Court Opinion

ID: 4092490
Source: CourtListenerOpinion
Date Created: 2016-10-25 16:02:56.228554+00
Date Added: 2024-06-11T14:36:23.646781
License: Public Domain

NOTICE: NOT FOR OFFICIAL PUBLICATION.
       UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT
          PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

                                    IN THE
            ARIZONA COURT OF APPEALS
                                DIVISION ONE

                  MARSHALL MAGRUDER, Appellant,

                                       v.

         ARIZONA CORPORATION COMMISSION, Appellee,

                  EPCOR Water Arizona Inc., Intervenor.

                            No. 1 CA-CC 15-0002
                              FILED 10-25-2016

           Appeal from the Arizona Corporation Commission
                              No. 75268

                                 AFFIRMED

                                  COUNSEL

Marshall Magruder, Tubac
Appellant

Arizona Corporation Commission, Legal Division, Phoenix
By Robin R. Mitchell, Maureen A. Scott, Janet F. Wagner
Counsel for Appellee

Lewis Roca Rothgerber Christie LLP, Phoenix
By Thomas H. Campbell, Michael T. Hallam
Counsel for Intervenor
                            MAGRUDER v. ACC
                            Decision of the Court

                      MEMORANDUM DECISION

Judge Patricia A. Orozco delivered the decision of the Court, in which
Presiding Judge Andrew W. Gould and Judge Peter B. Swann joined.

O R O Z C O, Judge:

¶1            This appeal stems from an Arizona Corporation Commission
(Commission) decision establishing rates and charges for four water
districts and one wastewater district operated by EPCOR Water Arizona,
Inc. (EPCOR). Appellant Marshall Magruder, an intervenor in the rate case,
contends the Commission improperly disregarded three of his proposals.
For the reasons set forth below, we affirm.

           FACTUAL AND PROCEDURAL BACKGROUND

¶2            EPCOR is a private water company providing services to nine
water districts and five wastewater districts. EPCOR filed a rate case with
the Commission in 2014 seeking rate increases in five districts: Mohave
Water, Paradise Valley Water, Sun City Water, Tubac Water, and Mohave
Wastewater. EPCOR also asked the Commission to approve a Systems
Improvement Benefits surcharge.

¶3           Several parties opposed portions of EPCOR’s application,
including Magruder, an EPCOR customer residing in the Tubac Water
District. Magruder proposed that the Commission do the following:

      Consolidate all districts so that all EPCOR customers within
       each rate category would pay the same rates;

      Order EPCOR to adopt a low-income program he called the
       “water lifeline” under which residential and small business
       customers in all districts would receive their first 3000 gallons
       at a reduced rate; and

      Order EPCOR to adopt a tiered rate system in all water
       districts, which he claimed would promote water
       conservation.

An administrative law judge held an evidentiary hearing on EPCOR’s
application spanning several days, taking testimony and evidence from

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EPCOR, the Residential Utility Consumer Office (RUCO), and several
intervenors, including Magruder.

¶4             The Commission ordered EPCOR to file new rates for each of
the five districts at issue and to expand its existing low-income program to
the Tubac Water, Paradise Valley Water, and Mohave Wastewater districts.
The Commission did not implement Magruder’s proposed rates or his
“water lifeline” program. The Commission also determined that it would
not be appropriate “to address consolidation in this case” and ordered
EPCOR to “file a rate case for all of its systems no later than July 1, 2018 . . .
and include in the application rate consolidation options as an alternative
to treating all of [EPCOR’s] systems as independent.”

¶5             Magruder timely requested a rehearing.           Because the
Commission did not act on Magruder’s request, it was deemed denied. See
Arizona Revised Statutes (A.R.S.) section 40-253.A.1 Magruder then filed a
timely notice of appeal with this court. We have jurisdiction pursuant to
Article 6, Section 9, of the Arizona Constitution and A.R.S. §§ 12-120.21.A.1
and 40-254.01.A.

