IN THE COURT OF APPEALS

STATE OF ARIZONA

DIVISION TWO

CITY OF BISBEE, a municipal

corporation of the State of Arizona,

Plaintiff/Appellee,

v.

ARIZONA WATER COMPANY, an

Arizona corporation,

Defendant/Appellant. )

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) 2 CA-CV 2006-0106

DEPARTMENT A

O P I N I O N

APPEAL FROM THE SUPERIOR COURT OF COCHISE COUNTY

Cause No. CV2005-00286

Honorable Wallace R. Hoggatt, Judge

AFFIRMED

John A. MacKinnon, Bisbee City Attorney

Bryan Cave, LLP

By Steven A. Hirsch, Mitchell J. Klein,

Rodney W. Ott Bisbee

Attorney for Plaintiff/Appellee

Phoenix

Attorneys for Defendant/Appellant

P E L A N D E R, Chief Judge. FEB -8 2007 

### FILED BY CLERK

COURT OF APPEALS

DIVISION TWO2

¶1 In this quo warranto and declaratory relief action, the trial court granted p artial

summary judgment in favor of appellee, the City of Bisbee, and against appellant, the

Arizona Water Company (“AWC”). AWC appeals from the ensuing judgment, entered

pursuant to Rules 54(b) and 56, Ariz. R. Civ. P., 16 A.R.S., Pt. 2. On appeal, AWC argues,

inter alia, the Arizona Corporation Commission had exclusive jurisdiction of the issues

presented and the trial court erred in granting partial summary judgment in favor of the City.

Finding no reversible error, we affirm.

BACKGROUND

¶2 In reviewing a grant of summary judgment, we view the facts in the light most

favorable to AWC, the party against whom judgment was entered. Bothell v. Two Point

Acres, Inc.

, 192 Ariz. 313, ¶ 2, 965 P.2d 47, 49 (App. 1998). AWC is a public service

corporation that provides water service wit hin the City of Bisbee. It is the successor in

interest to the Arizona Public Service Company, which previously provided water utility

services to the City and to the surrounding, then unincorporated communities. In a 1955

“opinion and order,” the Arizona Corporation Commission (“the Commission”) authorized

AWC’s purchase and acquisition of the Arizona Public Service Company’s operations in

Bisbee and the surrounding areas.

¶3 That 1955 order granted AWC a “Certificate of Convenience and Necessity

for the rendition of water public serv ice and the operation of a water public service

corporation business” in the surrounding unincorporated areas, including the Townsite of1 In 1939, the Arizona Edison Company, the predecessor in interest of the Arizona

Public Service Company, had obtained a twenty-five-year franchise from Cochise County

for the above-mentioned, unincorporated areas. By its terms, that franchise expired in 1964

and was not renewed.

3 Lowel l, the Villages of Tin Town and Don Luis, Mason Addition, Johnson Addition,

Bakerville and Cochise Row, but “excepting the Town of Warren and the City of Bisbee.”

With respect to th e City, the Commission “granted an Order preliminary to issuance of a

Certificate of Convenience and Necessity .

. . subject only to [AWC’s] procuring . . . [the]

appropriate consents, franchises or permits for water service . . . from the appropriate

authorities of

. . . the City of Bisbee.” At that time, a franchise from Cochise County

authorized the provision of water services to the unincorporated areas surrounding Bisbee,

excluding the Town of Warren. 1

¶4 A few year s later, in 1959, the City annexed the unincorporated areas

mentioned above, including the Town of Warren, bringing Bisbee to its current status. AWC

has continued to provide water services to the City since 1955 and several times has been

granted various permits for, i nter alia, relocating or installing water lines. In 1973, in

response to the City’s request for a copy of a franchise from the City to AWC, AWC stated

it could not “locate a franchise per se” from the City and asked how to proceed. The City

apparently made no issue of AWC’s lack of a franchise until filing this action in April 2005.

¶5 In its complaint, however, the City claimed that AWC was operating without

an “approved and ratified franchise from this City,” which would “authoriz[e] its use of the4

public streets and rights-of-way for utility purposes.” It also alleged that “conflicts [existed]

between [AWC’s] use of the City’s streets for water transmission lines and the City’s use of

these same streets in connec t ion with the City’s pending sewer improvement project.”

AWC admitted that it had never obtained a franchise but denied that it “lack[ed] permission

to use [the City’s] public streets and rights-of way for utility purposes.”

¶6 In moving for partial summary judgment below, the City again claimed, inter

alia, that without a franchise, AWC had “no continuing legal right to make use of the public

streets and rights-of-way” in Bisbee and that AWC was “legally responsible for the

relocation costs associated with the City’s sewer improvements.” The City also sought a

declaration that a broad reservation of rights in the subsurface of certain streets, purportedly

retained by AWC’s predecessor in interest, was void as against public policy. AWC moved

to dismiss the City’s complaint pursuant to Rule 12(b)(1), Ariz. R. Civ. P., 16 A.R.S., Pt.

