its
determination by order or regulation”) (emphasis added).
¶69 We recognize, of course, that if a court had appointed a
receiver for Johnson, the court’s order would override the Commission’s
Order. See generally Pac. Greyhound v. Brooks, 70 Ariz. 339, 343 (1950)
(holding that a Commission order authorizing a CC&N for a bus company
to operate in a service area was void when a prior court judgment enjoined
the bus company from operating in the same area). But that is not the case
here; there is no judgment or court order that conflicts with the
Commission’s Order.
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¶70 Finally, we are not persuaded by Johnson’s claim that
pursuant to A.R.S. § 40-422(A), the superior court has the sole authority to
issue an order appointing an interim manager. Id. (stating that the
Commission “shall commence a proceeding in the name of the state” when
a PSC is “failing” or “doing” anything that is unlawful, required, or
“contrary to . . . any order or requirement of the [C]ommission”).
However, § 40-422(A) does not, by its terms, divest the Commission of its
constitutional authority to appoint an interim manager. See Lagerman v.
Ariz. State Ret. Sys., 248 Ariz. 504, 507 ¶ 13 (2020) (stating that courts have a
duty, if possible, to avoid construing statutes in a manner that renders them
unconstitutional). Rather, the statute simply provides the Commission
with a court enforcement procedure to obtain compliance with its orders.
VI.
¶71 Our dissenting colleague raises several additional objections
to our holding, none of which is persuasive. For example, he claims that
the majority’s “evanescent reasonableness requirement” is an inadequate
limitation on the Commission’s authority to make interim manager orders.
Infra ¶ 118. But this “requirement” is not our creation; it is found in the
Constitution itself. Ariz. Const. art 15, § 3. Indeed, “reasonableness” is the
touchstone of many important limits on government authority, including
search and seizure under the Fourth Amendment. U.S. Const. amend. IV.
Confusingly, our dissenting colleague acknowledges that section 3
“unquestionably” allows the Commission “to make reasonable orders.”
Infra ¶ 100. Thus, it seems, he believes that reasonableness is an important
limitation for all Commission orders except for an interim manager order.
¶72 Our colleague’s concern about the reasonableness of interim
manager orders is, at bottom, based on his desire to reach the merits of this
case. But the Commission’s factual conclusions, as well as the
reasonableness of its interim manager order, are not before us. Rather, the
issue before this Court is whether the Commission has the authority, under
any circumstances, to issue an interim manager order. The Commission’s
factual justifications, as well as the reasonableness of its order, are initially
subject to review by the superior court. We will not usurp that court’s role.
¶73 Next, the dissent asserts that we must construe section 3 to
exclude interim manager orders to avoid “run[ning] headways” into a
“constitutional conflict” with the takings clause of the Fifth Amendment
and article 2, section 17 of the Arizona Constitution. Infra ¶ 106. Of course,
to avoid a constitutional conflict there must be one in the first place, and
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our dissenting colleague never asserts that an interim manager order
constitutes a taking. Infra ¶ 106-107. We will not engage in such
speculation, particularly when neither party has raised this issue in this
case. What is clear is that Johnson, as a PSC operating under a CC&N, has
dedicated its property to public use in exchange for being granted a
monopoly in its service area. Pacific Greyhound, 54 Ariz. at 178; see also Trico
Elec. Co-op, Inc., v. Senner, 92 Ariz. 373, 380–81, 385 (1962). As a result,
Johnson’s property is subject to regulation by the Commission, including
any regulation necessary to protect public health and safety. See Nat. Gas
Serv. Co. v. Serv–Yu Co–op., 70 Ariz. 235, 241-42 (1950) (stating that because
public service corporations are dedicated to a public use, they must submit
to regulation by the Commission that protects and benefits the public
good); Sw. Transmission Co–op, Inc. v. Ariz. Corp. Comm’n, 213 Ariz. 427, 432
¶¶ 24, 25 (App. 2006) (to the same effect). And more importantly, the
dissent’s conjecture about whether Johnson may be entitled to damages for
“just compensation” is simply irrelevant to whether the Commission has
the authority under section 3 to enter an interim manager order in the first
place.
¶74 Finally, our dissenting colleague’s lengthy discussion of the
doctrine of enumerated powers is largely rhetorical flourish. We agree that
the doctrine applies here, and that the Commission’s authority is limited to
the powers expressly conferred upon it by the Constitution. See supra ¶ 11.
