San Diego Gas v. Ador

IN THE

SUPREME COURT OF THE STATE OF ARIZONA

SAN DIEGO GAS & ELECTRIC COMPANY,
Plaintiff/Appellee,

v.

ARIZONA DEPARTMENT OF REVENUE, ET AL.
Defendants/Appellants.

No. CV-23-0283-PR
Filed January 31, 2025

Appeal from the Arizona Tax Court
The Honorable Danielle J. Viola, Judge
No. TX2019-001758
AFFIRMED

Opinion of the Court of Appeals, Division One
256 Ariz. 375 (App. 2023)
VACATED IN PART, DEPUBLISHED IN PART

COUNSEL:

Paul J. Mooney (argued), Mooney, Wright, Moore & Wilhoit, PLLC,
Scottsdale, Attorneys for San Diego Gas & Electric Company

Kristin K. Mayes, Arizona Attorney General, Scot G. Teasdale, Assistant
Attorney General, Kimberly Cygan, Assistant Attorney General, Jerry A.
Fries (argued), Assistant Attorney General, Phoenix, Attorneys for Arizona
Department of Revenue, Maricopa County, and Yuma County
 SAN DIEGO GAS V. ADOR, ET AL.
Opinion of the Court

JUSTICE MONTGOMERY authored the opinion of the Court, in which
CHIEF JUSTICE TIMMER, VICE CHIEF JUSTICE LOPEZ and JUSTICES
BOLICK, BEENE, KING, and BRUTINEL (RETIRED) joined. *

JUSTICE MONTGOMERY, Opinion of the Court:

¶1 The Arizona Constitution provides that all property not
exempt by law is subject to taxation. Ariz. Const. art. 9, § 2(A). The
property tax formula is generally comprised of four elements,
“classification, valuation, assessment ratio, and tax rate,” with county
assessors responsible for valuing most property in Arizona. Aileen H. Char
Life Int. v. Maricopa County, 208 Ariz. 286, 291 ¶ 8 (2004). As relevant here
though, the legislature has directed the Arizona Department of Revenue
(“ADOR”) to centrally value all of the property “owned . . . and used by
taxpayers in the . . . [o]peration of an electric transmission . . . system.”
A.R.S. § 42-14151(A)(5). ADOR therefore annually determines the value of
specific components of electric transmission property, see § 42-14154(B), as
well as its overall full cash value, see § 42-14153(A). “Electric transmission”
property is comprised of four components: a plant; construction work in
progress (“CWIP”); 1 materials and supplies; and environmental protection
facilities. § 42-14154(G)(4). Values are then allocated to each taxing
jurisdiction pursuant to § 42-14157 and transmitted to each respective
county assessor per § 42-14153(B)(1). The assessor then applies an
assessment ratio based on the property classification set by statute and the
tax rate. See Aileen H., 208 Ariz. at 291 ¶ 8.

¶2 This case concerns whether the valuation for a reduced plant
in service cost calculated pursuant to § 42-14154(B)(2) can be negative, and
whether such a result can offset the valuation of the CWIP component. We
hold that the calculation prescribed to determine a reduced plant in service
cost does not preclude a negative valuation and that, although the negative
valuation necessarily affects the full cash value determination inclusive of
all electric transmission property components, it does not “offset”—as that

∗ Although Justice Brutinel retired prior to the issuance of this Opinion, he
participated in the decision of the Court.
1 “‘Construction work in progress’ means the total of the balances of work

orders for an electric transmission . . . plant in process of construction on
December 31 of the preceding calendar year, exclusive of land rights and
licensed vehicles.” § 42-14154(G)(1).
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 SAN DIEGO GAS V. ADOR, ET AL.
Opinion of the Court

term is understood in Arizona’s tax system—the valuation of CWIP.

I. BACKGROUND

¶3 San Diego Gas & Electric (“SDG&E”) is a California
corporation that owns an interstate electric transmission line running from
the Palo Verde Generating Station in Maricopa County through Yuma
County and into California, terminating in San Diego. SDG&E’s property
in Arizona is therefore subject to taxation by the State of Arizona and to
valuation by ADOR. See § 42-14151.

