City of Surprise v. acc/lake Pleasant, 437 P.3d 865

Background

The City of Surprise negotiated to condemn substantially all assets of Circle City Water Co., including nearly 4,000 acre-feet/year of CAP water; voters and the city council authorized condemnation.
A developer claims a contract entitles it to Circle City’s CAP water; the City told the developer it had no obligation to honor that contract.
The Arizona Corporation Commission opened an investigation and on March 30, 2018 ordered Circle City to file an application under A.R.S. § 40-285 and A.A.C. R14-2-402(D) seeking approval to abandon, sell, transfer, or otherwise dispose of its utility.
Circle City filed under protest; Commission staff demanded additional documents (including a draft condemnation agreement) and information about whether the City would assume the developer’s water contract.
The City filed a special action in this Court challenging the Commission’s jurisdiction to require § 40-285 approval for a municipal condemnation; the Court stayed further Commission proceedings and accepted the case.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether § 40-285(A) reaches municipal eminent domain transfers	City: § 40-285(A) does not cover condemnations because statute targets voluntary dispositions, not involuntary takings	Commission: phrase “or otherwise dispose of” is broad enough to include transfers by condemnation; its rules require prior approval	Held: § 40-285(A) does not authorize the Commission to regulate or veto a city’s exercise of eminent domain; vacated Commission order requiring application
Standing / ripeness to seek special action	City: Commission’s order injures the City by asserting authority that could void its condemnation; declaratory relief appropriate	Commission: City lacks standing and case is not ripe because Commission has not acted against the City	Held: City has standing; special action review appropriate to resolve pure statutory question
Whether A.A.C. R14-2-402(D) supplies jurisdiction beyond statute	City: Commission rules cannot expand statutory authority	Commission: rules implement statute and authorize oversight	Held: Administrative rule cannot confer jurisdiction beyond statutory grant; Commission has no implied powers to regulate municipal condemnations
Whether Commission may protect customers by investigating possible "friendly" condemnations that are effectively voluntary transfers	City: (majority) condemnation is coercive regardless of cooperation; Commission’s investigatory role cannot convert into veto	Concurring/dissenting justice: Commission should investigate if condemnation is a voluntary transfer in disguise to protect consumer rights	Held: Majority rejects routine Commission oversight of condemnations; concurrence warns of problematic scenarios (friendly condemnations) and would preserve investigatory role in such cases

Key Cases Cited

Dobson v. State ex rel. Comm'n on Appellate Court Appointments, 233 Ariz. 119 (2013) (standards for special action jurisdiction)
United Water N.M., Inc. v. N.M. Pub. Util. Comm'n, 121 N.M. 272 (1996) (statute analogous to § 40-285 does not reach involuntary condemnations)
People ex rel. Pub. Utils. Comm'n v. City of Fresno, 254 Cal.App.2d 76 (1967) (similar statutory interpretation refusing to restrict municipal eminent domain absent clear legislative intent)
Menderson v. City of Phoenix, 51 Ariz. 280 (1938) (constitutional exclusion of municipalities from Commission regulatory authority)
Babe Invs. v. Ariz. Corp. Comm'n, 189 Ariz. 147 (1997) (legislative purpose of § 40-285 to prevent looting and impairment of service)
Pueblo Del Sol Water Co. v. Ariz. Corp. Comm'n, 160 Ariz. 285 (1988) (Commission's role to examine transfers for detriment to public interest)