1, arguing the superior court lacked jurisdiction to hear the matter, and alternatively crossmoved for partial summary judgment. Following argument on the motions, the trial court

granted the City’s motion and denied AWC’s moti ons. Although issues relating to the

amount of relocation costs and reimbursement remained unresolved, at AWC’s request, the

trial court included language of Rule 54(b), Ariz. R. Civ. P., in its judgment, permitting this

appeal. While this appeal was pending, AWC applied to the City for a franchise, which the2 As noted earlier, the City’s complaint included both a quo warranto claim and a

request for declaratory relief. AWC contended both here and in its objection below to the

City’s petition to file a quo warranto action that the City lacked standing to pursue such a

claim. S ee generally A.R.S. §§ 12-2041 through 12-2043; Jennings v. Wood

, 194 Ariz.

314, ¶ 17, 982 P.2d 274, 279 (1999); Crouch v. City of Tucson

, 145 Ariz. 65, 67, 699 P.2d

1296, 1298 (App. 1984). At oral argument, however, the parties agreed that any issue about

quo warranto standing is moot because AWC has since obtained a valid franchise.

Accordingly, we do not address this issue.

5 City’s electorate approved in September 2006. Thus, AWC is currently operating under a

valid franchise. 2

DISCUSSION

I. Jurisdiction of the Arizona Corporation Commission

¶7 AWC argues “[t]he trial court erred when it allowed this action to proceed in

violation of the exclusive jurisdiction of the Arizona Corporation Commission.” As noted

above, AWC moved to dismiss the City’s complaint pursuant to Rule 12(b)(1), Ariz. R. Civ.

P., claiming the superior court “lack[ed] subject matte r jurisdiction” “because the relief

requested and the claims brought by the City in vade[d] the exclusive jurisdiction of the

Arizona Corporation Commission.” After hearing argument, the court denied the motion.

“We review de novo the superior court’s exercise of jurisdiction and any issue of statutory

interpretation.” S tapert v. Ariz. Bd. of Psychologist Exam’rs

, 210 Ariz. 177, ¶ 7, 108 P.3d

956, 958 (App. 2005).6

¶8 AWC maintains “[t]he Arizona Constitution provides the Corpora t ion

Commission with broad and pervasive jurisdiction and authority over public service

corporations.” It relies on article 15, § 3, which states:

The Corporation Commission shall have full power to, and

shall, prescribe just and reasonable classifications to be used

and j u st and reasonable rates and charges to be made and

collected, by public service corporations within the State for

service rendered therein, and make reasonable rules,

regulations, and orders, by which such corporatio ns shall be

governed in the transaction of business within the State . . . .

As the City points out, however, “rates, charges and classifications are not at issue.” And

we fail to see how this constitutional provision lends any support for AWC’s argument that

the Commission had exclusive jurisdiction of this matter.

¶9 In discussing the Commission’s jurisdiction in relation to municipal authorities,

our supreme court noted, “[i]t is after the public utility has secured its rights and privileges

and franchises, including those of occupying the streets and alleys of a municipality, that the

power of supervision over the public utility by the Corporation Commission is intended to

be operative and controlling.” Phoenix Ry. Co. of Ariz. v. Lount

, 21 Ariz. 289, 300, 187

P. 933, 936 (1920) (emphasis added). Therefore, a public utility company must first obtain

appropriate permission from the municipality in which it operates before the Commission

has exclusive jurisdiction to regulate the company’s particular operations in that locale.

When the City filed this action and thereby effectively required AWC to obtain a franchise,

AWC had not yet done so. Although AWC previously operated in Bisbee pursuant to the3 AWC cites A.R.S. § 40-282(B) to support its argument that the Commission has “the

exclusive juri sdiction . . . to determine the adequacy of any consent, franchise or permit

issued by municipalities to public service corporations for t he use of public streets and

rights-of-way.” We disagree. That section provides: “Every applicant for a certificate [of

convenience and necessity] shall submit to the commission evidence required by the

commission to show that the applicant has received the required consent, franchise or permit

of the proper county, city and county, municipal or other public authority.” That statute

merely supports the point that a public utility must first obtain appropriate permission from

a municipality before the Commission can grant it further authority to operate.

