Hohokam Irrigation and Drainage District, Pinal County, Arizona, a political subdivision of the State of Arizona, v Arizona Public Service Company, an Arizona Public service corporation et al.

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FILED FEB 2 8 2003 SUPREME COURT OF ARIZONA En Banc NOELKOESSAINT CLERK SUPREME COUF~T IRRIGATION AND DRAINAGE DISTRICT, PINAL COUNTY, ARIZONA, a political subdivision of the State of Arizona, HOHOKAM Plaintiff/Counterdefendant/ Appellee, ) ) Arizona Supreme Court No. CV-02-0091-PR ) Court of Appeals Division Two No. 2 CA-CV 01-0026 ) ) v. Pinal County Superior Court No. CV 98-046103 ARIZONA PUBLIC SERVICE COMPANY, an Arizona public service corporation, Defendant/Counterclaimant/ Appellant. CENTRAL ARIZONA IRRIGATION AND DRAINAGE DISTRICT, a political subdivision of the State of Arizona; ELECTRICAL DISTRICT NO. ONE, Pinal County, Arizona, a political subdivision of the State of Arizona; ELECTRICAL DISTRICT NO. 3, Pinal County, Arizona, a political subdivision of the State of Arizona; ELECTRICAL DISTRICT NO. 4, Pinal County, Arizona, a political subdivision of the State of Arizona; ELECTRICAL DISTRICT NO. 5, Pinal County, Arizona, a political subdivision of the State of Arizona; and MARICOPA-STANFIELD IRRIGATION & DRAINAGE DISTRICT, Pinal County, Arizona, a political subdivision of the State of Arizona, Intervenors/Appellees, v. ARIZONA PUBLIC SERVICE COMPANY, an ~ p i N I 0 N Arizona public service corporation, Defendant/Appellant. THE HARQUAHALA POWER DISTRICT, a political subdivision of the State of Arizona; AGUILA IRRIGATION DISTRICT, a political subdivision of the State of Arizona; McMULLEN VALLEY WATER CONSERVATION AND DRAINAGE DISTRICT, a political subdivision of the State of Arizona; BUCKEYE WATER CONSERVATION AND DRAINAGE DISTRICT, a political subdivision of the State of Arizona; ROOSEVELT IRRIGATION DISTRICT, a political subdivision of the State of Arizona; ELECTRICAL DISTRICT NO. 7, a political subdivision of the State of Arizona; and ELECTRICAL DISTRICT NO. 8., a political subdivision of the State of Arizona, Intervenors/Appellees, v. ARIZONA PUBLIC SERVICE COMPANY, an Arizona public service corporation, Defendant/Appellant. Appeal from the Superior Court of Pinal County The Honorable William J. O Neil, Judge AFFIRNED -2- Court of Appeals, Division Two 201 Ariz. 356, 35 P.3d 117 (2002) VACATED Brown & Bain, P.A. by Paul F. Eckstein Dan L. Bagatell Attorneys for the Petitioner, Hohokam Irrigation and Drainage District, Pinal County, Arizona Phoenix Osborn Maledon, P.A. by Andrew D. Hurwitz Warren Stapleton Attorneys for the Respondent, Arizona Public Service Company Phoenix Moyes Storey by Jay I. Moyes Steven L. Wene Attorneys for Maricopa County Intervenors Harquahala Power District, et al. Phoenix Law Offices of Robert S. Lynch by Robert S. Lynch and Law Office of Paul R. Orme, P.C. by Paul R. Orme Attorneys for Pinal County Intervenors Central Arizona Irrigation and Drainage District, et al. Phoenix Gust Rosenfeld P.L.C. by Fred H. Rosenfeld Richard A. Segal Attorneys for Amicus Curiae Cortaro Marana Irrigation District Phoenix Arizona Center for Law in the Public Interest by Timothy M. Hogan Attorneys for Amicus Curiae Arizona Consumers Council Phoenix -3- Mayer J 0 N E S, Chief Justice INTRODUCTION ¶1 We granted review districts have authority, to determine whether irrigation under the constitution and statutes of Arizona, to provide electricity to customers outside established district boundaries. vacate the Because decision of trial court s grant the we answer court in the affirmative, of appeals and reinstate we the of summary judgment in favor of the Hohokam Irrigation and Drainage District. to Article 6, Section 5(3), We have jurisdiction pursuant of the Arizona Constitution. FACTS I PROCEDURAL HISTORY ¶2 was Hohokam formed buying at in Irrigation Pinal and County in Drainage 1972. District In 1997, electric power on the wholesale market retail. Arizona Public electricity in areas convenience and necessity Commission. competing This covered dispute electrical Service by issued arose service by the began and reselling ( APS ) certificate because outside Hohokam Company a ( Hohokam ) Arizona of sells public Corporation Hohokam began district it offering boundaries to persons located in the APS service territory. ¶3 claiming In 1998, the right Hohokam filed a declaratory suit against APS, to serve electricity to customers located outside district boundaries and seeking an injunction to prevent interference declaration from APS. prohibiting APS Hohokam counterclaimed, from -4- serving seeking customers a outside its boundaries. The matter of right District; Electrical County; the Harquahala Districts Conservation and permitted Central Arizona Power District; Conservation 8 to the court Nos. Maricopa-Stanfield Valley Water District; trial 1, 2, .