Corp Comm attorneys contest Burns’ bid to expose APS election spending

Bob Burns explains why he was the lone vote against selecting Tom Forese as new chairman of the Arizona Corporation Commission (Capitol Media Services photo by Howard Fischer)
Bob Burns of the Arizona Corporation Commission (Capitol Media Services photo by Howard Fischer)

Attorneys for members of the Arizona Corporation Commission told a judge Tuesday he should block a bid by one of the panel’s members to investigate whether financial help they got or are suspected of getting from Arizona Public Service for their elections tainted their vote to allow the company to collect more money from customers.

David Cantelme, representing Andy Tobin, said what Bob Burns ultimately wants is a ruling that Tobin and three other commissioners should have been disqualified from approving the rate hike last year.

But Cantelme told Maricopa County Superior Court Judge Daniel Kiley that there is no legal procedure for commissioners to be disqualified from hearing issues, even if they involve parties that have helped them get elected. And if that’s the case, Cantelme said, it’s legally irrelevant even if his client and the other commissioners voted on the APS increase, meaning there’s no reason to allow Burns to investigate.

Bill Richards, representing Burns, responded that it does not matter whether there is no specific law or rule on disqualification of utility regulators.

He said what Burns wants to protect is the constitutional right of “due process” of cases being decided by impartial judges. And in this case, Richards said, the commission was acting in a quasi-judicial capacity.

Cantelme, however, said even if there were a due process violation — a point neither he nor attorneys for APS are conceding — Burns has no right to assert it.

That right, he told Kiley, belongs to those who were parties to the case. And he said none of the 29 parties, including the utility, the Residential Utility Consumer Office or a host of intervenors, have raised the issue and all appear happy with a deal that was cut to allow APS to collect another $7 million a month from its customers.

“If the litigants themselves do not advance and say, ‘My due process rights have been denied,’ where does Commissioner Burns get off in trying to force something down their throats that they don’t want and never asked for?” Cantelme said. “He hasn’t got that authority.”

What Kiley decides has implications beyond this specific dispute — and this specific rate case. It also could set precedent for what happens in future cases when parties to a rate case, whether utilities or others, are providing direct or indirect financial help to elect the very regulators who will decide the issue.

Burns contends that an investigation is necessary to first determine whether APS or parent Pinnacle West Capital Corp. was the source of $3.2 million spent by “dark money” groups to help elect Republicans Tom Forese and Doug Little in 2014.

Those groups claim their status as “social welfare” organizations under the Internal Revenue Code exempt them from disclosing donors. And APS will neither confirm nor deny it was the source of those dollars.

In 2016 APS openly spent more than $4 million to defeat Democratic candidates, helping to ensure the election of Tobin, Boyd Dunn — and Burns himself. But Burns, whose reelection bid also was aided with money from solar interests, contends APS didn’t really want him but feared him less than the Democrats.

That led to the 4-1 vote by the commission last year, with Burns in opposition, approving the rate-hike deal.

Kiley has previously rejected a claim by Burns he has the independent power as a commissioner to subpoena the company’s records to find out what it is spending on political, lobbying and charitable expenses. Now Burns hopes to convince the judge that he should allow him to pursue an investigation into whether the other four commissioners had conflicts of interest.

Assuming Kiley were to allow that, it could lead to last year’s vote being voided.

But Sarah Barnes, representing Dunn, told the judge there’s another problem with what Burns is seeking. That has to do with the fact that it takes a quorum of the commission — in this case, three votes — to decide any issue.

She cited what is known as the “rule of necessity.” In essence, it says that if a quorum of the commission has a conflict of interest, then none of them have a conflict and all can decide the issue because there is no one else who can do it.

Richards said this rule will soon no longer apply because Little quit last year to take a job with the Trump administration and Forese, who lost his reelection bid, will be out of office after the end of the year. He told Kiley that means there will be a quorum of three who, in his mind, are untainted and could decide the issue if Tobin and Dunn ultimately are disqualified: himself, Justin Olson who was appointed to take Little’s place after the APS vote, and Sandra Kennedy who apparently has won a seat on the commission and will take office in January.

But Cantelme told Kiley that’s precisely the reason he should not give Burns the go-ahead for his investigation. He said the newly constituted commission always has the power to revisit the 2017 vote if a majority decides it was wrongly decided.

“Who knows what they’re going to say?” Cantelme asked.

The new commission already is going to have to look at the deal, or at least part of it.

A hearing officer is expected to give a report next month on a complaint by consumers that their actual bills went up more than APS had said they would. But the commission will not get to review those findings until at least January.

