City of Surprise v. Arizona Corporation Commission: How this Seemingly Straightforward Eminent Domain Case is Actually a Surprise Success for Renewable Energy Advocates

By Marissa Gibbens.

On March 28, 2019, the Supreme Court of Arizona issued the opinion for City of Surprise v. Arizona Corporation Commission and the decision impacts more than just the parties involved. Indeed, the court held that while the Arizona Corporation Commission has statutory authority to approve the sale or disposition of a public service corporation’s assets, the Commission does not have authority to require a utility to apply for approval of a city’s proposed condemnation of the utility’s assets. The decision could have major implications for Arizona municipalities, developers, utilities, and renewable energy advocates alike.

The facts are these: In 2017, City of Surprise documented its intent to condemn the assets of Circle City Water Company. A residential developer contended that “Circle City [was] obliged under an existing contract to allocate its…water for a planned development” and asked the Commission to step in after Surprise stated it had no obligation to provide water under the contract. The Commission started investigating and ordered Circle City to file an application (under statute § 40-285 and Arizona Administrative Code (“A.A.C.”) R14-2-402(D)) to seek authorization from the Commission to go forward with its transfer of assets to Surprise. The Commission also requested a copy of the draft condemnation agreement and a writing to confirm whether Surprise would “assume Circle City’s water contract with the developer.” Surprise filed a special action, alleging that the Commission “acted without jurisdiction” in entering its order.

The court accepted the action to “clarify the scope of the Commission’s authority over eminent domain proceedings.” The court mostly analyzed the issue as a “purely legal question of statutory interpretation: whether the Commission has exceeded its statutory authority.” Does § 40-285, providing that “[a] public service corporation shall not sell, lease, assign, mortgage or otherwise dispose of…its…system…without first having secured from the commission an order authorizing it so to do” give the Commission authority to regulate condemnations by requiring a utility to provide information about the transfer of its assets?

In answering no, the court held that the statute does “not give the Commission power over a city’s exercise of eminent domain.” The court similarly held that A.A.C. R14-2-402(D) did not confer jurisdiction to the Commission.

This decision impacts more than just Surprise, the Commission, and other immediate stakeholders. Now, it’s clear that “[t]he Commission simply has no role to play in condemnations,” regardless of whether the condemnee is willing “to sell his property.” Thus, in the future, municipalities will be free to municipalize (acquire) utilities via eminent domain without first having to get the Commission’s approval. This means that existing Arizona cities and cities not yet in existence will be free (if they so choose) to create their own utility systems using infrastructure that once was under the possession of a public service corporation.

And, why is this important? While City of Surprise involves a water utility, the decision arguably applies to cities condemning utilities of all kinds, including electric utilities. The decision thus sets encouraging precedent for municipalities favoring a shift to renewable and clean energy generation (as opposed to non-renewable and environmentally harmful generation). Municipal proponents of renewable energy will have one less barrier in creating new, renewable energy systems: they won’t have to go through the Commission when exercising eminent domain to condemn electric utility infrastructure. Indeed, the implications of decisions like City of Surprise promote renewable energy development at the local level.