And, in fidelity to that principle, we conclude that section 3 grants the
Commission the power to make reasonable interim manager orders to
protect public health and safety.
¶75 Our dissenting colleague disagrees with this conclusion, but
in doing so, he creates a strained and confusing textual construction of
section 3. On the one hand, he claims that “nowhere” does section 3 grant
the Commission power to make an interim manager order. But, of course,
recognizing that the term “orders” must mean something, he claims that
section 3 grants the Commission authority to make orders, but only certain
kinds of orders. See Morrissey v. Garner, 248 Ariz. 408, 410 ¶ 8 (2020) (stating
that as a constitutional principle “[w]e strive “to give meaning, if possible,
to every word and provision so that no word or provision is rendered
superfluous”) (citation and internal quotes omitted).
¶76 These purported “enumerated” orders encompass a vast
array of coercive and remedial orders, including: directing a PSC to “correct
the company’s inadequacies and ensure its customers are served”;
compelling a PSC “to do things, or refrain from doing things”; requiring a
25
JOHNSON UTILITIES, L.L.C. V. ARIZONA CORPORATION COMMISSION, ET AL.
Opinion of the Court
PSC to comply with its “legal obligations”; and “orders that mandate
compliance with the Commission’s requirements.” Infra ¶¶ 84, 99, 100. Of
course, these broad categories could encompass virtually any type of order.
But, coining a phrase outside the plain language of section 3, the dissent
claims that interim manager orders cannot be included as permissible
orders, because section 3 prohibits orders that “effectuate structural
change.” Infra ¶ 99.
¶77 None of these orders are expressly referenced in section 3.
And that is the primary flaw in the dissent’s analysis. Section 3 does not
“list” any specific kinds of remedial or injunctive orders, nor does it make a
distinction between permissible and impermissible orders. Rather, it
simply states, in broad terms, that the Commission has the authority to
“make and enforce reasonable orders” to protect public health and safety.
Thus, our dissenting colleague has no basis to exclude interim manager
orders from the broad language of section 3, while including his own
preferred orders.
¶78 Setting aside the text of section 3, the dissent argues that
because interim manager orders are absent from the list of orders
enumerated under Title 40, we should read this as a limitation of the
Commission’s authority under section 3. Infra ¶ 99; A.R.S. § 40–336. This,
he contends, shows that if the “Commission needs specific legislation” for
issuing minor compliance orders, such as requiring PSCs to install safety
devices,” it “makes little sense” that it has the power to make an interim
manager order. (Emphasis added). Infra ¶ 99.
¶79 This argument ignores the Commission’s authority under
section 3. The Commission does not “need” any legislation to exercise its
permissive authority under section 3; its authority is self-executing. Supra
¶ 26. Further, the Commission’s permissive authority is not delegated to it
by the legislature but is conferred by the Constitution. Indeed, apart from
a conflict between the legislature’s police powers and the Commission’s
permissive authority, the legislature may only enlarge, not lessen, the
Commission’s authority. Supra ¶¶ 31–32; Ariz. Const. art. 15, § 6.
¶80 In essence, our dissenting colleague appears to be
uncomfortable with the broad authority the people of Arizona conferred
upon the Commission. But it is not the prerogative of this Court to re-write
or ignore constitutional provisions with which we disagree. See Azar v.
Allina Health Services, __ U.S. __, 139 S.Ct. 1804, 1815 (2019) (stating that
“courts aren't free to rewrite clear statutes under the banner of our own
26
JOHNSON UTILITIES, L.L.C. V. ARIZONA CORPORATION COMMISSION, ET AL.
Opinion of the Court
policy concerns”). Rather, it is our duty to interpret and construe the
constitution. We leave it to the people to change it, if they wish.
Conclusion
¶81 For the foregoing reasons, we vacate the court of appeals’
opinion and hold that the Commission may appoint an interim manager
based on its permissive authority under article 15, section 3 of the Arizona
Constitution.
27
JOHNSON UTILITIES, L.L.C. V. ARIZONA CORPORATION COMMISSION, ET AL.
