State ex rel. Wisconsin River Power Co. v. Board of Review of Town of Armenia

• Citation: 125 Wis.2d 94,370 N.W.2d 580
• Decision Date: 23 May 1985
• Docket Number: No. 83-2021,83-2021
• Parties: STATE of Wisconsin ex rel. WISCONSIN RIVER POWER COMPANY, Petitioner-Appellant, v. BOARD OF REVIEW of the TOWN OF ARMENIA and Town of Armenia, Respondents. *
• Court: Wisconsin Court of Appeals

Page 580

370 N.W.2d 580

125 Wis.2d 94

STATE of Wisconsin ex rel. WISCONSIN RIVER POWER COMPANY, Petitioner-Appellant, v. BOARD OF REVIEW of the TOWN OF ARMENIA and Town of Armenia,

Respondents. ^*

No. 83-2021.

Court of Appeals of Wisconsin.

Argued Jan. 17, 1985.

Opinion Released May 23, 1985.

Opinion Filed May 23, 1985.

Timothy C. Frautschi, Milwaukee (argued), for petitioner-appellant; Timothy C. Frautschi and Foley & Lardner of Milwaukee, on brief.

J. Leroy Thilly, Madison (argued), for respondents; J. Leroy Thilly and Boardman, Suhr, Curry & Field of Madison, on brief.

Before GARTZKE, P.J., DYKMAN, J., and RUDOLPH T. RANDA, Reserve Judge.

GARTZKE, Presiding Judge.

Wisconsin River Power Company appeals from a judgment affirming the decision of the Town of Armenia's board of review upholding the 1980 valuation of that part of the company's dike which is in the township. The dispute is over the fair market value of the dike. The issue is whether the record supports the assessor's valuation. We conclude that it does not. We therefore reverse.

The company objected to the assessor's 1980 valuation of that part of its dike within the township at $1,502,000. The board of review held a hearing on the objection. Only the company presented evidence. The board upheld the assessor's valuation. The circuit court vacated the board's decision, concluding that the record did not support the valuation. The board held a second hearing. Both sides presented evidence. The company contended that the fair market value of the dike January 1, 1980 is $352,688. The board again upheld the assessor's $1,502,000 valuation, and the circuit court affirmed that decision.

The company operates a hydroelectric generating project on the Wisconsin River. The project includes a dike, 25,725 lineal feet of which are in the Town of Armenia. The project is owned equally by Consolidated Water Power Company, ¹ Wisconsin Public Service Corporation and Wisconsin Power & Light Company. The entire project's original cost was $20,198,239. Its net book value (original cost less depreciation) was $11,786,169 January 1, 1980.

The company is licensed under The Federal Power Act to operate the project for fifty years. The license expires in 1998. The Federal Energy Regulatory Commission's approval is necessary to transfer the license. 16 U.S.C. sec. 801 (1982). The successor or assignee of the license takes subject to its terms and conditions. Id. The company cannot sell, lease or otherwise dispose of the whole of its facilities unless FERC finds that the proposed disposition is consistent with the public interest. 16 U.S.C. sec. 824b(a). The United States may take over and operate the project when the license expires if it pays the owner its net investment. 16 U.S.C. sec. 807(a).

The company sells its power at wholesale. FERC regulates the rates, which must be "just and reasonable" and therefore enough to allow recovery of operating costs and a fair rate of return on investment. Anaheim, Riverside, etc. v. Fed. Energy Reg. Com'n, 669 F.2d 799, 801 (D.C.Cir.1981). Net investment is defined as original cost less depreciation plus improvements. 16 U.S.C. sec. 796(13). A surplus earned over the specified rate of return on the net investment after the first twenty years of operation must be held in an amortization reserve. FERC may require that the reserve be applied to reduce the net investment or be held until the termination of the license. 16 U.S.C. sec. 803(d).

With this background in mind, we state the scope of our review. Judicial review of the board's decision is by statutory certiorari. Sec. 70.47(13), Stats. Review on statutory certiorari is the same as on common law certiorari, when the statute does not enlarge the scope of review. State ex rel. Ruthenberg v. Annuity & Pension Bd., 89 Wis.2d 463, 474, 278 N.W.2d 835, 840 (1979). We review the same record made before the board of review as did the trial court, and we are not bound by that court's conclusions.