Kiley said he will rule as soon as he can.

Judge can’t tell lawmakers how much money to give schools, attorney says

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An attorney for the state is telling a judge she has no legal right to tell the Legislature it isn’t providing enough money for school construction and repair.

In new court filings, Brett Johnson acknowledged that the Arizona Supreme Court ruled more than two decades ago that the state has an obligation to ensure that schools meet minimum adequacy standards for everything from building safety to equipment needs. The justices said at the time that it was unconstitutional to put that burden solely on local taxpayers, as it created gross disparities and left children in some schools without adequate education opportunities.

But Johnson told Maricopa County Superior Court Judge Connie Contes that she is powerless to rule on a claim by school districts that the amount of money now being provided by the state is inadequate.

“The question of how much should be appropriated for any particular item in a given year is clearly committed by our Constitution to those acting in a legislative capacity,” he said.

That theme was echoed in filings by attorney Bill Richards who separately represents House Speaker J.D. Mesnard and Senate President Steve Yarbrough.

Richards told Contes that what the school districts want would “improperly intrude on matters preserved to the discretion of the legislative branch.” And he said it would put the judge in the position of deciding what he called “political questions regarding the degree and nature of funding provided for or related to public school capital facilities.”

But Mary O’Grady, who represents the districts that sued earlier this year, said it is clearly within the power of courts to determine if lawmakers are meeting their constitutional obligations to provide “adequate” facilities for public education.

More to the point, she said judges are empowered to tell them to fix it. At that point it would be up to legislators to determine how to do that, though that decision could lead to further litigation if challengers remain dissatisfied.

But the case is clearly about money.

Tim Hogan, another attorney representing challengers, says lawmakers are shorting schools each year for the capital funds they need to the tune of about $300 million. And he said the cumulative loss to schools from the failure to properly fund capital needs is now close to $2 billion.

The lawsuit traces back to 1994.

Prior to then, construction of new schools and needed repairs were presumed to be solely the responsibility of local districts. But in a historic ruling that year, the high court said that created gross inequities — and left some schools and the children there without adequate facilities.

“Some districts have schoolhouses that are unsafe, unhealthy, and in violation of building, fire and safety codes,” the justices said, with schools without libraries, laboratories or gymnasiums. “But in other districts, there are schools with indoor swimming pools, a domed stadium, science laboratories, television studios, well-stocked libraries, satellite dishes, and extensive computer systems.”

All that, they said, runs afoul of a state constitutional obligation to maintain a “general and uniform” school system.

After several more rulings, lawmakers eventually created the School Facilities Board to come up with minimum guidelines and created a system to both finance new schools as needed and provide $200 million a year for upkeep.

Only thing is, lawmakers have not fully funded that formula for years.

The result, according to challengers, has been a shortage of funds to pay not only for repairs but for other needs ranging from school buses to textbooks. And that forces the districts to use locally raised funds — assuming voters are willing to go along — to pay for the needs that the Supreme Court concluded are the state’s responsibility.

O’Grady said Johnson’s claim that Contes cannot hear the challenge is based on a flawed reading of what is in the lawsuit.

She said what the Supreme Court ruled in 1994 was that the state has to have standards for what constitutes adequate classrooms.

“And you’ve got to have funding to meet the standards,” she said. O’Grady said she is seeking a ruling that the money being provided does not meet the constitutional — and court-ordered — requirement to meet those standards and ensure educational opportunities.

That issue, she said, is “absolutely within the reach of the courts.” And O’Grady said if Contes agrees with challengers that the funding is inadequate, “then it kicks back to the Legislature for a remedy,” meaning the courts not infringing on legislative prerogatives — assuming whatever they decide makes the funding scheme constitutional.

Questions of the power of judges aside, Johnson also contends that the districts themselves have no right to even be in court in the first place.

He said only those who have suffered a “particularized” injury to themselves have a right to assert any claim that the money they are getting is constitutionally inadequate. Instead, Johnson said, the lawsuit contends the overall amount of dollars available to fund new buildings statewide and maintain the ones that already exist is inadequate.

And Johnson said there is no evidence that the districts that filed suit had actually asked for cash from the School Facilities Board, which evaluates needs and distributes money. He said only if they are first turned down might they have a legal claim.

O’Grady brushed those claims aside.

“Our issues are not about funding for particular projects,” she said. She agreed that such a request  would go to the board.

“Our lawsuit is about the structure of the system overall and whether the structure of the system overall satisfies constitutional requirements,” O’Grady continued. “This isn’t about one district needing money for a specific project.

