Hohokam Irrigation & Drainage District v. Arizona Public Service Co.

SUPREME COURT OF ARIZONA
En Banc

HOHOKAM IRRIGATION AND DRAINAGE ) Arizona Supreme Court
DISTRICT, PINAL COUNTY, ARIZONA, a ) No. CV-02-0091-PR
political subdivision of the State )
of Arizona, ) Court of Appeals
) Division Two
Plaintiff/Counterdefendant/ ) No. 2 CA-CV 01-0026
Appellee, )
) Pinal County
v. ) 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 ) O P I N I O N
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 )

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

AFFIRMED

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Court of Appeals, Division Two
201 Ariz. 356, 35 P.3d 117 (2002)

VACATED

Brown & Bain, P.A. Phoenix
by Paul F. Eckstein
Dan L. Bagatell
Attorneys for the Petitioner, Hohokam Irrigation
and Drainage District, Pinal County, Arizona

Osborn Maledon, P.A. Phoenix
by Andrew D. Hurwitz
Warren Stapleton
Attorneys for the Respondent, Arizona Public
Service Company

Moyes Storey Phoenix
by Jay I. Moyes
Steven L. Wene
Attorneys for Maricopa County Intervenors
Harquahala Power District, et al.

Law Offices of Robert S. Lynch Phoenix
by Robert S. Lynch
and
Law Office of Paul R. Orme, P.C. Mayer
by Paul R. Orme
Attorneys for Pinal County Intervenors Central
Arizona Irrigation and Drainage District, et al.

Gust Rosenfeld P.L.C. Phoenix
by Fred H. Rosenfeld
Richard A. Segal
Attorneys for Amicus Curiae Cortaro Marana
Irrigation District

Arizona Center for Law in the Public Interest Phoenix
by Timothy M. Hogan
Attorneys for Amicus Curiae
Arizona Consumers Council

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J O N E S, Chief Justice

INTRODUCTION

¶1 We granted review to determine whether irrigation

districts have authority, under the constitution and statutes of

Arizona, to provide electricity to customers outside established

district boundaries. Because we answer in the affirmative, we

vacate the decision of the court of appeals and reinstate the

trial court’s grant of summary judgment in favor of the Hohokam

Irrigation and Drainage District. We have jurisdiction pursuant

to Article 6, Section 5(3), of the Arizona Constitution.

FACTS/PROCEDURAL HISTORY

¶2 Hohokam Irrigation and Drainage District (“Hohokam”)

was formed in Pinal County in 1972. In 1997, Hohokam began

buying electric power on the wholesale market and reselling it

at retail. Arizona Public Service Company (“APS”) sells

electricity in areas covered by a certificate of public

convenience and necessity issued by the Arizona Corporation

Commission. This dispute arose because Hohokam began offering

competing electrical service outside district boundaries to

persons located in the APS service territory.

¶3 In 1998, Hohokam filed a declaratory suit against APS,

claiming the right to serve electricity to customers located

outside district boundaries and seeking an injunction to prevent

interference from APS. APS counterclaimed, seeking a

declaration prohibiting Hohokam from serving customers outside

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its boundaries. The trial court permitted intervention as a

matter of right to the Central Arizona Irrigation and Drainage

District; Electrical Districts Nos. 1, 2, 3, and 5 of Pinal

County; the Maricopa-Stanfield Irrigation & Drainage District;

Harquahala Power District; Aguila Irrigation District; McMullen

Valley Water Conservation and Drainage District; Buckeye Water

Conservation and Drainage District; Roosevelt Irrigation

District; Electrical District No. 7; and Electrical District No.

8 (“the Intervenors”).

¶4 On cross-motions for summary judgment, the trial court

entered judgment in favor of Hohokam, declaring that irrigation

districts have the constitutional and statutory authority to

provide electrical service outside district boundaries. The

court of appeals reversed, holding that by enacting Arizona

Revised Statute (“A.R.S.”) § 48-2978(15)(1997), the legislature

prohibited irrigation districts from selling electric power

outside district boundaries. Hohokam Irr. and Drainage Dist. v.

Ariz. Pub. Serv. Co., 201 Ariz. 356, 360, ¶14, 35 P.3d 117, 121

(App. 2002). Hohokam appeals.

DISCUSSION

A. Standard of Review

¶5 We review the grant of summary judgment de novo, and

view the evidence and all reasonable inferences in the light

most favorable to the party opposing the motion. Wells Fargo

Bank v. Ariz. Laborers, Teamsters and Cement Masons Local No.

