Wisconsin Public Service Corporation (WPS) appeals the trial court's affirmance of a Public Service Commission (PSC) rate-setting decision that found WPS imprudent for failing to pay its taxes under protest when other utilities challenged the constitutionality of that tax. The Citizens' Utility Board, Inc. (CUB), also appeals, contending that PSC failed to impose an adequate sanction as a remedy for WPS's imprudence. Because we conclude that PSC applied the appropriate legal standard in finding imprudence and established a reasonable rate of return on equity, we affirm the commission's determination.
*615 In 1981, the Wisconsin Legislature repealed a tax credit previously available to state utilities. Because there was a question as to the constitutionality of the credit repeal, WPS consulted outside tax counsel for advice on the viability of challenging the repeal. Outside counsel oрined that the repeal was probably constitutional, but added that WPS had a 30% to 40% chance of prevailing on a constitutional challenge.
Based on this advice, WPS decided nоt to challenge the legislation. Even after other Wisconsin utilities instituted a constitutional challenge, WPS declined to participate. The challenge was not resolved for three years and WPS paid its taxes without the credit, as required by statute. In 1985, the tax credit repeal was held unconstitutional, and a new tax was enacted by the legislature.
During the pendency of the constitutional challenge, WPS paid its taxes without protest. A taxpayer can pay taxes under protest to preserve its right to reclaim the tax at a later datе.
See Manitowoc Co. v. City of Sturgeon Bay,
WPS sought approval for a rate increase from PSC in 1986 pursuant to ch. 196, Stats. In reviewing WPS's application, PSC concludеd that WPS's failure to pay its taxes under protest was imprudent because of the lawsuit brought by other utilities. Furthermore, PSC concluded that WPS could have easily, without cost, filed under protest tо protect its assets in the event the chal *616 lenge was successful. 1 Prudence is a factor PSC considers in setting utility rates and can. affect the allowed return on equity. See sec. 196.37, Stats. Because of WPS's imprudence, PSC ordered a rate of return on equity for a part of 1987 that was .1% less than otherwise would have been approved. This sanction cost WPS approximately $250,000 in lost revenue. Thе amount of taxes recoverable but forfeited due to WPS's failure to file under protest is well in excess of $250,000, though the exact amount is in dispute. 2
Our scope of review on apрeal is identical to that of the circuit court.
West Bend Ed. Ass'n v. WERC,
There is no dispute that WPS paid its taxes without protest and knew of the cоnstitutional challenge to the repeal of the tax credit. PSC's finding of imprudence thus involves the application of a legal standard, prudence, to a set of undisputed faсts. This is a question of
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law.
Seep v. State Personnel Comm'n,
We ordinarily review questions of law de novo.
Id.
Because the operation of a utility is within the expertise of PSC, however, we accord deference to their findings.
Beloit Educ. Ass'n v. WERC,
WPS alleges that PSC erred by finding imprudence in WPS's decision nоt to pay its taxes under protest during the pendency of the constitutional challenge. WPS claims that it made a reasoned decision not to challenge or protest the nеw tax levy and that it should not be penalized for paying taxes as required by statute. PSC never concluded that WPS was imprudent in refusing to challenge the repeal. Rather, it concluded thаt WPS was imprudent not to protest payment when the constitutionality of the repeal was being challenged by others. Essentially, PSC concluded that WPS was required, under the exercise of nоrmal prudence, to take the "free ride" given to it by other utilities' constitutional challenge to the repeal of the tax credit. Under PSC's ruling, WPS only needed to pay its taxes under protest.
Prudence is defined as:
Carefulness, precaution, attentiveness, and good judgment, as applied to action or conduct.... This term, in the language of the law, is commonly associated with "care" and "diligence" and contrasted with "negligence."
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Black's Law Dictionary 1104 (5th ed. 1979). In assessing imprudence, PSC must assess the utility's conduct without usurping the role of management.
See TWA v. Civil Aeronautics Bd.,
PSC's determination in this instancе does not usurp the role of management. PSC did not, in effect, require WPS to join the legal challenge to be prudent. PSC only required WPS to pay its taxes under protest as a reasonable precaution. Because prudence is a synonym of caution, PSC was correct in concluding that WPS failed to take reasonable steps to protect its assets. WPS gave up its right to a large tax refund by failing to protest its payment even though it could do so without cost and had been previously advised that there was a substantial chance that the сredit repeal was unconstitutional. Under these facts, a finding of imprudence was warranted.
CUB also appeals, claiming that PSC abused its discretion by failing to impose a sanction equal to the value of the loss caused by WPS's imprudence. CUB complains that the remedy was inadequate and that the commission failed to consider imprudence in establishing the rаnge of reasonableness. PSC reduced WPS's rate of return or equity from 13% to 12.9% for the remainder of 1987. CUB's primary complaint is that this was not a dollar-for-dollar remedy.
PSC has wide discretion in deаling with the issue of imprudence. Section 196.37(2), Stats., authorizes PSC to address any unreasonable practice through any just and reasonable order. In construing a statute, we first resort to the lаnguage itself.
Town of Seymour v. City of Eau
Claire,
In reviewing PSC rate cases, this court has a very limited power of review.
[Findings and determinations of the commission [cannot]... be set aside or vacated upon the ground thаt the commission has committed errors of law or made erroneous findings of fact unless and until it appears from the record that such errors of law and findings resulted in the establishment of an unlawful or unreasonable rate. If the rate established falls within the zone of. . . reasonableness, it must stand even though in the opinion ... of this court the commission erred and a more reasonable rate might have been found.
Wisconsin Tele. Co. v. PSC,
Here, PSC concluded that, based upon its finding of imprudence, WPS's permitted rate of return on equity would be reduced from 13% to 12.9% for the remainder of 1987. PSC first took notice of its staffs analysis concluding that a reasonable rate of return would be between 12.75% and 13.25%. PSC found 13% to be a reasonable rate of return and then reduced that ratе by .1% to 12.9% based on the finding of imprudence.
Imprudence is but one factor PSC considers in setting rates. If the rate of return is reasonable, we are bound to affirm its decision. The effect or "remedy" for imprudence is a value choice that we accord great deference. Because PSC set a reásonable rate, its treatment of WPS's imprudence will not be upset on appeal. We also need not address whether CUB's proposed relief would constitute prohibited retroactive rate-making because that remedy will not be imposed.
By the Court. — Judgment affirmed.
Notes
While initially the relevant time period included the taxes paid without protest from the date of the repeal, PSC concluded that WPS was only imprudent for failing to protеst payment after the challenge to the statute's constitutionality was filed — the taxes paid in 1983 and 1984.
CUB contends that WPS would have been entitled to a refund of approximately $2.8 million for tax years 1983 and 1984. PSC contends and WPS concedes that WPS would have been entitled to approximately $1.4 million. Because we agree that PSC need not effect a dollar-for-dollar remedy, the exact amount at issue is not relevant.