This decision is good news for both utility companies and customers. It will have far-ranging implications for all utilities regulated by the ACC to replace unsafe, broken and worn-out infrastructure at the time needed rather than waiting until the conclusion of a rate case when the costs of infrastructure can be recovered. In short, the SIB mechanism bridges the time gap that has existed from the point a utility invests to improve spent infrastructure until the time it can recover these costs at the end of a rate case. A utility now has an incentive to keep pace with replacement rather than risk total failure of its critical facilities because it cannot timely recover infrastructure costs.

The main legal battle fought over the SIB had to do with the constitutional provision relating to the requirement that the ACC determine the utility’s “fair value” in setting rates. While the SIB mechanism implements a rate surcharge to recover infrastructure costs between rate cases, the authorizing provisions put in place by the ACC do indeed consider fair value when setting the surcharge rate.

Here’s what the Supreme Court said in its August 8, 2016 Opinion {}:

 “As required by the Arizona Constitution, under the SIB mechanism, the Corporation Commission will “ascertain the fair value” of AWC’s property and use that determination “to aid” it in setting SIB surcharge rates. As a result, we vacate the court of appeals’ opinion and affirm the Commission’s orders approving the SIB mechanism”.

In this case, the Supreme Court has made it clear that legal theory, constitutional requirements and common sense are indeed compatible.