Wisconsin Telephone Co. v. Public Service Commission

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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] On August 12, 1930, the Wisconsin Telephone Company, hereinafter called the "company," filed with the Public Service Commission of Wisconsin, hereinafter called the "commission," an application for an increase of its local exchange rates in the city of Madison. A hearing was had on the 4th day of October, 1930, at which time the company presented an outline of its case. The hearing was continued from time to time, and on June 3, 1931, the commission made an interlocutory order in which it indicated the nature and extent of the proofs which would be required if the company's application for increase in its rate was to be granted. The commission having determined to conduct a state-wide investigation on July 29, 1931, in the exercise of the power conferred upon it by sec. 196.28, Stats., it made the following findings and order:

"The Public Service Commission therefore finds, That (1) because of the situation revealed by the testimony in theMadison Case, (2) because to hold separate investigations on the complaint of the city of Milwaukee and other municipalities which have filed or may file such complaints would be wasteful of energy, time and money, and (3) by reason of the fact that we believe that the state-wide basis for telephone rate-making is the sound and fair one, a state-wide investigation should be made of the rates, rules, service, practices and activities of the Wisconsin Telephone Company.

"The commission therefore orders, That an investigation and inquiry be, and the same is hereby instituted on the commission's own motion into the rates, charges, tolls, rules, service, practices and activities of the Wisconsin Telephone Company.

"The commission further orders, That such investigation shall include the relations of the Wisconsin Telephone Company with affiliated corporations [naming them].

"The commission further finds, That this proceeding upon our own motion makes necessary an investigation of the books, accounts, practices and activities of the Wisconsin Telephone Company, and an appraisal of the property of the Wisconsin Telephone Company, and it is hereby ordered, That the expenses reasonably attributable to such investigation and appraisal will be assessed against and charged to the Wisconsin Telephone Company, under authority of section 196.85 (1) of the Wisconsin statutes.

"Notice is hereby served upon the Wisconsin Telephone Company of our finding of necessity for such investigation."

Thereafter hearings were noticed and hearings were continued from time to time, and on June 30, 1932, the commission made and filed an opinion and interlocutory order directing the company to reduce its exchange rates 12 1/2% for one year, which order by its terms became effective August 1, 1932.

On July 5, 1933, a similar opinion and interlocutory order was issued by which the company was directed to reduce its exchange rates 12 1/2% for one year from the date of the expiration of the 1932 order.

On July 5, 1934, the commission made and filed a third opinion and order directing a reduction in exchange rates of 10%. This order was to become effective upon the expiration of the 1933 order and was to continue in effect for the period of one year.

On March 24, 1936, the commission made and filed its opinion and made an order known as the final order which directed a reduction in exchange rates of 8%. This order became effective on May 1, 1936.

Between August 1, 1935, and May 1, 1936, no order reducing rates was in force.

The plaintiff brought actions in the federal court to set aside the 1932 and 1933 orders. The company began an action in the circuit court for Dane county to set aside the interlocutory order of July 5, 1934, which will hereafter be referred to as the 1934 order. It also began an action in the circuit court for Dane county to set aside the order of March 24, 1936, which order will hereafter be referred to as the final order. The action to set aside the 1934 order and the action to set aside the final order were brought and tried together in the circuit court. Additional testimony was taken in the circuit court, and in accordance with the provisions of the statute, sec. 196.44, Stats., the record was referred back to the commission to enable it to consider the additional testimony produced in circuit court. The commission in addition to considering the testimony produced in circuit court received further evidence and upon reconsideration of all the evidence reaffirmed the 1934 order and the final order and so reported to the circuit court.

On February 23, 1938, judgment of the circuit court was entered setting aside the 1934 order and the final order, from which judgments the commission appeals. The following opinion was filed July 11, 1939: Upon this appeal the questions presented fall into two general classes: (1) Those relating to procedure and due process, and (2) those relating to the merits or a consideration of the rate base, a fair rate of return, and the income of the company. We shall first consider those relating to procedure. It may be said at this point that the classification is not accurate and there is some overlapping.

PROCEDURE. Among other things, the trial court found:

"53. That the acts of the commission in the conduct of the proceedings before it, and the orders made in the proceedings, evidenced manifest unfairness, bias and a lack of judicial attitude on the part of the commission against the plaintiff.

"54. That many of the issues decided against the plaintiff in the final order had been prejudged by the commission in temporary orders issued in the same proceeding without adequate hearing, and on incomplete evidence from the commission's staff and prior to the receipt of plaintiff's evidence therein or the completion of its cross-examination.

"55. That during the course of the commission proceedings, there were prepared by members of the commission's staff, with its knowledge and approval, summaries of exhibits and statements setting forth prospective testimony of the commission's witnesses, phrased as if already given, which summaries and statements the commission customarily made available and delivered to representatives of the press, before the hearings at which such evidence was offered.

"56. That substantially all of the final order, and of the prior temporary rate orders, were drafted by members of the staff of the commission, which members had been investigators and witnesses on behalf of the commission and against the plaintiff on the same subjects with which they respectively dealt in writing said orders.

"57. That no commissioner attended all of the hearings and frequently successive hearings were presided over by different commissioners. That none of the commissioners examined all of the evidence in the proceedings prior to the issuance of the final order.

"58. That plaintiff repeatedly requested and was by the commission denied information as to the nature of contemplated orders, including the final order, and upon what grounds orders were proposed and what field was to be covered by them, as well as what changes were contemplated in the expense and investment data which were contained in the books of the plaintiff."

And upon this branch of the case, the trial court concluded as a matter of law:

"IV. That the presumptions contained in section 196.40 and in section 196.46 of the statutes of Wisconsin in favor of the validity of all actions by the commission have been destroyed in this case by the failure of the commission to give the plaintiff a fair hearing and to conduct the proceedings in an unbiased and unprejudicial manner as is required by the constitutions and the statutes. That said presumptions do not in any case apply to instances in which material errors of law are embodied in or underlie the commission's conclusions or the evidence on which such conclusions are based. However, all findings of fact and all other conclusions of law herein have been made as if said presumptions were in force.

"V. That the final order was issued without fair hearing and with such bias and prejudicial conduct by the commission that the order deprives the plaintiff of property without due process of law and denies to the plaintiff the equal protection of the law in violation of the constitutions of the United States and of the state of Wisconsin.

"VI. That the final order is unreasonable and unlawful because of failure to give the plaintiff the fair hearing to which it was entitled under section 196.26 of the statutes, and also because the order was not based upon an examination by the commission itself of testimony and records taken before a single commissioner or agent as required by section196.24 (3) of the statutes."

The commission contends with respect to the findings of fact and conclusions of law relating to procedure and due process: (1) That in this statutory proceeding the court had no jurisdiction to set aside the orders of the commission on the ground of lack of due process in the proceedings before the commission; and (2) that if the court has such jurisdiction then the procedure adopted accorded the company due process.

It is considered that we may at this point refer briefly to the function of this court in the consideration of appeals from orders of the commission such as are presented in this case. In view of two recent decisions, State v. Tri-StateTel. Tel. Co. (1939) 204 Minn. 516, 284 N.W. 294, andPacific Tel. Tel. Co. v. Wallace (1938), 158 Or. 210,75 P.2d 942, in which the fundamental law underlying a review of the rate-making process by the courts is fully examined, discussed, and restated, we do not feel called upon to re-examine and restate the law in connection with the decision in this case. In neither of these cases were the controversial points the same as in this case although very similar. All three cases have to do with the question of what constitutes a reasonable rate, the cases differing, however, as to some essential details.

At some points in the briefs, as well as in the oral argument, the discussion proceeds upon the theory that what this court is considering is confiscation. While that is the basic consideration in the federal courts, and must be considered by state courts where it is presented as necessary to a decision, it is not the primary function of this court or the circuit court under the law of this state, to consider confiscation.

Sec. 196.41 (1), Stats., is as follows:

"Any public utility or railroad and any person in interest being dissatisfied with any order or determination of the commission may commence an action in the circuit court for Dane county against the commission as defendant to vacate and set aside such order or determination on the ground that it is unlawful, or unreasonable, in which action the complaint shall be served with the summons."

Sec. 196.46, Stats., provides:

"In all trials actions and proceedings arising under or growing out of the exercise of the authority and powers granted to the commission, the burden of proof shall be upon the party adverse to such commission or seeking to set aside any determination, requirement, direction or order of said commission, to show by clear and satisfactory evidence that the determination, requirement, direction or order of the commission complained of is unreasonable or unlawful."

Sec. 196.40, Stats., provides that all orders of the commission relating to rates, tolls, and charges shall be prima facie reasonable until found otherwise in an action brought pursuant to the provisions of sec. 196.41.

Under these provisions of the statute it is the function of the circuit court to set aside the order of the commission if it shall be found upon clear and satisfactory evidence to be, (1) unlawful, or (2) unreasonable. Without entering into any metaphysical discussion as to the meaning of the word "unlawful" it is sufficient for our purpose to say that it means not according to law, and that "unreasonable" means not based upon reason, arbitrary, capricious, absurd, immoderate, or extortionate.

The commission does not in establishing a rate exercise the full power of the legislature in that regard although the nature of the power it does exercise is legislative. Delegation of legislative power is sustained upon the ground that some standard for its exercise be set up and in addition thereto the legislature in making the delegation may prescribe the manner of the exercise of the delegated power. When the legislature itself has prescribed a rate by an act duly and regularly adopted, that rate may be assailed only on the ground that the act is confiscatory in its nature. When, however, the commission establishes a rate, its act must not only be nonconfiscatory but it must have been established in the manner prescribed by the legislature; otherwise it is not according to law and would be unlawful whereupon it would become the duty of the court under the provisions of sec.196.41, Stats., to vacate and set it aside.

It becomes important then to ascertain what power is delegated to the commission and in what manner it is required by statute to exercise it.

Sec. 196.26 (1), Stats., among other things, provides:

"(1) Upon a complaint made against any public utility . . . that any of the rates, toils, charges . . . [are] unreasonable, insufficient or unjustly discriminatory, . . . the commission shall proceed, with or without nonfee, to make such investigation as it may deem necessary, but no ordershall be entered by the commission without a formal publichearing."

