Arizona Supreme Court Clarifies Jurisdiction of Arizona Corporation Commission

On March 28, 2019, the Arizona Supreme Court filed a decision in the case, City of Surprise v. Arizona Corp. Comm’n, No. CV-18-0137-SA, that addressed the Arizona Corporation Commission’s jurisdiction in cases in which a public service corporation is being condemned by a municipality.

In late 2017, the City of Surprise (“City”) entered into a letter of intent documenting the City’s intent to condemn all of the assets of a privately-held public service corporation (“Company”).  The Company’s assets included the right to use approximately 4,000 acre-feet of water per year from the Central Arizona Project (“CAP”).  Prior to the City stating its intent to condemn, the Company had entered into an agreement with a developer that would have allocated some of that CAP water to the future development. When the developer learned of the City’s intent, it asked the City whether the City would honor the Company’s commitment to provide that water to the development following the condemnation.  When the City indicated that it would have no obligation to provide water to the development, the developer requested that the Corporation Commission enter an order prohibiting the transfer of the Company to the City.

The Corporation Commission opened an investigation and required the Company, which was indisputably subject to Corporation Commission jurisdiction, to file an application pursuant to Arizona Revised Statute 40-285 seeking approval of the transfer of the Company’s assets.  The Company filed the application under protest.  The Commission also required the Company to confirm whether or not the City would be assuming the Company’s agreement with the developer.

The City filed a Special Action directly with the Arizona Supreme Court challenging the Corporation Commission’s jurisdiction with respect to the proposed condemnation.  The Supreme Court accepted jurisdiction in order “to clarify the scope of the Commission’s authority over eminent domain proceedings ….”  p. 3.  The Arizona Supreme Court ultimately ruled that the Corporation Commission “has no role to play in condemnations.”  p. 11.  In reaching that conclusion, the Court noted that the Corporation Commission has no authority under Article 15 of the Arizona Constitution to regulate municipal utilities, in contrast with public service corporations, and that the language and intent of A.R.S. § 40-285 did not support any inference that the Corporation Commission had the implied power to restrict or affect a municipality’s condemnation of a utility, whether that condemnation is actively litigated or amicably resolved.

The condemnation of a private utility by an Arizona municipality is a time-consuming and complex process that invokes competing governmental interests.  The Arizona Supreme Court’s decision provides needed guidance on this topic and will, hopefully, somewhat simplify the process.