Ruling sets up renewable energy fight between Corp Comm, lawmakers




Photo by Sirisak Boakaew | Getty Images

The Arizona Supreme Court may have opened the door to allowing the legislature to overrule the Corporation Commission on renewable energy standards, a longtime goal of some conservative lawmakers who dislike the mandates imposed on electrical utilities.

On July 31, the court upheld the commission’s decision to appoint an interim manager for Johnson Utilities, a Pinal County water company, following a series of issues, including problems with low water pressure and overflowing sewage.

The case had nothing to do with renewable energy standards. But it did probe the limits of the commission’s authority over the companies it regulates. And tucked in the ruling were paragraphs that suggested the courts may have overstepped their boundaries when they permitted the commission to mandate how much energy utilities must get from renewable sources.

In its ruling, the court upheld the commission’s decision to appoint EPCOR, another utility, to handle day-to-day management of Johnson Utilities. That authority, the court ruled, is derived not from its exclusive authority under the Arizona Constitution to set utility rates, but under its “permissive authority.” The permissive authority granted by the Arizona Constitution allows the commission to “make and enforce reasonable rules, regulations, and orders for the convenience, comfort, and safety, and the preservation of the health, of the employees and patrons.”

And permissive authority, the court emphasized, is not exclusive. It is concurrent with the legislature’s authority, Justice Andrew Gould wrote for the 6-1 majority, and when there is a conflict between the two, the legislature’s authority is paramount.

“The permissive clause does not, either expressly or impliedly, limit or divest the legislature of its police power to protect the health, safety, and welfare of the public,” Gould wrote in the opinion.

Gould wrote that lower courts have relied on what the majority described as a flawed 1992 Arizona Supreme Court ruling in ways that allowed the Corporation Commission to “become increasingly involved in management decisions” as a function of its ratemaking authority. One of those judicial missteps, Gould said, was the Arizona Court of Appeals’ 2011 decision that the commission’s authority to impose renewable energy on electric utilities was an exclusive power under its rate-making authority.

Court Rich, an attorney with Rose Law Group who works on utility issues, said the implications of the Supreme Court’s ruling are clear.

“It looks like, based on the Supreme Court’s opinion, the court now feels the legislature has the ability to weigh in on this topic,” Rich said. 

The commission’s legal staff has prepared an analysis of the Johnson Utilities ruling and its ramifications for the renewable energy standards. The commission declined to provide the analysis to the Arizona Mirror, saying it’s protected by attorney-client privilege and can’t be released to the public.

The Supreme Court’s ruling left Commissioner Justin Olson no doubt that the legislature has the authority to impose its own renewable energy standards, regardless of what requirements the commission has established. Olson wouldn’t discuss the contents of the analysis, though he said “our staff’s analysis of the ruling is an accurate read of the ruling.”

“I think that the ruling is quite clear that it says the commission’s permissive authority … is not an exclusive authority of the commission and it is actually subordinate to the state, meaning the legislature’s police power for safety, comfort, convenience and health.”

House Speaker Rusty Bowers said he anticipates that lawmakers will “review the ruling and take it into consideration when setting priorities for next year’s legislative session.”

What the legislature does next session will depend in large part on who controls the House of Representatives and Senate next year. And in a rare scenario for Arizona, where Republicans have held the House since 1966 and have held control of the Senate for all but six years during that period, the Democrats could take control of one or both legislative chambers in November.

A split or Democratic-controlled legislature would be unlikely to overturn the commission’s renewable energy standards. And regardless of who controls the legislature, GOP Commissioner Bob Burns, a supporter of higher renewable energy standards, was skeptical that lawmakers would be able to muster the votes, even if some of his fellow Republicans are “somewhat cool toward renewable energy.”

If lawmakers take on the task of setting renewable energy policy, Burns said they’ll learn, as regulators in other states have, that solar energy is simply cheaper than many other forms of energy. He also said many large companies are supportive of renewable energy as well, and may be less likely to locate in Arizona without a strong policy on renewables.

“I think they may get a different level of lobbying on them than they’re used to on that issue,” Burns said.

Rich echoed that sentiment, warning that the legislature would jeopardize Arizona’s economic development by rolling back the renewable energy standards.

“I highly doubt the legislature would step in and take Arizona backwards, risking thousands of jobs by creating massive uncertainty in one of the fastest job growth sectors on earth,” he said.

Lawmakers have proposed such challenges to the standards in the past, though never successfully. Former Republican state Rep. Carl Seel sponsored legislation in 2010 that would have barred the state and its political subdivisions from mandating that utilities get set amounts of their energy from renewable sources. The bill was held in committee and never received a hearing.

Even if the legislature enacts its own renewable energy standards, the court’s ruling in the Johnson Utilities case is unlikely to be the end of the story. Because the Supreme Court’s comments on the renewable energy standards were dicta — a legal term for judges’ comments on issues that aren’t part of a case — any move by the legislature to change the standards will almost certainly invite a legal challenge, Rich said.

But some lawmakers will undoubtedly view the ruling as a green light to act on renewable energy. And Bill Mundell, a former commissioner who helped draft the 2006 standards and is now running for his old seat, worries that the court has already signaled how it’s likely to rule on any challenge to legislative authority over renewables.

The Renewable Energy Standard and Tariffs, as the 2006 requirements are known, requires regulated utilities to get at least 15% of their energy from renewable sources by 2025. Supporters argued that renewable sources were more cost-effective and thus tied to the commission’s rate-making authority, a position the Court of Appeals sided with in 2011.

The Johnson Utilities ruling comes at a particularly contentious time in renewable energy policy. The commission is considering multiple proposals to expand its renewable energy requirements. Staff proposed two potential plans, requiring regulated utilities to get 50% of their energy from renewable sources by 2035 and to get all of their energy from carbon-free sources by 2050. The commission adjourned after failing to reach an agreement on a new standard at a late July meeting.

“Going forward, where both the Legislature and the Commission act on a new energy standard, the court will likely need to provide additional clarification,” Commissioner Sandra Kennedy, the commission’s lone Democrat, said in a statement issued to the Mirror.

Arizona Public Service and Tucson Electric Power have also proposed their own plans to expand their use of renewable energy. APS is aiming to use 100% carbon-free energy sources by 2050, with a midpoint benchmark of 45% by 2030, while TEP has proposed a plan to get 70% of its energy from renewable sources by 2035.