Sierra Club v. Public Service Commission of Wisconsin

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
August 6, 2024
A party may file with the Supreme Court a
Samuel A. Christensen petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10
and RULE 809.62.

Appeal No. 2022AP1968 Cir. Ct. No. 2022CV128

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT III

SIERRA CLUB AND VOTE SOLAR,

PETITIONERS-APPELLANTS,

V.

PUBLIC SERVICE COMMISSION OF WISCONSIN,

RESPONDENT-RESPONDENT,

MADISON GAS & ELECTRIC,

INTERESTED PARTY-RESPONDENT.

APPEAL from an order of the circuit court for Dane County:
NIA E. TRAMMELL, Judge. Affirmed.

Before Stark, P.J., Hruz and Gill, JJ.

¶1 GILL, J. Sierra Club and Vote Solar (hereinafter, Sierra Club)
appeal from an order affirming the Public Service Commission of Wisconsin’s
No. 2022AP1968

(PSC) approval of a settlement agreement that allowed Madison Gas and Electric
(MGE) to set its fixed utility rates at specific amounts greater than those suggested
by Sierra Club. On appeal, Sierra Club argues that the PSC’s decision should be
reversed on two grounds.

¶2 First, Sierra Club argues that the PSC’s ratemaking decision was
based on the agency’s “legislative policy” that was not properly subject to the
rulemaking process. In particular, Sierra Club asserts that under this “policy,” the
PSC permitted public utility companies to set fixed charges that covered more than
the costs from meter reading, billing, and utility connection. Second, Sierra Club
contends that the PSC’s decision violated Wisconsin’s Energy Priorities
Law (EPL). See WIS. STAT. §§ 1.12(4), 196.025(1) (2021-22).1

¶3 We first conclude that the PSC’s ratemaking decisions are not rules
and, therefore, are not subject to the rulemaking process outlined in WIS. STAT.
ch. 227. Under WIS. STAT. § 227.01(13), a “[r]ule” is defined as “a regulation,
standard, statement of policy, or general order of general application that has the
force of law and that is issued by an agency to implement, interpret, or make
specific legislation enforced or administered by the agency or to govern the
organization or procedure of the agency.” Crucial to this opinion, a rule “does not
include, and [§] 227.10 does not apply to, any action or inaction of an agency,
whether it would otherwise meet the definition under this subsection, that” “[f]ixes
or approves rates, prices or charges, unless a statute specifically requires them to
be fixed or approved by rule.” Sec. 227.01(13)(n). In this case, the PSC’s

1
All references to the Wisconsin Statutes are to the 2021-22 version unless otherwise
noted.

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No. 2022AP1968

decision involved approving MGE’s fixed rates pursuant to WIS. STAT.
§§ 196.026(7)(c) and 196.03(1), neither of which requires rates to be fixed or
approved by rule. Thus, no statute requiring a rule was implicated, negating the
need for the rulemaking process.

¶4 We next conclude that the PSC’s decision did not violate the EPL,
which requires the PSC to apply the energy priorities listed in WIS. STAT.
§ 1.12(4) to ratemaking “to the extent cost-effective, technically feasible and
environmentally sound.” See id.; WIS. STAT. § 196.025(1)(ar). The PSC
determined that the fixed rates suggested in the settlement agreement were both
“just and reasonable” and encouraged “[e]nergy conservation and efficiency.”
See WIS. STAT. §§ 196.026(7)(c), 1.12(4). The PSC’s factual determinations are
supported by substantial evidence. We therefore affirm the circuit court’s order
upholding the PSC’s decision.

BACKGROUND

¶5 The underlying facts in this case are not in dispute. MGE is an
electric and natural gas public utility company. See WIS. STAT. § 196.01(5)(a).
The PSC is an executive branch agency primarily tasked with supervising and
regulating “every public utility in this state and” doing “all things necessary and
convenient to its jurisdiction.” WIS. STAT. § 196.02(1).

