Residential Utility Consumer Office v. Arizona Corporation commission/arizona Water Company
240 Ariz. 108
| Ariz. | 2016Background
- Arizona Water Company (AWC), a private monopoly water utility, sought rate relief for extensive pipeline infrastructure projects and proposed a system improvements benefit (SIB) mechanism to allow annual surcharges between full rate cases.
- Under the SIB, the Commission pre-approves eligible projects in a full rate case (at least every five years); AWC may seek one SIB surcharge per year after a project is complete and serving customers.
- SIB filings must include updated financial statements and an adjusted rate-base schedule adding in-service SIB projects; tax multiplier, depreciation, and authorized return remain those from the most recent rate case.
- The Commission must provide 30 days public notice, allow objections, perform annual true-ups (refunding over-collections), and require a 5% credit to customers for efficiency savings; SIB and credit must be shown on bills.
- The Residential Utility Consumer Office (RUCO) challenged the Commission’s approval, and the court of appeals vacated the SIB, holding it did not satisfy the constitutional fair-value requirement or fall within recognized exceptions.
- The Arizona Supreme Court granted review and affirmed the Commission, holding the SIB updates the prior fair-value determination sufficiently and complies with the Arizona Constitution.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the SIB complies with the Arizona Constitution’s fair-value requirement | RUCO: SIB does not produce a current fair-value determination and thus violates the Constitution; it is not an allowed interim or adjustor mechanism | Commission/AWC: SIB supplements the last full rate-case fair-value with updated financials and in-service project additions, producing a current fair-value-based rate base | Court: SIB satisfies the Constitution because it updates and ascertains fair value for rate-base purposes; affirmed |
| Whether a full Rule 103 rate case is constitutionally required each time rates change | RUCO: Implied full rate-case process is required to determine fair value at time of rate change | Commission/AWC: Constitution requires fair-value ascertainment but not a specific procedure; Commission has discretion to use other reasonable methods | Court: Constitution does not mandate a full rate case; Commission has discretion to choose reasonable methods for fair-value determination |
| Whether fair value extends beyond the rate-base element to other ratemaking inputs | RUCO: Suggested fair-value requirement might encompass broader ratemaking elements | Commission/AWC: Fair value applies only to rate base; rate of return and expenses are separate inputs | Court: Fair value requirement applies only to rate base; other elements are outside that constitutional command |
| Whether prior cases (e.g., Scates) foreclose using updated prior submissions or summary financials to meet fair value | RUCO: Scates and related cases require a full contemporary inquiry; SIB is inconsistent with those precedents | Commission/AWC: Scates does not forbid using previous submissions with updates or summary financial information; SIB aligns with permissible methods | Court: Scates is inapposite; it allows updating prior submissions and the SIB method is consistent with precedent |
Key Cases Cited
- US West Commc’ns, Inc. v. Ariz. Corp. Comm’n, 201 Ariz. 242 (2001) (discusses use of fair-value rate base and when alternative ratemaking may be appropriate)
- Ariz. Corp. Comm’n v. Ariz. Water Co., 85 Ariz. 198 (1959) (requires Commission to ascertain fair value and use it as rate base)
- Simms v. Round Valley Light & Power Co., 80 Ariz. 145 (1956) (traditional fair-value approach required for monopolies)
- Ariz. Pub. Serv. Co. v. Ariz. Corp. Comm’n, 113 Ariz. 368 (1976) (Commission’s ratemaking discretion and review standard)
- Scates v. Ariz. Corp. Comm’n, 118 Ariz. 531 (1978) (addresses limits on rate increases absent fair-value consideration; does not preclude updating prior submissions)
- State v. Tucson Gas, Elec. Light & Power Co., 15 Ariz. 294 (1914) (historical allocation of Commission power over rates)
- Ethington v. Wright, 66 Ariz. 382 (1948) (explains Commission’s constitutional status and exclusive ratemaking field)
- Mountain States Tel. & Tel. Co. v. Ariz. Corp. Comm’n, 71 Ariz. 404 (1951) (discusses adjustor/interim rate concepts and limitations)