¶4 In 2020, pursuant to the requirements of § 42-14152(A),
SDG&E reported to ADOR a net “original plant in service” 2 valuation of
$48,817,396 and a net “related accumulated provision for depreciation”3
(“accumulated depreciation”) amount of $51,446,397. SDG&E also
reported a CWIP valuation of $3,648,475. 4 To report the total value for all
its property, SDG&E subtracted the accumulated depreciation from the
original plant in service cost, resulting in a negative valuation of $2,629,001,
and then added the valuation of CWIP to arrive at a “Full Cash Value All
Property” of $1,019,474.

¶5 ADOR disagreed with SDG&E’s use of an accumulated
depreciation value that exceeded the original plant in service cost. ADOR
separately determined that accumulated depreciation should be
$30,354,140, which, rounding down, resulted in a reduced plant in service
cost of $18,463,000. Adding in a rounded down CWIP valuation of
$3,648,000, ADOR calculated the full cash value as $22,111,000.

2 “‘Original plant in service cost’ means the actual cost of acquiring or
constructing property including additions, retirements, adjustments and
transfers, but without deducting related accumulated provision for
depreciation, amortization or other purposes.” § 42-14154(G)(7).
3 Because what constitutes “related accumulated provision for
depreciation” and the way it is applied is not before us, we do not address
the interpretation or application of the term. See § 42-14154(F) (providing
that “[a]ll terms and applications of terms shall be interpreted according to
the federal energy regulatory commission uniform system of accounts
[(“FERC USoA”)] for electric and gas utilities in effect on January 1, 1989”).
4 SDG&E did not have any other property to report.

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 SAN DIEGO GAS V. ADOR, ET AL.
Opinion of the Court

¶6 SDG&E filed a complaint in the tax court under §§ 42-16204
and -16207, appealing ADOR’s determination of the full cash value.
Thereafter, the parties filed competing motions for summary judgment,
each asking the tax court to uphold their respective full cash value
calculations. The tax court granted SDG&E’s motion and denied ADOR’s,
finding that SDG&E’s valuation correctly followed the requirements of
§ 42-14154.

¶7 ADOR appealed the ruling, arguing that, among other things,
§ 42-14154 does not permit a negative valuation for a reduced plant in
service cost. The court of appeals agreed, noting:

Nothing in the plain language of A.R.S. § 42-14154 or the
related valuation statutes, A.R.S. §§ 42-14151 to -14153,
expressly provides for or precludes a negative full cash
valuation of a plant in service. But applying a “sensible
construction to avoid absurd results,” Mountainside MAR,
LLC v. City of Flagstaff, 253 Ariz. 448, 450, ¶ 9 (App. 2022), we
are not persuaded that the legislature intended to permit a
negative full cash valuation for a plant in service, and
therefore hold that accumulated depreciation may not reduce
the full cash value of a plant in service to a negative number.

San Diego Gas & Elec. Co. v. Ariz. Dep’t of Revenue, 256 Ariz. 375, 380 ¶ 21
(App. 2023). Regarding the reduced plant in service cost and CWIP, the
court “appl[ied] the plain and unambiguous language of A.R.S.
§ 42-14154(B)” to conclude:

[T]he “related” accumulated depreciation that A.R.S.
§ 42-14154(B) expressly states shall reduce the original plant
in service cost may not reduce the value of construction work
in progress, which is separately calculated under subsection
(C) as “fifty per cent of the amount spent and entered on the
taxpayer’s accounting records as of December 31 of the
preceding calendar year.”

Id. ¶ 22. The court consequently vacated the tax court’s judgment and
remanded for further proceedings. Id. at 381 ¶ 24.

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 SAN DIEGO GAS V. ADOR, ET AL.
Opinion of the Court

¶8 Both ADOR and SDG&E petitioned this Court for review of
the court of appeals’ opinion. We denied review of ADOR’s petition and
granted review of SDG&E’s cross-petition. 5 After oral argument, we
ordered further briefing to address: “What is the relationship between
A.R.S. §§ 42-14154, -1[4157], -15001 and what consequence, if any, does a
negative reduced plant in service cost have on the allocations provided for
in A.R.S. § 42-14157?” Both parties asserted in supplemental briefing that
§§ 42-14157 and -15001 have no bearing on the narrow issue before us:
whether accumulated depreciation can reduce the full cash value of a plant
in service to a negative number or offset the value of unrelated property,
which are recurring issues of statewide importance. We have jurisdiction
pursuant to article 6, section 5(3) of the Arizona Constitution.