7 City’s implied consent and therefore was subject to the Commission’s regulation, the issues

raised here did not fall within the Commission’s exclusive jurisdiction. 3

¶10 Further, and importantly, this action did not involve the type of regulatory

authority exclusive to the Commission. In Q west Corp. v. Kelly

, 204 Ariz. 25, 59 P.3d 789

(App. 200 2), this court summarized the powers of the Commission as follows: “‘The

[C]ommission’s power goes beyond stric t ly setting rates and extends to enactment of the

rules and regulations that are reasonably necessary steps in ratemaking.’ In addition to this

executive and legislative authority, the Commission has the jud icial jurisdiction to hear

grievances and consumer complaints.” I d

. ¶ 13, quoting State ex rel. Corbin v. Ariz. Corp.

Comm’n , 174 Ariz. 216, 218, 848 P.2d 301, 303 (App. 1992) (alterations in Qwest ); see

also City of Casa Grande v. Ariz . Water Co. , 199 Ariz. 547, n.3, 20 P.3d 590, 594 n.3

(App. 2001). This action does not invoke or infringe on any of those types of powers.

¶11 Rather, this case is primarily concerned with the rights and obligations of the

City vis-à-vis AWC and the issue of which party should bear the costs of relocatin g

equipment. Cases involving similar if not identical disputes have been brought before the8

superior court rather than the Commission. See, e.g., Paradise Valley Water Co. v. Hart

,

96 Ariz. 361, 395 P.2d 716 (1964); El Paso Natural Gas Co

. v. State , 135 Ariz. 482, 662

P.2d 157 (App. 1983). Further, our supreme court has ruled that determinations of

contractual rights between a public utility and an electric co-operative are within the

province of the courts, not the Commission. S ee Trico Elec. Coop. v. Ralston

, 67 Ariz. 358,

365, 196 P.2d 470, 474 (1948). In those cases, resolution of the dispute was based on the

trial court’s determination of the rights and liabilities of the respective parties and did not

interfere with the Commission’s expertise, which is regulating the business of public service

corporations. S ee Qwest

, 204 Ariz. 25, ¶ 13, 59 P.3d at 794. Because the same can be said

here, this action, though not involving any contract claims, was appropriately before the

superior court.

¶12 In a related argument, AWC contends “A.R.S. § 40-254(F) precludes the

City’s suit.” That statute provides:

Except as provided by this section no court of this state

shall have jurisdiction to enjoin, restrain, suspend, delay or

review any order or decision of the commission, or to enjoin,

restrain or interfere with the commission in the performance of

its official duties, and the rules, orders or decrees fixed by the

commission shall remain in fo rce pending the decision of the

courts, but a writ of mandamus shall lie from the supreme court

to the commission in cases authorized by law.

According to AWC, this action interferes with the Commission’s 1955 decision “directing

Arizona Water Company to operate the Bisbee water system, including its facilities, rightsof-way and easements, to provide public utility water services to the area and customers in9

the City.” But, as the City asserts, the 1955 order “granted AWC a Certificate of

Convenience and Necessity only for that portion of the previously unincorporated areas that

were the subject of a Cochise County franchise agreement at that time,” and “[t]hat franchise

expired by its terms in 1964.” S ee ¶ 3 and n.1, supra. Thus, any authority obtained through

the 1955 order has since expired.

¶13 Even assuming the franchise had not expired by its terms in 1964, neither the

City’s claims nor the trial court’s ruling undermines or interferes with previous orders of the

Commission. As the trial court noted, “th[is] action [wa]s not an unlawful collateral attack

on any [Commission] decision.” And, again, determining the legal rights and obligations of

the parties here is not the type of regulat ory action exclusive to the Commission. In

addition, the trial court did not revoke or limit AWC’s authority generally as a public utility

company. Thus, the trial court had and properly exercised jurisdiction of this action.

¶14 AWC also argues “[t]he City failed to seek administrative recourse before the

Commission and thus the trial court lacked subject matter jurisdiction.” “Generally, a party

must exhaust administrative remedies before appealing to the courts.” A egis of Ariz., L.L.C.

v. Town of Marana

, 206 Ariz. 557, ¶ 38, 81 P.3d 1016, 1026 (App. 2003). Because we

have determined the Commission did not have original jurisdiction of this matter, however,

the doctrine of exhaustion of administrat ive remedies does not apply. S ee Campbell v.

Mountain States Tel. & Tel. Co.

, 120 Ariz. 426, 429, 586 P.2d 987, 990 (App. 1978) (“The10

doctrine [of exhaustion] applies only when an administrative agency has original

jurisdiction.”).

III. Pre-existing property rights

¶15 In opposing the City’s motion for partial summary judgment and in support of

its own cross motion, AWC argued it did “not need a franchise to operate and maintain its

water utility facilities” “when [it] already own[ed] a private property interest” for some of

the areas in dispute. AWC then argued it was a successor in interest of the company that

had developed the Warren townsite, an area that has since been incorporated into Bisbee,

and that through its deed, the company had “maintained [a] fee in ‘easement strips’ defined

as the ‘pieces, parcels or tracts of land lying between and around th e blocks.’” In other

words, AWC maintained that, although the original developer of the Warren townsite had

dedicated much of the land it had developed, it had granted only “‘an easement of right of

way over and on the surface’” of the streets and reserved for itself “any land or ground lying

below the surface,” a nd AWC, as successor in interest, had obtained and retained those

rights.