¶6 In 2021, MGE applied to the PSC for, among other things,
permission to increase its electric and natural gas rates. The PSC issued a notice
of proceeding to consider MGE’s application. A number of organizations,
including Sierra Club, requested and were granted intervention. Shortly thereafter,
the parties submitted a proposed settlement agreement to the PSC; however,
Sierra Club opposed certain aspects of the agreement. See WIS. STAT. § 196.026.

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No. 2022AP1968

In particular, Sierra Club objected to a part of the agreement permitting MGE to
set “fixed charges” for residential electric service at $17 per month in 2022 and
$15 per month in 2023, and residential gas service at $21.88 per month.2

¶7 Sierra Club argued that the fixed charge proposals were “based on”
PSC’s “legislative policy” enacted in 2012, “whereby [the PSC] … approve[s]
fixed charges that include ‘minimum system’ distribution costs—a portion of the
costs of poles, wires, transformers, and gas mains—in the fixed charge.”
Sierra Club contended that prior to the 2012 policy, the PSC “determined that a
reasonable fixed charge should be no greater than an amount to recover meter
readings, billing, and connection costs.” According to Sierra Club, the PSC’s
adoption of the change was a “legislative function,” and the agency failed to adopt
the change through the rulemaking process. Sierra Club also argued that adopting
the fixed charge proposals would violate the EPL. See WIS. STAT. §§ 1.12(4),
196.025(1).

¶8 The PSC held public hearings as well as a “technical hearing” on the
proposed fixed rate increases. Following the hearings, the PSC issued its final
decision approving the settlement agreement as proposed. Citing WIS. STAT.

2
A “fixed charge” comprises the portion of a utility bill that is static and does not
depend on customer energy usage. The other portion of a utility bill is considered the
“volumetric charge,” which depends on customer energy usage.

Sierra Club contends that “the larger the portion of” a customer’s “bill that depends on
[his or her] energy consumption, and [the] lower the portion reflected by a fixed charge, the more
[he or she] engage[s] in more energy conservation, efficiency, and rooftop solar.”

We note that there is nothing in the record suggesting Vote Solar was one of the
organizations that requested intervention or that Vote Solar took a position on the settlement
agreement prior to the petition for judicial review filed in the circuit court. Therefore, any
reference to Sierra Club’s actions prior to the circuit court petition for review relate solely to
Sierra Club.

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No. 2022AP1968

§ 227.01(13)(n), the PSC concluded that “ratemaking orders are not … rule[s] and
are therefore exempt from rulemaking.” The PSC also concluded that the fixed
rates would not violate the EPL, and it reasoned that “[w]hile rate design is
certainly a tool to advance the important priorities set forth in the EPL, the [PSC]
must use that tool in a manner that is consistent with other public policy goals and
objectives involved in setting utility rates,” including ensuring that rates are
“reasonable and just.” See WIS. STAT. § 196.03(1). Ultimately, the PSC
concluded that there was “sufficient evidence in the record to approve the fixed
charges proposed” in the settlement agreement.

¶9 The circuit court affirmed the PSC’s decision. This appeal follows.3

DISCUSSION

¶10 Sierra Club appeals from the circuit court’s decision pursuant to
WIS. STAT. § 227.58. On such an appeal, we review the decision of the agency,
not the circuit court. See Myers v. DNR, 2019 WI 5, ¶17, 385 Wis. 2d 176, 922
N.W.2d 47. When reviewing questions of fact decided by an agency, we will not
“substitute [our] judgment for that of the agency as to the weight of the evidence
on any disputed finding of fact.” WIS. STAT. § 227.57(6). However, we will “set
aside agency action or remand the case to the agency” if we conclude that “the
agency’s action depends on any finding of fact that is not supported by substantial
evidence in the record.” Id. “An agency’s findings are supported by substantial
evidence if a reasonable person could arrive at the same conclusion as the

3
This appeal is venued in this court pursuant to WIS. STAT. § 752.21(2).

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No. 2022AP1968

agency.” Clean Wis., Inc. v. PSC, 2005 WI 93, ¶46, 282 Wis. 2d 250, 700
N.W.2d 768.

