The Arizona Corporation Commission has the legal right to seize managerial control of utilities that pose a risk to public health and safety, the state Supreme Court ruled Friday.
In a 6-1 decision, the justices rejected claims by George Johnson and family members, owners of Johnson Utilities, that there was no constitutional authority for the regulators to appoint an interim manager as it did two years ago. Justice Andrew Gould, writing for the majority, said there is specific constitutional language allowing the agency to step in “to protect the health and safety of a public service corporation’s customers, employees and the public at large.”
Only Justice Clint Bolick said his colleagues were wrong.
“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,” Bolick wrote. He called the action “an extreme remedy in a nation that sanctifies property rights and the rule of law.”
Friday’s ruling upholding the power of the commission does not end the legal fight. The justices said Johnson Utilities still has an opportunity to argue that the decision itself was not reasonable.
There was no immediate response from attorneys representing Johnson.
Two years ago, following a 14-day hearing, the commission gave day-to-day control of the company to EPCOR.
Regulators concluded there were significant issues with the operation of the utility, including low water pressure and 78 incidents where raw sewage had overflowed between 2010 and 2019. Tied to that were questions of not just billing practices but also whether the company was spending the money necessary to ensure safe and reliable operation.
That order allows Johnson Utilities to regain control of the water and wastewater company that serves about 35,000 customers in the Florence, Queen Creek and San Tan Valley area only after showing it “would not present an unreasonable risk of service.” A spokeswoman for the commission said Friday that EPCOR still remains in control.
Attorneys for Johnson Utilities sued, contending the commission exceeded its constitutional power to set rates. They also argued that the legislature has not given the authority to regulators to appoint an interim manager, saying only a court has the power to give control of the company to someone else.
Gould said the company is half right.
“The commission’s ratemaking power does not authorize the order appointing an interim manager for Johnson,” he wrote.
“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,” Gould said. “But there must be some limit to what can be reasonably considered ratemaking, and that line has been crossed here.”
But Gould said the commission has separate permissive powers that do fit within what regulators were seeking to redress, “namely, protecting the public from Johnson’s alleged inadequate and unsafe services, equipment and facilities.”
“This broad grant of authority necessarily includes appointing an interim manager to remedy threats to public health and safety,” he wrote.
Still, Gould said, there are limits on that authority.
First, he said, is a requirement to give a utility “basic due process protections,” including notice, a hearing, and the opportunity to present evidence and cross-examine witnesses. And Gould said such orders must be “reasonable,”confined to the circumstances at issue, and limited to protecting and preserving public health, safety, comfort and convenience.
With the constitutional question out of the way, Johnson now is free to argue that the commission action was not reasonable.
Bolick, in his dissent, said the agency does not have the broad permissive powers his colleagues claim.
“Although the commission is created as a separate and distinct constitutional entity, the Arizona Constitution nonetheless created a government comprised of three branches, not four,” he wrote. “In that system, any powers not expressly conferred upon the commission reside with one of the three branches of government, or the people.”
But Gould said it is Bolick who is misreading the document.
“In essence, our dissenting colleague appears to be uncomfortable with the broad authority the people of Arizona conferred upon the commission,” he said.
“But it is not the prerogative of this court to rewrite or ignore constitutional provisions with which we disagree,” Gould continued, but only to “interpret and construe” the document. “We leave it to the people to change it, if they wish.”
George Johnson was personally indicted along with former Commissioner Gary Pierce, Pierce’s wife Sherry, and Johnson Utility lobbyist Jim Norton on charges stemming from what the Department of Justice said was a scheme to bribe Pierce in exchange for his vote on two issues of interest to the utility. A jury was unable to reach a verdict two years ago and federal prosecutors did not seek a new trial.