II. DISCUSSION

¶9 We review de novo the tax court’s ruling on a motion for
summary judgment, Wilderness World, Inc. v. Ariz. Dep’t of Revenue, 182 Ariz.
196, 198 (1995), as well as the construction and interpretation of Arizona tax
statutes, SolarCity Corp. v. Ariz. Dep’t of Revenue, 243 Ariz. 477, 480 ¶ 8
(2018).

A. Can the Reduced Plant in Service Cost be Negative?

¶10 We begin by addressing whether § 42-14154 permits a
negative valuation for the reduced plant in service cost. SDG&E argues that
the tax court correctly applied the law, which resulted in a negative
valuation. 6 Conversely, ADOR argues that a negative valuation would be
“absurd on its face and violate[] every applicable provision of § 42-14154,”
but nonetheless does not oppose it if the relevant counties will “owe no

5 ADOR sought review of whether the cost of removal for a plant at the end

of its economic life could be part of accumulated depreciation.
6 SDG&E also contests ADOR’s calculations and asserts that, if done
correctly, there would be no negative valuation in the first place. Our
resolution moots this argument.
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 SAN DIEGO GAS V. ADOR, ET AL.
Opinion of the Court

monies to [SDG&E] arising out of negative property values.” 7

¶11 “Absent ambiguity, we interpret statutes according to their
plain language,” In re Drummond, 543 P.3d 1022, 1025 ¶ 5 (Ariz. 2024), and
we determine plain meaning “in [its] broader statutory context.” Id.
(quoting Columbus Life Ins. Co. v. Wilmington Tr., N.A., 255 Ariz. 382, 385
¶ 11 (2023)); see also Antonin Scalia & Bryan Garner, Reading Law: The
Interpretation of Legal Texts 167 (2012) [hereinafter Scalia & Garner]
(explaining that courts interpret a statute’s plain language in context,
because “[c]ontext is a primary determinant of meaning”). In the event of
ambiguity, we construe statutes in favor of the taxpayer. See City of Phoenix
v. Orbitz Worldwide Inc., 247 Ariz. 234, 241 ¶ 22 (2019). When tasked with
“construing a specific provision, we look to the statute as a whole and we
may also consider statutes that are in pari materia—of the same subject or
general purpose—for guidance and to give effect to all of the provisions
involved.” Stambaugh v. Killian, 242 Ariz. 508, 509 ¶ 7 (2017). Finally, “we
seek to harmonize statutory provisions and avoid interpretations that result
in contradictory provisions.” Lagerman v. Ariz. State Ret. Sys., 248 Ariz. 504,
511 ¶ 35 (2020) (internal quotation marks omitted) (quoting Premier
Physicians Grp., PLLC v. Navarro, 240 Ariz. 193, 195 ¶ 9 (2016)).

¶12 The legislature has instructed ADOR to “annually determine
the valuation, in the manner prescribed by this article, of all property,
owned or leased, and used by taxpayers” in the business of operating an
electric transmission system. § 42-14151(A)(5). The manner prescribed is
set forth in § 42-14154. Section 42-14154(B)(1) requires ADOR to initially
determine the original plant in service cost. That cost is then reduced by
accumulated depreciation. § 42-14154(B)(2)(a). The very next provision,
§ 42-14154(B)(2)(b), requires ADOR to then further reduce the original plant
in service cost by any “reduction in value caused by a state or federal
governmental order prohibiting total or partial physical use of [the]
property for periods of more than six months.” Moreover,

7 ADOR also argues that a negative plant in service cost or negative full
cash value would be a prohibited exemption from taxation under article 9,
section 2(A) of the Arizona Constitution. ADOR waived this argument
below, and we therefore decline to address it here. See Mesquite Power, LLC
v. Ariz. Dep’t of Revenue, 552 P.3d 502, 510 ¶ 35 (Ariz. 2024) (declining to
address issue that was not preserved for appellate review).

