By Jesse Cresap.
In Arizona, utilities and their regulators disagree over who controls and profits from excess space on utility infrastructure. The Arizona Corporation Commission’s Utility Division Staff asserts authority over the unused space on utility infrastructure and whether cellular antennas can be attached to the outside of a water storage tank. A recent matter before the Corporation Commission again brought this issue to the forefront. Flagstaff Ranch Water Company, Inc. sought approval to transfer a water tank to Cactus State Utility Operating Company, LLC pursuant to Ariz. Rev. Stat. § 40-285. Utility Division Staff objected to the transfer, in part because there were unapproved cellular antennas attached to the water tank exterior. This raises the question of whether utilities can lease space on their infrastructure and, if they can, whether it’s a good idea to do so.
Section 40-285: A Brief History
The issues of A.R.S. § 40-285 and who controls the unused space on a utility were first settled in 1983. Utilities were capitalizing on their excess utility pole space and licensing it to cable companies, which needed a cost-effective way to install their new cables. It seemed like an ideal solution for the utilities and the cable companies, but perhaps not for the utility customers that paid for the infrastructure through utility bills. Given the terms “necessary and useful” in A.R.S. § 40-285, Arizona Public Service Company argued the entire utility pole is “necessary or useful” in performing the utility’s public duties, and therefore, the cable company attachment agreements required Commission approval.
The Commission agreed, but the decision didn’t last long. The Arizona Supreme Court overturned the Commission’s decision and determined that A.R.S. § 40-285 was enacted to prevent looting—utilities from selling off equipment to make a quick profit. Looting often leads to lower quality and unreliable services because needed infrastructure has been disposed of improperly. The Court reasoned that, because cables can only be attached where there isn’t already a cable, the space must not currently be “necessary or useful” in providing utilities.
Utilities and the Commission litigated A.R.S. § 40-285’s scope and meaning a few more times over the years, notably with unused railroad track and city condemnations of assets and acre-feet of water. The courts continued to limit its applicability to looting and improper disposal that impaired the utility’s ability to provide service. This set the stage for Flagstaff Ranch Water and the recent Commission decision.
Flagstaff Ranch and Its Water Storage Tank
After operating since the 1980s, Flagstaff Ranch began to install cellular antennas on its water storage tank in 2003. It leased space on the tank exterior to cellular providers who were eager to save costs and avoid building their own structures. The agreements proceeded amicably until Flagstaff Ranch Water opted to sell the tank and filed a joint application with Cactus State Utility in 2022. The Utility Division Staff objected on the grounds that the structure could be damaged and that profits may not be reinvested to maintain the system or lower rates charged to customers. Ultimately, the Arizona Corporation Commission disagreed with the Utility Division Staff and concluded that Flagstaff Ranch did not violate § 40-285 by installing the cellular antennas and approved the transfer.
There is no law in Arizona requiring profits from these attachment leases to be factored into rates charged to customers—who subsidize the available space by paying for the infrastructure through their bills. Despite this lack of legal obligation, the court determined on the evidence that Flagstaff Ranch had chosen to reinvest profits in the system. Further, they noted that no evidence showed damage to the water system and that Cactus State agreed to assume any associated risks. For now, public utilities in Arizona seem to be able to optimize available space on utility infrastructure, but whether the profits will continue to be reinvested in the system remains to be seen.
What This Means for Customers
These attachment leases have grown in popularity, but they are not without their costs and critics. Some of these critics argue that cellular antennas increase maintenance costs by restricting access and increasing the potential for damage to the tank. Others object to cellular towers as a significant eyesore. Attaching cellular antennas to water storage tanks preserves the natural landscape through building fewer towers, especially in remote areas.
Perhaps cellular leases and other inventive uses for utility infrastructure will increase cash flow and allow for more investment and improvements to existing systems. This could be especially important now, when demand for water is on the rise, and Arizona is working on new ways to manage its scarce water resources. If the money is reinvested and used to lower costs, the benefits may far outweigh any downsides. However the eventual benefits and costs shake out, the current law is clear that utilities may freely use the excess space on their infrastructure so long as it does not interfere with providing services.
By Jesse Cresap
J.D. Candidate, 2025
Jesse Cresap is a Certified Public Accountant and 2L at Arizona State University Sandra Day O’Connor College of Law. Previously, he worked as an Auditor in the Legislative Services Office for the Idaho State Legislature and in IT Support for the Idaho National Laboratory.