Key Points:

• The Arizona Court of Appeals ruled the Arizona Corporation Commission is not exempt from the Administrative Procedures Act

• The APA outlines state agency rulemaking processes, and attorneys for the commission argued the statutes did not apply

• The case stems from a 2024 policy statement that opponents argued violated the APA and challenged in court

The Arizona Corporation Commission is not exempt from the Administrative Procedures Act, according to a ruling from the Arizona Court of Appeals. 

Attorneys for the commission have argued that the regulatory body does not have to engage in a rulemaking process to implement a formula rate recovery mechanism for utility companies because it is exempt from certain portions of the APA. The APA is a set of state statutes that outline how state agencies can create rules and enforce policies. 

Three Court of Appeals judges disagreed with attorneys for the commission in a Nov. 21 ruling.

“…exempting the Commission from one article of the APA does not indicate the legislature intended to exempt it from the APA broadly,” Judge Michael J. Brown wrote. “Indeed, if the Commission was already exempt from the APA, specific exemptions … would be meaningless.”

The director of the Residential Utility Consumer Office, one of the plaintiffs in the case, celebrated the decision in a statement provided to the Arizona Capitol Times.

“We are thrilled with the opinion of the Court of Appeals,” Cynthia Zwick said. “RUCO believes it is in the best interest of all utility customers that the commission is not exempt from the Administrative Procedures Act and RUCO can bring this claim. We look forward to further proceedings in superior court.”

The ruling stems from a lawsuit over a December 2024 policy statement that would allow utilities to apply for formula rate plans, bypassing the traditional rate case hearing process that utilities go through to implement rate changes. According to the Nov. 21 ruling, at least eight utility companies have already requested formula rates. 

State entities, including the Attorney General’s Office and the Residential Utility Consumer Office, alongside other stakeholder groups, criticized commissioners for adopting the change through a policy statement rather than a formal rulemaking process. A rulemaking would require stakeholder input, economic impact studies and a public comment process, while a policy statement requires only a vote of the commissioners. 

Additionally, opponents of the policy statement argued it would allow utilities to obtain rate increases with little oversight from commissioners or commission staff to ensure utility customers are protected. 

After the commission rejected RUCO’s request for a rehearing on the policy statement, the agency appealed the decision to the Maricopa County Superior Court. Judge Susan Pineda dismissed the case in June, writing that RUCO’s case was based on “the erroneous premise that the Commission’s actions are subject to the APA.”

RUCO filed a special action to the Court of Appeals in July, arguing the commission was “weaponizing” the superior court ruling to defend other controversial policy statements, like one related to transmission undergrounding that was challenged at the Governor’s Regulatory Review Council. 

The Court of Appeals did not weigh in on whether or not the policy statement should be considered a rule and instead sent that question back to the Maricopa County Superior Court for consideration. The appeals court also dismissed arguments from the commission and APS that RUCO’s filing was not timely because no utilities had been granted formula rates, and that the agency lacked standing because it was not a party to the docket under which the statement was approved. 

In a statement to the Arizona Capitol Times, the commission’s general counsel, Thomas Van Flein, said an appeal of the Nov. 21 decision may be on the table in light of the conclusions about the timeliness of RUCO’s lawsuit.

“The ruling of the court is being studied, but at this time it appears the practical impact of this ruling could be to allow challenges to rate decisions and commission orders outside of the legislatively established strict appellate timelines,” Van Flein said. “Accordingly, review from the Arizona Supreme Court may be sought.”