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 SAN DIEGO GAS V. ADOR, ET AL.
Opinion of the Court

§ 42-14154(B)(2)(b) also provides that “[a]ny reductions in value . . . shall not
exceed the cost of the restricted property less accumulated depreciation.”
(Emphasis added.) Section 42-14154(B)(2)(b) thus expressly precludes a
negative valuation caused by a stop-use order.

¶13 Conversely, the statute setting out the calculation for a
reduction based on accumulated depreciation does not have similar
limiting language. See § 42-14154(B)(2)(a). And § 42-14154(B)(2)(b) is not
the only provision of article 4, chapter 14, title 42 that expressly limits the
amount by which a valuation can be reduced. See § 42-14155(B)
(“Depreciation shall not exceed ninety percent of the adjusted original
cost.”); § 42-14156(A)(5) (“The valuation prescribed in paragraph 2 of this
subsection shall not reduce the valuation below ten per cent of the cost of
the real property improvements. The valuation prescribed in paragraph 3
of this subsection shall not reduce the valuation below ten per cent of the
cost of the personal property.”). Because § 42-14154(B)(2)(a) prescribes a
particular method for reducing the original plant in service cost without
further limitation, we decline to read any similar limiting language into the
provision. See ACLU of Ariz. v. Ariz. Dep’t of Child Safety, 251 Ariz. 458, 463
¶ 20 (2021) (“[W]hen the legislature has specifically included a term in some
places within a statute and excluded it in other places, courts will not read
that term into the sections from which it was excluded.” (quoting Arpaio v.
Citizen Publ’g Co., 221 Ariz. 130, 133 ¶ 9 (App. 2008))); Egan v.
Fridlund-Horne, 221 Ariz. 229, 239 ¶ 37 (App. 2009) (“[W]e presume that
when the legislature uses different wording within a statutory scheme, it
intends to give a different meaning and consequence to that language.”); see
also Scalia & Garner, 93 (discussing the principle of the omitted-case cannon
that “a matter not covered is to be treated as not covered”). We also note
that a negative reduced plant in service cost valuation would not be an
absurd result. If the cost of removal is greater than the salvage value at the
time of a plant’s retirement, the resulting valuation could be negative. See
generally Public Utility Accounting: A Public Power System’s Introduction
to the [FERC USoA] 98 (2012). Hence the provision for calculating a
reduced plant in service cost does not preclude a negative valuation. The
court of appeals erred in concluding otherwise.

¶14 Using the values reported by SDG&E for the 2020 tax year and
following the plain language of § 42-14154(B), the calculation for the
reduced plant in service cost results in a valuation of negative $2,629,001.
With respect to ADOR’s concern that a negative reduced plant in service
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 SAN DIEGO GAS V. ADOR, ET AL.
Opinion of the Court

valuation could require a taxing jurisdiction to refund monies to a utility
taxpayer, that issue is not before us and we decline to speculate about any
such consequence. See Avitia v. Crisis Preparation & Recovery Inc., 256 Ariz.
198, 207 ¶ 43 (2023) (declining to speculate about which sections of
restatements concerning torts might apply to the facts of the case before the
Court).

B. Offsetting Property Valuations

¶15 Although SDG&E and ADOR agree that the valuations
calculated in § 42-14154 are used to determine the full cash value of electric
transmission property, the parties disagree on whether a negative reduced
plant in service cost affects the valuation of CWIP. SDG&E argues that the
property subject to valuation pursuant to § 42-14154 consists of “several
components that are all summed up to arrive at a full cash value.”
Therefore, per SDG&E, a negative valuation for reduced plant in service
cost can effectively “offset” the valuation of CWIP. Conversely, ADOR
argues that the reduced plant in service cost and CWIP have distinct
valuation methods with no relationship to each other.