¶11 Conversely, “[w]hen reviewing questions of law decided by an
agency, including statutory interpretation, our review is de novo.” DOR v.
Microsoft Corp., 2019 WI App 62, ¶13, 389 Wis. 2d 350, 936 N.W.2d 160
(citation omitted). Although we afford no deference to an agency’s interpretation
of law, “due weight shall be accorded the experience, technical competence, and
specialized knowledge of the agency involved, as well as discretionary authority
conferred upon it.” WIS. STAT. § 227.57(10), (11); Tetra Tech EC, Inc. v. DOR,
2018 WI 75, ¶¶3, 78, 382 Wis. 2d 496, 914 N.W.2d 21 (stating that due weight “is
a matter of persuasion, not deference”).

¶12 “[S]tatutory interpretation ‘begins with the language of the statute.’
Statutory language is given its common, ordinary, and accepted meaning, except
that technical or specially-defined words or phrases are given their technical or
special definitional meaning.” State ex rel. Kalal v. Circuit Ct. for Dane Cnty.,
2004 WI 58, ¶45, 271 Wis. 2d 633, 681 N.W.2d 110 (citation omitted). Context
and statutory structure are similarly important to statutory interpretation. Id., ¶46.
“Therefore, statutory language is interpreted in the context in which it is used; not
in isolation but as part of a whole; in relation to the language of surrounding or
closely-related statutes; and reasonably, to avoid absurd or unreasonable results.”
Id.

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No. 2022AP1968

I. Jurisdiction

¶13 The PSC first contends that we should not reach the merits of
Sierra Club’s appeal because this court lacks “subject matter jurisdiction.”4
According to the PSC, it began implementing the change in its ratemaking
procedure in 2012. Given that the statutory time frame for filing a petition for
judicial review of that course of action has long passed, the PSC asserts that
Sierra Club is impermissibly attempting to “collaterally attack past [PSC]
decisions.” See Zastrow v. American Transmission Co., 2018 WI App 51, ¶40,
383 Wis. 2d 644, 916 N.W.2d 821 (concluding that a party “forfeited” a challenge
to an agency’s decision because a petition for judicial review was not timely filed).

¶14 Pursuant to the Wisconsin Constitution, “no circuit court is without
subject matter jurisdiction to entertain actions of any nature whatsoever.” Village
of Trempealeau v. Mikrut, 2004 WI 79, ¶8, 273 Wis. 2d 76, 681 N.W.2d 190
(citation omitted); WIS. CONST. art. VII, § 8. Also, WIS. STAT. ch. 227 “grants

4
In addition to challenging this appeal on jurisdictional grounds, the PSC asserts on
appeal that Sierra Club lacks standing to challenge the PSC’s decision. Because we ultimately
rule in the PSC’s favor, we assume without deciding that Sierra Club has standing to challenge
the decision. See Patrick Fur Farm, Inc. v. United Vaccines, Inc., 2005 WI App 190, ¶8 n.1,
286 Wis. 2d 774, 703 N.W.2d 707 (stating that “we decide cases on the narrowest possible
grounds”). For the same reason, to the extent the PSC means to argue that Sierra Club should be
equitably estopped from challenging the PSC’s decision because the policy change leading to that
decision occurred in 2012, see Milas v. Labor Ass’n of Wis., 214 Wis. 2d 1, 11, 571 N.W.2d 656
(1997), we assume without deciding that principles of equitable estoppel do not prevent Sierra
Club’s challenge, see Patrick Fur Farm, 286 Wis. 2d 774, ¶8 n.1.

