US West Communications, Inc. v. Arizona Corp. Comm'n (2001)
In US West Communications, Inc. v. Arizona Corp. Comm'n, 201 Ariz. 242, 34 P.3d 351 (2001) which substantially resolved the parties' arguments concerning these rulings.
In that case, the Commission approved CC&Ns and proposed tariffs for eleven competitive telecommunications providers without determining the fair value of their property within the state. Id. at 244, P 4, 34 P.3d at 353.
US West, which had previously enjoyed a telecommunications monopoly in Arizona and whose rates were set based on the fair value of its property in the state, challenged these decisions. Id. at 243-44, PP 2, 5, 34 P.3d at 352-53.
The Commission argued that a fair-value determination was discretionary and irrelevant in a competitive environment. Id. at 244-45, P 9, 34 P.3d at 353-54.
The court held that Article 15, Section 14, of the Arizona Constitution imposed on the Commission the affirmative duty to determine fair value and that the duty was not conditioned on market structure or subject to the Commission's discretion. Id. at 245, P 11, 34 P.3d at 354.
The court then proceeded to consider what use the Commission was required to make of the fair-value finding.
The court noted that, although the Arizona Constitution plainly required the Commission to ascertain the fair value of the property of public service corporations in the state, only the jurisprudence of the courts required that the Commission establish rates based on the fair-value finding. Id. at 245-46, P 17, 34 P.3d at 354-55.
The court considered the efficacy of this rate-of-return formula in a competitive market and concluded that "in such a climate, there is no reason to rigidly link the fair value determination to the establishment of rates." Id. at 246, P 19, 34 P.3d at 355.
The court did not say that fair value should play no role in rate setting in a competitive environment.
Conversely, the court noted that Article 15, Section 14 directed the Commission to use fair value to aid it in discharging its duties, including setting rates, and that the Commission cannot ignore fair value in setting rates within a competitive market. Id. at 246, P 20, 34 P.3d at 355.
The court recognized that the fair-value determination may be important, in conjunction with other information, to prescribe rates that fairly treat consumers and public service corporations. Id. at 246, P 21, 34 P.3d at 355.
Thus, the court concluded that fair value should be considered in rate setting in a competitive market, although the Commission has broad discretion in determining the weight to be given that factor in any particular case. Id.