& and 5 of Drainage District; District; Electrical District No. 3, as a and Drainage McMullen Buckeye Roosevelt Pinal District; Irrigation District; and Drainage Drainage Irrigation Irrigation Aguila intervention Water Irrigation 7; and Electrical District No. ( the Intervenors ) ¶4 On cross-motions for summary judgment, entered judgment in favor of Hohokam, districts provide court the constitutional electrical service appeals reversed, of Revised have Statute prohibited ( A.R.S. ) irrigation § Pub. Serv. (App. 2002). Co., statutory district holding that districts from by selling Hohokam Irr. 201 Ariz. 356, 360, authority boundaries. 48-2978(15) (1997), outside district boundaries. Ariz. declaring that irrigation and outside the trial court enacting The Arizona the legislature electric power and Drainage Dist. ¶14, to 35 P.3d 117, v. 121 Hohokam appeals. DISCUS SION A. Standard of Review ¶5 We review the grant view the evidence most favorable to Bank v. Laborers, Ariz. and the all party of summary reasonable inferences opposing the Teamsters and -5- judgment motion. de novo, in and the light Wells Fargo Cement Masons Local No. 395 Pension Trust Fund, (2002) Likewise, . constitutional Ramirez 327-28, ¶6, v. 482, ¶13, interpretation the provisions novo. B. 201 Ariz. of is an 474, issue of Health Partners 972 P.2d 658, 661 of S. 38 P.3d 12, statutes and law that we review Ariz., 193 entities of 20 Ariz. de 325, (App. 1998) Irrigation District Powers ¶6 Irrigation creation. (1963) . Enloe v. Once the state. districts Baker, organized Id. are 94 Ariz. 295, they become 301, 383 political statutory P.2d 748, subdivisions 752 of They derive their powers from the constitution and statutes of Arizona. 1. ¶7 Arizona Constitution Article 13, principal source Section 7 of the state constitution is the of powers granted to irrigation and other special purpose districts in Arizona: Irrigation, power, electrical, agricultural improvement, drainage, and flood control districts, and tax levying public improvement districts, now or hereafter organized pursuant to law, shall be political subdivisions of the state, and vested with all the rights, privileges and benefits, and entitled to the immunities and exemptions granted municipalities and political subdivisions under this constitution or any law of the state or of the United States . Ariz. . Const. art. ¶8 in . 13, § 7 (adopted 1940) This provision was adopted in response to our decision State v. Yuma Irrigation legislature could not District, which held exempt irrigation districts -6- that the from property taxes because Ariz. 178, 184, ¶9 the no such power 99 P.2d 704, existed 706 taxation, Int l the power this was not Bhd. of Elec. Rather, irrigation and other v. subdivisions. all the See id. rights, immunities and exemptions subdivisions under the of the United States ); v. Ferguson, ( The 129 County v. 171 Ariz. Maricopa 325, (holding Article of the benefits, granted from Local 266, Agric. 275 P.2d 393, provision and duties on municipalities and vests equal to and political are and 396 vested with entitled municipalities to the and political the state or see also Pinetop-Lakeside Sanitary Dist. 300, language improvement districts 35, to grant Project constitution or any law of Ariz. unmistakable 30, (stating that districts privileges 55 districts River with powers the powers and duties conferred was or effect. Salt language districts 7 irrigation 78 Ariz. plain constitution. section its sole purpose Workers the of to exempt Improvement and Power Dist., (1954). the (1940); Although a primary purpose legislature in all 302, of 630 P.2d Article 13, 1032, 1034 Section 7 immunities and exemptions. ) ; County Mun. 830 Water Conservation 331 n.6, P.2d 846, 13, Section 7 s grant of 852 (App. tax exempt grants Maricopa Dist. n.6 (1981) No. 1, 1991) status to districts is not the section s sole purpose) ¶10 The constitution grants engage in industrial pursuits. municipalities Ariz. -7- Const. art. the 2, right § 34. to We have consistently held that municipalities the specifying limitation any Article right to 2, Section engage whatever in as to Crandall v. Town of Safford, 47 Ariz. 402, (1936) In . Section 34, Crandall, we held a municipality that water outside its corporate boundaries. 663. Similarly, in City of basis of 2, Section absence Article of authorized statutory to furnish boundaries. 