JUSTICE BOLICK, CONCURRING IN PART, DISSENTING IN PART
Bolick, J., concurring in part and dissenting in part:
¶82 The majority usefully and properly corrects decades of
decisions incorrectly holding that the Corporation Commission’s plenary
ratemaking power encompasses not only setting rates but also substantive
regulatory authority. See, e.g., Ariz. Corp. Comm’n v. State ex rel. Woods, 171
Ariz. 286 (1992); Miller v. Ariz. Corp. Comm’n, 227 Ariz. 21 (App. 2011); US
W. Commc’ns, Inc. v. Ariz. Corp. Comm’n, 197 Ariz. 16 (App. 1999). I therefore
join the majority’s analysis of the Commission’s ratemaking powers.
¶83 But what the Court taketh away, it gives back and much more
through an overly expansive construction of the Commission’s
“permissive” authority. As the majority’s decision vests power in the
Commission far beyond the circumscribed role contemplated by our
constitution, I respectfully dissent from the remainder of the majority’s
opinion and its disposition.
¶84 It is often remarked that bad facts make bad law, and this
decision proves the adage. Johnson Utilities was found by the Commission
to have failed to provide adequate service, equipment, and facilities and to
have engaged in inadequate billing practices and financial
mismanagement. Supra ¶ 4. The Commission is empowered to take action
to correct the company’s inadequacies and ensure its customers are served
but is not constitutionally authorized to unilaterally displace the owners’
management of the company and vest control over the company’s assets
and management in a competitor.
¶85 The majority treats the Commission’s action as an
unremarkable order that is justified, to the extent it needs justification at all,
by the exigent circumstances found by the Commission. With respect, the
removal of a company’s management, assets, and control from its owners
is an extreme remedy in a nation that sanctifies private property rights and
the rule of law. The Commission may exercise such power only if clearly
authorized by the constitution or statutes.
¶86 Nor do exigencies provide such authority. The endurance of
a constitution that confers limited and defined powers upon government is
most seriously tested in times of crisis. A perceived emergency may require
government action that presses the boundaries of its authority, but it cannot
expand that authority. It is the judiciary’s job to scrupulously police those
boundaries lest they disappear. Cf. Marbury v. Madison, 5 U.S. 137, 177
28
JOHNSON UTILITIES, L.L.C. V. ARIZONA CORPORATION COMMISSION, ET AL.
JUSTICE BOLICK, CONCURRING IN PART, DISSENTING IN PART
(1803) (“It is emphatically the province and duty of the judicial department
to say what the law is.”).
¶87 One of the most revered U.S. Supreme Court decisions in the
past century involved a similar action, albeit on a far greater scale, and we
should draw upon that decision’s wisdom for its categorical rejection of
unbounded government power even in time of crisis. In Youngstown Sheet
& Tube Co. v. Sawyer, the Court reviewed an executive order taking
possession of several steel companies and directing the companies’
presidents to serve as operating managers on behalf of the United States.
343 U.S. 579, 583 (1952). The order was issued in response to a nationwide
strike that threatened national defense because it jeopardized steel
production necessary for the war effort. Id. at 582–83.
¶88 In a decision by Justice Hugo Black, the Court declared that
the President’s power to issue such a sweeping order “must stem either
from an act of Congress or from the Constitution itself.” Id. at 585. The
Court held that no statute or constitutional provision expressly authorized
such an order. Id. at 586–87. The President argued that authority “should
be implied from the aggregate of his powers under the Constitution.” Id. at
587. But the Court rejected that notion based on separation of powers,
holding that “the Constitution is neither silent nor equivocal about who
shall make laws which the President is to execute.” Id. Because Congress
did not expressly delegate authority to the President, the Court held he did
not possess it. Id. at 588–89. The Court concluded that “[t]he Founders of
this Nation entrusted the law making power to the Congress alone in both
good and bad times,” a choice that reflected their “fears of power” and
“hopes for freedom.” Id. at 589.
¶89 The concurring opinions also contained insights we should
heed. Justice Robert Jackson warned that judges “often suffer the infirmity
of confusing the issue of a power’s validity with the cause it is invoked to
promote.” Id. at 634 (Jackson, J., concurring). He rejected the doctrine of
“nebulous, inherent powers” to “deal with a crisis or an emergency
according to the necessities of the case, the unarticulated assumption being
that necessity knows no law.” Id. at 646. Likewise, Justice William O.
Douglas emphasized that “the emergency did not create power; it merely
marked an occasion when power should be exercised.” Id. at 629 (Douglas,
J., concurring).
