The Arizona Corporation Commission is charged with the constitutional authority and obligation to regulate public utilities. In August, the Arizona Supreme Court issued a decision confirming the broad discretion that the Commission holds in carrying out one of its most important regulatory functions – setting utility rates.
In RUCO v. Ariz. Corp. Commission, the Residential Utility Consumer Office (RUCO, a state agency responsible for representing the interests of residential utility ratepayers) challenged the Commission’s approval of a mechanism that allowed a water company to adjust its rates between rate cases. RUCO objected to the adjustment mechanism because it would allow the utility to charge higher rates without the kind of detailed analysis that the Commission typically employs to set rates in a full rate case.
A full rate case, as the Court explained, is the procedure used by the Commission to evaluate a utility’s operations and finances and determine what rates are just and reasonable. The Commission considers a variety of rate-related factors in a rate case, including the value of the company’s property and its reasonable operating expenses. As the Court acknowledged, rate cases can be complex, litigious and time consuming, which is why utilities favor mechanisms that allow rate adjustments between full rate cases.
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