                                DISCUSSION

¶6             The Commission enjoys full and exclusive power to set just
and reasonable rates for public service corporations. Ariz. Const. art. 15, §
3; State v. Tucson Gas, Elec. Light & Power Co., 15 Ariz. 294, 299 (1914). The
Commission also enjoys a wide range of legislative discretion in exercising
its ratemaking authority. Ariz. Corp. Comm’n v. State ex rel. Woods, 171 Ariz.
286, 294 (1992). To successfully challenge a ratemaking decision, one must
demonstrate by clear and satisfactory evidence that the decision was
unreasonable or unlawful. A.R.S. § 40-254.01.E. This standard is equivalent
to the “clear and convincing evidence” standard. Tucson Elec. Power Co. v.
Ariz. Corp. Comm’n, 132 Ariz. 240, 243 (1982). Thus, to prevail, Magruder
must “demonstrate, clearly and convincingly, that the Commission’s
decision [was] arbitrary, unlawful or unsupported by substantial
evidence.” Litchfield Park Serv. Co. v. Ariz. Corp. Comm’n, 178 Ariz. 431, 434
(App. 1994). We find he has not done so.

1      We cite to a statute’s most current version absent a change material
to our decision.

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I.     The Commission-Approved Rates Were Not Discriminatory or
       Unreasonable.

¶7             Magruder contends the approved rates violate Article 15,
Section 12, of the Arizona Constitution, which provides, in relevant part:

       All charges made for service rendered, or to be rendered, by
       public service corporations within this state shall be just and
       reasonable, and no discrimination in charges, service, or
       facilities shall be made between persons or places for
       rendering a like and contemporaneous service . . . .

Magruder contends the rates are discriminatory because they are not
uniform across all EPCOR systems. He argues EPCOR can only cure this
discrimination by “present[ing] one company-wide set of rates in [a] fair
and reasonable rate case for ALL of its customers.”

¶8              The fact that rates differ does not by itself make them
discriminatory. See A.R.S. § 40-334.B (public service corporation may not
“establish or maintain any unreasonable difference as to rates, charges,
service, facilities . . . either between localities or between classes of service”)
(emphasis added). Public service corporations may not discriminate
among similarly situated customers. Gen. Cable Corp. v. Citizens Utils. Co.,
27 Ariz. App. 381, 384 (1976), Magruder, however, presented no evidence
to suggest all EPCOR customers are similarly situated.

¶9              However, EPCOR presented testimony establishing that
“[t]he rates for each district are designed to recover the total cost of service
for each individual district” and that “[e]ach district has its own cost
structure and mix of customer classes (and usage patterns).” EPCOR also
presented evidence showing service costs varied significantly in the five
districts at issue, including, for example, arsenic removal costs unique to
the Tubac Water district where Magruder resides. EPCOR also directly
addressed Magruder’s consolidation proposal, presenting testimony
stating that consolidation would “take a long period of time” and “would
require input from multiple parties, not just those involved in the instant
case.”

¶10           Magruder did not challenge any of this evidence. He instead
asserted that “[a]ll the fixed service charge, volumetric rates, surcharges,
mechanisms and fees should be the same for all ratepayers of the same rate
class and rate category” and presented his own set of uniform rate
calculations. Magruder’s desire that rates be equal across all EPCOR
systems is not sufficient grounds to find discrimination.

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                            MAGRUDER v. ACC
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¶11            Magruder also contends the approved rates are unreasonable
under A.R.S. § 40-334.B, but cites no evidence to show any particular rates
are unreasonable. He instead argues that any and all rate differences
among EPCOR’s districts are per se unreasonable. The legislature chose to
prohibit unreasonable rate differences; not all rate differences. A.R.S. § 40-
334.B; see City of Tucson v. Clear Channel Outdoor, Inc., 218 Ariz. 172, 179, ¶ 9
(holding that we do not look beyond the statutory language when it is not
ambiguous). Magruder fails to show the Commission acted arbitrarily or
unlawfully in declining to adopt his proposed rate structure. See Litchfield
Park, 178 Ariz. at 434.

II.    EPCOR Did Not Violate Past Commission Decisions by Failing to
       Offer Consolidation Proposals in This Case.

¶12         Magruder next cites a 2009 Commission decision involving
Arizona-American Water Company (AAWC), now owned by EPCOR, in
support of his contention that consolidation was required. There, the
Commission ordered:

       [T]his docket shall remain open for the limited purpose of
       consolidation in the [AAWC]’s next rate case with a separate
       docket in which a revenue-neutral change to rate design of all
       [AAWC’s] water and wastewater districts or other
       appropriate proposals may be considered simultaneously,
       after appropriate public notice, with appropriate opportunity
       for informed public comment and participation.