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395 Pension Trust Fund, 201 Ariz. 474, 482, ¶13, 38 P.3d 12, 20

(2002). Likewise, the interpretation of statutes and

constitutional provisions is an issue of law that we review de

novo. Ramirez v. Health Partners of S. Ariz., 193 Ariz. 325,

327-28, ¶6, 972 P.2d 658, 661 (App. 1998).

B. Irrigation District Powers

¶6 Irrigation districts are entities of statutory

creation. Enloe v. Baker, 94 Ariz. 295, 301, 383 P.2d 748, 752

(1963). Once organized they become political subdivisions of

the state. Id. They derive their powers from the constitution

and statutes of Arizona.

1. Arizona Constitution

¶7 Article 13, Section 7 of the state constitution is the

principal source 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. 13, § 7 (adopted 1940).

¶8 This provision was adopted in response to our decision

in State v. Yuma Irrigation District, which held that the

legislature could not exempt irrigation districts from property

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taxes because no such power existed in the constitution. 55

Ariz. 178, 184, 99 P.2d 704, 706 (1940).

¶9 Although a primary purpose of section 7 was to grant

the legislature the power to exempt irrigation districts from

taxation, this was not its sole purpose or effect. Local 266,

Int’l Bhd. of Elec. Workers v. Salt River Project Agric.

Improvement and Power Dist., 78 Ariz. 30, 35, 275 P.2d 393, 396

(1954). Rather, the plain language of the provision vests

irrigation and other districts with powers and duties equal to

the powers and duties conferred on municipalities and political

subdivisions. See id. (stating that districts are “vested with

all the rights, privileges and benefits, and entitled to the

immunities and exemptions granted municipalities and political

subdivisions under the constitution or any law of the state or

of the United States”); see also Pinetop-Lakeside Sanitary Dist.

v. Ferguson, 129 Ariz. 300, 302, 630 P.2d 1032, 1034 (1981)

(“The unmistakable language of Article 13, Section 7 grants

improvement districts all immunities and exemptions.”); Maricopa

County v. Maricopa County Mun. Water Conservation Dist. No. 1,

171 Ariz. 325, 331 n.6, 830 P.2d 846, 852 n.6 (App. 1991)

(holding Article 13, Section 7's grant of tax exempt status to

districts is not the section’s sole purpose).

¶10 The constitution grants municipalities “the right to

engage in industrial pursuits.” Ariz. Const. art. 2, § 34. We

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have consistently held that Article 2, Section 34 confers on

municipalities the right to engage in industry “without

specifying any limitation whatever as to kind or character.”

Crandall v. Town of Safford, 47 Ariz. 402, 409, 56 P.2d 660, 663

(1936). In Crandall, we held that by virtue of Article 2,

Section 34, a municipality is authorized to distribute surplus

water outside its corporate boundaries. Id. at 411, 56 P.2d at

663. Similarly, in City of Phoenix v. Wright, solely on the

basis of Article 2, Section 34, we stated that even in the

absence of statutory authority, a municipal corporation is

authorized to furnish water to customers residing outside its

boundaries. 52 Ariz. 227, 233, 80 P.2d 390, 392 (1938). In

City of Phoenix v. Kasun, we further confirmed that “a municipal

corporation has the right to furnish water through its municipal

water plant to customers without, as well as within, its

corporate limits.” 54 Ariz. 470, 474, 97 P.2d 210, 212 (1939).

Read together, Article 13, Section 7 and Article 2, Section 34,

in clear terms, confer on irrigation districts the right to

engage in industrial pursuits. Certainly the sale of

electricity is an industrial pursuit and therefore within the

rights and privileges granted municipalities.
2. The Irrigation District Act

¶11 In addition to the broad powers granted irrigation

districts by the state constitution, the legislature conferred

specific statutory powers on these districts in the Irrigation

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District Act of 1921. A.R.S. §§ 48-2901 to -3256 (Supp. 2002).

The legislature first defined irrigation districts as “municipal

corporations for all purposes.” A.R.S. § 48-2901. Further, the

legislature declared:

In order to accomplish the purposes of the district
the board may:

. . . .

[p]rovide 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 argues, and the court of appeals held, that by

virtue of the first clause of subsection 15, “the legislature

has acted to limit the ability of irrigation districts to

provide electricity to customers only within the district.”

Hohokam, 201 Ariz. at 360 ¶14, 35 P.3d at 121 (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 reasoned that the language in the

first clause, “may provide the district with . . . electricity,”

expressly limited the general grant of power contained within

the second clause, which allows the district to “engage in any

and all activities, enterprises and occupations within the

powers and privileges of municipalities generally.” Id. On

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this basis, the court concluded that the legislature restricted

the authority of irrigation districts to the sale of

electricity solely to customers inside district boundaries. Id.