Sec. 196.28, Stats., provides:

"Whenever the commission shall believe that any rate or charge may be unreasonable or unjustly discriminatory . . . it may on its own motion summarily investigate the same with or without notice."

Sec. 196.29, Stats., provides:

"(1) If, after making such summary investigation, the commission becomes satisfied that sufficient grounds exist to warrant a formal hearing being ordered as to the matters investigated, it shall set a time and place for a hearing.

"(2) Notice of the time and place for such hearing shall be given to the public utility . . . as provided in section196.26, and thereafter proceedings shall be had and conducted in reference to the matter investigated in like manner as though complaint had been filed with the commission relative to the matter investigated, and the same order or orders may be made in reference thereto as if such investigation had been made on complaint."

By sec. 196.70, Stats., it is provided:

"(1) The commission may by order when deemed by it necessary to prevent injury to the business or interests of the people or any public utility in case of any emergency to be judged of by the commission, temporarily alter, amend, or with the consent of the public utility concerned, suspend any existing rates, schedules and order relating to or affecting any public utility or part of any public utility.

"(2) Such order shall apply to one or more of the public utilities in this state or to any portion thereof as may be directed by the commission, and shall take effect at such time and remain in force for such length of time as may be prescribed by the commission."

These provisions of the statute have been in force without substantial change since 1905. By secs. 2, 3, ch. 183, Laws of 1931, sec. 196.39 was amended and sec. 196.395 was added:

Sec. 196.39, Stats., provides:

"The commission may at any time, on its own motion or upon motion of an interested party, and upon notice to the public utility and after opportunity to be heard, rescind, alter or amend any order fixing rates, tolls, charges or schedules, or any other order made by the commission, and may reopen any case following the issuance of an order therein, for the taking of further evidence or for any other reason. . . ."

Sec. 196.395, Stats., provides:

"The commission may issue orders calling for a test of actual results under the requirements prescribed by such order, during which test period the commission may retain jurisdiction of the subject matter. The commission is empowered to issue conditional, temporary, emergency and supplemental orders. Where an order is issued upon certain stated conditions any party acting upon any part of such order shall be deemed to have accepted and waived all objections to the condition contained in such order."

The power of the commission to fix rates is conferred by sec. 196.37 (1), Stats., which provides:

"Whenever upon an investigation made under the provisions of chapters 196 and 197 the commission shall find rates, tolls, charges, schedules or joint rates to be unjust, unreasonable, insufficient or unjustly discriminatory or preferential or otherwise unreasonable or unlawful, the commission shall determine and by order fix reasonable rates, tolls, charges, schedules or joint rates to be imposed, observed and followed in the future in lieu of those found to be unreasonable or unlawful."

In the 1934 order under consideration in this case the commission found that the then present rates of the company for exchange service were unjust and unreasonable and by the order established a just and reasonable rate for the temporary period in accordance with the terms of the order. As to the final order the rates established were to be applicable for the period subsequent to April 30, 1936.

A consideration of these statutory provisions becomes important in this case because the commission seeks to justify the issuance of the 1934 order for a temporary period by the decision in La Crosse v. Railroad Comm. (1920) 172 Wis. 233,178 N.W. 867. In that case the utility filed a petition with the commission asking for an emergency increase of rates. After hearing, the commission granted the petition upon the ground that the cost of labor and fuel had so increased that the defendant company would be unable to make a fair return on its investment. Action was brought by the city of La Crosse and one Henry Rooney to set aside this order. The circuit court set aside the order on the ground that no emergency existed. The judgment of the circuit court was reversed. The court said (p. 237):

"The provisions for emergency rates and services were evidently designed to empower the commission to alter and suspend rates, schedules, and orders under emergency conditions for immediate protection of the public-utility business or the public interests during the time required by the commission to enable it to establish permanent rates and orders for adequate service. The facts of the record disclose that the commission was within its jurisdiction in promulgating the order of June 30, 1918, as an emergency order, if the facts and circumstances thus disclosed show that an emergency existed respecting the business of the defendant utility. The application for this emergency increase of gas rate and the order of the commission were obviously made upon the ground that the conditions incident to the war caused a large and unexpected increase in the cost of labor, material, and supplies required to conduct this business."

In a somewhat similar case, Smith v. Railroad Comm. (1919) 169 Wis. 547, 173 N.W. 312, the commission had fixed rates for a street-railway utility in the city of La Crosse, and an action was begun to set aside the order of the commission, increasing the rates. There was a full hearing and the circuit court set aside the order on the ground that no emergency existed. On appeal the judgment of the circuit court was reversed on the ground that the order was sustainable as an application for relief in due course under the provisions of sec. 1797 — 12, Stats. (now with immaterial changes sec. 196.26). The court said (p. 553):

"It is clear from the record that the commission had jurisdiction to proceed, and that all parties interested were before the court and a full and exhaustive hearing had, and the hearing covered all issues in the matter, and the procedure was the same as in other cases where a general rate hearing is had before the commission."

The emergency dealt with in Smith v. Railroad Comm.,supra, was the same as that dealt with in La Crosse v. RailroadComm., supra, that is, a situation created by war. The theory of the commission seems to be that having instituted a summary investigation under secs. 196.28 and 196.29, Stats., it might in the course of that investigation issue so-called temporary orders under secs. 196.39 and 196.395 without having completed a hearing. It is to be noted that sec. 196.39, which relates particularly to orders fixing rates, provides for an opportunity for the parties affected to be heard. What the commission may do upon the application of a utility in the way of increasing rates under emergency conditions is no measure of its power to decrease rates under similar conditions. Assuming that a rate is higher than a just and reasonable rate as a matter of law, the public is not. deprived of its property because it has an option to accept or decline the services. When, however, an unreasonable rate is established the property of the utility is taken because under the law it has no option to, render or decline to render the service. It must render service in any event. Therefore the legal propositions involved are wholly different.

Sec. 196.39, Stats., by its terms applies specifically to orders fixing rates, tolls, charges, or schedules, and confers upon the commission authority to rescind, alter, or amend an order already made fixing rates, tolls, charges, etc. This is intended apparently to give the commission some power upon a hearing to amend an order already entered. The power contained in sec. 196.395 to issue conditional, temporary, emergency, and supplemental orders is subject of course to the procedural requirements of other provisions of ch. 196, Stats., because they are in pari materia. The legislature certainly never intended to authorize the commission to issue orders affecting the rights of citizens without giving citizens an opportunity to be heard. A legislative act purporting to confer such power would be clearly invalid. It would contain no standard for its application or any procedural limitations upon its exercise. If construed literally it would confer an arbitrary unlimited power. It is the duty of the court to avoid a construction which would render the statute unconstitutional.

It is considered that an order of the commission fixing rates, tolls, and charges can be made only upon an investigation and hearing; that the hearing to be given the parties affected is the hearing prescribed by sec. 196.26, Stats. which is a formal hearing.

In this case the commission elected to proceed under sec.196.28, Stats., authorizing it to institute a summary investigation. Having instituted a summary investigation or resolved the Madison rate hearing into a summary investigation, the commission upon its own motion inaugurated a state-wide investigation, which is the proceeding here under consideration. By the express provisions of sec. 196.29, the commission is required to give a notice of a hearing. After giving notice of a hearing as therein provided, it is required to proceed in like manner as though a complaint had been filed under sec. 196.26, which provides that no order shall be entered by the commission without a formal public hearing.

The term "formal hearing" is not defined in the statute. The word "hearing" has an established meaning in equity law. When used with reference to equity cases it means the same as the word "trial" does when used with reference to cases at law. Akerly v. Vilas (1869), 24 Wis. 165, 171. See Ekern v. McGovern (1913), 154 Wis. 157, 277,142 N.W. 595.

"There are at least three substantial elements of a common-law hearing: (1) The right to seasonably know the charges or claims preferred; (2) the right to meet such charges or claims by competent evidence; and (3) the right to be heard by counsel upon the probative force of the evidence adduced by both sides and upon the law applicable thereto. If either of these rights is denied a party, he does not have the substantials of a common-law hearing. Ekernv. McGovern, supra." State ex rel. Arnold v. CommonCouncil (1914), 157 Wis. 505, 511, 147 N.W. 50.

That the word "hearing" includes "oral argument," seeState ex rel. Arnold v. Common Council, supra.

By the express terms of the statute the power of the commission to act in fixing rates without the consent or against the objections of the utility is dependent upon its giving the utility a hearing. It therefore becomes necessary to consider whether the utility had a hearing in this case.

In its opinion, which preceded the 1934 order, the commission gave a history of the case. Among other things it said:

"The commission issued its first temporary order after eleven months of investigation in the State-Wide Case. The record at that time comprised 3,424 pages of testimony and 236 exhibits.

"The commission issued its second temporary order [1933] after twenty-three months of investigation in theState-Wide Case. The record at that time comprised 6,928 pages of testimony and 369 exhibits.

"The commission, as of July 5, 1934, is now issuing its third temporary order, after thirty-five months of investigation in the State-Wide Case. The record at this date comprises almost 7,721 pages of testimony and 428 exhibits.

"The commission has concluded both the accounting and engineering phases of its case, except as to actual appraisal or check of company's valuation of property representing about twenty-two per cent of the company's total exchange property. The company has introduced none of its case, except that in June, 1933, it offered certain evidence, particularly on excess plant and valuation, in response to the commission's order, and exhibits and testimony in June, 1934, presented by way of rebuttal of the commission's testimony.

"On April 2, 4, 5, and 10, 1934, the company cross-examined the commission's chief engineering witness, Mr. Cyrus G. Hill.

"On April 23, 24, 25, 26, May 2, June 4, 5, and 15, 1934, the commission introduced testimony and exhibits. . . .

"On June 19, 20, 21, 22, 23, 25, 1934, the company cross-examined on the commission's Milwaukee appraisal which had been introduced in April.