¶16 In granting partial summary judgment in favor of the City, the trial court found

“[t]he purported reservatio n of rights . . . [by the development company were] void and

unenforceable.” AWC now argues “[t]he trial court erred when it held as a matter of law

that [it] had no pre-existing utility property rights to continue its provision of water utility11

service to portions of the City.” “On appeal from a summary judgment we must determine

de novo whether there are any genuine issues of material fact and whether the trial court

erred in its application of the law.” Hawkins v. Ariz. Dep’t of Econ. Sec. , 183 Ariz. 100,

103, 900 P.2d 1236, 1239 (App. 1995). We will affirm if the trial court’s ruling is correct

on any ground. MacLean v. State Dep’t of Educ.

, 195 Ariz. 235, ¶ 18, 986 P.2d 903, 908

(App. 1999).

¶17 As briefly summarized above, AWC asserts, and the City does not dispute, that

the Warren Realty and Development Company (WRDC) was organized “to develo p the

Warren townsite with electric, gas and water utilities.” In a 1906 deed recorded in 1907,

that company granted the Warren Company and the general public certain interests in the

townsite, including the aforemen tioned surface rights in the “easement strips.” WRDC

expressly reserved to itself the right to install and operate water utility facilities in the streets

by stating in the deed that use of the “easement strips” by the Warren Company and/or the

public shall not unreasonably interfere w ith its and its successors’ and assigns’ full

enjoyment of the easement strips for “digging, excavating, laying, constructing, maintaining

and operating, under, on, over or along the said lands, pipes, tubes, tiles, conduits, subways

and tun nels for water, gas, . . . or any other purpose” and “for digging, repairing,

constructing, maintaining and operating ditches, canals, flumes, sewers, sewer systems, and

systems for the productions, sale, development and distribution of water and gas, on, over,

under or along said lands.”12

¶18 In 1907, the Warren Company dedicated to the public use its surface rights in

the property. But the dedication noted that “[n]othing herein shall be construed to dedicate

any greater right, title or interest in said avenues, streets, parks, plazas, public grounds and

alleys than was conveyed” to it by WRDC. After that dedication, several other properties

were added to the Warren townsite. The Warren Company dedicated its rights in those

additions to the public, again subject to the same limitation that no greater right was being

conveyed than what had been granted by WRDC. For purposes of summary judgment, the

City conceded that AWC was a successor in interest to the property rights that had been

originally retained by WRDC, but argued that such reservation was void.

¶19 “The general rule is that a dedicator may impose such restrictio n s and

reservations as he may see fit when dedicating his property to the use of the public subject

to the limitation that the restriction or reservation be neither repugnant to the dedication nor

contrary to public policy.” C ity of Sierra Vista v. Cochise Enters., Inc.

, 144 Ariz. 375,

379, 697 P.2d 1125, 1129 (App. 1984); see also 23 Am. Jur. 2d Dedication § 6 (2006)

(“dedicator cannot attach to the dedication any conditions or limitations inconsistent with

or repugnant to the grant, that take the property from the control of the public authorities,

or that are against public policy”).

¶20 Cochise Enterprises involved an attemp t by a subdivision developer to

maintain ownership and control over sewer lines that were constructed within the public

streets of a subdivision. 144 Ariz. at 377-78, 697 P.2d at 1127-28. This court concluded13

that “[a]ny attempt by [the developer] to reserve to itself the right to the sewer lines and any

easement pertaining thereto was void as contrary and repugnant to [a local ordinance] and

the public policy of the state giving incorporated cities exclusive control over its sewage

s ystem.” I

d. at 380, 697 P.2d at 1130 (emphasis added); see also A.R.S. § 9-276(A)(3)

(authorizing cities to “[b]uild and repair sewers, tunnels and drains”).

¶21 Although Cochise Enterprises is factually distinguishable from this case and

involved an ordinance, by recognizing a public policy of giving cities exclusive control over

their sewage systems, that case lends support for the City’s argument that WRDC’s

reservation was void as against public policy. Further, several other courts have ruled that

attempted reservations of underground stree t rights for utility purposes were void and

unenforceable. See West Texas Utils. Co. v. City of Spur , 38 F.2d 466, 467-68 (5th Cir.

1930) (rese rvation clause that attempted to give utility right “to make all necessary

excavations, dig all necess ary holes, and do all things necessary to construct, maintain,

operate and repair .