Separately, we note that the PSC’s briefing on appeal does not comply with WIS. STAT.
RULE 809.19(8)(bm), which states that “[a] brief … must have page numbers centered in the
bottom margin using Arabic numerals with sequential numbering starting at ‘1’ on the cover.”
Our supreme court explained when it amended the rule in 2021 that the pagination requirements
avoid “the confusion of having two different page numbers” on certain pages of an electronically
filed brief. S. CT. ORDER 20-07, 2021 WI 37, 397 Wis. 2d xiii (eff. July 1, 2021). We admonish
counsel that future violations of the Rules of Appellate Procedure may result in sanctions.
See WIS. STAT. RULE 809.83(2).

7
No. 2022AP1968

subject matter jurisdiction to all circuit courts to review administrative decisions
of the type specified in that chapter.” Ceria M. Travis Acad., Inc. v. Evers, 2016
WI App 86, ¶22, 372 Wis. 2d 423, 887 N.W.2d 904 (citation omitted); WIS. STAT.
§ 227.52. However, a party’s failure to comply with a procedural statute may
limit a circuit court’s “competency” to exercise its jurisdiction. Mikrut, 273
Wis. 2d 76, ¶9.

¶15 The circuit court unquestionably had subject matter jurisdiction over
Sierra Club’s WIS. STAT. ch. 227 action pursuant to the Wisconsin Constitution
and ch. 227. Furthermore, the PSC has provided no compelling authority
demonstrating that Sierra Club failed to comply with ch. 227 in seeking judicial
review of the PSC’s December 2021 decision.5 Thus, the court also had

5
This court held in Zastrow v. American Transmission Co., 2018 WI App 51, ¶40, 383
Wis. 2d 644, 916 N.W.2d 821, that an “[a]dministrative action for which a statutory means of
review is provided should not be subject to collateral attack in a different forum or under different
procedures.” The PSC contends that Zastrow stands for the proposition that Sierra Club cannot,
approximately ten years later, indirectly attack the PSC’s ratemaking formula.

In Zastrow, an individual filed a lawsuit pursuant to WIS. STAT. ch. 32 (“Eminent
domain”) challenging a company’s “right to condemn her property.” Zastrow, 383 Wis. 2d 644,
¶1. Prior to the lawsuit, the PSC issued a certificate of public convenience and necessity to the
company, which the individual did not challenge pursuant to WIS. STAT. ch. 227. Zastrow, 383
Wis. 2d 644, ¶¶2, 40. We concluded that, “while framed as a challenge” under ch. 32, the
individual’s lawsuit was “actually an attempt to indirectly challenge” the PSC’s failure to include
specific conditions in the certificate. Zastrow, 383 Wis. 2d 644, ¶2. Because the individual did
not challenge the PSC’s certificate under ch. 227, we determined that the individual forfeited her
challenge to the PSC’s decision. Zastrow, 383 Wis. 2d 644, ¶40.

Sierra Club is not indirectly challenging the PSC’s December 2021 decision “in a
different forum or under different procedures.” See id. Rather, Sierra Club timely filed a
challenge to that decision through WIS. STAT. ch. 227. Further, as Sierra Club argues in reply,
while the PSC’s prior implementation of the policy may have been in error, that fact “does not
insulate its decision in this case from judicial review.” Therefore, Sierra Club has not forfeited its
challenge to the PSC’s December 2021 decision, and Zastrow’s holding discussed above does not
apply. We also note that the PSC does not argue that Sierra Club was required to challenge the
decision as a “rule” pursuant to a declaratory judgment action under WIS. STAT. § 227.40.
See Citizens for Sensible Zoning, Inc. v. DNR, 90 Wis. 2d 804, 813-14, 280 N.W.2d 702 (1979).

8
No. 2022AP1968

competency to hear Sierra Club’s challenge. See WIS. STAT. § 227.53 (listing the
procedural requirements to initiate judicial review of an administrative decision);
see also Currier v. DOR, 2006 WI App 12, ¶6 n.2, 288 Wis. 2d 693, 709 N.W.2d
520 (“[T]he failure to comply with mandatory time limits in ch. 227 would result
in the loss of the circuit court’s competency to proceed.”).