"Counsel for the company stated that it was not yet practicable for them to submit further cross-examination. The status of the case at the present date, July 5, 1934, is therefore that we await further cross-examination by the company of the commission's engineers and also cross-examination by the commission's counsel upon the company's rebuttal evidence, presented June 20, 21, 22, 23, and 25."

From this statement it clearly appears that the company had not been accorded a hearing. When the 1934 order was made the commission had not completed its case and no part of the company's case had been presented although it had in part at least cross-examined some of the commission's witnesses. The company had not only a right to present its evidence but it had a right as a part of its right to a hearing, to argue the matter upon the whole evidence to the commission.

The commission's view of the matter is best stated in its own language:

"Despite the fact that this case has now been in progress for three years, we are not yet able to enter a final order, particularly in view of the circumstance that the company has not presented its case except to the extent that it has done so in response to the commission's order or in rebuttal of the commission's evidence. That the company may not be required legally to offer its affirmative case until the commission has closed, we need not now argue.

"The fact remains, that the company has at all times had this opportunity, as sworn to by the affidavits of all the commissioners in the respective court cases, if indeed it were not axiomatic that any party will be heard by the commission to present its evidence upon application therefor (no such application being made in this case).

"It would seem to us to be a stultification of the state's regulatory power if, realizing that this case has already gone on for three years and may endure for a fourth, we should in the meantime be hamstrung and powerless to protect the public against rates which, based upon the evidence before us, are unreasonably high. Particularly is this consideration reinforced at the present time by the commission's engineering appraisal, which had not existed at the date of the two prior orders, and which, although cross-examination thereon may not be entirely completed, nevertheless demonstrates aprima facie case to indicate that the rate base herein determined, is conservative. Particularly when we balance appraisal by the commission's engineers of the Milwaukee exchange against appraisal by the company of the same exchange (which represents more than half of the exchange property in the state), then strike a reasonable mean, and work this result into value figures, viewing the return thereon, we are forced to conclude that we would be remiss in our duty if we did not issue a further temporary order at this time.

"To assert to the contrary and hold that we should have to go through the exhaustive process of hearings until every bit of direct and redirect, cross and recross, rebuttal and surrebuttal, has been completely introduced, sifted and argued down to the last decimal, before even a temporary order may be issued, is to declare that the provisions which exist in the statutes in the various states for temporary orders, are meaningless and null.

"Section 196.395, Wisconsin statutes, specifically provides: `The commission is empowered to issue conditional, temporary, emergency and supplemental orders.'

"We need not rely at all in the present order upon the emergency power under section 196.70, sustained by the supreme court of Wisconsin in La Crosse v. Railroad Comm.172 Wis. 233, and set out in some detail in our two prior decisions.

"Nor at this date do we have to defend the issuance of a temporary order without a valuation of the property, such as has been declared lawful in other adjudications also mentioned in our two previous decisions.

"O'Brien v. Public Utility Board, 92 N.J.L. 587, P.U.R. 1919 D, 774, 777.

"See Chicago Railways Co. v. Chicago, 292 Ill. 190;Oklahoma Gas Electric Co. v. Corporation Comm. (Okla.)201 P. 505; Bartlesville v. Corporation Comm. (Okla.)199 P. 396; Muskogee Gas Electric Co. v. State (Okla.), 186 P. 730; Omaha. Street Railway v. RailwayComm. (Neb.) 173 N.W. 690.

"We recognize, however, the limitations involved in issuing a temporary order. The rate imposed may not be confiscatory, even though the order is temporary.

"Prendergast v. New York Tel. Co. 262 U.S. 43,67 L. Ed. 853.

"Moreover, even in the issuance of a temporary order, there must be afforded what is a reasonable opportunity, under the circumstances, for the production of evidence.

"In Indiana General Service Co. v. McCardle, 1 F. Supp. 113, a statutory court granted the interlocutory injunction against a temporary order, the record disclosing, among other things, that the hearing occupied a single day and consisted merely of testimony by one commission engineer and one commission accountant, the commission thereupon ordering a twenty per cent reduction.

"In Rockland Light Power Co. v. Maltbie (Sup.Ct., N Y), P.U.R. 1933 E, 113, a temporary utility rate reduction was suspended where it was shown that the commission had excluded certain testimony and exhibits offered by the utility which established prima facie that the temporary rates prescribed by the commission would yield a return of less than four per cent on the value of the utility's property.

"In Tri-State Tel. Tel. Co. v. Benson (U.S. District Court, D. Minnesota, Third Division), Sept. 14, 1932, P.U.R. 1933, 38, an interlocutory injunction was held justified against a temporary order, the court reviewing the evidence presented by both the company and the commission in court but referring to the record before the commission as follows [p. 43]:

"In the case at bar, the record shows that the order was based upon evidence on the part of the commission only; that the company was given no opportunity to cross-examine the witnesses, or to produce witnesses in its own behalf, or to make arguments on the evidence received.

"We believe that our action in the present case is not repugnant to any of these three recent decisions but that, on the contrary, in the handling of the present temporary order, we are well within the reasonable and legal limits laid down by the authorities."

The authorities cited by the commission do not sustain its position. O'Brien v. Public Utility Board (1919),92 N.J. Law, 587, 106 A. 414, related to actions brought one by O'Brien and the other by the city of Trenton to set aside an order of the public utility board increasing the rates of a utility. The court said (p. 590):

"It will not, we apprehend, be claimed that the fixing of a rate of five cents to be charged to each passenger for transportation was the result of any valuation. That sum seems to have been accepted by the railway corporations and the public as a reasonable rate to be paid by the public for the services rendered under the normal conditions existing when the rate was established and, after so many years of the existence of such a rate without question, it must be assumed that the public and the serving corporation have both acquiesced in the reasonableness of such a charge, and that its reasonableness has been demonstrated by experience. What the utilities board did in the case under consideration was to add to the existing rate a sufficient sum to meet the increased cost of operation due to increased taxes and labor cost imposed by the agencies of the national government to meet expenditures in the prosecution of the war with Germany, all of which was carefully ascertained through testimony showing that the increase was necessary to prevent a deficit in operation."

Omaha C. B. Street R. Co. v. Nebraska State RailwayComm. (1919) 103 Neb. 695, 173 N.W. 690, was a similar case. It appears that the situation dealt with in that case was due to an unexpected rise in the price of wages which made it improbable that the present rate would yield sufficient revenue to pay a fair return. The company sought an increase in fares from five to seven cents. This the commission refused to grant. Upon appeal to the supreme court the order of the state railway commission denying the increase was reversed with directions to issue a temporary order for increase in rates.

Chicago Rys. Co. v. City of Chicago (1920), 292 Ill. 190,126 N.E. 585, was also a case where rates had been increased pursuant to the order of the public utilities commission. The contention in that case was that the rate was fixed by contract and it was so held by the circuit court. Upon appeal, the circuit court was reversed and the public utilities commission affirmed.

The cases from the state of Oklahoma cited by the commission are not in point because of the peculiar constitutional and statutory provisions to be found in the state of Oklahoma. In that state when the court upon appeal reverses an order of the corporation commission, the court fixes the proper rate or charge. Sec. 23, art. IX. In addition to that, the decision in Oklahoma Gas Electric Co. v. CorporationComm. (1921) 83 Okla. 281, 201 P. 505, rests in part for its authority upon Omaha C. B. Street R. Co. v.Nebraska State Railway Comm., supra. The propositions stated in that case were advanced to sustain an increase in rates whereas in the Oklahoma case the administrative order under consideration provided for a reduction in rates. The fundamental difference in the facts of the two cases seems not to have been observed.

In a certain sense an order reducing rates and fares is not temporary. If the order prescribes a rate unreasonably low, the company loses its just revenue permanently during the prescribed period. An order even though it may by its terms operate only a year, may therefore be unjust and unreasonable or even confiscatory for that matter and is final so far as the revenues of that year are concerned. In the 1934 order the commission set up a procedure for modification. It had followed this practice in the 1932 and 1933 orders. So far as we are advised no modification was ever made of any order. The mere reservation of the power to amend or alter the order, nothing having been done pursuant thereto, does not justify the order. The commission said:

"Because of the uncertainties which prevail today affecting the volume of business and costs of operation, the commission will keep a check on the realized effects of this present order in its actual operation. We are ordering the company to submit monthly reports reflecting changes in gross revenues and in operating costs related to exchange business during the period covered by this temporary order so that we will be in a position to determine, as a result of this test in actual operation, how the order is working out in practice, and be in a better position to modify the order if the facts require."

No doubt the failure of the commission to consider modification of the order was due to the fact that the enforcement of the order was suspended by court injunction and therefore never operated over any period.

In Northern Pacific R. Co. v. Department of PublicWorks (1925), 268 U.S. 39, 44, 45 Sup. Ct. 412,69 L. Ed. 836, the supreme court said:

"But where rates found by a regulatory body to be compensatory are attacked being confiscatory, courts may enquire into the method by which its conclusion was reached. An order based upon a finding made without evidence [Citing] or upon a finding made upon evidence which clearly does not support it [Citing] is an arbitrary act against which courts afford relief. The error under discussion was of this character. It was a denial of due process. [Citing.] Theinvalidity was not avoided by making the order, in terms, foran experimental period. The rates as to which the evidence was primarily directed were those in force before and during the hearings. If even the existing rates were confiscatory, as the carriers' evidence embodying the results of ample experience tended to show, there could be no reason for awaiting the test of the much lower rates which were prescribed."

Even by way of test or experimentation the state may not confiscate the property of a citizen. Because of this fact various devices have been invented to produce a rate by the test of experience. If the utility is required over a limited time to operate on a diminished rate and experience shows the rate to be noncompensatory, its property is lost. Smithv. Illinois Bell Tel. Co. (1930) 282 U.S. 133-158,51 Sup. Ct. 65, 75 L. Ed. 255; Board of Public UtilitiesComm'rs v. New York Tel. Co. (1926) 271 U.S. 23, 31,46 Sup. Ct. 363, 70 L. Ed. 808; Pacific Gas Electric Co.v. San Francisco (1924), 265 U.S. 403, 44 Sup. Ct. 537,68 L. Ed. 1075; Northern Pacific R. Co. v. Department ofPublic Works, supra.

