Madison Gas and Elec. Co. v. Public Service Commission of Wisconsin, 80-2098
| Decision Date | 03 November 1981 |
| Docket Number | No. 80-2098,80-2098 |
| Citation | 105 Wis.2d 385,313 N.W.2d 847 |
| Parties | MADISON GAS AND ELECTRIC COMPANY, Petitioner-Respondent, v. PUBLIC SERVICE COMMISSION OF WISCONSIN, Appellant. * |
| Court | Wisconsin Court of Appeals |
Steven M. Schur, Chief Counsel, and Barry M. Levenson, Asst. Chief Counsel, Madison, on brief, for the appellant.
John A. Hansen, Richard K. Nordeng and Stafford, Rosenbaum, Rieser & Hansen, Madison, on brief, for the respondent.
Before FOLEY, P. J., and DEAN and CANE, JJ.
The Public Service Commission appeals from a judgment setting aside its order establishing electric service rates for Madison Gas and Electric Company. The circuit court concluded that the PSC's order was not supported by substantial evidence, and it remanded the matter to the PSC. The effect of the judgment is to require the PSC to allow an additional increase in MG&E's rates. We concur in the conclusion reached by the circuit court and affirm its judgment.
MG&E is entitled to earn a fair and reasonable rate of return on the fair value of its investment. See Wisconsin Telephone Co. v. PSC, 232 Wis. 274, 330, 287 N.W. 122, 130 (1939). Whether MG&E can earn a fair rate of return depends on the rates the PSC allows it to charge for electric service. 1 In determining rates that will allow MG&E to earn a reasonable rate of return, the PSC must first determine MG&E's investment "rate base," which consists of the property MG&E devotes to providing utility service. Id. The PSC then determines the electric service rates necessary to generate income sufficient to allow MG&E to earn what the PSC has determined to be a reasonable rate of return on the rate base. 2
Like other regulatory commissions, the PSC has historically used a test period or test year to determine a utility's income. The historic test year concept assumes that a utility's past experience will be representative of what will occur in the future when new rates will be in effect. See Downs, The Use of The Future Test Year in Utility Rate-Making, 52 B.U.L.Rev. 791, 792 (1972). The use of historic test years has, however, been criticized, mainly because they do not take into account future economic trends, such as inflation. To better account for future economic trends, regulatory commissions, including the PSC, have turned to future or forward-looking test years.
A future test year was used by the PSC in this case. MG&E applied for a rate increase in mid-1979. MG&E's rate increase application relied on data projections for a 1979 test year. It projected that in 1979, its revenues from wholesale customers would total $8,337,000. The PSC utilized a 1980 test year and projected that in 1980, MG&E's wholesale revenues would total $16,341,000. MG&E does not challenge this projection.
The dispute in this case arises because the PSC increased its $16,341,000 wholesale revenue projection by $1,274,000. The increased sum was then used to determine the total amount of additional revenue the PSC determined MG&E would require from retail customers in order to earn its authorized rate of return. The PSC characterizes its $1,274,000 addition to wholesale revenues as a "pro forma " adjustment and contends that this adjustment of revenues was made in a manner consistent with the procedures it follows in making test year projections in general.
Although we agree with the PSC that in setting new utility rates it is reasonable and often necessary to make adjustments based on projected data, we disagree with the PSC's contention that its $1,274,000 adjustment is consistent with the procedures it followed in making other test year projections. The PSC's original wholesale revenue projection of $16,341,000 was derived from projections prepared by the PSC's Accounts and Finance Division. A PSC staff accountant testified that the wholesale revenue projection was based on MG& E's levels of sales to other utilities in 1978 and 1979, adjusted to reflect changes in MG&E's generating capacity and to normalize such sales for abnormal weather conditions. The most recent data regarding sales to wholesale customers was used and although other methods of projecting wholesale revenue projections were considered, the method actually employed was the one the witness viewed as being the most reliable. This testimony provides substantial evidence to support the projection. 3
Conversely, the PSC's $1,274,000 adjustment was not derived from data bearing on the volume of MG&E's past or future sales to other utilities. It was instead based solely on the costs associated with the maintenance of MG&E's excess generating facilities. 4 It was based solely on the desire of the two-member majority of the commission to shift the burden of excess capacity costs from ratepayers...
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Madison Gas and Elec. Co. v. Public Service Com'n of Wisconsin
...Rieser & Hansen, Madison, on brief. DAY, Justice. This is a review of a decision of the court of appeals published at 105 Wis.2d 385, 313 N.W.2d 847 (Ct.App.1981) affirming a judgment of the Circuit Court for Dane County, the Honorable Howard W. Latton, Circuit Judge of Columbia County pres......