¶14 Viewed as a whole, we conclude that our constitutional

and statutory scheme regulating the powers of irrigation

districts does not contain the prohibition found by the court of

appeals. The initial phrase of subsection 15 is at best vague

on the question and, significantly, by reason of its breadth,

the second phrase appears to contradict any notion that electric

sales must necessarily be confined to district lands.

¶15 Where the language of a statute is not clear, our

objective is to discern and give effect to underlying

legislative intent. Mail Boxes, Etc., U.S.A. v. Industrial

Comm’n, 181 Ariz. 119, 121, 888 P.2d 777, 779 (1995). We must,

if possible, give meaning to each word, clause or sentence,

considered in light of the entire act and the purpose for which

it was enacted into law. Frye v. South Phoenix Volunteer Fire

Co., 71 Ariz. 163, 168, 224 P.2d 651, 655 (1950).

a. History and Purposes of the Irrigation District
Act

¶16 The Irrigation District Act (“Act”), A.R.S. §§ 48-2901

to –3256, is modeled after the Wright and Bridgeford Acts of

California, which date back to the late 1800s. Cal. Stats.

1887, ch. 34, p. 29, Cal. Stats. 1897, ch. 189, p. 254. The

Arizona Legislature adopted the Act in 1921, at a time when

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Arizona was largely a rural, undeveloped state, with many areas

lacking access to the modern conveniences of water and

electricity. This remained true in 1931, when subsection 15 was

added. Given this context, we think it improbable that the

legislature intended to authorize irrigation districts to sell

electric power within district lines, but prohibit them from

selling it on the outside.

¶17 We need not rely solely on historical context. The

purpose of the Act was to provide for the formation of

irrigation districts with sufficient powers to develop strong

water systems to irrigate arid land. Porterfield v. Van

Boening, 154 Ariz. 556, 557, 744 P.2d 468, 469 (App. 1987); see

also Post v. Wright, 37 Ariz. 105, 112, 289 P. 979, 981 (1930)

(the Act provides for the organization of landowners desiring to

provide water to irrigate their lands). See generally John D.

Leshy, Irrigation Districts in a Changing West—An Overview,

1982 Ariz. St. L.J. 345, 353 (1982) (discussing the Wright Act

and the origins of irrigation districts generally). The Act did

this by granting irrigation districts the power to levy property

assessments, issue bonds to finance operations, and pledge

district lands as collateral for debt. See, e.g., A.R.S. § 48-

3185; Porterfield, 154 Ariz. at 557, 744 P.2d at 469. A central

objective of the Act was to give irrigation districts the

ability to generate the financing necessary to achieve their

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fundamental purpose. Porterfield, 154 Ariz. at 558, 744 P.2d at

470 (“The basic function of an irrigation district is to meter

and deliver water to lands within the district and to finance

the irrigation system.”).

b. Plain Statutory Language

¶18 Finally, the Act is broadly written. It first declares

that irrigation districts are given the powers of municipalities

for all purposes. A.R.S. § 48-2901. Next, the Act confers the

positive right to “[p]rovide the district with water,

electricity and other public conveniences and necessities, and

engage in any and all activities . . . of municipalities

generally.” A.R.S. § 48-2978(15) (emphasis added). Nowhere

does the statutory language prohibit the extraterritorial

delivery of these services.

¶19 In further support of today’s reasoning, A.R.S. § 48-

2978(7) provides a broad grant of authority to engage in other

pursuits necessary to fulfill district purposes:

In order to accomplish the purposes of the district
the board may:

. . . .

[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 of appeals rejected Hohokam’s contention under

subsection 7 that extraterritorial sale of electricity was

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contemplated. The court opined that “[c]onceivably, all

[entities] could be located within a single irrigation

district.” Hohokam, 201 Ariz. at 361 ¶17, 35 P.3d at 122. We

disagree. 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.

¶20 Given this perspective, the purposes of the Act, the

broad statutory language, the absence of specific language of

prohibition, 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. As stated in City of

Tucson v. Sims, “[n]othing short of an express prohibition or

clear implication to that effect could have this result.” 39

Ariz. 168, 177, 4 P.2d 673, 676 (1931).

¶21 Likewise, we decline to accept the argument that the

separate statutes granting electrical and power districts

express authority to sell electric power outside district

boundaries, by implication, prohibit irrigation districts from

doing so. See A.R.S. §§ 48-1545(E), -1751(A) (2000). There

appears no practical basis for that contention and no legal

reason to treat irrigation districts differently from other

political subdivisions.

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3. Irrigation District Powers Are Not Unlimited

¶22 The broad power granted to irrigation districts by the

constitution and statutes of Arizona is not without restriction.

