Wisconsin Public Service Corp. v. Public Service Com'n of Wisconsin, 79-1929

• Decision Date: 02 November 1982
• Docket Number: No. 79-1929,79-1929
• Citation: 325 N.W.2d 867,109 Wis.2d 256
• Parties: WISCONSIN PUBLIC SERVICE CORPORATION, Petitioner-Respondent-Petitioner, and Madison Gas & Electric Company, Wisconsin Electric Power Company, and Wisconsin Power & Light Company, Intervenors-Respondents-Petitioners, v. PUBLIC SERVICE COMMISSION OF WISCONSIN, Appellant-Respondent.
• Court: Wisconsin Supreme Court

Page 867

325 N.W.2d 867

109 Wis.2d 256

WISCONSIN PUBLIC SERVICE CORPORATION, Petitioner-Respondent-Petitioner and Madison Gas & Electric Company, Wisconsin Electric Power Company, and Wisconsin Power & Light Company Intervenors-Respondents-Petitioners, v. PUBLIC SERVICE COMMISSION OF WISCONSIN, Appellant-Respondent.

No. 79-1929.

Supreme Court of Wisconsin.

Argued Oct. 4, 1982.

Decided Nov. 2, 1982.

Allen W. Williams, Jr. (argued), Milwaukee, for petitioner-respondent-petitioner and intervenors-respondents-petitioners; Steven E. Keane, Trevor J. Will and Foley & Lardner, Milwaukee, on brief for Wis. Public Service Corp. and Wis. Elec. Power Co.; Eugene O. Gehl and Brynelson, Herrick, Gehl & Bucaida, Madison, on brief for Wis. Power & Light Co.; William T. Rieser and Stafford, Rosenbaum, Rieser & Hanson, Madison, on brief for Madison Gas & Elec. Co.

Steven M. Schur, Chief Counsel (argued), Madison, for Public Service Com'n of Wis., Barry M. Levenson, Asst. Chief Counsel, Madison, on brief.

STEINMETZ, Justice.

The issue in this case is whether the Public Service Commission accounting order of March 2, 1979, in Docket CA-5491, which effectively forced utility shareholders to bear reasonable and prudent expenditures, is arbitrary and capricious.

This action is a petition for review under sec. 227.15, Stats., ¹ of a Public Service Commission (PSC) order. It arose out of an application filed with the PSC on July 10, 1974, by Wisconsin Public Service Corporation (WPS), Madison Gas and Electric Company (MG & E), Wisconsin Electric Power Company (WEPCO), and Wisconsin Power & Light Company (WP & L) (collectively the Joint Applicants) for a certificate of authority to construct a power plant in the Town of Koshkonong in Jefferson County. By order dated October 18, 1974, the PSC dissolved a restraining order and authorized the Joint Applicants to make expenditures necessary to process their application.

In July, 1977, the Joint Applicants requested that the application be withdrawn. The PSC kept the docket open to determine the proper accounting treatment for the expenditures incurred in planning for the plant and pursuing the certificate of authority (the precertification expenditures). On March 2, 1979, the PSC issued its order in Docket CA-5491 (hereinafter the accounting order) directing the accounting treatment to be given the $33,881,244.86 of Koshkonong precertification expenditures.

Except for approximately $45,000 of advertising expenses, the accounting order found all of the accumulated precertification expenditures reasonable and prudent. The portion of the accounting order at issue directed the Joint Applicants to reclassify $7,526,324.66 of those expenses as Extraordinary Property Losses, and to amortize that amount in 12 equal monthly installments beginning retroactively on January 1, 1979.

In effect, the PSC order treated the $7.5 million expenditure in such manner that there was never any possibility that it could be recovered from ratepayers. ²

WPS filed a petition for review of the accounting order with the circuit court for Brown County. On October 15, 1979, circuit court Judge Robert J. Parins issued a decision reversing and remanding the accounting order. An order implementing the decision was entered on November 15, 1979, after which the PSC brought an appeal to the court of appeals.

On December 22, 1981, the court of appeals, 105 Wis.2d 762, 318 N.W.2d 22, reversed the decision of the circuit court. A petition for review filed on behalf of the Joint Applicants was granted by this court on March 15, 1982.

The commission found the expenditures to be of a prudent nature necessarily incurred in planning for the Koshkonong project. The commission further found that a large portion of such expenditures were to be transferred to the proposed Haven project, ³ but that other expenditures were not to be transferred to the Haven project for the reason that such expenditures were of no value either to the public utilities involved or their customers.

The commission determined in its findings that the approximate effect of the accounting action taken upon the earnings per share of the various public utilities would range from four cents to thirteen cents per share to the stockholders.

The trial court reasoned that since the commission found that the expenditures were prudently made, the expenditures should have been amortized over a period of time that would enable the expenses to be reflected in future rates. The court of appeals disagreed and reversed. The court of appeals also stated: "We concur with the circuit court that the policy reasons stated in the Order are sound. In light of the policy reasons supporting the PSC's exercise of discretion, the Order should not be reversed or remanded because it is inconsistent with prior agency practice." Contrary to this statement the trial court did not find the policy reasons sound but rather stated: "However, this court is also satisfied that the policy reasons given for an early write-off of these expenditures as it may affect the rate payers and stockholders must give way to the finding that the expenditures were prudently made and were not to be charged to the stockholders."

There were essentially three policy reasons offered by the commission to support the accounting order:

(1) The expenditures on the books have no value to the stockholders or ratepayers, and represent a potential problem for future investors, so they should be eliminated from the companies' books as quickly as possible. Specifically, the order stated: "First of all, the dollar amounts remaining on the books not only have no value to the stockholders or the ratepayers but also represent a potential problem for future investors. The sooner they are eliminated from the companies' books the better from a financial standpoint."

The commission did not state what the "potential problem" was. How the utilities are benefited "from a financial standpoint" when they are precluded from recovering $7.5 million from the ratepayers is unexplained and lacks reasoned judgment. If anything, investors would likely hesitate to invest in a company which was forced to sustain such a financial loss. Where expenditures are prudent, investors should be able to anticipate that all such costs will eventually be recovered from ratepayers. If investors are never certain whether the PSC will effectively charge a prudent precertification expenditure to shareholders or ratepayers, such uncertainty provides a disincentive for investors.

(2) The quick write-off minimizes adverse effects on the stockholders and ratepayers without burdening either. Specifically, the order stated: "Secondly, the quick write off method minimizes adverse effects on both the stockholders and the ratepayers without constituting an undue burden on either." There is no logic in that statement since the write-off certainly did minimize the adverse effects on the ratepayers; in fact, there was no negative effect. But the write-off maximized the burden on shareholders. Even if the write-off does yield tax advantages for shareholders, it still remains true that the shareholders are bearing the entire cost of the expenditures.

(3) The PSC anticipated changing its policy and treating precertification expenditures as operating expenses. That change in policy combined with long-term amortization of the Koshkonong expenditures would be a "significant additional burden to ratepayers." Specifically, the order stated:

"Finally, it appears likely that further write-off of significant amounts remaining on the books will be required in the near future because the commission is in the process of re-examining its current policy with respect to financial treatment of pre-certification expenditures and construction work in progress. In order to prevent the accumulation of amounts such as these in the future and to better control the reasonableness of such expenditures, the commission may decide to require that more of the costs of planning and applying for new construction be expensed currently rather than added to the rate base of the companies. Such a policy change would have the effect of increasing customer rates in the short-run, although bringing about significant long-term savings to customers.

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