City of Eau Claire v. R.R. Comm'n

• Decision Date: 13 July 1922
• Citation: 189 N.W. 476,178 Wis. 207
• Parties: CITY OF EAU CLAIRE ET AL. v. RAILROAD COMMISSION ET AL.
• Court: Wisconsin Supreme Court

178 Wis. 207

189 N.W. 476

CITY OF EAU CLAIRE ET AL.

v.RAILROAD COMMISSION ET AL.^a1

Supreme Court of Wisconsin.

July 8, 1922.

Dissenting Opinion July 13, 1922.

Appeal from Circuit Court, Dane County; E. Ray Stevens, Judge.

Action by the City of Eau Claire and others against the Railroad Commission and the Wisconsin-Minnesota Light & Power Company. Judgment for plaintiffs, and defendant Wisconsin-Minnesota Light & Power Company appeal. Affirmed.

Eschweiler and Jones, JJ., dissenting.

These actions were brought by the plaintiffs and respondents to review an order of the Railroad Commission fixing the rates to be charged by the Wisconsin-Minnesota Light & Power Company, a public utility, furnishing electrical energy to the plaintiffs cities. The cases involve the same facts, were argued together, and will be disposed of in one opinion.

Prior to June 1, 1914, the Chippewa Valley Railway Light & Power Company owned and operated certain hydro-electric generating plants consisting of two dams on the Red Cedar river. It also operated a dam in the city of Chippewa Falls, and owned and operated a leasehold interest in the so-called Dells dam located in the city of Eau Claire. On that date it was furnishing electric current for lighting and power purposes in the cities of Menomonie, Chippewa Falls, Eau Claire, and Altoona, as well as the villages of Elmwood, Spring Valley, and Ellsworth. It had also built a transmission line and was furnishing electric energy to Red Wing, Minn. On that date it had under construction a transmission line from Altoona easterly, eight miles, to Fall Creek. It had under consideration the projection of a line from Ellsworth to Hastings, and had contracted to supply certain Minnesota cities along the Mississippi river from Red Wing to Winona. The plants then owned and operated by it supplied ample power to meet the demands for electric energy by all of the communities then supplied by it or under contemplation.

On June 1, 1914, the Wisconsin-Minnesota Light & Power Company acquired all of the stock of the Chippewa Valley Railway Light & Power Company. The Wisconsin-Minnesota Light & Power Company owned the lighting plant at Red Wing, Minn., and another at La Crosse, Wis., the power for which was generated by a large steam plant. The property of the Chippewa Valley Company included certain water power sites on the Chippewa river. After the Wisconsin-Minnesota Light & Power Company acquired the stock of the Chippewa Valley Company, it entered into a contract with the Consumers' Power Company (now the Northern States Power Company) of St. Paul, Minn., by the terms of which it agreed to furnish, when it had completed what is now known as the Wissota dam, for a period of 30 years thereafter, 22,000,000 KWH firm power per year, for which it was to be paid 5 1/2 mills per KWH at the substation at Stillwater, Minn. It further agreed to furnish a like amount of surplus power each year, for which it was to be paid 3 mills per KWH. This current was to be delivered over a power line 74 miles in length, now known as the St. Paul High Line, reaching from the proposed Wissota dam to the St. Croix river opposite Stillwater, Minn. Having secured this contract, it made application to the Railroad Commission for a permit to build the Wissota dam, which permit was granted. The estimated cost of the proposed dam and the St. Paul High Line was $3,000,000. However, the project was completed at an expense of approximately $7,000,000.

