Court Of Appeals Confirms That Arizona Constitution Authorizes Arizona Corporation Commission To Determine Energy Rates

Author:Mr Gregory Y. Harris
Profession:Lewis Roca Rothgerber Christie LLP
 
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The Arizona Constitution requires that the Arizona Corporation Commission ("Commission") approve just and reasonable rates, the determination of which is to be evaluated by the Commission.

In Freeport Minerals Corporation v. Arizona Corporation Commission, the Court of Appeals upheld rates for Tucson Electric Power Co. ("TEP") and ruled that the Commission's actions are presumed to be constitutional and will be upheld unless arbitrary or an abuse of discretion. Freeport Minerals Corp. v. Ariz. Corp. Commission, (Arizona Court of Appeals Docket No. 2 CA-CC 2017-0001, decided April 5, 2018). In response to a challenge to TEP's Commission approved rates, the Court noted that any party seeking to challenge a rate ruling decision issued by the Commission will need to demonstrate and provide clear and convincing evidence hat the Commission's decision to grant and approve rates was arbitrary, unlawful, or unsupported by substantial evidence.

In Freeport, the Court evaluated the core issue raised in the challenge, which concerned the existence and extent of subsidies arising from differences between the rates charged for different classes of service. The challenge focused largely on the fact that variations existed in the rates between classes of service, with higher rates paid by commercial customers creating a subsidy to support lower rates for residential customers. In response to the challenge, the Court stated that neither the Constitution nor Arizona law prohibits interclass subsidies, and that the existence of differences of rates between classes of service does not invalidate the Commission's action. Instead, the Court noted that the limitations established under Arizona law provide the opportunity to determine whether interclass subsidies are unreasonable. The Court concluded that the Commission's approval of TEP's rates, which continued a historic pattern of different rates between classes of service, was "reasonable" in part because the rates at issue...

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