City of Eau Claire v. Wisconsin-Minnesota Light & Power Co.

The following opinions were filed July 8, 1922:

Owen, J.

While the lower court reversed the order of the commission principally for the reason that an undue proportion of the investment made in the Wissota dam was charged to the Loop and used as a basis for fixing the reasonable rates to be paid by the users of electric current situated on the Loop, we deem it unnecessary to review the finding of the lower court in that respect for the reason that our decision will be placed upon a broader and more fundamental consideration. We deem it proper to suggest, however, that a court should proceed with great caution in setting aside the orders of the commission fixing rates, for what may be considered detail errors of judgment. The fixing of rates is a complicated problem, calling for expert and scientific knowledge. The rate promulgated by the commission is generally the result of mature consideration on the part of those having expert and technical knowledge which is essential in arriving at just and correct conclusions. The announcement of the commission should be accorded the greatest deference by the courts, and its orders should be set aside because of presumed errors of judgment or technical computation, with great caution and reluctance.

*213 Speaking of the elements entering into the valuation of public utilities under the statute providing for. their purchase by municipalities, it was said in Oshkosh W. W. Co. v. Railroad Comm. 161 Wis. 122 (152 N. W. 859), at p. 127:

“It is because the valuation of a utility cannot be reduced to absolutely fixed rules, or to the mere appraisal of parts whose sum equals its value, that the subject is one upon which honest and competent men differ. In the last analysis it is the exercise of a sound and competent business judgment upon many elements of uncertain and debatable value considered as a business entity. Hence grave errors in arriving at and seriously affecting the final result must be shown before á valuation of the commission can be set aside.”

That is also applicable to the fixing of rates, which probably involves more technical and expert knowledge and greater exercise of judgment than does the mere matter of the valuation of the utility. These remarks are made merely for the purpose of suggesting the attitude in which we should approach the ruling of the trial court did we consider it material to the disposition of the case.

We may state at the outset that we are deeply impressed with the thought' that the fundamental basis upon which the commission proceeded in fixing the rates of which the plaintiff cities complain results in great injustice to those cities and communities originally served by the Chippewa Valley Railway, Light & Power Company. Long before the Wis-sota dam was built those communities were being adequately and economically served. As a result of the basis adopted by the commission they are now charged a higher rate to enable cities brought into the Loop to enjoy a service at a lower rate than that at which they otherwise could be served. The Wissota dam would never have been built originally for the service of the Wisconsin municipalities which now receive pow;er therefrom. Its construction was *214 prompted by the contract which it secured from the Northern States Power Company. Had that contract proved a profitable one it safely may be assumed that the" utility company would not have sought the market afforded by the various cities and villages which it has added to the original Loop System. This 'it has done until the original development of the Chippewa Valley Railway, Light & Power Company is insufficient for the demands of the Loop System as so enlarged and extended. This makes necessary a draft upon the power generated by the Wissota dam for the service of the entire Loop System. The latter development was not economical. Its actual cost was, in round numbers, somewhere near double the original estimate. By treating the Loop System as a unit, the cities originally furnished by the prior developments are now called upon to' bear the burden necessary to yield a reasonable return upon approximately seventy per cent, of the cost of constructing the Wissota dam. No further elaboration is necessary to enable an. appreciation of the grievance entertained by the complaining municipalities. The practical result of the development of the Wissota dam has been to materially increáse the cost of service to the original cities of the Loop.

While the hardship resulting to these cities is apparent, the question of whether the basis adopted by the commission resulting in such increased rates is illegal or unreasonable is not so easy of solution. In approaching this subject we should keep in mind the fact that the regulation of rates is exclusively a legislative function. Rates fixed by the legislature cannot be interfered with by the courts except for the purpose of protecting private property from confiscation. If the rates are fixed sufficiently high to enable the utility to earn a reasonable return upon the capital invested, there is no ground for judicial interference. Madison v. Madison G. & E. Co. 129 Wis. 249, 108 N. W. 65. See, also, note in Public Utility Reports, 1918B, p. 28. The reason is that the legislature represents the *215 public, and the public is bound by the action of its representatives in such respect. The remedy of the public in case rates are fixed too high is to elect a legislature that is more considerate of the public interest. The question of how far the courts can go in setting aside an order of a rate-making body created by the legislature upon the complaint of the public has not frequently been before the courts. A note to be found in 12 A. L. R. at page 404 probably collects the great majority, if not all, of the cases bearing upon this subject. A consideration of those cases indicates that courts have quite generally taken the position that such bodies are agencies of the legislature created to protect the public interest and that the public is bound by their decisions.