¶90 In assessing a similar action here, we should follow exactly
the course set forth in Youngstown, determining in light of our constitutional
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JOHNSON UTILITIES, L.L.C. V. ARIZONA CORPORATION COMMISSION, ET AL.
JUSTICE BOLICK, CONCURRING IN PART, DISSENTING IN PART
text and structure whether the powers exercised by the Commission were
conferred upon it by the constitution or the legislature.
¶91 Under our constitution, the Corporation Commission enjoys
a status unique among agencies, exercising powers bestowed not only by
the legislature but also directly by the constitution itself. For that reason, it
is sometimes referred to as a “fourth branch” of government. See, e.g., Ariz.
Corp. Comm’n v. Superior Court, 105 Ariz. 56, 60 (1969). Whatever the
accuracy of that depiction at the time our constitution was ratified and in
the century-plus since, it is unquestionably sanctioned by today’s holding.
¶92 That role was not contemplated by our constitution, whose
language and structure establish that the Commission is limited to its
express powers. Although the Commission is created as a separate and
distinct constitutional entity, the Arizona Constitution nonetheless creates
a government comprised of three branches, not four. In that system, any
powers not expressly conferred upon the Commission reside with one of
the three branches of government, or the people.
¶93 Article 2, section 2 of our constitution provides that
“governments derive their just powers from the consent of the governed,
and are established to protect and maintain individual rights.” Ariz. Const.
art. 2, § 2. This is the prism through which all government actions must be
assessed. The constitution goes on to devote an entire article, short and
sweetly succinct, to the separation of powers. Article 3 provides in its
entirety:
The powers of the government of the state of Arizona shall be
divided into three separate departments, the legislative, the
executive, and the judicial; and, except as provided in this
constitution, such departments shall be separate and distinct,
and no one of such departments shall exercise the powers
properly belonging to either of the others.
Ariz. Const. art. 3.
¶94 By its unequivocal terms, the separation of powers article
makes clear that the authority assigned to each branch of government is
inviolate. Just as none of the three branches of government may invade
powers assigned to another, certainly the Commission may not do so.
¶95 Article 4, part 1, section 1 provides in relevant part that “[t]he
legislative authority of the state shall be vested in the legislature.” In our
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JOHNSON UTILITIES, L.L.C. V. ARIZONA CORPORATION COMMISSION, ET AL.
JUSTICE BOLICK, CONCURRING IN PART, DISSENTING IN PART
republic, states are the organic units of government and are invested with
the police power—that is, the power to regulate private affairs for public
health, safety, or welfare. Jacobson v. Massachusetts, 197 U.S. 11, 24–25 (1905);
see also U.S. Const. amend. X; Police Power, Black’s Law Dictionary (11th ed.
2019). Under our constitution, the police power is vested exclusively in the
legislature, as the majority acknowledges. Supra ¶ 28. Thus, if a regulatory
power is not expressly delegated to the Commission by either the
constitution or legislature, it remains with the legislature. See City of
Surprise v. Ariz. Corp. Comm’n, 246 Ariz. 206, 212 ¶ 20 (2019); Corp. Comm’n
v. Pac. Greyhound Lines, 54 Ariz. 159, 176 (1939) (“[T]he paramount power
to make all rules and regulations governing public service corporations not
specifically and expressly given to the commission by some provision of the
constitution, rests in the legislature.”).
¶96 Ironically, the majority purports to apply the exact same
governing principle, that the Commission “’has no implied powers and its
powers do not exceed those to be derived from a strict construction of the
Constitution and implementing statutes.’” Supra ¶ 11 (quoting City of
Surprise, 246 Ariz. at 212 ¶ 20 (citation omitted)). That principle, which
inheres in our constitutional language and structure, is about as limiting as
any I have seen applied to any governmental entity. An “implied power”
is one “that is not enumerated but that nonetheless exists because it is
needed to carry out an express power.” Implied Power, Black’s Law
Dictionary (11th ed. 2019). “In addition to enumerated powers, all three
branches possess a number of implied powers: powers that can be
reasonably drawn from express powers.” Louis Fisher, The Law of the
Executive Branch: Presidential Power 1 (2014). But as the majority correctly
observes, the Commission possesses no implied powers; it has only express
powers, and indeed only those that appear from a strict construction of the
constitutional or statutory language.
¶97 The majority does not identify any express authority to
remove control of a company from its owners, but instead points to the
generic language of the Commission’s permissive authority, holding that
“[t]his broad grant of authority necessarily includes appointing an interim
manager.” Supra ¶ 57. That is a textbook example of implied authority,
which the majority correctly says the Commission does not possess.
