Key Points:

• Policy statements from Arizona Corporation Commission have been challenged

• Commission argues it is entirely exempt from governing agency regulations

• Two agencies disagree, and are fighting against the commission

The Arizona Corporation Commission is facing challenges from two state agencies attempting to invalidate its policies, raising questions about the body’s authority and self-oversight. 

The all-Republican commission has spent the first part of this year fending off litigation and administrative review from the Residential Utility Consumer Office and the Governor’s Regulatory Review Council. Both entities allege the commission has been using policy statements in lieu of formal rulemaking processes to enact controversial regulations.

The commission argues it is exempt from statutes governing how state agencies create policies and has the authority to impose sweeping changes to ratemaking and utility oversight with little input from the public or stakeholders. That argument held up in a Maricopa County Superior Court, but it did not pass muster with the members of the Governor’s Regulatory Review Council.

The rulemaking process

Arizona’s Administrative Procedures Act requires that state agencies must submit rules governing the implementation of state statutes to the Governor’s Regulatory Review Council (GRRC) for approval. GRRC reviews state statutes, public comment, economic impact reports and any other materials provided by the agency to determine whether a rule or rulemaking package should be approved.

The act specifically exempts the Corporation Commission from submitting its rules to GRRC due to its constitutionally granted ratemaking authority, but requires the commission to develop a “substantially similar” process for reviewing rules. 

State agencies, and the commission, can also issue policy statements that provide clarifications or guidance on statutes, but do not impose requirements. If a policy statement imposes requirements on individuals, businesses or regulated communities, it can be invalidated by GRRC until it is adopted as a rule through a formal rulemaking process.

The commission does not have a formal process in place for reviewing its policy statements to ensure they do not constitute rules. In fact, attorneys for the commission have argued that it is entirely exempt from the Administrative Procedures Act. 

“The Commission is an independent Constitutional entity not part of the Arizona Executive Branch, the Arizona Court system, or the Arizona Legislature,” commission attorneys argued in a May 12 court filing. “By virtue of its independent and broad constitutional charter, it is vested with the exclusive power to create its own rules and its own policies, particularly when it is engaged in ratemaking.” 

But RUCO, GRRC and stakeholder groups disagree, and they are using several avenues to challenge that assertion.

Formula rate policy statement

In December 2024, the commission approved a controversial policy statement allowing utility companies to use formulas to adjust their rates annually, rather than solely using rate cases to ask for adjustments.

While many stakeholders, including RUCO, disagree with the use of formula rates, the most objections came from the way the commission implemented the idea: a policy statement. RUCO filed suit over the policy statement in March, arguing the commission chose to “illegally implement a sea change in public service corporation regulation.”

The commission asked Maricopa County Superior Court Judge Susan Pineda to toss out the lawsuit, which she did on June 13. Pineda sided with the commission’s interpretation of its authority, saying RUCO’s claim was based on “the erroneous premise that the Commission’s actions are subject to the APA.” 

Commission Chair Kevin Thompson praised Pineda’s ruling in a statement released after it was handed down.

“Today’s ruling is a significant win for the commission and Arizona,” Thompson said. “The court unequivocally affirmed our constitutional authority to set policy and rules in our ratemaking capacity.”

Autumn Johnson, an attorney who often represents solar industry groups before the commission, said she disagrees with the notion that the APA does not apply to the commission at all. 

“It is just patently absurd that the Corporation Commission is completely exempt from the entire Administrative Procedures Act,” Johnson said. “They’ve never argued that before. Courts have never found that before. That’s not what the APA says.”

An attorney for RUCO told the Arizona Capitol Times on June 13 that the office is considering other options to challenge the policy statement after the judge’s ruling. 

Undergrounding policy statement

In October 2023, the commission approved a policy statement that discouraged burying utility transmission lines underground in favor of above ground lines due to costs. Underground Arizona, a nonprofit based in Tucson, requested that the commission reconsider the policy statement in September 2024, but the commission rejected the request.

In November 2024, Dan Dempsey with Underground Arizona, filed a petition to GRRC asking it to review the policy statement. Although state statutes specifically exempt the commission from submitting rules to GRRC, Dempsey said that commission staff directed him to statutes regarding GRRC review when he inquired about options for appeal. 

The commission requested that Dempsey’s petition be denied due to a lack of jurisdiction from GRRC and noted that attorneys for the commission were unable to find a single instance of GRRC review of an ACC policy since the commission was established in 1912. 

Dempsey argued that the policy statement in question was not a ratemaking issue, but a line siting issue, therefore making review by GRRC possible. After giving both parties an opportunity to state their cases at a May 28 meeting, GRRC voted on June 3 to invalidate the policy, with council members saying they felt confident that it was actually a rule. 

A week later, the commission voted to send a letter to GRRC informing it that commissioners still recognize the policy statement as valid, given the June 13 ruling from Judge Pineda confirming its exemption from the APA. 

“In light of the law governing this issue, and in response to GRRC’s unauthorized assertion of jurisdiction over commission rules and policies, the commission unanimously voted to affirm its previous position,” wrote Tom Van Flein, the commission’s general counsel, in a June 16 letter. 

The Department of Administration, which houses the Governor’s Regulatory Review Council, reiterated in a statement on June 20 that the council declared the policy “void.” 

Neither agency appears ready to acquiesce to the other, and it is unclear where things go from here.

“We’re going to treat the GRRC decision as valid,” Dempsey said. “We’re not going to accept the ACC’s interpretation.”

Johnson said she doesn’t believe the commission can enforce the policy statement after it was deemed void.

“If they have a problem with the decision, then they need to seek a declaratory action in the courts, or some kind of special action to the Supreme Court,” Johnson said. “They don’t just get to say ‘no thanks.’”

Johnson said she thinks both issues will continue to play out and hopes both agencies press the commission on its claims to broad authority with virtually no oversight.

“(These cases) provide a really important accountability function and really important checks and balances and a really important rule of law function,” Johnson said. “You cannot just have an agency or one branch of government that’s just completely run amok and isn’t beholden to anyone else.”