. . [telephone and electric poles and lines] over and across any and all

streets and alleys

. . . should it at an y time desire to do so,” was void as against public

policy); Village of Grosse Pointe Shores v. Ayres

, 235 N.W. 829, 831-32 (Mich. 1931)

(dedication of roads that limited utility installation “circumscrib[ed] the future freedom of

action of the authorities to devote the street to the wants and convenience of the public” and

was therefore “void as against public policy”); Kuehn v. Village of Mahtomedi

, 292 N.W.

187, 190 (Minn. 1940) ( “an individual [may not] by reservation withhold from the14

municipality the sovereign power incident to the public use of streets and highways”); C ity

of Camdenton v. Sho-Me Power Corp

, 237 S.W.2d 94, 97 (Mo. 1951) (affi r ming trial

court’s declaration that “‘the attempt of the dedicators

. . . to reserve control over the utility

rights in the streets

. . . [was] illegal and v oid’”), quoting trial court in case; Bradley v.

Spokane & I.E.R. Co. , 140 P. 688, 690 (Wash. 1914) (“The reservation in the dedication

to general municipal purposes such as the laying of ‘water and gas pipes . . .’ would be so

repugnant to the character of these streets and alleys as public ways, by seeking to take away

from the city the power to exercise control over these streets, as to contravene a sound

public policy, and for this reason we think it must be held absolutely void.”).

¶22 As AWC points out, not every jurisdiction is in agreement on this issue, and

some courts have found certain private reservations in subsurface street righ ts valid and

enforceable. S ee, e.g., Wofford Heights Assocs. v. Kern County

, 32 Cal. Rptr. 870, 874

(Cal. Dist. Ct. App. 1963) (reservation of an easement “to use the subsurface” found valid);

Canda Realty Co. v. Borough of Carteret

, 42 A.2d 859, 863 (N.J. Ch. 1945) (qualified

dedication of streets that reserved the right to “from time to time” construct and maintain

sewers was “lawfully made”); N. Spokane Irrigation Dist. No. 8 v. County of Spokane

, 547

P.2d 859, 860, 861, 863 (Wash. 1976) (recognizing a reservation is void if it “unreasonably

interfered with the municipality’s use and control of the streets ,” but finding county had

failed to show th at “reservation to lay down and maintain water pipes in the dedicated

streets ” unreasonably interfered with its “use, control or regulatory powers over the streets”).15

¶23 But those cases, on which AWC relies, involved reservations that were much

more limited in scope than the attempted reservation of rights by WRDC. That company did

not merely attempt to retain an easement to periodically use the subsurface area or to reserve

the right to maintain a single utility. Rather, it attempted to retain e xclusive authority to dig,

excavate, and construct pipes, conduits, subways, and tunnels “for water, gas, . . . or any

other purpose.” S ee ¶ 17, supra

. WRDC also sought to retain exclusive control over “sewer

systems” and the “development and distribution of water and gas on, over, under or along

said lands.” Id

.

¶24 We agree with the City that such a broad reservation is against Arizona public

policy, which recognizes that municipalities validly may exercise their police powers to

control sewage in the interest of public health and safety. See Cochise Enters. , 144 Ariz.

at 380, 697 P.2d at 1130 (“The construction, maintenance and repair of sewers may be

provided by ordinances and sustained as a valid exercise of the police power in the interest

of public health.”). As a well known commentator has observed:

[I]n many of its aspects the establishment and ef ficient

maintenance of

a sewer system is an exercise of the police

power for the protectio n and promotion of the public health

and safety.

. . . The right of a municipality to exercise this

pow er is considered of such importance to the welfare of the

public that it cannot be contracted or granted away.

11 Eugene McQuillin, The Law of Municipal Corporations § 31.10, at 196-97 (3d ed.

2000).16

¶25 In addition, as the City notes, “[t]he public policy of this state, as expressed

in its statutes, has long granted to cities the exclusive authority to prevent encroachments

and obstructions in their streets.” Section 9-254, A.R.S., adopted in 1901, states: “Upon

filing a map or plat, the fee of the streets, alleys, avenues, highways, parks and other parcels

of ground reserved therein to the use of the public vests in the town, in trust, for the uses

therein expressed.” For purposes of municipal corporations generally, the term “streets”

includes “so much beneath the surface as is necessary for a foundation for the surface and

for water mains, gas pipes, sewer pipes and conduits of various sorts.” 10A Eugene

McQuillin, The Law of Municipal Corporations § 30.06, at 237 (3d ed. 1999); see also 11

id . § 31.18, at 223 (“The use of a public street or alley for sewer or drainage purposes is

necessarily incident to the use for which streets and alleys are open and laid out . . . .”).

