Opinion ID: 1713897
Heading Depth: 2
Heading Rank: 1

Heading: Mitigation Payments

Text: ś 263. On April 2, 2003, the City of Oak Creek entered into an agreement with WEC and its subsidiaries regarding the construction of ERGS. The agreement included provisions relating to air quality issues, the redevelopment of certain property, payment of mitigation costs, and the compromise of city claims. The agreement noted that it is anticipated that the construction and operation of the new facilities may have certain effects on the City and that in order to mitigate any such effects on the City, WEC and the City desire to enter into this agreement. ś 264. The section of the agreement pertaining to payment of mitigation costs provided, in pertinent part: WEPCO shall support, and shall use its best efforts to have approved, an annual mitigation payment to the City in the amount of $1.5 million for the first unit (Elm Road Unit 1), $750,000 for the second unit (Elm Road Unit 2), and $250,000 for the third unit (Elm Road Unit 3), respectively (a Mitigation Payment). If, and to the extent, approved by the PSCW, Mitigation Payments will be made on a calendar year basis. The first Mitigation Payment for each unit shall be made thirty days after commencement of construction . . . of a unit. Thereafter, Mitigation Payments shall be paid in one annual payment on June 30th each year during the Lease Term. . . . The obligation to pay Mitigation Payments is independent of the receipt of shared revenue funds from the State of Wisconsin and of any future changes in state law pertaining to utility taxation. Notwithstanding anything to the contrary contained herein, in no event will WEC or any of the Subsidiaries have any obligation under this paragraph 3 in the event that (i) the PSCW determines that the payments described in this Section 3 may not be properly included in the rent payments under the Facility Lease, or (ii) a unit of the New Facility permanently ceases operation after start-up and is decommissioned. There is no dispute that the mitigation payments to which the agreement refers will be passed onto ratepayers if the agreement is approved and that the mitigation payment is contingent upon WEC's ability to pass the costs of the payment on to ratepayers. ś 265. In its final decision and order issuing the CPCN, the PSC approved only partial mitigation payments under this agreement. The PSC limited mitigation payments to the period during which ERGS would be constructed, noting that a change in state law pertaining to shared revenue would offset the City's costs once ERGS was constructed: This new shared revenue program commences the annual payments when a generating unit becomes operational. Shared revenue payments to the city of Oak Creek will be $1.6 million for the first SCPC unit and increase to $3.2 million for the second unit. These payments will be added to the shared revenue payments that the city is currently receiving for the existing OCPP [$750,000 per year]. Under Act 31, the annual state shared revenue payments to the city of Oak Creek when ERGS is completed will exceed the amount the city is requesting in the form of mitigation payments from WEPCO ratepayers. Thus, mitigation payments are not required while compensating shared revenue dollars for ERGS are forthcoming. The shared revenue payments, however, will not begin until 2009 when SCPC 1 is first scheduled to be in service, and the city has introduced evidence that it will begin incurring costs as soon as construction commences. For this reason, the Commission finds it appropriate to authorize annual mitigation payments, as described in the Development Agreement, for the period from the commencement of construction of SCPC 1 until the year when SCPC 2 enters service, which is scheduled for 2010. The shared revenue payments for ERGS that commence in 2009, however, will partially offset the city's costs and it is appropriate to reduce the annual mitigation payment by the amount of shared revenue that the city receives for ERGS. When ERGS is fully in service, the shared revenue payments will fully replace any mitigation payment under the Development Agreement, so any further mitigation payment cannot be billed to WEPCO. If, however, state shared revenue payments decrease during the course of the 30-year Facility Lease and are no longer sufficient to offset fully the mitigation payment that would have been paid under the Development Agreement, the Commission finds it reasonable for W.E. Power LLC to make a partial mitigation payment to the city that equals the remaining portion. ś 266. Following the PSC's final decision and order, the legislature enacted 2003 Wis. Act 89. Section 33 of 2003 Wis. Act 89 created Wis. Stat. § 196.20(7) (2003-04). [62] This section provides: (a) In this subsection, mitigation payment means, as approved by the commission, an unrestricted or recurring monetary payment to a local unit of government in which an electric generating facility is located to mitigate the impact of the electric generating facility on the local unit of government. Mitigation payment does not include payments made or inkind contributions for restricted purposes to directly address health or safety impacts of the electric generating facility on the local unit of government. (b) Except as provided in par. (c), an electric public utility may not recover in rates any of the following: 1. The cost of mitigation payments paid by the utility. 