52 Ariz. kind or of v. 34, we stated a municipal water to 227, 233, Wright, customers 80 Article at 411, Phoenix authority, character. to distribute Id. P.2d 2, 56 P.2d at even on the in corporation residing 390, 663 surplus. solely that on without 56 P.2d 660, virtue is authorized confers industry 409, by 34 outside 392 (1938) City of Phoenix v. Kasun, we further confirmed that . the is its In a municipal corporation has the right to furnish water through its municipal water plant to customers corporate limits. Read together, in clear engage in electricity 54 Ariz. Article terms, 13, confer an 470, as 474, well as irrigation pursuits. industrial districts Certainly pursuit within, 97 P.2d 210, Section 7 and Article on industrial is without, and 212 2, its (1939) Section 34, the the therefore right to sale of within the rights and privileges granted municipalities. 2. The Irrigation District Act ¶1]. In addition districts by the specific state to the broad powers constitution, statutory powers on these -8- the granted legislature districts in the irrigation conferred Irrigation District Act of 1921. A.R.S. §~ 48-2901 to -3256 (Supp. The legislature first defined irrigatiofl districts corporations for all purposes. A.R.S. 2002) as municipal § 48-2901. Further, the legislature declared: In order to accomplish the board may: the purposes of the district [pirovide the district with water, electricity and other public conveniences and necessities, and engage in any and all activities, enterprises and occupations within the powers and privileges of municipalities generally. A.R.S. § 48-2978(15). ¶12 APS virtue has of the acted to argues, and first clause limit provide electricity Hohokam, 201 Ariz. the to the court of of appeals subsection ability customers at 360 ¶14, of 15, held, the irrigation only within 35 P.3d at 121 that by legislature districts the to district. (emphasis added) Hohokam counters that the language of the second clause is more broad and permits irrigation districts to provide electricity to outside customers. ¶13 The appellate court first clause, expressly may provide limited the second clause, and all powers the the district with general grant which allows activities, and reasoned that privileges . power . and contained engage occupations municipalities -9- electricity, . the district to enterprises of of the language in the generally. within in any within the Id. On this basis, the the court authority of concluded that irrigation the legislature restricted districts to the sale of electricity solely to customers inside district boundaries. ¶14 Viewed as a whole, sTtatutory and scheme Id. we conclude that our constitutional regulating the powers of irrigation districts does not contain the prohibition found by the court of appeals. on the The initial phrase of question and, subsection 15 significantly, is by reason at best vague of its breadth, the second phrase appears to contradict any notion that electric sales must necessarily be confined to district lands. ¶15 Where objective is legislative Cornrn n, if to language discern intent. 181 Ariz. possible, considered 119, Co.. 71 Ariz. into law. 163, a.. to -3256, California, 1887, ch. Arizona is modeled which entire 34, p. 29, Legislature to underlying v. Industrial U.S.A. back to Cal. adopted Act the the -10- (1995) clause and the our We must, . or sentence, purpose for which 655 (1950). of Irrigation and late 1897, Act the ( Act ), Wright Stats. clear, South Phoenix Volunteer Fire and Purposes the 779 word, act Frye v. after date not Etc., 168, 224 P.2d 651, History Act is effect give each The Irrigation District ¶16 statute 888 P.2d 777, meaning of the a Boxes, 121, light in of and Mail give it was enacted to the in A.R.S. District §~ 48-2901 Bridgeford l800s. ch. Cal. 189, 1921, Acts at of Stats. p. 254. The a time when Arizona was largely a rural, lacking access electricity. added. the modern legislature this context, intended power we think to authorize within district with many areas conveniences This remained true in 1931, Given electric to undeveloped state, water and when subsection 15 was it improbable irrigation lines, of but that the to sell them from districts prohibit selling it on the outside. ¶17 We purpose rely solely on the of irrigation water need not was to districts systems Boening, Act to provide sufficient for arid 556, 744 P.2d 468, Wright, 557, 37 Ariz. land. 105, 112, context. the powers irrigate 154 Ariz. also Post v. with historical The formation to develop Porterfield 469 (App. 289 P. 979, of strong v. Van 1987) ; 981 see (1930) (the Act provides for the organization of landowners desiring to provide water Leshy, 1982 to irrigate their lands). Irrigation Ariz. St. Districts L.J. 345, in 353 a See generally John D. Changing (1982) West An (discussing the Wright Act and the origins of irrigation districts generally). this by granting irrigation districts assessments, issue bonds to finance for debt. 3185; 154 Ariz. at 557, Act to objective ability to of the generate was