On the other hand, if the utility is required merely to segregate or hold the difference between the existing rate and the ordered rate, then the public does not get the benefit of a reduction and there is no increase in revenues due to increased use. This situation was met in the state of New York by the enactment of a law which provided that the public service commission of that state might put in force a rate for a limited period, but the law also provided that if the experiment resulted in a loss to the utility, that loss was to be amortized and covered by the final rate when fixed, thus enabling the company to recoup its loss. That law was sustained by the court of appeals in the state of New York, in the Matter of Bronx G. E. Co. v. Maltbie (1936), 271 N.Y. 364, 374, 3 N.E.2d 512. The court of appeals said:

"The commission fixes a temporary rate pending the hearing. It is based upon the elements stated, which are not all of those required to fix a permanent rate. As before stated, this would be impossible, if we must consider in fixing a temporary rate all the elements required for the final rate; no temporary rate could ever be fixed. This also is self-evident. Therefore, to meet these conditions the temporary rate is fixed, within reasonable limits, upon figures which can be with some exactness obtained from the books of the company, showing original cost of investment; and if finally, when the proceeding ends, the temporary rate is proved to have been too low, the utility must be permitted and authorized to charge enough for its service to make up the loss. The consumer must pay what he should have paid, and the only way to do it is to fix a rate high enough to make up this loss."

As to the character of a temporary rate, see Prendergast v.New York Tel. Co. (1922) 262 U.S. 43, 43 Sup. Ct. 466,67 L. Ed. 853.

In Driscoll v. Edison Light Power Co. (1939)307 U.S. 104, 59 Sup. Ct. 715, 83 L. Ed. 1134, the supreme court had under consideration a statute of the state of Pennsylvania which contains a provision similar to that found in the statutes of the state of New York. However, in theDriscoll Case, it appears from the opinion that there was a full and complete hearing as to the rate base. The provisions with reference to recoupment, Purdon's Pa. Stat. Anno. 1938, Supp., title 66, § 1150 (e), are as follows:

". . . If, upon final disposition of the issues involved in such proceeding, the rates as finally determined, are in excess of the rates prescribed in such temporary order, then such public utility shall be permitted to amortize and recover, by means of a temporary increase over and above the rates finally determined, such sum as shall represent the difference between the gross income obtained from the rates prescribed in such temporary order and the gross income which would have been obtained under the rates finally determined if applied during the period such temporary order was in effect."

While sec. 196.395, Stats., provides that the commission may issue orders calling for a test of actual results, the statute contains no provision for amortization of the loss if in a rate case the so-called temporary rate should prove to be non-compensatory. As already pointed out, the cases hold that in establishing a rate for the future, and in the absence of statutory authorization therefor, the commission may not amortize a loss or make a rate sufficiently low to recapture the excesses. Denominating an order a temporary order does not operate to make applicable to it a different rule of statutory procedure than would otherwise be applied to it; in determining the validity of a temporary order the same tests must be applied that are applied to an order in due course under the quoted provisions of the statute. It is clear that with reference to rates, the commission has no authority to make an order without first giving the utility a hearing, whether the order be styled temporary or an order in due course, and it is immaterial whether the order is made upon a complaint, upon a summary investigation, or upon the commission's own motion.

The commission seems to have been of the view that although the company had presented none of its evidence, and the commission had not completed its own, the company had had a hearing. No doubt proceedings before administrative tribunals are not required to be conducted with all the formality of a hearing or trial in a court. It is only necessary that the essentials be preserved. It is difficult to see how even in an administrative hearing the utility can present its case until it is advised as to what it must meet. This is not a case where the company was applying for a change in rates and was therefore under an obligation to go forward with its proof. This proceeding was instituted upon the commission's own motion, and it undertook to establish the basis for a finding, (1) that the existing rate was unlawful and unreasonable, and (2) what constituted a lawful and reasonable rate.

At the time the 1934 order was issued there was substantially nothing before the commission except the facts produced by the employees of the commission who had not yet completed their investigations. Otherwise than by the issuance of the order and the course of the proceedings, the company in this case was not advised of what it was the commission sought to do, — the company contends that it had no notice of the purpose and intention of the commission to issue temporary orders, which would give it an opportunity to produce evidence with respect to the matters determined in the temporary orders. Certainly there was no hearing in any legal sense. We do not need to consider in this case what constitutes a minimum of hearing to accord the company due process of law. In this case the statute prescribes that no order shall be issued until a hearing has been held. Being present at the presentation of the evidence offered by and on behalf of the commission and cross-examining some of its witnesses without opportunity to offer the evidence of the company in rebuttal and to present arguments based upon all the evidence does not amount to a hearing as that term is used in the law. Each session of the tribunal is in ordinary parlance frequently referred to as a "hearing." Such a hearing is not a hearing within the meaning of sec. 196.26, Stats. The conclusions of the commission based upon its own evidence, a large part of which was presented by members of its staff, could hardly be otherwise than prejudicial to the rights of the company, and that is especially so in this case where the determinations of the commission seem to derive very largely from general economic conditions. Such conditions except so far as they disclose definite economic trends have very little bearing upon a rate case. In the New York and Pennsylvania cases already referred to, the rate base was derived from the books of the company in accordance with the provisions of the statute. We think this is a sound and proper procedure. A utility is in no position to impeach its own books. The public is protected by reason of the fact that the accounts of a public utility are and have been for many years subject to rigid regulation and supervision both as to form and substance. When a rate base is derived from the books and provision is made for amortization of losses if application of the rates produce a loss, the company is fully protected and may not complain. In this case it did not appear from the books of the company that the existing rates were unlawful or unreasonable. It is only by "adjusting" the rate base down and the net income up that the existing rates were made to appear unreasonable. Thus, the income per books for the exchange system was $1,641,921. After adjustment it was $2,831,414. The book value of the exchange plant before allocation of terminal toll other than the property which the company books showed as toll investment amounted to $56,704,228. By the 1934 order the cost of reproduction new less depreciation including going value of the exchange plant was fixed at $34,386,807. These results were arrived at from the commission's 1934 order before the company had introduced any part of its case except certain evidence on excess plant and valuation in response to the commission's order and some exhibits and testimony in June, 1934.

Consideration of the opinion and order of the commission issued in 1934 shows that the hearing was incomplete and that the order was based upon a partial hearing. Certainly there can be no claim that the company had been accorded a formal hearing. We attach no particular importance to the use of the word "formal" in the statute. A full and fair hearing, a fair hearing, a formal hearing, and a hearing, all amount to the same thing in the law.

It is considered therefore that the trial court correctly held that the 1934 order should be vacated and set aside for the reason that the company had not been accorded a hearing in accordance with the requirements of the statutes hereinbefore set out.

While, as indicated in the decisions of other courts, rate cases tend to drag out to interminable length and the rights of the utilities and the public often suffer on account of the length of hearings, the situation must be remedied in some way other than by a violation of the fundamental rights of parties. It seems to us that the statutory provisions of New York and Pennsylvania point to a solution of this difficult and perplexing problem. Under such statutes rates may be based upon experience rather than upon prophecy and guess work. If the methods suggested in those statutes be followed neither the public nor the utilities will suffer.

It may be thought that our determination in this case deprives the statute authorizing the issuance of temporary and emergency orders of any practical value. We think this is not a sound conclusion. Temporary and emergency rates may be appropriately and widely used where the circumstances are such as to justify them. The fact that a statute authorizes the issuance of temporary orders does not mean that temporary orders may be issued under any and all circumstances. We have already pointed out that with the consent of the company, its rates and tolls may be decreased without a hearing such as is required in an adversary proceeding. Likewise the commission is authorized to issue such orders for the increase of rates where it appears to it that such increase is in the public interest and necessary to preserve the property and rights of the utility. What must always be borne in mind is that there is wide difference between what may be done by way of increasing or decreasing rates upon the application of the utility or decreasing rates against the protest of the utility. When rates are increased upon the application of the utility, the commission consents for the public and the resulting order is in effect a consent order. When rates are decreased upon application of the utility a like consent order results if the commission approves the decrease. The statute prohibits an increase or decrease of rates without the consent or approval of the commission. When, however, the utility objects and an issue is thus raised, the considerations which then govern the action of the commission are entirely different. The commission must then proceed with full regard to the statutory and constitutional rights of the utility.

FINAL ORDER. The court found with respect to the final order that due notice was given to the company, and ample time for presentation of evidence and for argument was accorded to the company, but concluded as a matter of law that the final order was issued without a fair hearing, and with such bias and prejudicial conduct by the commission that the order deprived the plaintiff of property without due process of law, and denied to the plaintiff the equal protection of the law in violation of the constitution of the United States and of the state of Wisconsin. This conclusion seems to be based upon the following statement of facts made by the trial court:

"It is admitted that none of the commissioners heard or read all of the evidence in the record. It is further admitted that in each of the orders important parts thereof, which contained and which were more or less decisive of the ultimate effect of the orders themselves, were prepared and written by witnesses appearing on behalf of the commission. These parts of the orders so prepared and written by such witnesses dealt with the issues before the commission upon which each of such witnesses had appeared as the principal witnesses. In the main, such parts of the orders were in full accord with the testimony given by the witnesses writing that part of the order. . . . This required the witness to sit in judgment upon his own testimony given under oath and to weigh such testimony in the balance as against the opposition witnesses of the plaintiff [the company], a party to the proceeding, and in opposition to the party for whom such witness had been called and had given testimony. [Witnesses named.]"

