208 Wis. 348 | Wis. | 1932
Lead Opinion
The following opinions were filed May 12, 1931:
The action was tried upon the pleadings, and there is no dispute as to the facts. On August 13, 1928,
The Luck Light & Power Company had on its books an account entitled “Customers’ Line Extension Donations,” showing a balance of $12,034.91 received in cash as donations from prospective customers to finance the construction of a certain high-tension line, transformer installations, and branch-line extensions. That account was carried in that form pursuant to accounting rules, theretofore promulgated by the commission, which required the Luck Light & Power Company, as well as the plaintiff, to credit in such an account all customers’ donations, and also to debit the same to the proper fixed capital account on its books. In relation to such donations the answer alleged:
"... That rural rates in such cases were established upon a basis which did not provide for a return to the utility upon the capital thus donated by customers; that the customers’ donation plan above outlined made it possible for the electric utility to establish a lower rate for rural electric service which tended to promote the expansion of rural electrification to the benefit of the utility and also of the public; that the rate schedule of the Luck Light & Power Company under which the customers’ donations under consideration were made was constructed upon the principles above set forth and did not permit said Luck Light & Power Company to earn a return upon the amount of said customers’ dona*352 tions as set forth in the opinion of the commission here under review.”
On May 5, 1929, the commission determined that the value of the property was $80,000, free and clear of all in-cumbrances, but including the donations of $12,034.91 contributed by customers; that $67,965.09 was the maximum amount at which the plaintiff could purchase the property and place it on its books; that the $12,034.91 should be credited on plaintiff’s books to the “Customers’ Line Extension Donations” account; that “the financial condition, plan of operation, and proposed undertakings of the corporation are such as to afford reasonable protection to purchasers of the securities to be issued;” and that to obtain funds to complete the purchase, in addition to the bonds for $58,800, theretofore authorized, the plaintiff should be authorized to sell 150 shares of its common stock at $100 per share.
Plaintiff contends that it was entitled to capitalize the value of the acquired property without regard to the price which the vendor invested therein; that the commission erred in adopting the .sum of $67,965 as the base value for issuing securities instead of the sum of $80,000, at which the commission valued the property; and that the fact that the commission might not be required to include the value of the donated property in a rate base does not justify deducting the amount at which the donation is carried on the vendor’s books from the value of the property as determined under ch. 184, Stats., for the issuance of securities.
On the other hand, in its brief plaintiff’s counsel say that they do not “challenge the contention that the plaintiff is in the same position as the Luck Company should a question of rates arise.” Likewise, plaintiff’s counsel concede that when “the contributions were made to the Luck Company the rates in force and approved by the commission recognized that customers in rural communities might help the
The proceedings before the commission, and its determination as to the .value' of the property, the maximum amount at which it authorized the purchase, and the nature and extent of the securities which plaintiff could issue against the property, were pursuant to secs. 184.11 (2) and 184.09, Stats. 1929. Sec. 184.11 (2) provides:
“No public service corporation shall purchase, or in any way acquire the property of any other public service corporation or of any person furnishing service to the public, for the purpose of effecting a consolidation, unless the property to be acquired shall first be valued as provided in section 184.09, and then only at a sum not to exceed the value found by the commission and stated in the certificate of authority issued to such corporation for. the issuance of stocks, certificates of stock, bonds, notes, or other evidence of indebtedness.”
“(1) No public service corporation shall issue any securities until it shall have obtained authority for such issue from the commission.
“(2) In case the securities are to be issued for money only, the corporation shall file with the commission a statement, . . . setting forth (a) the amount and character of the proposed securities; (b) the purposes for which they are to be issued; (c) the terms on which they are to be issued, and (d) the total assets and liabilities, and the previous financial operations and business of the corporation, in such detail as the commission may require. . . .
“(3) To determine whether the proposed issue complies with the provisions of this chapter, the commission shall make such inquiry or investigation, hold such hearings and examine such witnesses, books, papers, documents or contracts, as it may deem material. It may also make a valuation of all the property of the corporation if it deems it pertinent. It shall determine the amount of such securities reasonably necessary for the purposes for which the same are to be issued.
“(4) If the commission shall determine that such proposed issue complies with this chapter, and that the financial condition, plan of operation and proposed undertakings of the corporation are such as to afford reasonable protection to purchasers of the securities to be issued, it shall issue to the corporation a certificate of authority, stating: (a) The amount of such securities reasonably necessary and the character of the same:; (b) the purposes for which they are to be issued, and (c) the terms upon which they are to be issued. . . .
*355 “(6) Such corporation shall not apply said securities to any purpose not specified in such certificate, nor issue such securities on any terms not specified in such certificate.”