Instead, the majority construes the authority of “making . . . orders” to
encompass any orders pertaining to the convenience, comfort, and safety of
a public service corporation’s patrons, no matter how invasive of the
company’s ownership and control or its constitutional rights. Respectfully,
that is not express authority, nor is it derived from a strict construction of
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JOHNSON UTILITIES, L.L.C. V. ARIZONA CORPORATION COMMISSION, ET AL.
JUSTICE BOLICK, CONCURRING IN PART, DISSENTING IN PART
the applicable language. Indeed, it could not be, given that it transforms
the Commission’s limited and defined powers into boundless authority so
long as it is exercised in the form of an “order.” We should not attribute to
our constitution’s framers an intent to so greatly elevate form over
substance.
¶98 Article 15, section 3 of the Arizona Constitution, upon which
the majority relies, provides the Commission with authority to “make and
enforce reasonable rules, regulations, and orders for the convenience,
comfort, and safety, and the preservation of the health, of the employees
and patrons” of public service corporations. Moreover, A.R.S. § 40-321
authorizes the Commission, upon findings of inadequacy on the part of a
public service corporation, to “determine what is just, reasonable, safe,
proper, adequate or sufficient, and shall enforce its determination by order
or regulation.”
¶99 A “strict construction” of those authorizations would, it
seems to me, limit the Commission to orders that mandate compliance with
the Commission’s requirements rather than effectuate structural corporate
change. Indeed, this narrow construction of § 40-321’s statutory
authorization is reinforced by subsequent statutory authorizations that are
quite granular. See, e.g., § 40-325 (Commission may order physical
connections between railroad lines); § 40-329 (may order connections and
joint rates between telephone and telegraph companies), § 40-332 (may
order joint use of facilities belonging to a public service corporation), § 40-
336 (may require safety devices). See generally §§ 40-322 to -340. The notion
that the Commission needs specific legislative authorization to require
safety devices, yet possesses implicit power to transfer control over a
corporation to its competitor, makes little sense.
¶100 Unquestionably, the Commission is authorized by the
constitutional and statutory language to make reasonable orders to
companies within its jurisdiction to do things, or refrain from doing things,
for the convenience, comfort, safety, or health of their patrons. But an order
requiring that a public service corporation take some specified action is
seismically different from an “order” removing the corporation’s
management from the owners.
¶101 The majority repeatedly refers to the order as the
appointment of an interim manager, suggesting the mere substitution of
one corporate official for another, but in fact it is far more sweeping. The
Commission’s order transfers to EPCOR, Johnson’s rival, control of the
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JOHNSON UTILITIES, L.L.C. V. ARIZONA CORPORATION COMMISSION, ET AL.
JUSTICE BOLICK, CONCURRING IN PART, DISSENTING IN PART
company’s management and assets. Supra ¶ 6. EPCOR in turn reports
solely to the Commission, not to Johnson. Id. Johnson is reduced to making
suggestions and complaints to EPCOR and the Commission. The
Commission’s counsel stated at oral argument, not very reassuringly, that
Johnson “can sit down and talk with EPCOR. Nothing precludes Johnson
from coming to . . . discuss with the Commission the ongoing operations of
that utility. They are not precluded from coming to sit down with staff to
make their case before the Commission.” Johnson may seek to terminate
the order, but only “upon a showing that [the company’s] services ‘are in
all respects just, reasonable, safe, proper, adequate, and sufficient.’” Id. ¶ 5.
In other words, the company’s owners can get their business back only if
they prove that their competitor, which is now running the company, has
done a sufficiently splendid job. The Commission’s order dissolves any
meaningful ownership interest into the role of a passive bystander.
¶102 The Commission’s order far exceeds its authority to require
compliance with the company’s legal obligations, and instead insinuates
itself deeply into Johnson’s corporate governance. Arizona courts have
long recognized a line of demarcation, discarded by the majority today, that
reflects constitutional boundaries and protects against actions that exceed
the Commission’s broad yet circumscribed authority: the management
interference doctrine.
¶103 In Southern Pacific Co. v. Arizona Corp. Commission, this Court
struck down a Commission order requiring a railroad to maintain existing
train schedules, declaring that “plainly it is not the purpose of regulatory
bodies to manage the affairs of the corporation.” 98 Ariz. 339, 343 (1965).