From the findings of the trial court it also appears that the commissioners were irregular in their attendance upon hearings, and that no one commissioner attended all of the hearings, except that the seventy-two hearings held after the 1934 order were all attended by one commissioner, the other commissioner attending thirty-three hearings. Continuing, the trial court said:

"Complaint is also made by the plaintiff that an atmosphere of antagonism to the plaintiff pervaded the proceedings and the action of the commission, which was in part manifested by propaganda and press reports. The record shows that the commission obtained a newspaper reporter to take an examination as a `transportation inspector;' that his name was so entered upon the public pay rolls; that he performed no service in that capacity; that instead the commission instructed him to prepare and give out reports to the daily press of the doings of the commission; that in giving out news pertaining to these proceedings, with the knowledge and consent of the commissioners, he would interview witnesses for the commission and examine their exhibits in advance of the giving of the testimony and in advance of the introduction or use of such exhibits and therefrom prepare and give releases to the daily press, as if such testimony had already been given; that copies of such releases were refused to counsel for the plaintiff and that none of the plaintiff's witnesses were so interviewed in advance."

While the 1932 order and the 1933 order were not before the circuit court for consideration, because of the fact that the 1934 order and final order referred to the 1932 and 1933 orders and the 1934 and final orders are in part based upon conclusions reached in the two earlier orders, the trial court was of the view that it was necessary to consider all of the orders in order to present a complete picture of the attitude of the commission so far as it pertains to denial of due process. We do not concur in the view of the trial court that the defects of the 1932 and the 1933 orders are so, incorporated in the 1934 order and the final order as to invalidate them. It is true there were not four proceedings. There was but one, in the course of which the commission issued in addition to the final order three interlocutory or so-called temporary orders. However, as a matter of fact, upon the issuance of the 1932 and 1933 orders, the commission did consider the testimony already introduced by it, and while because of such consideration it may have to a certain extent prejudged the matter, this did not preclude a full, fair, and open consideration of the whole record when it came to the issuance of the final order and the making of the findings upon which it was based.

The trial court criticized very severely the fact that before listening to arguments of counsel for the company, the commission made and signed the 1933 order. After having made and signed the order, it then heard the arguments. This was of course irregular and not in accordance with ordinary procedure before courts or commissions. However, the order had not been issued. It was still under the control of the commission, which still had power to modify or alter it. Without in any way approving such procedure, it is considered that it does not affect the validity of the order which was in fact issued after arguments had been heard.

In connection with procedural matters before administrative bodies we quote from Omaha C. B. Street R. Co. v.Nebraska State Railway Comm. (1919) 103 Neb. 695, 701,173 N.W. 690. In this case the court had under consideration an order of the railway commission denying an increase of rates. The court reversed the order of the commission denying the increase and remanded the case with instructions to order an increase. The court said:

"Complaint is made by the plaintiff company of the attitude of the commissioners, or some of them, or their manner of conducting the hearing. We admit that it is a little startling to the lawyer, bred in the courts, who is submitting his controversy to a body having judicial powers, to see a member of that body conduct a cross-examination and hear him express opinion upon the merits before the case is finally submitted. Not only is impartiality the supreme virtue of courts as ministers of the law, but the courts have always recognized that their functions can be best exercised and protected under conditions which exclude any invasion of the partisan or personal element, or the appearance of it. Accordingly they have been hedged about by forms and rules calculated to inspire the greatest respect for the position the judge occupies. That which may appear to be anomalous inheres more or less in the nature of the proceeding and the unusual powers vested in the state railway commission. The division of the powers of the state into legislative, executive, and judicial is natural. Aristotle pointed out long ago the difficulties and dangers of lodging lawmaking powers in the executive department of government. Courts, as such, know only adversary parties and are unsuited to the work of commissions.

"The state railway commission is clothed with certain legislative, judicial, and administrative powers, but a review of its action is reserved to the courts. In the exercise of its legislative and administrative powers, it must be that it exercise those functions, and hence conduct for itself those investigations which will enable it to legislate wisely. It must be permitted to see to it that the evidence necessary is adduced, and to take the legislator's attitude as to what the law should be. The commission, as a co-ordinate department of the state, acts independently. In the exercise of its prerogatives, it is not subject to dictation or criticism by the courts, except as what transpires may be a proper subject of review, as bearing upon the orders or judgments of the commission. The courts, ordinarily, in reviewing the work of arbitration boards and commissions, give ready attention to any complaint on the part of either of the parties that the body hearing the matter was actuated by any feeling of bias or prejudice, or other improper motive. The commission is free to adopt its own rules and course of procedure, and to do everything necessary to inspire and bring about absolute respect for it and its judgments. It may preserve decorum, and under some circumstances may punish for contempt. Being, in fact, neutral as between the parties, and conducting its hearings, not ex parte, nor as a partisan debate between it and either of the parties, it may avoid all appearance of bias or prejudice. Upon review of the record in this case, we find nothing to indicate that the commission has been actuated by any desire other than to do justice to the utility, on the one hand, and the public, on the other."

In this connection, however, we call attention to Stateex rel. Madison Airport Co. v. Wrabetz (1939), 231 Wis. 147,285 N.W. 504.

We discover no authority to sustain the proposition made that the trial court may enter upon an independent investigation to determine the mental attitude of the commissioners who sat upon the case to discover whether they were unfair, biased, and prejudiced. In Morgan v. United States (1938),304 U.S. 1, 58 Sup. Ct. 773, 82 L. Ed. 1129, evidence was taken in the action to review with respect to the nature of the hearing accorded by the secretary, but this is an entirely different thing than trying the question of the mental attitude of the administrative tribunal in an action to review one of its orders.

If there appears in the record evidence of bias or prejudice on the part of the commissioners which is of such a character as to deprive the company of a fair hearing, an entirely different question would be presented. With respect to the exercise of the fact-finding power, the administrative process more nearly parallels that of the judicial process than of the legislative process. We find no authority which holds that an appellate or reviewing court may enter upon an investigationde hors the record to determine whether or not the judge who, tried the case was biased or prejudiced. Upon reason it would seem that such an investigation would operate to destroy the usefulness of the whole judicial system. It is not an uncommon thing for unsuccessful litigants to accuse judges and courts of bias and prejudice. If litigants were entitled to have that question tried de novo in the reviewing court, one can scarcely imagine the consequences. It is considered therefore both upon authority and reason that the trial court was not warranted in trying the issue of whether the commission was in fact biased or prejudiced upon testimony not found in the record made before the commission. See in this connection General A. F. L. Assur. Corp. v.Industrial Comm. (1937) 223 Wis. 635, 652,271 N.W. 385.

The commission is a statutory body. Its powers are limited and prescribed by the statute. There is no provision for anything corresponding to a change of venue. If the contention of the company on this point should be sustained, it is conceivable at least that a case might never be brought to a final determination because it might be found that the commission was biased or prejudiced. While there are some acts of the commission or some of the commissioners which seem of a questionable character, and in this connection we refer especially to the signing of the order of 1933 before hearing argument with respect to it and the systematic furnishing of advance reports to the press of what witnesses for the commission were to testify to in a proceeding pending before the commission, it cannot be said that these were of such a character as wholly to vitiate the proceeding before the commission. The statutory duties of the commission place it in a very difficult position. While it is almost inevitable that it will be subject to criticism for so doing, it must furnish the evidence largely from members of its own staff or witnesses employed by it as experts. It must also act as prosecutor in the case, and when the case is completed, it must exercise the judicial function, and it would be strange indeed if somewhere along the line it had not taken some step which would subject it to criticism, especially if it be judged by standards applicable to courts. We do not find in the record evidence of any bias or prejudice against the company as such. Energetic and perhaps overzealous prosecution of a case may lead to an appearance of bias and prejudice. Bias and prejudice attributable to some feeling against the company is an entirely different thing than zeal in the discharge of a highly important public duty.

The company contends that the orders under consideration were unlawful because the procedure followed by the commission was unconstitutional for two reasons: (1) Because the company was not fully apprised of the issues and the nature of the order which the commission proposed to issue; (2) that the decision of the commission on the greater part of the issues was prepared and written by witnesses who testified on the trial on behalf of the commission.

The only notice that the company had as to the nature and extent of the investigation was that given it by the order of July 29, 1931. The 1931 order grew out of and was in part based upon matters adduced in the Madison rate case, which in turn was based upon a petition of the company to increase Madison exchange rates. The order has already been set out in extenso. From the order it appears that the commission determined to institute on its own motion an inquiry into the rates, charges, tolls, services, rules, practices, and activities of the company, which was to be comprehensive and exhaustive.

It is considered that the company may not justly complain of lack of notice. Such notice as the statute requires was given. We may at this point as well as at any other give consideration to a matter bearing upon the matter of notice. Sec. 196.405, Stats., introduced into ch. 196 of the statutes by sec. 3, ch. 183, Laws of 1931, makes elaborate provision for rehearing before the commission. This statute was quite evidently designed to prevent utilities from taking advantage of any inadvertence, omission, or error in proceedings before the commission. Sub. (2) provides:

"The application for a rehearing shall set forth specifically the ground or grounds on which the applicant considers said order or determination to be unlawful or unreasonable. . . ."

This provision, together with the requirement in sec.196.44, Stats., that if additional evidence is taken before the court the record may be sent back to the commission for further consideration, insures full consideration by the commission upon contested points and gives the commission full opportunity to make any desired corrections.

Sub. (5) of sec. 196.405, Stats., provides: "It is hereby declared that the legislative powers of the state, in so far as they are involved in the issuance of orders and decisions by the commission, have not been completely exercised until the commission has acted upon an application for rehearing. . . ."

This provision implies that the proceeding in a rate case is not complete until a motion for rehearing has been made. After the issuance of each of the four orders, there were motions for rehearing, exhaustive specifications of claimed errors. The motions for rehearings were granted and at the rehearing the whole matter was reargued.

It is considered that this statute, in addition to insuring the commission opportunity to make any desired corrections, gives the utility full opportunity to present and argue the matter to the commission upon the basis of its findings and decision, and it obviates and cures any defect in the proceeding relating to notice. The legislative process not being complete at the time of the rehearing, the matter is open, and by the terms of the statute, the moving party is required to specify the ground or grounds upon which he considers the order made to be unjust and unreasonable.