But our Public Utility Law, sec. 1797m — 64, Stats., expressly provides that

“Any public utility and any person or corporation in interest being dissatisfied with any order of the commission fixing any rate or rates . . . may commence an -action in the circuit court for Dane county against the commission as defendant to,vacate and set aside any such order on the ground that the rate or rates . ■. . fixed in such order is . . . unreasonable.”

This plainly contemplates that the users as well as the utility are entitled to a judicial review upon the question of whether the rate promulgated is in fact a lawful rate. We therefore conclude that the complaining cities are entitled to a judicial review upon the question of whether the rate promulgated by the commission is in fact a lawful rate.

Manifestly, whether, it is a lawful rate depends upon whether it is a rate which the commission is authorized to prescribe pursuant to legislative authorization. It is obvious that the commission has no power except such as is expressly or by inference conferred upon it. And here we may remark that what is a lawful rate is not very specifically defined by the legislature. It simply says that all rates should be reasonable, and authorizes the commission to ascertain the *216 reasonable rate for a given service. This is most general and indefinite. Courts have defined a reasonable rate when the question was raised upon the complaint of the utility. It is a rate which assures the utility a reasonable return upon the money invested. But what is a reasonable rate so far as the public is concerned has not been the subject of frequent judicial treatment. It is plain that a rate prescribed by the legislature higher than that necessary to give the utility a reasonable return upon the money invested could not be judicially annulled. We believe, however, that the legislative command to the commission to ascertain the reasonable rate contemplates such a rate as would be held not confiscatory upon the complaint of the utility, and that the public has a right to complain of any rate which yields to the utility more than a reasonable return. This .is upon the theory that the legislature has in general terms prescribed but one rate: i. e. a reasonable rate — the rate which yields to the utility a reasonable return upon the money invested. If, therefore, the commission prescribes a rate which yields more than a reasonable return to the utility, it has violated the legislative command, and it not only is within the power, but is the duty, of the court to set such rate aside upon the complaint of any user adversely affected.

But in this case there is no contention that the rates fixed yield an unreasonable return to the utility. The complaint is that the return to, or income of, the utility resulting from the rates fixed by the order under review is unlawfully and unreasonably distributed among the municipalities constituting the so-called Loop System. This brings us down to the single question of whether the commission was acting within the legislative command in treating the Loop- System as a unit for the purpose of fixing the rates to be charged by the Wisconsin-Minnesota Light & Power Company.

This question does not find its answer in any express provision of the statutes. It must be deduced from a consideration of many co-related statutes in conjunction with *217 the history of commercial, economic, and political development. At the time of the enactment of the Public Utility Law, as well as now, the individual municipality was charged with the distinct duty of furnishing public utility service, whether it be light, heat, power, or water, to the inhabitants of that city, and was then, as now, endowed with ample power to perform that duty. Practically every municipality in the state had its individual public utility, whether it was for the supply of water, gas, or electricity. Its relation to that utility was a matter of individual dealing between the municipality and the utility. There was no great development of water power by a single utility serving numerous municipalities scattered far and wide. Our present-day developments could not have been within the contemplation of the legislature, because they did not exist.

The legislature enacted a law calculated to bring about reasonable rates and adequate service between the public utility on the one hand and the municipality and its inhabitants on the other. Although these large developments of water power, of which probably the appellant is the most notable example, have come since the passage of the utility law, there has been no modification of that law, which we must assume was enacted in the light of conditions then existing, which regarded the municipality as the entity on the one hand and the utility as,the entity on the other, for the purpose of establishing just and reasonable rates and service. Now, as then, municipalities have the right to grant franchises to public utilities on certain conditions, to take over the property of a public utility used and useful in serving such city, thereby terminating the existing franchise, and thereafter operate the same as a municipal plant; to require the utility to make extensions of its- lines within the municipality; to determine the given character of the product furnished, and to provide penalties for noncompliance with municipal ordinances. All this appears from a consideration of the following statutory provisions: sub. (34), *218 sec. 925 — 52, secs. 925 — 96, 925 — 97, 925 — 97a, 926 — 11, 927 — 1, 940&, 94Od, 959 — 48, 959 — 49, 959 — 51, 959 — 52, 926 — 128, 926 — 139, sub. 7, sec. 1778, and sec. 1780&. As stated in respondents’ brief:

“It is inconceivable that the legislature intended to recognize the municipality as the unit in all matters pertaining to the furnishing of light and power to its inhabitants, and then authorize the commission to make rates based, in whole of in part, upon the average cost of serving any class of consumers located in forty different municipalities within and without the state, without reference to municipal boundaries.”