The Court emphasized that the state “’is not the owner of the property of
public utility companies, and is not clothed with the general power of
management incident to ownership.’” Id. (quoting Missouri ex rel. Sw. Bell
Tel. Co. v. Pub. Serv. Comm’n of Mo., 262 U.S. 276, 289 (1923)). The Court also
examined legislative authority that gave the Commission “power to do
those things necessary and convenient in the exercise of the granted
powers,” but held that did not “give[] the Commission the right to
rearrange petitioner’s train service without a judicial determination that the
service so provided is inadequate.” Id. at 348 (emphasis added). A holding that
the Commission could unilaterally impose the order, the Court observed,
“unconstitutionally deprives petitioner of its property without due process
of law. It is a nullity.” Id.; see also Corp. Comm’n v. Consol. Stage Co., 63 Ariz.
257, 261 (1945) (holding that a forced stock transfer exceeded the
Commission’s authority by controlling the internal affairs of a corporation);
Phelps Dodge Corp. v. Ariz. Elec. Power Co-op, Inc., 207 Ariz. 95, 113 ¶ 59 (App.
33
JOHNSON UTILITIES, L.L.C. V. ARIZONA CORPORATION COMMISSION, ET AL.
JUSTICE BOLICK, CONCURRING IN PART, DISSENTING IN PART
2004) (“[W]e will not infer the grant of authority to interfere with the
[utilities’] management decisions beyond the ‘clear letter of the statute.’”)
(citing S. Pac., 98 Ariz. at 343).
¶104 The majority responds that the management interference
doctrine is a “judicial construct” and, in any event, is limited to the exercise
of the Commission’s ratemaking powers. Supra ¶ 61. It would be odd for
the Court to have made such repeated categorical statements about the
absence of Commission authority to control internal corporate affairs, only
to have that power, undiscovered until today, lurking about in the very
same sentence of article 15, section 3 all this time. To the contrary, the Court
made quite clear that “[n]owhere in the Constitution or in the Statutes is the
commission given jurisdiction, directly or by implication, to control the
internal affairs of corporations.” Consol. Stage, 63 Ariz. at 261. “Nowhere”
is a vast place, and surely encompasses not only the Commission’s
ratemaking power but its permissive regulatory authority as well.
¶105 Nor was the management interference doctrine invented by
the Court, but was dictated by the constitution, in three discrete ways. First,
it is another way of expressing the constitutional principle we have all
acknowledged, that the Commission possesses only those powers expressly
conveyed by the constitution or statutes. No express power to invade core
management functions appears in the constitution and statutes; hence such
power does not exist. Second, interfering in management functions invades
the corporation’s private property rights and is therefore a “nullity.” S.
Pac., 98 Ariz. at 348. Finally, it trespasses the separation of powers because
the Commission may seek to direct corporate governance only through
judicial decree. Id. That the Court today dislodges those constitutional
limits, even without urging by the Commission, 1 underscores that its
decision bestows broad and previously unrecognized power upon the
Commission.
¶106 In addition to strictly construing constitutional and statutory
authorization for the Commission’s actions, we must interpret such
language, if possible, in order to avoid constitutional conflict. See, e.g.,
Slayton v. Shumway, 166 Ariz. 87, 92 (1990) (“[W]here alternate constructions
1 Indeed, as the Commission acknowledged in its brief, “[t]he management
interference doctrine serves as a check on the Commission’s power so that
[it] will be prevented from becoming the de facto manager of public service
corporations instead of taking actions to control rates or address public
health and safety problems.” That vital check is removed by this decision.
34
JOHNSON UTILITIES, L.L.C. V. ARIZONA CORPORATION COMMISSION, ET AL.
JUSTICE BOLICK, CONCURRING IN PART, DISSENTING IN PART
are available, we should choose that which avoids constitutional
difficulty.”); Greyhound Parks of Ariz., Inc. v. Waitman, 105 Ariz. 374, 377
(1970) (explaining and applying canon of constitutional avoidance);
Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal
Texts 247–51 (2012). Southern Pacific recognizes that an exercise of
Commission authority that strays beyond its ratemaking or regulatory
power to control the inner workings of a corporation necessarily raises
concerns over constitutional protections of private property rights. See 98
Ariz. at 348.