the -11- operations, See, e.g., and A.R.S. 744 P.2d at 469. give financing The Act did the power to levy property district lands as collateral Porterfield, Overview, irrigation necessary to pledge § 48- A central districts achieve the their fundamental 470 purpose. ( The basic Porterfield, 154 Ariz. function and deliver water the irrigation to of lands an irrigation within the 558, 744 P.2d district district is to and to at meter finance system. ) b. Plain Statutory Language Finally, the Act is broadly ¶18 at written. It first declares that irrigation districts are given the powers of municipalities for § 48-2901. all purposes. positive right A.R.S. to [p]rovide electricity and other public engage in any generally. does the and A. R. S. statutory all § Next, the district conveniences activities . 48-2 978 (15) language the Act . with the water, and necessities, of . (emphasis prohibit confers the and municipalities added). Nowhere extraterritorial delivery of these services. ¶19 In further 2978(7) support of today s provides a broad grant reasoning, A.R.S. of authority to engage § 48- in other pursuits necessary to fulfill district purposes: In order to accomplish the board may: the purposes of the district [p]rovide for the construction, operation, leasing and control of plants for the generation, distribution, sale and lease of electrical energy, including sale to municipalities, corporations, public utility districts or individuals, of any electrical energy so generated. The court subsection of 7 appeals that rejected Hohokam s extraterritorial -12- sale of contention electricity under was contemplated. The [entities] could district. Hohokam, disagree. court be opined located 201 Ariz. that within [c]onceivably, a at 361 ¶17, single all irrigation 35 P.3d at 122. We Although multiple entity locations within a district may be possible, it is quite unlikely that this would have been the case in 1921, when subsection 7 was enacted. At that time, Arizona was rural, undeveloped, largely without electricity, and potential electric users were scattered. Given this perspective, ¶20 broad statutory prohibition, language, the the purposes of the Act, absence of specific the language of as well as the broad powers conferred on irrigation districts by the Arizona Constitution, cause us to conclude that the irrigation district statutes permit the sale of electricity to customers outside district boundaries. Tucson v. Sims, [n]othing short of As stated in City of an express prohibition clear implication to that effect could have this Ariz. result. or 39 168, 177, 4 P.2d 673, 676 (1931) ¶21 Likewise, we decline to accept the argument that the separate statutes granting electrical to electric express authority sell boundaries, by implication, doing See A.R.S. so. appears reason no to practical treat prohibit power irrigation for that districts political subdivisions. -13- power districts outside district irrigation §~ 48-1545(E), basis and -1751(A) contention districts from (2000). There and no legal from other differently 3. Irrigation District Powers Are Not Unlimited The broad power granted ¶22 constitution Authority and statutes granted privileges and 13, immunities granted relationship the organized. Ass n v. (quoting is Giglio, City of Mesa v. This limitation provides that § to Scottsdale stating We v. that municipalities the interpreted this 538 the power generally to is proper only (1971) . Activities as Users 165 Agric. they for which Water (1976) Improvement (1962)). be district. A.R.S. in City of and Drainage Dist., in activities when acting 107 Ariz. are thus which exercised in language engage the The the Act as well, very the purpose of irrigating arid lands. P.2d 532, Valley powers must of to far objectives McDowell Mountain Irrigation the so 549 P.2d 162, into purposes restriction. existence. 97, 373 P.2d 722, 726 is written by the limited only River 193, irrigation district accomplish 48-2978. extend to the legal 190, is Salt River Project 91, ¶23 7 political Salt 113 Ariz. & Power Dist., 92 Ariz. order Section [the district s] have a legitimate District districts of Arizona is not without by Article purposes justifying to irrigation pursuant 117, permitted, 123, but of to 483 only to the extent they are incidental to and in furtherance of the primary purpose of the irrigation district. Mun. Water Conservation Dist. at 850 No. 1, See Maricopa County 171 Ariz. at 329, 830 P.2d ( The power to engage in the activities of a municipality -14- generally is proper only when acting for a public purpose, and when the activity is incidental the to the primary purpose of district. ) 4. Extraterritorial Sale of Electricity ¶24 the Thus, the power activities of irrigation districts to engage of municipalities extends only to in those activities that are either necessary or incidental to achieving the district s primary purpose. The primary irrigation districts is to irrigate arid land, for agriculture. City of Scottsdale 107 Ariz. and Drainage Dist., Post, 37 Ariz. v. providing water McDowell Mountain at 112, 289 P. at 981. system. River Valley Water Users Ass n, 25 Ariz. 324, (1923). district s primary 25 We authority purpose Dist. (1972) have v. of to also recognized sell electricity providing water City of Tucson, (citing City ¶26 The of question, electricity v. 92 Ariz. then, is purchased on 104, whether the -15- irrigation the to Santa its Cruz 494 P.2d 24, Project Agric. 