That section likewise absolutely prohibits the issuance by any public-service corporation of any securities for money only, until it shall have obtained a certificate of authority for such issue from the commission. The corporation is required to file with the commission a verified statement which shall state, among other specified matters, the “previous financial operations and business of the corporation.” The commission may make a valuation of all the property if it deems it pertinent, and is expressly required to “determine the amount of such securities reasonably necessary for the purposes for which the same are to be issued.” To entitle the corporation to the certificate, the commission must determine that the proposed issue complies with ch. 184, Stats., and that (1) the financial condition, (2) plan of operation, and (3) proposed undertakings are such as to afford reasonable protection to purchasers of the securities. Consequently, when plaintiff desired to acquire the Luck Company property and issue securities to raise money for its purchase, because of secs. 184.09 (1) to (4) and 184.11 (2), Stats., it could not consummate the purchase until the commission had appraised the property and stated in a certificate (authorizing the issuance of securities) a purchase price, which could not exceed the appraised value; and plaintiff could not issue any securities until it had obtained from the commission a certificate authorizing such issue. But to entitle plaintiff to the issuance of such a certificate there had first to be a determination that the financial condition, plan of operation, and proposed undertakings of the corporation were “such as to afford reasonable protection to purchasers of the securities to be issued.” Factors which affect the rate
Reasonable protection to investors requires more than that the property which is to secure the investments shall be of sufficient value to insure the repayment thereof. To afford reasonable protection the “plan- of operation” and the “proposed undertakings” for which the property can be used must be such as to afford reasonable assurance that the probable earnings of the property will be adequate to currently pay interest or dividends upon the investment. And the probable earnings cannot be ascertained without first determining the probable amount of the rate base. In determining that amount it is proper to exclude contributions advanced by customers. Sutter Butte Canal Co. v. Railroad Comm. 202 Cal. 179, 191, 259 Pac. 937.
In Gilchrist v. Interborough R. T. Co. 279 U. S. 159, 210, 49 Sup. Ct. 282, the court said, in relation to the claim that a utility had the right to have the total value of property, as to which it had but a leasehold, interest under a favorable lease, included in the rate base, that .it is “unprecedented and ought not to be accepted without more cogent support than the present record discloses.!’
In the case at bar it is undisputed that the rate schedule of the Luck Company was constructed upon a basis which did not provide for a return to the utility upon the capital which its customers had donated, and that it did not permit the utility to earn a return upon those donations. Plaintiff’s counsel concede that the fact of such contributions, the time at which they were made and which has since elapsed during which. reduced rates were given, and the extent thereof, would all be factors which the commission would consider
Although, as plaintiff contends, a rate base and a security-base are not necessarily the same, still, when it becomes necessary to determine whether the security base affords “reasonable protection to purchasers of securities,” the rate base is necessarily involved and must be taken into consideration. The fact that there were substantial donations upon which the utility was not permitted to earn a return, directly and materially affects the probable rates and prospective earnings of the property which is offered as security, and must necessarily be taken into consideration in determining whether the undertaking affords reasonable protection to im vestors for the interest or .dividends on the securities, as well as for the principal invested therein. Consequently, in the case at bar, in order to determine whether plaintiff’s proposed undertakings and plan of operation as to the Luck Company property. afforded reasonable protection .to purchasers of obligations secured by that property, it was proper for the commission to take into consideration the amount of the donations and the consequent rate base.
There is no basis in the record now before us for plaintiff’s contention that the commission erred in deducting from the appraised value of the entire property the amount of the original contributions without making any allowance for depreciation on the property represented by those contributions. The record, for instance, is devoid of any facts because of which it can be inferred that the value of the property acquired with the donations has diminished because of wear or deterioration which has not been fully remedied by repairs or replacements, the cost of which was included in the current expense for maintenance and the consequent charges for service, which were paid by the patrons. At
Plaintiff also contends that if the statutes authorize the commission to refuse authority to issue securities against the contributed property, such statutes and the commission’s order operate to deprive plaintiff of property without due process of law, and deny plaintiff the equal protection of laws, contrary to the Fourteenth amendment of the federal constitution. The contention erroneously assumes that a public utility corporation has the absolute right to issue securities to the full extent of the appraised value of its property. As this court held in State ex rel. Central S. H. & P. Co. v. Gettle, 196 Wis. 1, 220 N. W. 201,—in passing upon the authority of the Railroad Commission under sec. 184.09, Stats., as amended in 1927, — the authority of a public-service corporation to issue stocks and bonds is a mere privilege. “It was not in the nature of a natural or inherent right. It was a right which the legislature could take away, at least at any time before the relator came into possession of vested rights. It could also prescribe additional conditions precedent to the conferring of the right. This is what it did by the enactment of ch. 444. Thereafter the Railroad Commission was not authorized to issue such certificate of authority in the absence of a finding by it that ‘the financial condition, plan of operation, and proposed undertakings of the corporation are such as to afford reasonable protection to the purchasers of the securities to be issued.’ ”
By the Court. — Judgment reversed, with directions to enter judgment affirming the order of the Railroad Commission.
Dissenting Opinion
(dissenting). I find myself unable to agree with the construction placed upon the statute by the court. It seems to me to confuse the statutory provisions relating to the issuance of securities with the law relating to the making of rates. Except as the two matters are drawn together by the opinion of the court, they seem to me to be distinct and unrelated. Inasmuch as the construction now placed upon the statute is conclusive, no useful purpose will be served by more discussion.