The company also complains that the findings were prepared from memoranda furnished by expert witnesses who were members of its staff or its employees; that these memoranda were in effect adopted by the commission as its findings with the result that the company was not apprised of the nature of the proposed findings, and therefore denied a hearing, under the doctrine of Morgan v. United States (1938), 304 U.S. 1, 58 Sup. Ct. 773, 82 L. Ed. 1129. In the Morgan Case findings were prepared in the bureau of animal industry, department of agriculture. When prepared they were submitted to the secretary who approved and signed them with a few slight changes. The findings were one hundred eighty in number, and dealt with the practices and facilities of the Kansas City Livestock Market and matters relating thereto. No opportunity was afforded the appellant to examine the findings. The appellant sought a rehearing before the secretary but his application was denied. In disposing of the matter, the court said (p. 21):

"Conceivably, the secretary, in a case the narrow limits of which made such a procedure practicable, might himself hear the evidence and the contentions of both parties and make his findings upon the spot. Again, the evidence being in, the secretary might receive the proposed findings of both parties, each being notified of the proposals of the other, hear argument thereon and make his own findings. But what would not be essential to the adequacy of the hearing if the secretary himself makes the findings is not a criterion for a case in which the secretary accepts and makes as his own the findings which have been prepared by the active prosecutors for the government, after an ex parte discussion with them and without according any reasonable opportunity to the respondents in the proceeding to know the claims thus presented and to contest them. That is more than an irregularity in practice; it is a vital defect."

Conceding that the findings of the commission were made up on the basis of memoranda prepared by the various staff members and employees of the commission, most of whom were witnesses, it is considered upon the facts of this case that the doctrine of the Morgan Case, supra, does not apply. The final order of March 24, 1936, contains a full and complete analysis of all the evidence offered before the commission and covered one hundred eighty pages of the printed case. April 11, 1936, the company filed an application for a rehearing. This application pointed out alleged errors in the findings of the commission and raised substantially all of the questions that are raised here in relation to the facts upon which the determination or order of the commission was based. The application for rehearing was allowed and the matter was reopened and reargued before the commission on April 17, 1936. As a result the commission made some minor adjustments or changes in its findings and as changed confirmed the findings as filed.

The facts in this case do not parallel the facts in the MorganCase, supra, and are fundamentally different. Here the company was granted a rehearing when the findings and order of the commission were before it in extenso. The opinion disclosed the basis upon which the findings rested in such form as to be readily subject to analysis by the engineers, accountants, and counsel for the company. Nor does it appear that the final determination of the commission in this case was based entirely upon memoranda prepared by members of its staff and some of the witnesses in the case. Some parts of the final order appear to be substantial copies of this memoranda, but the discussion discloses that all of this memoranda was reconsidered and a considerable part restated by the commission.

The commission may not abdicate its power or delegate its fact-finding function to material witnesses. In cases, however, involving special or technical problems, the commission may without depriving a party of due process or a fair hearing delegate to members of its staff even though they have been material witnesses the duty of putting into proper form and technical language its findings upon engineering and accounting questions. There is no reason to suppose that the contribution of the witnesses to the findings was any more than that of casting them into, technical language appropriate to the disposition of accounting and engineering problems. This function the commission was doubtless unequipped to perform. We conclude that the use of the technical staff in this way infringed no constitutional rights of the company and constituted no violation of the statutes, although where this procedure is adopted the doctrine of theMorgan Case, supra, does apply and notice of the findings should be served upon the company and an opportunity be given for an argument on the basis of these findings. This right was accorded to the company when the rehearing was granted and the matter reargued.

Witnesses as well as members of the commission should make every effort to act in a fair and impartial manner. After all, they represent the interests of the state, and are not concerned with anything but the establishment of a lawful and reasonable rate. They are not, as attorneys are, endeavoring to win a case. The commission is of course charged with the duty of seeing that the work of its staff is done in a fair and impartial manner if it is to be accepted as a basis of decision.

The company further contends that it was deprived of a fair hearing with respect to the final order because the commission by the making of the 1932, 1933, and 1934 orders prejudged the case. As already indicated, the commission in recitals preliminary to the 1934 order indicated that no part of the company evidence had been introduced except a very small amount of rebuttal. The 1934 order, as were the preceding orders, was issued upon the basis of the evidence offered by the commission. Upon a consideration and analysis of this evidence the commission concluded that the existing rates were unjust and unreasonable and ordered a reduction. However, when it came to the making of the final order, the opinion of the commission discloses that it gave consideration to the evidence offered and received on behalf of the company, which at the time the final order was made, had completed its case. The argument that the case was prejudged must rest almost entirely upon the fact that the findings of the commission and the final order to a certain extent adhered to the findings made on partial evidence as a basis for the previous orders. While there is some force to the argument that a tribunal which has once passed upon certain phases of a case does not approach the final determination in the same attitude of mind that it would have if it had never passed judgment upon any part of the case, it cannot be said upon the record in this case that in the respects considered there was any such prejudgment by the commission as deprived the company of a fair hearing.

On behalf of the commission it is argued that the trial court did not accord the findings of the commission the weight to which they were entitled under the statute.

Sec. 196.46, Stats., provides:

"In all trials, actions and proceedings arising under or growing out of the exercise of the authority and powers granted to the commission, the burden of proof shall be upon the party adverse to such commission or seeking to set aside any determination, requirement, direction or order of said commission, to show by clear and satisfactory evidence that the determination, requirement, direction or order of the commission complained of is unreasonable or unlawful."

It is the contention of the company that under Ohio ValleyWater Co. v. Ben Avon Borough (1920), 253 U.S. 287,289, 40 Sup. Ct. 527, 64 L. Ed. 908, in an action to review the determination of the commission, the company is entitled to a trial de novo and an independent determination of the law and the facts upon the entire record, including both the commission record and the evidence taken in court, although in making this contention the company concedes that the court should accord to the commission's findings appropriate presumptions of correctness, and that errors must be demonstrated by clear and satisfactory evidence. Wisconsin-MinnesotaL. P. Co. v. Railroad Comm. (1924) 183 Wis. 96,197 N.W. 359. Certain it is that the court must examine the record upon which the determination of the commission is based sufficiently to enable it to determine that the findings of the commission are in the zone of lawfulness and reasonableness. The last word upon this much-debated subject seems to be found in St. Joseph Stock Yards Co. v. UnitedStates (1936), 298 U.S. 38, 56 Sup. Ct. 720,80 L. Ed. 1033. While the court pointed out in that case that where the matter at issue was one of confiscation, the findings of the administrative body could not be made conclusive. It also said (p. 53):

"But this judicial duty to exercise an independent judgment does not require or justify disregard of the weight which may properly attach to findings upon hearing and evidence. . . . Moreover, as the question is whether the legislative action has passed beyond the lowest limit of the permitted zone of reasonableness into the forbidden reaches of confiscation, judicial scrutiny must of necessity take into account the entire legislative process, including the reasoning and findings upon which the legislative action rests. We have said that `in a question of rate-making there is a strong presumption in favor of the conclusions reached by an experienced administrative body after a full hearing.' Darnell v.Edwards, 244 U.S. 564, 569. The established principle which guides the court in the exercise of its judgment on the entire case is that the complaining party carries the burden of making a convincing showing and that the court will not interfere with the exercise of the rate-making power unless confiscation is clearly established."

The issue in this case was confiscation. It applies, however, at least by analogy to cases involving the finding of a reasonable rate under the statute.

This court has held from the beginning, Minneapolis,St. P. S. S. M. R. Co. v. Railroad Comm. (1908)136 Wis. 146, 116 N.W. 905, that much weight should be attached to the findings of the commission. It is quite probable that courts will and should more closely scrutinize the record in cases involving confiscation than in cases involving other kinds of administrative action where the power exercised is dominantly legislative and no constitutional right is involved. In this case the trial court in its opinion referred to St. Joseph Stock Yards Co. v. United States, supra, and other cases.

As disclosed by the fourth conclusion of law, the trial court was of the view that the presumptions contained in sec. 196.40 and sec. 196.46, Stats., had been destroyed by reason of the failure of the commission to give the plaintiff adequate notice and an unbiased and unprejudiced hearing; the trial court nevertheless said that all its findings of fact and all conclusions of law herein were made as if such presumptions were in force.

It is very difficult to ascertain by a comparison of the findings made by the commission with those made by the trial court considered in connection with the evidence which supports them, whether the trial court gave full effect and the statutory weight to the findings of the commission, this for the reason that the findings made by the commission contain a great deal of discussion, rationalization, and argumentative matter, none of which has any place in findings of fact however helpful they may be in enabling the court to discover the commission's approach to the various problems presented. It is quite evident from the record that the trial court was very much impressed by the fact that in its opinion the commission had acted in a biased, arbitrary, and prejudicial manner.

This court does not sit as a court of review of the findings of the commission. It is a part of its function to determine whether the trial court proceeded in a proper manner and in accordance with the statutory provisions to review the determination of the commission. We are therefore required to determine what weight should be given by this court on an appeal from the judgment of the circuit court to the findings of the trial court. The statute nowhere attempts to set up standards to be applied by this court in reviewing the judgment of the trial court in rate cases.

The rule in this state long established is that findings of fact made by a trial court will not be disturbed on appeal to this court unless they are contrary to the great weight and clear preponderance of the evidence. See cases cited 1 Callaghan's Wis. Dig. p. 306, § 587.

In reviewing the determination of the trial court that a rate fixed by the commission is unlawful and unreasonable, it is the duty of this court to examine the record to determine whether the trial court committed error. This court does not approach questions of fact from the same standpoint that the trial court approached them. If the trial court applied correct principles of law and accorded the findings of the commission the weight to which they were entitled under the statute, the determination of the trial court must be upheld unless it is clearly wrong. This court determines questions of law for itself.

Under the doctrine of the St. Joseph Stock Yards Co.Case, supra, the complaining utility is entitled to have the independent judgment of the court reviewing the record made before the commission. But in the exercise of its independent judgment the reviewing court should give much weight to the determination of the commission. What this court reviews is the record in the circuit court and if no reversible error is discovered the judgment of the trial court must be affirmed.