This principle underlies the decision in State ex rel. Wis. T., L., H. & P. Co. v. Circuit Court, 162 Wis. 234, 155 N. W. 139, where it was held that the city of Menasha could condemn the plant of a public utility within the city irrespective of the fact that it was owned and operated in conjunction with utilities in other cities. It is not inconsistent with Milwaukee E. R. & L. Co. v. Railroad Comm. 171 Wis. 297, 177 N. W. 25, where it was held that the reasonableness of a street-railway rate upon a system of urban and suburban railways in and about the city of Milwaukee was to be tested by its effect on the entire system operated by the public utility. In that case the utility was serving one contiguous, compact community and not many communities scattered far and wide, having no relations with one another.

In reaching the conclusion that the commission was within the legislative command in treating the entire Loop System as a unit, the lower court relied upon the following statutory provisions: sec. 1797m — 1, which defines a public utility as the corporation that owns the plant; sub. 2, sec. 1797m — 6, secs. 1797m — 12, 1797m — 76, and 1797m — 78, which seem to recognize the fact that parts of the same utility may be situated in different municipalities. While these statutes do recognize the fact that parts of the same utility may be sit *219 uated in different municipalities, they evidently refer to plants which, while located without, develop power and furnish service to, a particular municipality. This is evidenced by sec. 1797m — 78, which provides:

“Any public utility accepting or operating under any license, permit or franchise hereafter granted shall, by acceptance of any such indeterminate permit be deemed to have consented to a future purchase of its property actually used and useful for the convenience of the public by the municipality in which the major part of it is situate for the compensation and under the terms and conditions determined by the commission, and shall thereby be deemed to have waived the right of requiring the necessity of such taking to be established by the verdict of a jury, and to have waived all other remedies and rights relative to condemnation, except such rights and remedies as are provided in sections 1797m — 1 to 1797m — 109, inclusive.”

This plainly contemplates that the major portion of any utility contemplated by the act is located in some one municipality. It certainly was not within the legislative contemplation that the only municipality on the Loop served by the Wissota dam that can become the owner of the utility within its municipal borders is the one in which the dam is located, as that no doubt constitutes the major portion of the utility.

We are not unmindful of the considerations of public policy which support the position of the railroad commission; nor of the fact that the utility commissions of other states have adopted the same basis for rate-making under similar circumstances. We are indebted to appellant’s brief for the following citations from the Public Utility Reports where public utility commissions have held that under similar circumstances it is impracticable to fix a rate for each separate municipality, and, that it is necessary to treat the various municipalities served as a unit for the purpose of fixing rates: Purchasers of Gas v. Empire G. & F. Co. P. U. R. 1920A, p. 702 (N. Y.); Glenview Imp. Club v. *220 People’s W. Co. P. U. R. 1918F, p. 187 (Cal.); Re Mount Whitney P. & E. Co. P. U. R. 1920D, pp. 931, 936 (Cal.); In re Rockland E. Co. P. U. R. 1915D, pp. 683, 688 (N. J.); Ben Avon Borough v. Ohio Valley W. Co. P. U. R. 1917C, pp. 390, 419, 420 (Pa.); Re Chesapeake & P. Tel. Co. P. U. R. 1921B, pp. 97, 116, 117 (W. Va.); Newcastle v. Bell Tel. Co. P. U. R. 1921B, pp. 378, 380, 381; Re Missouri G. & E. S. Co. P. U. R. 1921D, p. 687; Re Utah P. & L. Co. P. U. R. 1921C, pp. 294, 311.

Our water powers are no doubt an asset to our state. It is no doubt wise that when a water-power site is developed that it be developed to its- full capacity. It is probably true that in the great majority of instances a market for the power cannot be found adjacent to, or within convenient distance of, the water-power site, and that in order to find a market for the developed power it will be necessary to conduct the same by transmission lines to distant cities. Whether or not a city adjacent to the power is to be deprived of the advantage of its location and made to bear the burden of a portion of the expense of carrying it to a distant city is a question.of public policy which should properly be decided by the legislature. It should not be established either by the railroad commission or by the court. If the legislature shall conclude that the policy adopted by the railroad commission is a wise one, it will be for those administering the law to follow it. As to the wisdom of the policy we intrude no opinion. We simply say that when such policy becomes the policy of the state it should be by legislative declaration, and that declaration has not as yet been made. Under existing statutes the commission is required to treat the municipality as a unit and to base its rate upon the cost to the utility of serving the individual municipality rather than the average cost of serving many distinct and scattered municipalities. Because the commission, in fixing the rates under- review, treated the Loop System, rather than the individual municipality, as the unit, it pro *221 ceeded upon an erroneous fundamental basis, and its order must be vacated and set aside.

By the Court. — The judgments are affirmed.