2. The cost of mitigation payments paid by the owner or operator of an electric generating facility that the owner or operator recovers from the utility by selling electricity to the utility, by leasing the facility to the utility, or by any agreement between the owner or operator of the electric generating facility and the public utility. (c) The commission shall only approve a mitigation payment agreement that is received by the commission before June 10, 2003, and, if the commission finds the agreement to be reasonable, shall not subsequently modify the agreement. ś 267. The City sought review of that portion of the PSC's order modifying the mitigation payment agreement. When addressing this issue, the circuit court noted: The parties agree that the agreement between the City of Oak Creek and WEC was submitted to the PSC before June 10, 2003 and involves a mitigation payment within the meaning of sec. 196.20(7), Wis. Stats., as amended by 2003 Wisconsin Act 33. The parties further agree that the treatment of the agreement by the PSC is to be governed by section 196.20, Wis. Stats., as amended by 2003 Wisconsin Act 89, Section 33, effective December 18, 2003 . . . . ś 268. The circuit court concluded that under the statute, the PSC was limited to accepting a mitigation payment agreement in whole or rejecting it in whole. Thus, the circuit court concluded that the PSC was without jurisdiction to modify the agreement. As such, it remanded this issue to the PSC to accept or reject the agreement in whole. ś 269. Before this court, the PSC argues that § 196.20(7) does not apply retroactively and that in any event, it does not curtail the PSC's ratemaking authority or require the PSC to approve a mitigation agreement in its entirety. In contrast, the City argues that the PSC has waived any argument that § 196.20(7) does not apply retroactively, as it conceded the applicability of the statute in the circuit court. The City asserts that § 196.20(7) specifically exempts payments for health and safety impacts from the statutory limitations. As such, the City argues that the PSC had no authority to review the reasonableness of payments for health and safety impacts. In the alternative, the City asserts that even if § 196.20(7) is inapplicable, the PSC erroneously exercised its ratemaking authority under Wis. Stat. § 196.37 because there is not substantial evidence to support the conclusion that passing the mitigation payments onto ratepayers would be unjust or unreasonable. ś 270. We begin by first addressing the issue of waiver. The waiver rule is a rule of judicial administration, and as such, a reviewing court has the inherent authority to disregard a waiver and address the merits of an unpreserved issue in exceptional cases. Also, Wis. Stat. §§ 751.06 and 752.35 provide a procedural mechanism for discretionary appellate review and reversal on grounds not preserved in the circuit court. Village of Trempealeau v. Mikrut, 2004 Wi 79, ś 17, 273 Wis. 2d 76, 681 N.W.2d 190 (citation omitted). ś 271. We believe this case to be one of the exceptional cases where it is appropriate to relieve parties of any waiver. Given the public importance of the legal issues and ultimate result in this case, it is more important in this instance to settle the legal issues raised correctly, rather than hold parties to any waiver. We also note that if we were to hold the PSC to any waiver regarding the retroactive application of § 196.37, the City would be precluded from arguing that the agreement at issue falls within the exclusion to the statutory definition of mitigation agreement in § 196.20(7)(a). The circuit court specifically stated: The parties agree that the agreement between the City of Oak Creek and WEC was submitted to the PSC before June 10, 2003 and involves a `mitigation payment' within the meaning of sec. 196.20(7) . . . . (emphasis added). ś 272. Wisconsin Stat. § 196.20(7)(c) provides: The commission shall only approve a mitigation payment agreement that is received by the commission before June 10, 2003, and, if the commission finds the agreement to be reasonable, shall not subsequently modify the agreement. There is no dispute that the agreement in this case was received by the PSC before June 10, 2003. [63] However, the effective date of 2003 Wis. Act 89 was December 17, 2003, a full month after the PSC rendered its final decision and order. [64] Although § 51 of 2003 Wis. Act 89 contained three specific initial applicability provisions, § 196.20(7) was not listed in any of them. ś 273. Simply put, 2003 Wis. Act 89 was not in effect on November 10, 2003, the date the PSC rendered its final decision and order in this case. Thus, there simply was no way the PSC could have evaluated the mitigation payment agreement in this case under the standards set forth in § 196.20(7). Further, there is nothing in the text of 2003 Wis. Act 89 that expressly indicates the legislature intended § 196.20(7) to apply retroactively to PSC orders issued before the Act's effective date. Likewise, there