¶107 The majority’s broad construction of the Commission’s power
runs us headways into constitutional conflict. Although Johnson Utilities
does not raise a takings claim here under the Fifth Amendment to the U.S.
Constitution or article 2, section 17 of the Arizona Constitution, such
concerns are necessarily implicated, given that, as the U.S. Supreme Court
observed in Youngstown, the government’s actions in taking control of the
steel companies “were bound to result in many present and future
damages.” 343 U.S. at 585. Thus, the Court held in United States v. Pewee
Coal Co. that the temporary takeover of a private mine constituted a taking
and that the government was liable for damages sustained while in
possession. 341 U.S. 114 (1951). These concerns are therefore highly
pertinent to our interpretation of the Commission’s constitutional and
statutory authority.
¶108 Article 2, section 17 speaks directly to the allocation and
limitations of government power with respect to private property rights. It
provides: “No private property shall be taken or damaged for public or
private use without just compensation having first been made, paid into
court for the owner, secured by bond as may be fixed by the court, or paid
into the state treasury for the owner on such terms and conditions as the
legislature may provide . . . .” Ariz. Const. art. 2, § 17.
¶109 In this context, article 2, section 17 establishes two important
baseline principles. First, before the government takes or damages private
property, it must take steps to ensure the owner will be compensated for
losses. Second, that to ensure the owner is compensated for any losses,
bond or payment must be made according to judicial or legislative process.
Yet, the majority’s holding would allow the Commission not only to
transfer management and control over the company to another private
entity as it has here, but also to take the property altogether, without
following these constitutional dictates, so long as it takes the form of an
order and a court subsequently deems it was reasonable. Given their
35
JOHNSON UTILITIES, L.L.C. V. ARIZONA CORPORATION COMMISSION, ET AL.
JUSTICE BOLICK, CONCURRING IN PART, DISSENTING IN PART
manifest concern for the protection of private property rights, it seems
inconceivable that the constitution’s framers meant to give the Corporation
Commission, alone among governmental entities, sweeping authority to
transfer control and operation of a private enterprise without judicial or
legislative process. Certainly, we should search very carefully for such
express authority and resolve all doubts against it.
¶110 Given that no express constitutional or statutory authority is
conferred upon the Commission to manage the internal affairs of a
company either directly or through a hand-chosen proxy, and that serious
constitutional concerns are raised by implying such authority, does that
mean that the Commission is powerless to instigate a change of
management where circumstances warrant? In the Youngstown context,
Congress “prescribed for the President specific procedures, exclusive of
seizure, for his use in meeting the present type of emergency.” 343 U.S. at
660 (Burton, J., concurring). So too has the legislature here provided an
appropriate vehicle for the action sought by the Commission: an action for
receivership.
¶111 Arizona Revised Statutes § 12-1241 provides that the
“superior court or a judge thereof may appoint a receiver to protect and
preserve property or the rights of parties therein, even if the action includes
no other claim for relief.” Receiverships are an equitable remedy that may
be sought by anyone, and may be used to operate a business while litigation
is pending. First Phx. Realty Invs. v. Superior Court, 173 Ariz. 265, 266 (App.
1992); 3 Ariz. Legal Forms, Debtor-Creditor Ch. 13, Introduction at 1 (2d ed.
2019). A receivership is a “drastic remedy” and the power to appoint is
“justly safeguarded, and reluctantly exercised, by the courts.” Tate v. Phila.
Transp. Co., 190 A.2d 316, 321 (Pa. 1963). The court has broad discretion to
assign duties to the receiver, Ariz. R. Civ. P. 66(c)(1), who must first post a
bond before performing the duties, Ariz. R. Civ. P. 66(b)(2).
¶112 The Commission is expressly authorized to file a lawsuit
pursuant to A.R.S. § 40-422(A) to enforce its orders, and such action plainly
would serve as an appropriate predicate for seeking a receivership if one is
necessary. Indeed, that statute goes even further by directing that the
Commission “shall” commence such a proceeding “[w]hen [it] is of the
opinion that a public service corporation is failing or about to fail to do
anything required of it by law or an order or requirement of the
commission.” The Commission certainly was of this opinion as regards
Johnson; thus, it was required to go to court to seek enforcement.
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JOHNSON UTILITIES, L.L.C. V. ARIZONA CORPORATION COMMISSION, ET AL.