¶26 Here, WRDC’s reser vation of rights, inherited by AWC as successor in interest,

essentially sought to retain total control of the streets and their subsurface, except for a

limited “easement of rights of way over and on the surface.” That reservation was repugnant

to the purpose of a public street and contrary to public policy. See 11A id . § 33.10.20, at

343 (“If a condition or reser vation in the dedication of lands for streets tends to hamper

public control, it is usually regarded as against public policy and invalid.”).

¶27 AWC also argues its “longstanding and pre-existing utility property rights are

not contrary to public policy” because, inter alia, they “do not preclude the City from

controlling access to the street” and AWC “has always respected the[] City[’s] activities.”4 We note AWC claims to have retained rights in other portions of the City beyond the

area that was formerly the Warren townsite. The trial court found those purported rights

either “immaterial because no competent, admissible evidence ha[d] been presented

concerning what interest AWC may now have,” or invalid because the grantor had attempted

to reserve rights that had already been transferred to another entity. AWC now argues

“[s]ummary judgment was inappropriate because substantial questions of material fact exist

regarding the scope of [its] prior utility property rights.” But, because we have determined

the reservations were void as against public policy, it is not necessary to determine “the full

extent and effect of the[] prior grants and reservations,” as AWC asserts.

17 And, based on the limited facts before us, apparently AWC and the City peacefully coexisted for many decades until the City commenced its sewer improvement project. Still,

we agree with the City that the reservations included in the 1906 deed attempted to “retain

complete sovereignty over all uses of the[] public streets” and that the “attempt to control

the full array of rights and responsibilities that may be associated with a public roadway is

fundamentally inconsistent with the nature of a public street and is legally unenforceable.”

Thus, although AWC apparently has cooperated with the City over the years and been

respectful of its authority, the reservation itself is void as against public policy. C f. City of

Elk City v. Coffey

, 562 P.2d 160, 162 (Okla. Civ. App. 1977) (“it is the language

. . . of the

grant or reservation that controls its purpose”). Accordingly, the trial court did not err in

so ruling. 4

IV. Necessity of franchise

¶28 AWC also argues “[t]he trial court erred when it held that [AWC] needed a

franchise to continue providing water utility service to the City.” It argues that even absent

any franchise, “consent given and permits issued by the local government can and, in this18

case, do confer upon the utility valid rights to operate within or below public rights-of-way.”

AWC further argues, “[f]or over fifty years, the City has routinely consented to and

permitted [AWC’s] use of municipal property in conjunction with [AWC’s] water service

within the City.”

¶29 A franchise is a “special privilege” conferred by municip a lities “to public

service corporations

. . . for the use of the streets . . . to use them in a manner not available

to ordinary citizens of common right.” Ne. Rapid Transit Co. v. City of Phoenix

, 41 Ariz.

71, 82, 15 P.2d 951, 955-56 (1932); see also A.R.S. § 40-283(A) (“[W]ithin the confines

of municipal corporations the use and occupancy of streets shall be under rights acquired

by franchises

. . . .”). In order to obtain a franchise, a public service corporation must submit

a proposed franchise to the muni cipality, and if the municipality deems the franchise

beneficial, it refers the franchise proposal to the public for a general election, as ultimately

occurred here. A.R.S. § 9-502(A), (B).

¶30 I n granting partial summary judgment in the City’s favor, the tri al court

concluded as a matter of law that, “[u]nder Arizona law, a public service utility may obtain

the right to use the city property for its purposes only by a franchise approved by the city’s

voters.” The court cited A.R.S. § 40-283(A) in support of that conclusion. That section,

which is entitled “[t]ransmission lines; use of public streets for utility rights-of-way; notice;

election,” provides in subsection (A):

Any person engaged in transportation or transmission

business within t h e state may construct and operate lines5 The licenses to which the statute refers deal specifically with cable television

systems, see A .R.S. §§ 9-505 through 9-510, and industrial gas pipelines, see §§ 9-551

through 9-554.

19

connecting any points within the state and connect at the state

boundary with like lines, except that within the confines of

municipal corporations the use and occupancy of streets shall

be under rights acquired by franchises according to law o r

licenses pursuant to title 9, chapte r 5, articles 1.1 and 4 and

subject to control and regulation by the municipal authorities.

(Emphasis added.) 5 Although it may not be clear that a water utility company is “engaged

in transportation or transmission business,” this statute implies that a franch ise from a

municipality is necessary to operate in the municipality’s streets.

¶31 AWC argues, however, that not only is § 40-283(A) ambiguous, but also that

A.R.S. § 40-282 “permits a utility to receive the rights to operate in a municipality by

consents and permits, in addition to a franchise.” That statute states in pertinent part:

Every applicant for a certificate [of convenience and

necessity] shall submit to the commission evidence required by

the commission to show that the applicant has r eceived the

required consent, franchise or permit of the proper county, city

and county, municipal or other public authority.

