On August 17, the NAM filed an amicus brief urging the Arizona Court of Appeals to overturn a decision by the Arizona public utilities regulator to prevent Arizona Public Service Co.—the largest electric utility in the State—to recoup the cost of prudent capital investment in emissions-reduction technology. This case, Arizona Public Service Co. (APS) v. Arizona Corporation Commission, involves a reasonable investment by APS to install EPA-required emission controls for one of its coal power plants. The utilities regulator, Arizona Corporation Commission, acknowledged the significant costs involved in the project (nearly $370M) and found the plan prudent. After the plant had helped to preserve the reliability of Arizona’s electrical grid for several years, APS retired that plant. Despite its assurances that the investment was prudent when made, the Commission reversed course, adopting a new “planning imprudence” standard and disallowing over $200M of APS’s investment.
The NAM filed an amicus brief in support of APS’s appeal to the Arizona Court of Appeals. Our brief argues that the Commission’s new standard violates both administrative and constitutional law. First, by altering the prudence standard without engaging in formal rulemaking, the Commission violated the Arizona Administrative Procedure Act. Second, by excluding the costs of the emissions-reduction technology, the Commission flouted its constitutional mandate to set “just and reasonable rates” that are “related to” the fair value of the property used to generate electricity. The court should reject the Commission’s hindsight-biased approach which judged APS’s reasonable investment decision in light of later, unpredictable developments. Without the court’s intervention, the reliable and affordable power depended upon by manufacturers and consumers alike will be undermined.