JUSTICE BOLICK, CONCURRING IN PART, DISSENTING IN PART
¶113 Compare this prescribed and well-established judicial
procedure with the order imposed by the Commission. A court considering
a receivership is a neutral decisionmaker that appoints a disinterested
person as receiver, Ariz. R. Civ. P. 66(b)(1)–(2), thus protecting the due
process rights of the property owner. The receiver has a duty to protect and
preserve the property and the rights of the parties. Gravel Res. of Ariz. v.
Hills, 217 Ariz. 33, 37 ¶ 10 (App. 2007). The receiver’s obligations are
secured by an oath and bond. Ariz. R. Civ. P. 66(b)(2). Courts in other states
have appointed receivers, with the protections afforded by judicial process,
under analogous circumstances. See, e.g., United States v. City of Detroit, 476
F. Supp. 512 (E.D. Mich. 1979); Dep’t of Envtl. Prot. v. Emerson, 563 A.2d 762(Me. 1989); Genssler v. Harris Cnty., No. 01-10-00593-CV, 2010 WL 3928550(Tex. App. Oct. 7, 2010).
¶114 By contrast, the Commission asserts it is unilaterally
empowered to impose this drastic equitable remedy without the attendant
judicial process and its careful balancing of rights and interests. At oral
argument, counsel was repeatedly asked why the Commission did not go
to court to request a receivership. The response was that it did not have to.
Why go through the burden, inconvenience, and second-guessing of
judicial process when the end can be accomplished through agency fiat?
¶115 The majority vindicates the Commission’s view by suggesting
that because the statute does not expressly require the Commission to use
the receivership process, it need not do so. That states the proper inquiry
exactly backward: if the power is not expressly conferred, the Commission
does not possess it. See City of Surprise, 246 Ariz. at 212 ¶ 20; Comm. Life Ins.
Co. v. Wright, 64 Ariz. 129, 139 (1946) (“The Corporation Commission has
no implied powers and its powers do not exceed those to be derived from
a strict construction of the Constitution and implementing statutes.”). We
must satisfy ourselves that the constitution or statutes expressly invest the
Commission with power to accomplish the objectives of the receivership
statute without needing to comply with its important procedural
requirements. 2
2 By contrast, the legislature vested “jurisdiction over all petitions
requesting that a school district be placed in receivership” in the state board
of education. A.R.S. § 15-103(D). The delegation of receivership authority
to one entity, with no such delegation to another entity, strongly implies
that the second entity possesses no such authority. See City of Surprise, 246
37
JOHNSON UTILITIES, L.L.C. V. ARIZONA CORPORATION COMMISSION, ET AL.
JUSTICE BOLICK, CONCURRING IN PART, DISSENTING IN PART
¶116 The existence of a receivership statute from which the
legislature has exempted a different agency but not the Commission, plus
our own rules creating significant procedural preconditions for such a
drastic equitable remedy, along with a statute empowering the
Commission to seek judicial enforcement of its orders and directing it to do
so in the circumstances presented here, establish that the Commission does
not possess unilateral authority to coercively transfer management of a
business to a third party, even beyond the absence of express authority to
do so. The constitutional implications of failure to secure judicial process
further support that conclusion. See supra ¶ 106.
¶117 My colleagues contend that I am adding limitations to the
Commission’s authority that do not appear in the constitutional text. Supra
¶ 76. But as both the majority and I have described our task in this case, we
are not searching for language that limits the Commission’s authority, nor
is it necessary to create such language. Rather, we are searching for words
that expressly empower the Commission to take the drastic action at issue
here. I have not found such words in the constitutional text or statutes.
Neither have my colleagues.
¶118 The Court today recognizes sweeping implied authority on
the part of the Commission to control public service corporations even to
the extent of unilaterally divesting critical facets of ownership. Having
removed any meaningful substantive limit to the Commission’s power, that
power is now backstopped only by a post hoc judicial inquiry applying the
evanescent requirement of reasonableness. As the Commission flexes its
newfound authority, future courts may be hard-pressed to put the genie
back in the bottle. I would render that task unnecessary by limiting the
Commission’s permissive authority to the regulatory powers expressly
conferred by the constitution and statutes. With great respect to my
colleagues, I dissent from the disposition affirming the Commission’s order
and its underlying reasoning.
Ariz. at 211 ¶¶ 13–14 (explaining and applying expressio unius est exclusio
alterius canon); see also Scalia & Garner, supra at 107–11.
38