§ 40-282(B). AWC emphasizes that the Commission will accept evidence of either

“consent” or a “permit” in addition to that of a franchise and points out “[m]any Arizona

municipalities simply choose not to issue franchises as they are not required for the

operation of a water utility so long as the utility has the prior property rights, consents or

permits.”20

¶32 That the Commission can accept other types of permission, however, does not

negate a municipality’s right to control its streets and to require a franchise. Section 40-282,

on which AWC relies, merely addresses the prerequisites for obtaining a “certificate of

convenience and necessity.” Such certificate must be “obtained from the commission”

before the construction of a public utility. A.R.S. § 40-281(A). “Once granted, the

certificate confers upon its holder an exclusive right to provide the relevant service for as

long as the grantee can provide adequate service at a reasonable rate.” J ames P. Paul Water

Co. v. Ariz. Corp. Comm’n

, 137 Ariz. 426, 429, 671 P.2d 404, 407 (1983). That the

Commission may accept alternative forms of approval before conveying a certificate does not

divest a municipality of its right to grant or deny permission to a utility that will occupy its

streets “in a manner not available to ordinary citizens of common right.” Ne. Rapid Transit

Co.

, 41 Ariz. at 82, 15 P.2d at 955-56 (also stating that despite the Commission’s authority

to regulate public utilities, “the right to grant franchises to public utilities to occupy the

streets and alleys of incorporated cities and towns still remains in the municipal

authorities”).

¶33 By filing this action, the City was clearly requiring AWC to obtain a franchise,

which the City has the power to do. S ee id. at 82, 15 P.2d at 955. Thus, contrary to AWC’s

assertion , this no longer is one of the “numerous instances where Arizona public service

corporations do not have franchises, but yet operate under Commission regulation with

consent from the appropriate governmental authority.”6 As the City points out, any previous work permits granted by “City staff members”

“are not equivalent to approval by the Mayor and Council or by the electors of this City, as

required by law.” S ee A.R.S. § 9-502 (requiring that a franchise be approved by a majority

of the electorate before it can be granted); see also Iowa Elec. Light & Power Co. v. Inc.

Town of Grand Junction , 250 N.W. 136, 140 (Iowa 1933) (finding permission by city

without vote of electorate insufficient, and water company had no rights in streets without

a valid franchise).

7 AWC relies on City of Mesa v. Salt River Projec t , 92 Ariz. 91, 373 P.2d 722

(1962), to s upport its argument that the trial court erred in declaring AWC needed a

franchise. In City of Mesa

, the City wanted to provide electric service to the exclusion of

the “District,” which was “a political subdivision of the state.” I d. at 96-97, 373 P.2d at

21 ¶34 Further, as the trial court pointed out, “[g]rants by the City to AWC of permits

to use the streets to work on the water system, or even requests by the City to AWC to work

on, replace, or modify certain aspects of the water system, neither satisfy nor dispense with

the requirement for a franchise” once the City imposed that condition. 6 The Arizona

Constitution provides: “No grant, extension, or renewal of any franchise or other use of the

streets, alleys, or other public grounds, or ways, of any municipality shall divest the State

or any of its subdivisions of its or their control and regulati on of such use and

enjoyment

. . . .” Ariz. Const. art. XIII, § 6. Based on that authority, we agree with the trial

court that the City “retains its ultimate control over its streets and grounds—including the

legal right to require a franchise to allow AWC the long-term use of those streets and

grounds—despite having granted AWC temporary permits in the past.” Thus, although the

trial court’s ruling was overbroad in requiring franchises for all public utility operations, we

cannot say the trial court erred in concluding that, on the City’s request, AWC was obligated

to obtain a franchise in order to continue its water service operations in Bisbee. 7726. As AWC points out, the court found that a municipality does not have “an exclusive

right to control its streets to the exclusion of the state.” Id. at 103, 373 P.2d at 730. We

agree that Bisbee cannot control its streets to the exclusion of the state, but we fail to see

how that argument applies here. Because the issue in City of Mesa arose out of a conflict

between c ity rights and state rights and because that conflict does not exist here, C ity of

Mesa lends no support to AWC’s argument.

22 V. Relocation costs

¶35 Finally, AWC argues “[t]he trial court erred when it held that [AWC] was

obligated to pay relocation costs r elated to the City’s sewer improvements.” In its

conclusions of law, the trial court stated, “[a] public utility is legally required to assume the

costs of relocation in the event of any con flict between the utility’s uses and the City’s

public uses of its public streets.” It thus concluded that “AWC is responsible for the costs

of relocation associated with the City’s sewer improvements.”