is no necessary implication in the text of § 196.20(7) that the statute was intended to apply retroactively. State v. Chrysler Outboard Corp., 219 Wis. 2d 130, 162, 580 N.W.2d 203 (1998). ś 274. That the statute provides the PSC shall only approve a mitigation payment agreement that is received by the commission before June 10, 2003 does not necessarily implicate an intent that the statute apply retroactively. Given the effective date of 2003 Wis. Act 89 and the absence of § 196.20(7) from the initial applicability provisions of § 51 of the Act, the only necessary implication in the statute is that the statute applies to mitigation payment agreements received by the PSC prior to June 10, 2003, that are considered by the PSC on or after December 18, 2003. A contrary conclusion would require every mitigation payment agreement approved or rejected by the PSC issued prior to December 18, 2003, to be reconsidered. Therefore, we conclude that Wis. Stat. § 196.20(7) does not apply to the agreement at issue in this case. [65] ś 275. The City concedes that if § 196.20(7) does not apply to this case, then the PSC decision in relation to the agreement between the City and WEC is to be evaluated under § 196.37, governing the PSC's ratemaking authority. As noted supra, under the agreement, the mitigation payments from WEC are contingent upon the PSC approving the payments as part of WEC's Facility Lease. Given that the Facility Lease is part of WEC's PTF expansion project, which is designed to provide adequate service to ratepayers, the PSC would be required to allow WEC to pass the costs of the lease onto ratepayers, Wis. Pub. Serv. Corp. v. PSC, 109 Wis. 2d 256, 263, 325 N.W.2d 867 (1982), assuming such increased rates were not unjust or unreasonable. Wis. Stat. § 196.37(2). ś 276. Wisconsin Stat. § 196.37(2) provides: If the commission finds that any measurement, regulation, practice, act or service is unjust, unreasonable, insufficient, preferential, unjustly discriminatory or otherwise unreasonable or unlawful, or that any service is inadequate, or that any service which reasonably can be demanded cannot be obtained, the commission shall determine and make any just and reasonable order relating to a measurement, regulation, practice, act or service to be furnished, imposed, observed and followed in the future. ś 277. The City agrees that in analyzing the PSC's determination under the framework of § 196.37(2), the appropriate inquiry is whether the PSC's decision had a rational basis. The PSC's final decision and order notes that due to a substantial change in the state's shared revenue law, the City will receive an annual sum of money exceeding the sum the City would receive from WEC ratepayers once the first proposed power plant is scheduled to be in service. Under the new law, municipalities hosting a power plant are to be paid double and sometimes triple what they receive under the current law. ś 278. The PSC concluded that mitigation payments are not required while compensating shared revenue dollars for ERGS are forthcoming. The PSC further concluded that the increased money in shared revenue would partially offset the city's costs once the first plant is in service and once both plants were in service the shared revenue payments will fully replace any mitigation payment under the Development Agreement[.] The PSC further noted the annual state shared revenue payments to the City of Oak Creek when ERGS is completed will exceed the amount the city is requesting in the form of mitigation payments from [WEC] ratepayers. Therefore, the PSC ruled that it is appropriate to reduce the annual mitigation payment by the amount of shared revenue that the city receives for ERGS. ś 279. The PSC, noting the City would incur costs during the construction of ERGS, left intact the mitigation payments in full while the first SCPC is being constructed and merely reduced mitigation payments during the construction of the second SCPC in proportion to the amount of money the City would receive in increased shared revenue. Bearing in mind that one of the purposes of judicial review of final orders of the PSC is to protect the interests of the ratepayer, Algoma, 91 Wis. 2d at 265, we cannot conclude that the PSC's decision that ratepayers in this state should not be double-taxed for the ERGS project is without a rational basis. ś 280. While the City argues that the costs of ERGS project to the City are far in excess of the amount requested as mitigation payments, the PSC specifically found that mitigation payments are not required while compensating shared revenue dollars for ERGS are forthcoming. Given the public hearing testimony that the increased shared revenue payments are almost exactly the same amount as the city is requesting in the form of mitigation payments[,] we cannot conclude the PSC's finding was without substantial evidence. Therefore, we uphold the PSC's determination that the mitigation payments to the City from ratepayers under its agreement with WEC should be reduced in an amount corresponding to the increased monies the City will receive in the form of shared revenue. As such, we reverse that part of the circuit court's decision reversing and remanding this issue to the PSC.