The contract proved to be unprofitable. The company could not earn a reasonable return on its investment under the terms of the contract with the Northern States Power Company. This contract was changed in May, 1917, by supplemental agreement, by which the Wisconsin-Minnesota Light & Power Company was obligated to furnish under the contract all power “not needed elsewhere.” The Wisconsin-Minnesota Light & Power Company then apparently started on a campaign to procure a larger market, for the power generated by the Wissota dam, from Wisconsin cities. At the time of the order of the Commission under review, October 9, 1920, it was furnishing power or current to Alma, Alma Center, Altoona, Augusta, Boyd, Bloomer, Cadott, Chippewa Falls, Cochrane, Eau Claire, Elk Mound, Ellsworth, Elmwood, Fairchild, Fall Creek, Humbird, Hixton, La Crosse, Menomonie, Mondovi, Neillsville, Nelson, Rusk, Spring Valley, Stanley, Thorp, Taylor, Eleva, Woodmore, Plum City, Blair, Whitehall, and Independence, in Wisconsin, as well as to the following Minnesota cities: Hastings, Frontenac, Lake City, Red Wing, Wabasha, Kellogg, Winona, La Crescent, and Hoka. The cities originally furnished by the Chippewa Valley Company, as well as those furnished at the present time, constitute what is called a “Loop System.” It will be seen that the Loop System has been substantially enlarged since the construction of the Wissota dam and numerous communities have been added thereto.

Prior to October 9, 1920, the Wisconsin-Minnesota Light & Power Company applied to the Railroad Commission for an increase in its rates of service, resulting in the order permitting an increase of rates of which the plaintiffs complain.

In fixing the rates the Railroad Commission treated the Loop, that is, all of the cities furnished and supplied by the Wisconsin-Minnesota Light & Power Company, as a unit. It divided the cities in the Loop into classes, placing Chippewa Falls, Eau Claire, and La Crosse in one class, Menomonie and Red Wing in another class, and all other cities or villages in a third class. It also divided the individual consumers into classes; but, aside from such classification, all municipalities and all consumers were regarded as a unit. The city of La Crosse, located at least 100 miles from the Wissota dam, was given the same rates as Eau Claire and Chippewa Falls, located in close proximity thereto. No consideration was given to the proximity of any community to the dam, although it is apparent that to supply a distant community a power line is required, incurring additional investment as well as a loss of power in the course of transmission. The Commission estimated that the plants originally operated by the Chippewa Valley Company were presently unable to supply the demand for power coming from the present Loop, owing to the addition of various municipalities thereto, as well as perhaps an increasing demand for power in the municipalities originally supplied by the original developments; that the requirements of the present Loop System for firm or constant power absorbed all of the firm or constant power generated by the original developments as well as 71.68 per cent. of the firm or constant power generated by the Wissota dam. In computing the investment chargeable to the Loop System, 71.68 per cent. of the cost of the Wissota dam was therefore apportioned to the Loop System.

In the lower court the appealing municipalities complained of the allocation of 71.68 per cent. of the cost of the Wissota dam to the Loop and strenuously maintained that the Commission had no right to regard the Loop as an entity in fixing the just and reasonable rates for service.

The lower court held that the action of the Commission in treating the Loop as an entity was lawful. It held, however, that an unreasonable proportion of the cost of the Wissota dam was apportioned to the Loop and for that reason reversed the order of the Commission. From the judgment so entered the Wisconsin-Minnesota Light & Power Company appealed.

Charles McPherson, of Grand Rapids, Mich., and Olin, Butler, Thomas, Stebbins & Stroud, of Madison, for appellant.

Wm. J. Morgan, Atty. Gen., and Ralph M. Hoyt, Deputy Atty. Gen., for Railroad Commission.

John R. Mathews, of Menomonie, for City of Menomonie.

J. B. Fleming, of Eau Claire, for City of Eau Claire.

L. J. Rusk, of Chippewa Falls (Bundy, Beach & Holland, of Eau Claire, of counsel), for Chippewa Falls City.

OWEN, J. (after stating the facts as above).

[1] 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.

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 Water Works v. Railroad Commission, 161 Wis. 122, at page 127, 152 N. W. 859, at page 862 (L. R. A. 1916F, 592):

“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 a valuation of the...