¶36 Arizona recognizes as a general rule “that a city or county has the police

power to require a utility to relocate its facilities at its own expense for road improvements

made by the city or county.” S ee Paradise Valley Water Co. v. Hart , 96 Ariz. 361, 364,

395 P.2d 716, 718 (1964). Further, “the well settled common-law rule provides that a

public uti l ity accepts franchise rights in public streets subject to an implied obligation to

relocate its facilities at its own expense, when required for a necessary public use.” E l Paso

Natural Gas Co

. v. State , 135 Ariz. 482, 483, 662 P.2d 157, 158 (App. 1983).

¶37 AWC contends those general propositions do not apply here because the

utilities in those two cases had franchise agreements “that expressly required payment” by23

the utility. AWC asserts “the only way [it] could be obligated to pay relocation costs . . .

is through a contractual agreement,” and here, it was not operating with a franchise or any

other “contractual arrangements that expressly required payment.” But, even when a public

utility has no formal contractual obligation to assume relocation costs, “[a] municipal

corporation has no right directly or indirectly to burden itself or its citizens with the cost of

removing and replacing the structures and appliances of public service companies that may

necessarily be interfered with in laying sewers in the streets.” 39 Am. Jur. 2d H ighways,

Streets and Bridges § 316 (2006). Instead, those utilities that occupy the streets—on the

surface or subsurface—“may be required to adapt themselves to regulation s made in the

exercise of the police power.” N ew Orleans Gaslight Co. v. Drainage Comm’n of Ne w

Orleans

, 197 U.S. 453, 461, 25 S. Ct. 471, 473-74 (1905). And, just as “[t]he drainage of

a city in the interest of the public health and welfare is one of the most important purposes

for which the police power can be exercised,” id . at 460, 25 S. Ct. at 473, the same can be

said of a municipality’s public sewer system.

¶38 Although most cases discussing relocation costs do involve franchise

obligations, public utilities have been required to assume relocation costs despite no

affirmative contractual obligation to do so. S ee AT & T Corp. v. City of To ledo , 351

F. Supp. 2d 744, 747 (N.D. Ohio 2005) (easement granted by city to utility was “implicitly

subject to [city’s] continuing duty and right under the police power to engage in . . .

construction activities

. . . for the preservation of t he public health and safety, requiring24

[utility] to relocate its telecommunications cable at its own expense”); Anderson v. Fuller

,

41 So. 684, 688 (Fla. 1906) (because any rights to occupy the public streets “are at all times

held in subordination to the superior rights of the public,” city’s sewer contractor could not

assume costs of removal and replacement of conflicting lines).

¶39 Thus, because a utility’s right in the surface or subsurface of public streets is

subordinate to the public’s right to health and safety and subject to the government’s police

power, AWC must assume the costs of relocation here. See S. Cal. Gas Co. v. City of Los

Angeles , 329 P.2d 289, 291 (Cal. 1958) (“the established rule that a utility’s rights in the

public streets are taken subject to the paramount right of public travel

. . . applies between

public utilit ies and municipal corporations using the streets for sewer purposes”). That

AWC’s rights in the streets heretofore were not formally established through a franchise and

that AWC had no franchise or other contractual obligation to pay for relocating its facilities

does not relieve it of the common law obligation to assume the relocation costs. As the City

points out, it is illogical that a public u tility that is properly authorized by franchise to

operate within a city would have greater obligations than a public utility that formerly has

not been authorized through a franchise agreement.

¶40 AWC’s remaining argument on this point is that, “[b]ecause [ A WC] ha[s] prior

utility property rights, it does not have an obligation to pay for utility relocation costs.” But,

as we have already concluded, the reservation of rights by WRDC, now claimed by AWC

as successor in interest, is void as against public policy. Thus, we do not further address this8 We note that the facts relating to the City’s sewer improvement pro ject and the

precise ways in which it intersected with AWC’s water lines are not before this court. As

the City concedes,

[t]he determination of the full and appropriate quantification of

the damages

. . . is the subject of the City’s First Amended

Complaint, now pending. The resolution of the ultimate

damage issue will raise a number of factual questions, but these

are not included within the partial summary judgment order that

has been designated as a f inal judgment for purposes of this

appeal.

25 argument. For the foregoing reasons, we affirm the trial court’s conclusion that “AWC is

responsible for the costs of relocation associated with the City’s sewer improvements.” 8

DISPOSITION

¶41 To the extent that it is consistent with this opinion, the judgment of the trial

court is affirmed.

____________________________________ JOHN PELANDER, Chief Judge

CONCURRING:

____________________________________ JOSEPH W. HOWARD, Presiding Judge

____________________________________ GARYE L. VÁSQUEZ, Judge