Magruder contends this passage obligated EPCOR to submit system-wide
consolidation proposals in the current case, which it did not do. A review
of relevant past Commission decisions suggests otherwise.

¶13           The Commission is entitled to deference in determining when
to take up possible consolidation. Miller v. Ariz. Corp. Comm’n, 227 Ariz. 21,
28, ¶ 27 (App. 2011) (“Because ratemaking is such a complex and
specialized endeavor, courts accord substantial deference to the
Commission’s determinations of ‘what regulation is reasonably necessary
for effective ratemaking.’”) (quoting Woods, 171 Ariz. at 294). The
Commission’s decision making will not be disturbed unless it is arbitrary,
unlawful, unreasonable or unsupported by substantial evidence. Turner
Ranches Water & Sanitation Co. v. Ariz. Corp. Comm’n, 195 Ariz. 574, 576, ¶ 5
(App. 1999). The Commission considered potential consolidation of
AAWC’s systems in a 2011 rate case in which Magruder intervened. There,
AAWC offered consolidation proposals consistent with the Commission’s

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                            MAGRUDER v. ACC
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2009 order, stating its then-preference for “Company-wide consolidation”
over other alternatives. The Commission found a then-existing rate
disparity among AAWC’s districts “present[ed] an insurmountable
impediment . . . to statewide consolidation” and ordered AAWC “to
develop a consolidation proposal that includes all of its systems . . . and to
file those consolidation proposals in a future rate application.”

¶14           Then, in a related decision, the Commission ordered EPCOR
to deconsolidate one of its wastewater districts by early 2016. The
Commission also ordered EPCOR to

       file the system-wide rate filing as ordered by [the 2011
       decision] that includes all of the affected districts . . . as soon
       as possible, so that all affected parties will receive notice of,
       and will have a full opportunity to address, all the issues
       affecting [EPCOR]’s revenue requirement, and can make
       proposals either for or against consolidation or
       deconsolidation for Commission consideration.

Subsequently, in 2014, the Commission ordered EPCOR to file “a
permanent rate case for all five of its wastewater districts on or before
September 30, 2015.”

¶15          With these decisions as background, the Commission chose
not to address consolidation in the present case and directed EPCOR to file
a system-wide rate case by July 1, 2018. The Commission did so in part
because the current rate case did not involve all parties who may have an
interest in system-wide consolidation. Magruder has not shown the
Commission abused its discretion by choosing to delay consolidation
discussions.

III.   The Commission Did Not Abuse Its Discretion in Declining to
       Implement Magruder’s Proposed Low-Income Program.

¶16            Magruder also objects to the Commission’s decision to allow
EPCOR to expand its existing low-income program. Magruder first
contends the surcharges the program requires are discriminatory because
they differ among the districts and unfairly affect small businesses.
However, because differences in rates are not necessarily “discriminatory;”
we reject this contention. See supra ¶ 8.

¶17            Magruder also contends that EPCOR instead should have
implemented his proposed “water lifeline” because many customers who
qualify for the existing low-income program do not apply. Magruder made

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                            Decision of the Court

this proposal before the Commission, who chose not to implement it.
Magruder presents no evidence, much less clear and satisfactory evidence,
to show the Commission’s decision was unreasonable or unlawful. A.R.S.
§ 40-254.01.E; Turner, 195 Ariz. at 576, ¶ 5.

IV.    The Commission Did Not Abuse Its Discretion in Declining to
       Adopt Magruder’s “Water Conservation” Proposals.

¶18             Finally, Magruder contends the Commission should have
ordered EPCOR to implement more rate tiers as well as the “water lifeline”
discussed above because both would better promote water conservation.
The Commission is constitutionally endowed with broad power not only to
set rates, but to prescribe classifications and establish categories to consider
in setting rates. Consol. Water Utils., Ltd. v. Ariz. Corp. Comm’n, 178 Ariz.
478, 483-84 (App. 1993). Again, Magruder presents no evidence showing
the Commission abused that discretion in declining his proposals; he only
repeats his assertion that the existing rate structure is “discriminatory.” We
thus decline Magruder’s invitation to remand the case for reconsideration
of his proposals.

                               CONCLUSION

¶19          For the reasons set forth above, we affirm the Commission’s
decisions declining to adopt Magruder’s proposals.

                           AMY M. WOOD • Clerk of the Court
                           FILED: AA

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