Contes is set to hear arguments in December.

Judge insists he can decide extent of commissioner’s powers

Bob Burns explains why he was the lone vote against selecting Tom Forese as new chairman of the Arizona Corporation Commission (Capitol Media Services photo by Howard Fischer)
Bob Burns explains why he was the lone vote against selecting Tom Forese as new chairman of the Arizona Corporation Commission (Capitol Media Services photo by Howard Fischer)

A Maricopa County Superior Court judge said he has the legal right to decide whether state regulator Bob Burns has the unilateral power to subpoena utility executives, even in the face of opposition of the other four members of the Arizona Corporation Commission.

In an extensive ruling Monday, Judge Daniel Kiley rejected arguments by Arizona Public Service that he is legally powerless to intercede in what the company contends is a dispute among commissioners.

APS attorney Mary O’Grady said that, at the very least, Burns should have to wait until the commission rules on its pending rate increase request.

But Kiley said this isn’t a simple internal dispute among commissioners. Instead, he pointed out, Burns wants a clear ruling on the scope of his constitutional and statutory authority as an elected member of the panel to compel the production of evidence and examine witnesses.

“Resolving such disputes is clearly within the province of the judiciary,” the judge wrote. “Moreover, Arizona courts have long recognized that declaratory judgment relief is an appropriate vehicle for resolving controversies as to the legality of acts of public officials.”

Tom Forese, chairman of the Arizona Corporation Commission (Capitol Media Services photo by Howard Fischer)
Tom Forese, chairman of the Arizona Corporation Commission (Capitol Media Services photo by Howard Fischer)

Kiley also rebuffed an argument by Chairman Tom Forese that the dispute between Burns and the other commissioners is “really a political question” beyond the scope of the judge to resolve.

“This case presents issue of constitutional interpretation and statutory construction that are squarely within the scope of judicial authority,” the judge said.

Kiley’s ruling came as the commission voted Monday to pay to hire separate attorneys for the other four commissioners to defend themselves in the lawsuit. That’s because Burns has expanded his legal claims beyond just the issue of his individual rights as a commissioner to questions about whether the other four may be disqualified from voting on the APS rate hike because the company provided – or is believed to have provided – cash to help get them elected.

But the panel refused to pay for Bill Richards, Burns’ own attorney, who the commissioner said has been working for free. Burns said he was told the policy is for taxpayer-financed legal help only when commissioners are defending their actions.

“I’m on offense, they’re on defense,” he said. But Burns said he hopes that Kiley eventually orders the commission to pick up the bill for his lawyer, too.

More immediate is the question of how much power does Burns – or any other commissioner – have to issue subpoenas and demand testimony from witnesses over the objections of his or her colleagues.

Burns wants documents from APS and parent company Pinnacle West Capital Corp. showing what they spent not only to influence the 2014 election. Two outside groups spent $3.2 million to elect Forese and Doug Little but have refused to disclose their funders.

He also wants information on the company’s spending on lobbyists and charities. And he wants to question CEO Don Brandt and others.

APS initially challenged his actions as premature. Kiley agreed, telling Burns to seek permission from his colleagues.

But when he did that, the other four voted to reject his request. Kiley, in Monday’s ruling, said that puts the question of Burns’ legal rights squarely before him.

And there are legitimate questions.

The Arizona Constitution spells out that the commission “and the several members thereof” have the power “to inspect and investigate the property, books, papers, business methods, and affairs of any corporation whose stock shall be offered for sale to the public.” Pinnacle West is a publicly traded corporation.

And the constitution specifically spells out the right to demand documents over regulated “public service corporations” like APS.

It also says that individual commissioners have the same power as a court “to enforce the attendance of witnesses and the production of evidence by subpoena.”

Kiley said it is now up to him, as the judge in the case, to decide whether the constitution and parallel statutes give Burns the independent powers he claims he has.

Regulator sues to void rate increase approved for utility

Bob Burns explains why he was the lone vote against selecting Tom Forese as new chairman of the Arizona Corporation Commission (Capitol Media Services photo by Howard Fischer)
Bob Burns Arizona Corporation Commission (Capitol Media Services photo by Howard Fischer)

Calling the process illegal, a utility regulator is asking the Arizona Supreme Court to void last week’s vote giving the state’s largest electric utility permission to immediately charge its customers an extra $7 a month.