The following opinion was filed June 20, 1932 :
On the motion for a rehearing, argument was ordered. From the briefs and argument upon the rehearing it now appears probable that because of the existence of other material facts than those which are stated in the meager allegations of the pleadings, upon which alone the action was tried, without taking any other proof, the real controversy has not been fully tried. As stated in the former opinion, there were allegations in the answer (which for the purpose of the trial were assumed to be correct) that the rural rates, in the cases in which customers had made donations to finance line construction and extensions, ■'were established upon a basis which did not provide for a return to the utility upon the capital thus donated by customers; that the customers’ donation plan above outlined made it possible for the electric utility to establish a lower rate for rural electric service, which tended to promote the expansion of rural electrification to the. benefit of the utility and also of the public; that the rate schedule of the Luck
So far as the record discloses, defendant refused to permit the issuance of securities upon a basis which included assets acquired by customers’ donations simply because the rate schedule of the plaintiff’s predecessor did not permit such predecessor to earn a return upon the amount of such donations. Clearly, in determining the amount of securities that may be issued upon a public utility property, the question of the return which the utility may be permitted to earn upon its property cannot be ignored. That is one of the elements which sec. 184.09, Stats. 1929, contemplates shall be taken into consideration by the commission in determining the amount of securities that the utility company may be permitted to issue upon its property. Under the public policy of this state, as evidenced by its legislative enactments and recognized by this court in State ex rel. Central S. H. & P. Co. v. Gettle, 196 Wis. 1, 220 N. W. 201, the authority of a public utility to issue stocks and bonds is a mere privilege which is subject to such legislative regulations as are pre
It seems that in the development of similar utilities prospective customers who desired utility service, but who resided beyond the normal zone supplied by the utility, would, in order to secure service, contribute substantial amounts to the utility to'defray the expense of extending the service to such customers. Such donations enabled the utility, as in the case at bar, to build the necessary lines and supply the necessary equipment to enable it to furnish to the donating customers the same service which it was furnishing to the public within the normal zone served by the utility. As long as that situation exists, it is apparent that the rates which the utility is permitted to charge should be influenced to some extent, at least, by the fact that the investment necessary to extend such extraterritorial service has been donated by those receiving the service. The extent of such influence,in point of amount and duration, .will depend upon the facts .and circumstances in each case. When the donors;,-,by their
However, such conditions may be but temporary and transient. When a public utility of this character extends its original field of operations and service into the rural communities, so that they finally receive regular service in territory where they were theretofore served only by reason of special arrangements with donating customers, the situation is changed somewhat. Such special customers have then become a part of the general public which is served by the utility; and if the facilities by which the utility serves the general public have become all-sufficient to render to such special customers the same service as the utility is rendering, and at the same schedule of rates which the utility is charging, generally in that territory, or the same service that they ren
On the other hand, at all times since the acquisition of the property acquired by using the customers’ donations, the legal title thereto has been in the utility. It was completely under the dominion, control, and ownership of the com-’ pany. No one has had or now has any lien or incumbrance thereon, but the donating customers did have a special right in this property. Although that right was not in the nature of a lien or incumbrance, it was a right which the utility was compelled to recognize in the matter of fixing the rates charged those customers. The accounting rules lawfully promulgated by the commission required the public utility to carry on its books an account in which it credited all such customers’ donations; and it was also required to debit such donations to the proper fixed capital account on its books. In due compliance with those rules the Luck Light & Power Company had carried on its books an account entitled “Cus
So in the case at bar, as long as that special right on the part of the donating customers continues to exist, the utility holds the title to the property acquired by virtue of such donations, subject to that special right. However, if in the course of time such special customers become consumers located within the normal zone, which the utility is legally required to serve at a uniform schedule of rates, then their special rights, arising by reason of their original contributions, become valueless. Their original contributions were for a special purpose., namely, the receipt of service up to the time that the utility should occupy the field and assume a position where it became legally bound to furnish service generally at a uniform schedule of rates to all consumers in that zone. With the termination of that special right on the part of the donors, the utility’s title to the property thus donated is no longer burdened with any such correlative rights or conditions. The utility as the owner thereof is then entitled to earn the same reasonable return upon the present fair value thereof as it is upon all other property owned by it which is actually used and useful in providing the service. McCardle v. Indianapolis Water Co. 272 U. S. 400, 47 Sup. Ct. 144; St. Louis & O’Fallon R. Co. v. U. S.
In the absence of proof as to facts essential to ascertain the present condition and status of the correlative rights of the donors and the utility in the respects indicated above, we are unable to determine whether the commission’s .action was warranted by existing facts and conditions or was based Upon an erroneous view of the law. At all events it does appear that in, those respects the real .controversy has not been fully ■ tried. . It seems probable that in the otherwise commendable effort of counsel to abbreviate the record and the trial, the essential facts have not been presented, and that in the absence thereof .a miscarriage of- justice may have resulted. Under the circumstances, this court’s mandate will be modified as follows:
. By the Court. — Judgment reversed, with directions • to grant a new trial to decide the issues of fact suggested as being yet unsolved, and to then render judgment in accordance with this opinion.