Authority granted by Article 13, Section 7 is limited “to the

purposes justifying [the district’s] political existence. The

privileges and immunities granted extend only so far as they

have a legitimate relationship to the legal objectives for which

the District is organized.” Salt River Valley Water Users’

Ass’n v. Giglio, 113 Ariz. 190, 193, 549 P.2d 162, 165 (1976)

(quoting City of Mesa v. Salt River Project Agric. Improvement

& Power Dist., 92 Ariz. 91, 97, 373 P.2d 722, 726 (1962)).

¶23 This limitation is written into the Act as well, which

provides that irrigation district powers must be exercised in

order “to accomplish the purposes of the district.” A.R.S.

§ 48-2978. We interpreted this very language in City of

Scottsdale v. McDowell Mountain Irrigation and Drainage Dist.,

stating that “the power to engage in activities of

municipalities generally is proper only when acting pursuant to

the purpose of irrigating arid lands.” 107 Ariz. 117, 123, 483

P.2d 532, 538 (1971). Activities are thus permitted, but only

to the extent they are incidental to and in furtherance of the

primary purpose of the irrigation district. See Maricopa County

Mun. Water Conservation Dist. No. 1, 171 Ariz. at 329, 830 P.2d

at 850 (“The power to engage in the activities of a municipality

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generally is proper only when acting for a public purpose, and

when the activity is incidental to the primary purpose of the

district.”).

4. Extraterritorial Sale of Electricity

¶24 Thus, the power of irrigation districts to engage in

the activities of municipalities extends only to those

activities that are either necessary or incidental to achieving

the district’s primary purpose. The primary purpose of

irrigation districts is to irrigate arid land, providing water

for agriculture. City of Scottsdale v. McDowell Mountain Irr.

and Drainage Dist., 107 Ariz. at 123, 483 P.2d at 538; see also

Post, 37 Ariz. at 112, 289 P. at 981.

¶25 We have long recognized that electricity is necessary

for the operation of a modern irrigation system. Orme v. Salt

River Valley Water Users’ Ass’n, 25 Ariz. 324, 339, 217 P. 935,

940 (1923). We have also recognized that an irrigation

district’s authority to sell electricity is incidental to its

primary purpose of providing water for irrigation. Santa Cruz

Irr. Dist. v. City of Tucson, 108 Ariz. 152, 153, 494 P.2d 24,

25 (1972) (citing City of Mesa v. Salt River Project Agric.

Improvement and Power Dist., 92 Ariz. at 104, 373 P.2d at 733).

¶26 The question, then, is whether the extraterritorial

sale of electricity purchased on the wholesale market also

qualifies as an activity that is incidental to Hohokam’s primary

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purpose. An assertion of fact, uncontested in the summary

proceedings before the trial court, demonstrates 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 member-farmers.

See Hohokam’s Statement of Facts in Support of Motion for

Summary Judgment, ¶3. On the record before us, we therefore

conclude that Hohokam’s sale of electric power is incidental to

and in furtherance of the district’s primary purpose.

¶27 We recognize that the question whether a given revenue

generating activity is incidental to and in furtherance of a

district’s primary purpose would normally require a specific

determination by the trier of fact. See City of Scottsdale v.

McDowell Mountain Irr. and Drainage Dist., 107 Ariz. at 123, 483

P.2d at 538; Santa Cruz Irr. Dist. v. City of Tucson, 108 Ariz.

at 153, 494 P.2d at 25; and City of Mesa v. Salt River Project

Agric. Improvement and Power Dist., 92 Ariz. at 97, 373 P.2d at

726. This, however, is a declaratory judgment suit that raises

a question of law to be determined on stipulated facts. Further

fact finding in the instant case is therefore unnecessary

because the trial record establishes as undisputed the facts

that control this issue.

5. A.R.S. § 9-516

¶28 Finally, we do not agree that A.R.S. § 9-516 (1996)

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requires Hohokam first to acquire APS’s property and plants

before extending electrical service to areas covered by the APS

certificate of public convenience and necessity. We have

previously held that by its express language, section 9-516

applies only to cities and towns, not to all municipal

corporations. Davis v. Brittain, 92 Ariz. 20, 30, 373 P.2d 340,

347 (1962). The statute simply does not apply to irrigation

districts.

¶29 APS 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. We disagree.

Hohokam’s rights should simply be characterized 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.

¶30 Our interpretation of Article 13, Section 7 does not

limit 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 and retail sale of electric

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power by irrigation districts is a new circumstance, perhaps not

yet fully evaluated by the Arizona Legislature. While it is a

new practice, not previously addressed by this court, we

conclude that under today’s constitution and statutory scheme,

the practice is not prohibited. We therefore hold that an

irrigation district is authorized to market and sell electric

power to customers outside its boundaries. This right is

limited, however, 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)

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