The assessor's valuation is presumed to be correct. The presumption survives until credible evidence overturns it. Rosen v. Milwaukee, 72 Wis.2d 653, 661-62, 242 N.W.2d 681, 684 (1976). If the presumption is overcome, the question is whether credible evidence was presented to the board that may in any reasonable view support the board's determination. Id. at 662, 242 N.W.2d at 684. If the board has not acted arbitrarily and the evidence furnishes a substantial basis, the court will affirm the board's determination. East Briar v. Rome Board of Review, 113 Wis.2d 33, 35-36, 334 N.W.2d 692, 694 (Ct.App.1983). The court does not substitute its opinion of value for that of the board of review. Id. The board cannot, however, disregard competent, unimpeached and uncontradicted evidence. Id. If the board disregards such evidence, the court must set aside its determination.

We turn to the record made before the board. We conclude that the company overcame the presumption that the assessor's $1,502,000 valuation is correct.

Assessors must value property in the manner provided in the Wisconsin Property Assessment Manual. Secs. 70.32(1) and 73.03(2a), Stats. The manual requires that the assessor use the best data available to arrive at an assessment. 1 Property Assessment Manual for Wisconsin Assessors, 7-3 to 7-4 (Rev.1982). This involves consideration of the market, cost and income approaches to value.

The company's appraiser, an officer of the regulated industries division of American Appraisal Company, testified that because no comparable sales are available, he did not use the market approach. In his opinion, a reasonable investor would value the project on the basis of its income-producing potential. He testified that FERC limits the company's return to a percentage of its "rate base" or original cost less depreciation and does not generally approve sales of federally licensed projects for more than net book value if the purchaser will pass on the excess cost to consumers. He concluded that no reasonable investor would pay more than net book value for the project. The net book value of the company's project was $11,786,169 January 1, 1980. The dike is carried in the company's account for "Reservoirs, Dams and Waterways." The appraiser allocated $352,688 from that account to the part of the dike in the town as that part's fair market value January 1, 1980.

The company's appraiser also valued the project at $11,786,169, using the cost approach. He first calculated the project's reproduction cost less depreciation. He reduced that amount to the project's net book value because its rates are regulated. In his view, rate regulation is an economic obsolescence factor that must be considered under the cost approach.

We conclude that the company's appraiser valued the property in the manner provided in the Wisconsin Property Assessment manual, as must the town assessor under secs. 70.32(1) and 73.03(2a), Stats. The appraiser arrived at an opinion based upon facts which he presented to the board. The connection between those facts and his opinion employs a logical rationale. Consequently, the appraiser's opinion is reasonable. The company therefore came forward with credible evidence that the assessor's valuation is incorrect and overcame the presumption in favor of that valuation. Rosen, 72 Wis.2d at 662, 242 N.W.2d at 684.

Because the presumption favoring the assessor's valuation was overcome, the next question is whether credible evidence was presented to the board that may in any reasonable view support the assessor's valuation. Id.

The assessor testified only at the second hearing. He bases his valuation solely on net reproduction cost, citing sales of other utility properties at prices over net book value. He used his predecessor's valuation, having determined from Army Corps of Engineers personnel that his predecessor had conservatively estimated the dike's replacement cost less depreciation. He analyzed his $1,502,000 valuation, using the 1979 report which American Appraisal Company had submitted at the first hearing. The appraisal company's $356,715 valuation as of January 1, 1979 was 4.8 percent of the company's account for "Reservoirs, Dams and Waterways" as of that date. He applied the 4.8 percent, to the appraisal company's finding in the 1979 report of a $28,868,045 reproduction cost less depreciation for the reservoirs, dams and waterways. He compared the result, $1,385,660, with his $1,502,000 original valuation. He considered the difference to be reasonable in view of the high inflation rate in 1979. He made no adjustment to net reproduction cost for income limitations on the project and did not use the income or market approach.

The town called its 1981 assessor even though he did not participate in the 1980 valuation at issue. He testified that the project's reproduction cost less depreciation in 1980 was $45,000,000 to $55,000,000. He based his opinion on the costs of recently constructed facilities and on his conversations with engineers. He assumed that a buyer would be able to earn a return on the entire purchase price but subtracted a "negligible" amount to account for the possibility that the purchaser would not. He did not offer an opinion as to the dike's value in 1980.

The general manager of Kaukauna Electric and Water Company, a municipally-owned utility, testified that his company is interested in purchasing additional hydrocapacity. In his opinion, $26,000,000 is a low valuation of the Wisconsin River Power project. His company would "jump" at the chance to purchase the project at its net book value, $11,786,169. That price equals about $336 per kilowatt capacity. One Wisconsin utility has offered its coal-fueled plant for sale at about $1,500 per kilowatt of its capacity. Another coal-fueled plant has been offered at approximately $750-$800 per kilowatt. Neither offer has been accepted. No hydrounits are being offered for sale. A hydrounit is...