¶16 To resolve this issue, we must consider the relationship
between the component valuation calculations and the requirement for
ADOR to determine the full cash value for all of SDG&E’s electric
transmission property. Based on the additional briefing from the parties as
ordered by the Court, we will only consider the valuations prescribed by
§ 42-14154 in the specific context of determining the overall full cash value
without regard to the use of such valuations in other statutes.

¶17 First, § 42-14153(A) requires ADOR to “find the full cash
value of [electric transmission property] . . . that operates in this state.”
Additionally, A.R.S. § 42-14003 requires ADOR to notify property owners
“of the final full cash value on or before August 31” and directs ADOR to
“consider . . . information that is otherwise available” to determine
valuations. “Full cash value” is defined, “for property tax purposes, [as]
the value determined as prescribed by statute.” A.R.S. § 42-11001(6).
Section 42-14154(A) states that “[t]he valuation of all electric
transmission . . . property that is subject to valuation for tax purposes shall
be determined in the manner prescribed by this section.” (Emphasis added.) The
relevant portions of § 42-14154 provide:

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 SAN DIEGO GAS V. ADOR, ET AL.
Opinion of the Court

B. Electric transmission . . . property shall be valued as
follows:

1. The department shall determine the original plant in service
cost.

2. The original plant in service cost shall be reduced by:

(a) The related accumulated provision for depreciation.

....

C. The value of construction work in progress is fifty per cent
of the amount spent and entered on the taxpayer’s accounting
records as of December 31 of the preceding calendar year as
construction work in progress.

D. The value of materials and supplies is the total cost of such
property as of December 31 of the preceding calendar year.

E. The value of environmental protection facilities that are
required by law is fifty per cent of the depreciated cost of the
facilities.

Thus, § 42-14154 expressly prescribes separate calculations for each
component.

¶18 However, § 42-14154 does not prescribe a calculation for
determining the full cash value of all electric transmission property. Cf.
A.R.S. §§ 42-14204 (providing for the summation of calculations to
determine an overall value of pipeline property) and -14355 (providing
specifically for computing an “Arizona full cash value” from values
determined in the section). Nevertheless, as noted, § 42-14003(A) directs
ADOR to “consider . . . information that is otherwise available” in
determining valuations. Therefore, although the legislature has not
directed the summation of the component valuations to arrive at a full cash
value, the only source for such a determination is that provided by the
calculations prescribed by § 42-14154.

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 SAN DIEGO GAS V. ADOR, ET AL.
Opinion of the Court

¶19 In light of our duty to harmonize and give effect to the
statutes directing ADOR to value electric transmission property and notify
property owners of its full cash value, we find that summing the valuations
prescribed by § 42-14154 is necessarily the way to determine the full cash
value of SDG&E’s property. See also Jeffrey J. McNaught et al., The Property
Tax Deskbook § 3-340(10) (2022) (describing the operation under § 42-14154:
Net cost of plant in service (original plant in service cost - depreciation) +
50% Net cost of environmental protection facilities + 50% CWIP + Total cost
of materials and supplies + Net cost of leased operating property = Full
Cash Value). Consequently, any single negative valuation for one
component under § 42-14154, when summed with the valuations of other
components, will reduce the overall full cash value. Furthermore, it is
incorrect to characterize the result of adding a negative valuation to one or
more positive valuations as an “offset.” In Arizona’s tax statutes, an offset
generally refers to a credit against a taxpayer’s tax liability. See generally
A.R.S. §§ 42-1106, -1118(D), -2057, -2060. Thus, a negative reduced plant in
service cost does not “offset” the valuation of CWIP as determined by
§ 42-14154(C), rather it necessarily reduces the overall full cash value.

III. CONCLUSION

¶20 For the foregoing reasons, we vacate ¶¶ 19–23 of the court of
appeals’ opinion and that portion of the court’s holding in ¶ 24 concerning
a negative valuation for plant in service cost. We also order that the
remainder of the opinion be depublished. Ariz. R. Sup. Ct. 111(g). The tax
court’s grant of summary judgment is affirmed. Because SDG&E did not
“specifically state the statute, rule, decisional law, contract, or other
authority for an award of attorneys’ fees” under Rule 21(a)(2) of the Arizona
Rules of Civil Appellate Procedure, we deny the request for attorney fees.

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