The trial court found that the presumptions contained in secs. 196.40 and 196.46, Stats., in favor of the findings and determination of the commission were destroyed in this case by the failure of the commission to give the company a fair hearing and to conduct proceedings in an unbiased and unprejudicial manner.

We have already held under the facts of this case that bias and prejudice did not deprive the company of due process of law. We come now to a consideration of how the bias and prejudice found by the trial court affects the weight to be given to the findings and determination of the commission. An examination of this question imposes upon this court a duty of a disagreeable nature but one which it must discharge. In the beginning we may say that we acquit the commission of any intentional disregard of the rules of law which govern its actions. It seems to us that the commission entered upon this inquiry in a state of mind induced by the existing depression which more or less subconsciously led it to a position where it was very difficult, if not impossible, for it to give a dispassionate judgment upon the facts. Prior to, the issuance of the 1932 order, and apparently as a basis for the whole investigation, the commission brought before it a number of nationally known economists, among whom were Dr. F. C. Mills, Dr. E. R. A. Seligman, Dr. Frank A. Fetter, Dr. C. K. Leith, and others. The economists gave a large amount of testimony relating to general economic conditions, their cause and probable effect, and on the basis of that testimony arrived at certain underlying conclusions. Among other things the commission in the 1932 order said:

"The present depression is no minor disturbance. It constitutes an economic crisis of major proportions. . . . There are facts in the record relating not only to the country as a whole but especially to Wisconsin farmers, wage earners, corporations, and citizens generally. These are the customers of the utilities under our jurisdiction.

"When their incomes on the average have shrunk by twenty-five per cent or more, when less than a third of Wisconsin corporations report taxable incomes, when farmers receive fifty per cent less than in 1929, when all measures of wage-earners' livelihoods show unprecedented losses, we surely are not dealing with any minor disturbance. The prices of most commodities have been drastically cut, though in varying proportions. But utility rates and a few other prices have virtually stood still. . . .

"Threatened or actual loss of utility service to large numbers of Wisconsin consumers seems to us clearly an `injury to the interests of the people.'

"We are aware of the difficulties of measuring precisely the impaired purchasing ability of thousands of scattered consumers, each with his own budget of expenses. . . . We believe that the facts in the record, relating to the economic position of utility consumers, are sufficient and that they constitute the chief data readily available. . . .

"The commission therefore finds and determines from the facts and foregoing considerations that an emergency within the contemplation of section 196.70 exists and that this emergency injures the `business and interests of the people.'

"The weight which we attach to this finding of emergency can be briefly indicated. . . . In addition, the existence of an emergency alters materially the weighting that should be given to factors influencing a reasonable rate of return. Indeed, what is a reasonable return in an economic emergency may be quite different from a fair return in less critical times. To this subject we shall refer in more detail later in this opinion. . . .

"If existing conditions continue and the drop in the general level of prices persists it may be necessary to fix rates in which the value of the service becomes an important and decisive factor and that time may be near at hand. Then more exact measures of value of service can and will be fashioned. In the light of economic history it is inevitable that the value of service must again be applied by utilities in order to keep their rates within the area where it may fairly be said that they are no greater than the services rendered are reasonably worth. . . .

"Our investigation, though incomplete, thus far shows clearly that even on the present record existing rates are unreasonable and excessive and that substantial reductions therefrom would undoubtedly be necessary at the completion of the investigation (unless in the meantime conditions so change as to require a revision of our judgment). Temporary relief pending the completion of the investigation is justified by the facts thus far developed, and we so find. It would be a travesty on the processes of regulation if, because the investigation is yet incomplete, we would defer the reduction of rates, when clear and convincing proof is in our hands requiring such reduction."

Having determined almost wholly upon the basis of general economic conditions that the existing rates of the company were too high, a consideration of the whole record indicates that the commission then sought by means of further investigation, evidence which would sustain its conclusion already arrived at. In the same opinion, the commission said:

"Having made no finding of fair value we have, of course, made no finding as to what percentage return upon fair value the rates ordered will produce, and such a determination we believe unnecessary for the purposes of this interlocutory order. The rates fixed will produce sufficient revenue to permit of a return which is fair to the company. Neitherour statutes nor the state or federal constitution require thatany particular procedure shall be followed so long as the netresult is reasonable and does not deprive the utility of itsproperty without due process of law." (Italics inserted.)

This conclusion of the commission seems utterly to disregard the statutory provisions already referred to Sec.196.26, Stats., provides that no order shall be made without a formal hearing. The commission apparently upon general principles proposed to deprive the company of its revenues in order to aid its patrons and to level off the inequality resulting from the economic depression. The attitude of the commission disclosed at the beginning of the investigation seems to have been maintained throughout the whole process. A careful reading of the record, and especially of the findings of the commission and its opinions and orders, discloses that in the vast majority of instances, in all matters affecting the rate base, adjustments were uniformly made downward, in all matters affecting net income, adjustments were made upward, and a fair rate of return was found on the basis of an investigation made by a member of the staff to be 5 1/2%. Having established these factors which are largely determinative of the controversy, the commission entered its final order. It appears that it did give some weight to the testimony offered by the company, but throughout it appears quite clearly that the commission was heading toward a predetermined conclusion. To fully demonstrate this would require us to set out in extenso many pages of matter. It is of course not true that no particular procedure is required by the statute. The statute as already pointed out is very definite and certain in that regard. Certainly, when only a part of the commission's testimony was in and practically none of the company's testimony was in, it would not be possible to say that there had been any hearing, let alone a formal or full hearing. There was at that time no basis except general economic considerations for declaring the rate unreasonable or unjust. That this general attitude persisted is indicated by the opinion of the commission in connection with the order of 1933. In the course of that opinion it appears that the commission considered, in addition to the matters considered in 1932, the change in price of gold for coinage purposes, and what effect that would have upon the company, and it concluded as follows:

"Our review of the foregoing testimony and related matters, of which we take judicial notice, leads us to the conclusion that although some economic improvement has occurred since the extremely low levels of March, 1933, economic conditions at the present time, if they are above the level of April and May, 1932, are not so definitely and materially improved as to indicate that the economic emergency has definitely passed. In our review of the situation, therefore, the evidence supports the commission's findings and determination that until the price and currency situation becomes clarified an emergency exists within the contemplation of section 196.70 of the Wisconsin statutes and that this emergency injures the `business or interests of the people' for the duration of this order. Our views with respect to the weight to be attached to this finding remain unchanged from those expressed in our order of June 30, 1932."

The experience of the company indicates that the commission was in the realm of prophecy in 1932 and 1933. The surplus of the company on December 31, 1930, was $9,401,483, and on December 31, 1936, it was $941,128.99, to which should be added the sum of $3,645,745, as the then net reserve in connection with rate-reduction orders. From this it appears that if the rate-reduction orders should be sustained, the surplus of the company in 1936 was only 10% of what it was in 1930. Nor do we find that the statute confers upon the commission any power to relieve the economic condition of consumers by taking property away from the utility and awarding it to its patrons. What the statute authorizes the commission to do after it has found that existing rates are unjust and unreasonable is to establish a just and reasonable rate which has been defined over and over again. If the commission were empowered to review the whole internal economy of the state, its postulates and arguments might sustain the conclusion that it reached. Within the limits of its statutory authority, however, it had no right to give dominant weight to economic theory in the face of the statutory command. Recent years seem to have pretty thoroughly demonstrated that economic theory is vague, uncertain, and undependable, and that predictions based upon it are not reliable. It seems to be in constant need of repair and readjustment.

By July 5, 1934, the date of the third order, the commission abandoned its effort to sustain the order upon the ground that economic emergency existed but referred its power to sec. 196.395, Stats., which provides:

". . . The commission is empowered to issue conditional, temporary, emergency and supplemental orders. . . ."

It appears from the opinion of the commission, a part of which has already been set out, that the commission was of the view that because the hearing had gone on for three years and might continue for a fourth, it was imperatively necessary for it to issue a rate-reduction order; otherwise it would be hamstrung and powerless to protect the public against rates which upon the basis of the evidence then before it were unreasonably high in its opinion.

The commission does not exercise the entire regulatory power of the state. It may exercise only such powers as the legislature has seen fit to confer upon it and those powers must be exercised in the manner prescribed.

While the commission did not base the final order of March 24, 1936, upon the ground that an economic emergency existed, that it still clung to its economic theories is indicated by the opinion.

"During years of depression, when competitive industries are bending every effort to reduce costs and market services and commodities at prices commensurate with reduced purchasing power, this company takes the position that rates cannot be reduced. It depends on justifying its rates on the basis of company-controlled expenditures and relies on the fact that no other more enterprising concern can take over its market by finding a way to reduce costs and the charges for service. In fact, during the period of retrenchment in other industries, the company's unit cost of maintenance labor increased by more than twenty-five per cent.

"Although the commission appreciates the distinction between competitive business and the public-utility industry, we cannot overlook increasing costs for public utilities during a period of decreasing costs for other industry. To perform our statutory duties effectively requires close scrutiny of operating expenses. Where a utility has a legally protected market area, it cannot also be immune from scrutiny of its controllable expenses. The protection given by law to the company should be matched by the correlative protection of the customer. Lacking competition, the customer's only protection is through a public agency examining the reasonableness of expenses, especially those expenses largely within the company's control which comprise about half the total operating expense. In the findings in this order, as well as in the temporary orders, the commission has found it necessary to adjust actual expenditure and to evaluate reasonable expense requirements. It is recognized, of course, that it is easily possible for the company to spend more. That fact, by itself, does not make the expenses reasonable."

This conclusion was also arrived at upon some theoretical basis adopted by the engineers retained by the commission. So far as we have been able to discover no effort was made to ascertain whether the expenses incurred by the company in its operations were reasonably necessary under the conditions existing at the time they were made. No claim that the company was recklessly and improvidently throwing away its funds is made. In an attempt to sustain its findings and in considering the so-called maintenance program, the commission said:

"Mr. Cummings [commission engineer] analyzed the company's preventive maintenance policies and concluded that the program is overdone in comparison with economic requirements. Cummings pointed out that according to his estimates the cost of the company's preventive maintenance greatly exceeds the savings from the reduction in service difficulties. According to Cummings, the company has gone beyond the `economic point' in development and application of routines and might economically lengthen the interval between inspections."