Bob Burns, on the losing end of the 4-1 vote for the rate hike, claims the process followed by his colleagues did not comply with statutory and constitutional requirements for a full airing of all the relevant issues. Specifically, Burns contends he was denied the opportunity to determine what influence that campaign contributions by Arizona Public Service had on the others and whether that tainted their vote.

What all that means, he said is the high court must immediately void the rate increase as a violation of his rights and the constitutional duties of the other commissioners.

Attorney Bill Richards, who is representing Burns, also wants the court to force the other commissioners to cooperate with his client’s investigation and to inform APS, parent company Pinnacle West Capital Corp., and CEO Don Brandt “that they are not excused from providing the information and testimony Commissioner Burns requires to address the bias and disqualification issues in the APS rate case.”

Burns conceded there is no precedent for the legal relief he is seeking. But he told Capitol Media Services that the current political situation forces creation of one.

“There hasn’t been interference or participation or whatever the proper term is of utilities in elections at the rate that APS decided to get into them up to this point,” he said.

That includes the company’s admission it spent $4.2 million last year to elect a commission of its liking and questions about how much of $3.2 million filtered through “dark money” organizations that refuse to disclose their donors spent in the 2014 campaign came from the utility.

The company has agreed to voluntarily disclose future spending — but not until months after the election is over.

“So what good is that,” Burns asked. “We need to put some kind of transparency into the money the utility is spending.”

He said this lawsuit — and any precedent set — is critical to providing voters and ratepayers information on how much utilities are spending to elect the people who regulate them.

“As long as we have one person on the commission that believes it is necessary, and if the court agrees that one person has the authority to open up the books, we have a reporting system,” Burns said.

There was no immediate response from commission Chairman Tom Forese. But APS spokesman Jim McDonald said the company will oppose what Burns is trying to get the court to do.

Hanging in the balance is whether APS gets to keep the additional $7 million a month that it started collecting from customers this past Saturday.

That rate hike followed the 4-1 vote by the commission approving an agreement involving APS, the commission’s own staff, the Residential Utility Consumer Office and most of the groups and individuals who had interceded in the case. That list includes companies that sell or lease solar panels to homeowners and businesses to generate their own electricity after the final deal blunted the financial impact on those customers.

McDonald said the rate review, the company’s first in five years, is “a win for customers and will lead to many benefits.”

Burns, however, said that the commission’s staff at one time concluded the company had shown no financial need to boost its income. But the larger issue, he said, is whether the other commissioners were beholden to APS.

He pointed out that two groups spent $3.2 million in 2014 to elect Republicans Forese and Doug Little to the panel. Those groups have refused to disclose their donors, claiming their status under federal tax law as “social welfare organizations” allows them to keep it secret.

Company officials will neither confirm or deny they are the source of those dollars. But Pinnacle West in a 2015 statement to shareholders, all but admitted it played a financial role in that race, saying that spending by solar leasing companies on behalf of “anti-APS” Democrat candidates caused the firm to “reevaluate” how it would protect what it said were its interests and those of its customers and shareholders in the political process.

It was trying to get to the bottom of that 2014 spending Burns said, that led him to subpoena Brandt and company documents — the subpoenas that the other four commissioners quashed.

Richards said that means the vote to let APS increase its rates took place before Burns had a chance to ascertain how much customer money APS and Pinnacle West spent to get a commission of its choosing, and how all that may have played out in the who voted for the rate increase.

There is some legal basis for Burns to ask the Supreme Court to conclude that his rights as a utility regulator were violated, undermining the commission vote.

In a 2016 formal opinion, Attorney General Mark Brnovich said Arizona law says individual commissioners and their employees may “at any time, inspect the accounts, books, papers and documents” of any regulated utility.

Brnovich also said commissioners may examine utility company officers and employees under oath. And the scope of inquiry, he said, can include political contributions, charitable contributions and lobbying expenses.

In rejecting Burns’ demand to question company executives and review their books to look for political donations, the other commissioners cited the “rule of necessity.”

In essence, that rule says panel members with a conflict of interest need not recuse themselves if doing so would leave less than a quorum. That’s what would happen if four of the five commissioners — excluding Burns — were disqualified.

But Richards charged that’s essentially putting the legal cart before the horse.

He said it is Burns’ investigation that will determine if there are conflicts. And Richards said it might be that just two of the commissioners would be disqualified, still leaving a quorum.

And there’s something else.

Richards said the other commissioners cannot invoke the rule of necessity to block further investigation into the question of whether they have conflicts in the first place.

“Arizona law entitles consumers and intervenors in the APS rate case to know all the facts about commissioner bias, even if were ultimately excused,” Richards said.