373 P.2d at 733). extraterritorial wholesale qualifies as an activity that is incidental 935, an 153, River at 217 P. incidental 152, Salt Salt 339, that is Orme v. for irrigation. 108 Ariz. of Mesa Improvement and Power Dist., sale Irr. at 123, 483 P.2d at 538; see also for the operation of a modern irrigation Irr. of We have long recognized that electricity is necessary ¶25 940 purpose market also to Hohokam s primary purpose. An proceedings assertion before of the fact, trial uncontested in the court,~ demonstrates summary that the purpose of Hohokam s entry into the electric power business in 1997 was to generate revenues exclusively committed to reducing the cost of irrigation water to the district s See Hohokam s Statement Summary Judgment, ¶3. of Facts in Support member-farmers. of On the record before us, Motion we for therefore conclude that Hohokam s sale of electric power is incidental to and in furtherance of the district s primary purpose. We recognize that the question whether a given revenue ¶27 generating activity district s primary is incidental purpose would to and normally determination by the trier of fact. at 153, 494 P.2d at 25; Agric. 726. Dist. v. require a 107 Ariz. 92 Ariz. the v. 108 Ariz. Salt River Project at 97, 373 P. 2d at however,~is a declaratory judgment suit that raises finding because a specific a questionof law to be determined on stipulated facts. fact of at 123, 483 City of Tucson, and City of Mesa v. Improvement and Power Dist., This, furtherance See City of Scottsdale McDowell Mountain Irr. and Drainage Dist., P.2d at 538; Santa Cruz Irr. in in the trial instant record case is establishes as therefore Further unnecessary undisputed the facts that control this issue. 5. ¶28 A.R.S. § 9-516 Finally, we do not agree -16- that A.R.S. § 9-516 (1996) requires Hohokam first to acquire APS s property and plants before extending electrical service to areas covered by the APS certificate of public previously held that applies only corporations. 347 (1962) to convenience by its cities Davis v. express and towns, necessity. language, not Brittain, 92 Ariz. The statute . and simply does to We section all have 9-516 municipal 20, 30, 373 P.2d 340, not apply to irrigation districts. APS ¶29 also contends that allowing Hohokam to sell electricity without complying with section 9-516 grants Hohokam rights superior to the rights of cities and towns. Hohokam s rights should simply be characterized We disagree. as different. Hohokam s right to engage in the activities of municipalities is limited to activities that are incidental to and in furtherance of Hohokam s primary purpose. In contrast, the rights granted to cities and towns are more comprehensive and relate to a wide array of functions. Our interpretation of Article 13, ¶30 limit Section 7 does not the ability of the legislature to create special purpose districts. It remains the legislature s responsibility to define the primary purposes of all constitutionally authorized districts. In so doing, the legislature retains the authority to define the extent of each district s powers. CONCLUSION ¶31 The wholesale purchase -17- and retail sale of electric power by irrigation districts is a new circumstance, perhaps not yet fully evaluated by the Arizona Legislature. new practice, conclude the irrigation to limited, previously addressed by this it is a court, we that under today s constitution and statutory scheme, practice power not While is not district customers however, prohibited. is We therefore authorized to market outside its boundaries. and hold that sell electric This right an is and may be exercised only to the extent that it is incidental to and in furtherance of the district s primary purpose. This matter is remanded to the superior court with instructions to enter judgment for Hohokam consistent with this opinion. Charles E. Jones, Chief Justice CONCURRING: Ruth V. McGregor, Vice Chief Justice Rebecca W. Berch, Justice Michael D. Ryan, Justice Stanley G. Feldman, Justice (retired) -18-

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