It appears that Mr. Cummings was retained by the commission to guide its judgment concerning maintenance. The amount which shall be expended by a public utility in the operation of its plant is in the first instance a question for the management. The commission is invested with no managerial powers.

In West Ohio Gas Co. v. Public Utilities Comm. (1935)294 U.S. 63, 72, 55 Sup. Ct. 316, 79 L. Ed. 761, the court said:

"The company made claim to expenses incurred in procuring new business or in the endeavor to procure it, such expenses amounting on the average to $12,000 a year. The commission did not question the fact of payment, but cut down the allowance to $5,000 a year on the ground that anything more was unnecessary and wasteful. The criticism has no basis in the evidence, either direct or circumstantial. Good faith is to be presumed on the part of the managers of a business. (262 U.S. 276.) In the absence of a showing of inefficiency or improvidence, a court will not substitute its judgment for theirs as to the measure of a prudent outlay."

There was no showing in this case of improvidence or wastefulness.

The philosophy of management embodied in the opinions of the commission in this case would place the company in a managerial straight jacket. In this case the commission re-enforces its conclusion with respect to maintenance charges by reference to its determinations made prior to the issuing of the 1932, 1933, and 1934 orders. There are many other instances in the record which indicate that the commission dealt with theory rather than reality.

We have set out enough to indicate that while the company did not have a hearing of such a biased and prejudicial character as to deprive it of due process of law, the evident bias of the commission and some of its principal witnesses and its disregard of fundamental principles underlying the valuations of public-utility property in certain instances has been such as to require the reviewing court to scrutinize its determinations with great care. Under such circumstances the evidence necessary clearly and satisfactorily to establish the fact that the findings of the commission were wrong is much less than it would otherwise be and the force of the contention made on behalf of the commission that the trial court did not give sufficient weight to the findings of the commission is greatly diminished if not wholly dissipated.

The circuit court may set aside the findings and determination of the commission solely upon the ground that they are unlawful or unreasonable. (Sec. 196.41 (1), Stats.) The statute does not authorize the findings and determination of the commission to be set aside or vacated upon the ground that 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 lawfulness and reasonableness, it must stand even though in the opinion of the trial court or of this court the commission erred and a more reasonable rate might have been found.

It is evident that the reasonable rate to be found by the commission lies somewhere between the lowest rate that is not confiscatory and the highest rate that is not excessive or extortionate. In other words, despite what was said inMinneapolis, St. P. S. S. M. R. Co. v. Railroad Comm. (1908) 136 Wis. 146, 116 N.W. 905, it is apparent that there is more than one rate that may be a just and reasonable rate. It is the function of the commission to determine the just and reasonable rate which shall apply in a given situation. As already stated, we do not approach the issue of confiscation in this case as from the beginning it has been held under the provisions of ch. 196, Stats., a rate may be unlawful or unreasonable within the meaning of the statute although not confiscatory. If the commands of the statute are obeyed, no constitutional questions arise. The statute itself has repeatedly been held to be a valid and constitutional enactment. Neither the trial court nor this court searches the record made before the commission to discover error. Errors will be examined, however, which are of such a character that an unreasonable rate has resulted. It is considered that the procedure followed by the commission in the making of the final order was in accordance with the provisions of the statute.

We now enter upon a consideration of the question whether the rate established is reasonable. The company contends that the rate established by the final order is unreasonable to the extent of being confiscatory. The commission on the other hand contends that the rate established is reasonable and should be sustained. Since Smyth v. Ames (1898), 169 U.S. 466, 546, 18 Sup. Ct. 418, 42 L. Ed. 819, it has been established that a public utility is entitled to earn a fair return upon the fair value of property used by it in the rendition of service to the public. Since that decision a great body of law has developed which has been reconsidered and restated in State v. Tri-State Tel. Tel. Co. (1939)204 Minn. 516, 284 N.W. 294, and Pacific Tel. Tel. Co. v.Wallace (1938), 158 Or. 210, 75 P.2d 942.

As a basis for establishing a reasonable rate certain fundamental facts must be ascertained: (1) The fair value of the property used and useful in rendering the service; (2) the amount of income which will probably be produced by the rate to be established; and (3) what constitutes a fair return.

RATE BASE. The controversy in this case relates mainly but not entirely to the rate base. The approximate differences are disclosed by a comparison of the findings of the trial court and the findings found in the final order of the commission, the court figures being found in Column (A) and the commission's figures in Column (B) of the following statement:

WISCONSIN TELEPHONE COMPANY v. PUBLIC SERVICE COMMISSION (CASES Nos. 4 AND 5). COMPARISON OF RATE BASE CALCULATIONS. By (A) TRIAL COURT, (B) COMMISSION.

                                   (A)                (B)
                               Court Decision       Final Order
                                (References:         (Page 106:
                             Ct. D. 29; C. 210;   C. 918; R. 2573)
                                   R. 882)
                             ------------------   ----------------
1.  Hill's appraisal of
reproduction-cost-new,
as adjusted by commission
(starting point of both) ..... $53,020,000            $53,018,854
2.  Add — Allowance
for nonproductive time .......     260,000            (Tentatively conceded
                                                      in order on rehearing)
                                                      (C. 999; R. 2719)
3.  Add — Difference
due to Hill's use of 1929
instead of 1934 Western
Electric prices ..............   3,700,000
4.  Add — Difference
due Hill's earlier cut-off
date for interest during
construction .................   1,061,036
                               -------------------------------------------
5.  Corrected gross
reproduction
cost-new .....................  58,041,036             53,018,854
6.  Less — Excess or
nonuseful plant ..............     117,972              4,241,508 (8%)
7.  Less toll and terminal
toll allocation ..............   4,286,307 (7.4%)       3,609,524 (7.4%)
8.  Less — Accrued
depreciation .................   5,251,039 (9.79%)     12,859,279 (28.47%)
9. Less — interstate
allocation ...................     241,929 (1/2%)         161,543 (1/2%)
                               --------------------------------------------
10.  Corrected
reproduction-cost-new,
depreciated, on local
used and useful plant ........  48,143,789             32,147,000
11.  Plus — Working
capital ......................     750,000                750,000
12.  plus — Amount
allowed by commission
for consideration of
intangibles including
going value ..................   2,103,000              2,103,000 *
                               --------------------------------------------
13. Reproduction-cost-new
less depreciation of
intrastate local used and
useful property including
going value ..................  50,996,789             35,000,000
                               -------------         --------------
14.  Adjusted investment Ct.
D. 14 (C. 196; R. 869) .......  53,467,000
                               -------------
15.  Adjusted investment final
order p. 106 (C. 918; R.
2573) ........................                         35,513,214

16.  Rate base found ......... $51,000,000            $35,000,000
                               =============         ==============
* In final order commission added this between lines 13 and
15 of above arrangement instead of between lines 11 and 13.

The valuation fixed by the court and by the commission is for exchange property only. This is due to the fact that ultimately no consideration was given to toll rates. The order provides:

"The Wisconsin Telephone Company shall place in effect for all classes of intrastate exchange service and equipment for which rate schedules are on file with the commission, including all miscellaneous and incidental services and equipment, schedules of rates effecting a reduction of eight per cent of the revenues from such intrastate exchange service and equipment, except as hereinafter provided.

"Rates applicable to public pay stations, hand sets, charges for leased exchange telephone-typewriter service, special employees' rates, interstate exchange service, private-line services (including radio broadcasting), property rentals, loops and drops on toll circuits, telegraph commissions, discounts charged subscribers and directory advertising, are not affected by this order."

Two appraisals of the property were made, one by Hill as of December 31, 1934, for the commission, and one by Crowell as of April 1, 1935, for the company. The commission adjusted these appraisals as indicated by the following table:

WISCONSIN TELEPHONE COMPANY. Value of Exchange Plant and Equipment Indicated by Book Cost and by Appraisals. ========================================================================= | Book Cost | Hills Appraisal | Crowell's Particulars | December | December | Appraisal | 31, 1934 | 31, 1934 | April 1, 1935 — ------------ | ----------- | ------------------- | ----------------------- Total exchange | | | plant and | | | equipment | $57,333,678 | $ [*] 49,256,212 | $ ⁸²²⁴ 60,406,346 Deduct excess | | | plant | | | indicated | | | by Hill's | | | appraisal | | | (8.0%) ..... | 4,586,694 | [*] 3,934,959 | 4,832,508 | ----------- | ------------------- | ----------------------- Total used and | | | useful plant | | | and | | | equipment .. | $52,746,984 | $45,321,253 | $55,573,838 Deduct toll | | | allocation | | | indicated | | | by Hill's | | | appraisal | | | (7.4%) ..... | 3,903,276 | 3,370,041 | 4,112,464 | ----------- | ------------------- | ----------------------- Local used | | | and useful | | | plant | | | and | | | equipment .. | $48,843,708 | $41,951,212 | $51,461,374 Deduct accrued | | | depreciation | | | (28.47%) ... | 13,905,804 | 11,943,510 | 14,651,053 | ----------- | ------------------- | ----------------------- Net value | | | of local | | | used and | | | useful | | | plant and | | | equipment .. | $34,937,904 | $30,007,702 | $36,810,321 Deduct amount | | | allocable to | | | interstate | | | use (0.5 %) | 174,690 | 150,039 | 184,052 | ----------- | ------------------- | ----------------------- Net value | | | of local | | | intrastate | | | plant and | | | equipment | $34,763,214 | $29,857,663 | $36,626,269 Add working | | | capital .... | 750,000 | 750,000 | 750,000 | | | Total | | | indicated | ----------- | ------------------- | ----------------------- rate base .. | $35,513,214 | $30,607,663 | $37,376,269 — ------------ | ----------- | ------------------- | ----------------------- [*] Excludes dead drop wires included in Hill's appraisal.

⁸²²⁴ Includes all plant as shown in Exhibits C-303 and C-306. ---------------------------------------------------------------------------