¶16 As to this court, the Wisconsin Constitution “permits the legislature
to grant appellate jurisdiction to the court of appeals.” State ex rel. Swan v.
Elections Bd., 133 Wis. 2d 87, 91, 394 N.W.2d 732 (1986). The legislature has
done so in WIS. STAT. § 808.03(1), which provides that a final judgment or order
of the circuit court may be appealed to this court as a matter of right. More
specifically, in an action challenging an administrative agency’s decision, “[a]ny
party, including the agency, may secure a review of the final judgment of the
circuit court by appeal to the court of appeals.” WIS. STAT. § 227.58.

¶17 Accordingly, this court has subject matter jurisdiction to hear
Sierra Club’s appeal from the circuit court’s decision, pursuant to the Wisconsin
Constitution, WIS. STAT. § 808.03(1), and WIS. STAT. ch. 227.

II. Fixed charges

A. The fixed-charge policy change was a not a rule.

¶18 As noted above, Sierra Club asserts that the PSC’s policy prior to
2012 was to limit fixed charges for electrical and gas service to costs such as
meter reading, billing, and connection costs. According to Sierra Club, however,
in 2012, PSC adopted a new policy that permitted fixed charges to cover other
aspects of providing utility services, including administrative and general costs.
Sierra Club argues that this new policy constituted a rule that was required to be

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No. 2022AP1968

promulgated under WIS. STAT. § 227.10(1). Sierra Club therefore asks this court
to vacate the PSC’s decision approving the fixed rates set forth in the settlement
agreement and to order the PSC to “apply its original policy of limiting fixed
charges to customer costs unless and until it changes that policy through
rulemaking.”

¶19 “Each agency shall promulgate as a rule each statement of general
policy and each interpretation of a statute which it specifically adopts to govern its
enforcement or administration of that statute.” WIS. STAT. § 227.10(1). However,
an agency’s

statement of policy or an interpretation of a statute made in
the decision of a contested case … or in an agency decision
upon or disposition of a particular matter as applied to a
specific set of facts does not render it a rule or constitute
specific adoption of a rule and is not required to be
promulgated as a rule.

Id. We refer to this provision as the “contested case clause.”

¶20 A “[r]ule” is defined in WIS. STAT. § 227.01(13) as “a regulation,
standard, statement of policy, or general order of general application that has the
force of law and that is issued by an agency to implement, interpret, or make
specific legislation enforced or administered by the agency or to govern the
organization or procedure of the agency.” See also Citizens for Sensible Zoning,
Inc. v. DNR, 90 Wis. 2d 804, 814, 280 N.W.2d 702 (1979).

¶21 In addition to defining the term “[r]ule,” WIS. STAT. § 227.01(13)
“also contains 72 specific exemptions from” that definition. Wisconsin
Legislature v. Palm, 2020 WI 42, ¶30, 391 Wis. 2d 497, 942 N.W.2d 900 (citing
§ 227.01(13)(a)-(zz)). As is relevant here, a rule “does not include, and [WIS.
STAT. §] 227.10 does not apply to, any action or inaction of an agency, whether it

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No. 2022AP1968

would otherwise meet the definition under this subsection, that” “[i]s a decision or
order in a contested case,” § 227.01(13)(b); that “[i]s an order directed to a
specifically named person or to a group of specifically named persons that does
not constitute a general class, and which is served on the person or persons to
whom it is directed by the appropriate means applicable to the order,”
§ 227.01(13)(c); or that “[f]ixes or approves rates, prices or charges, unless a
statute specifically requires them to be fixed or approved by rule,”
§ 227.01(13)(n).6

¶22 The PSC “has jurisdiction to supervise and regulate every public
utility in this state and to do all things necessary and convenient to its
jurisdiction,” including approving utility rates. See WIS. STAT. §§ 196.02(1),
196.20. A public utility company, like MGE, must seek approval and permission
from the PSC for a rate schedule change, and “no change in schedules which
constitutes an increase in rates to consumers may be made except by order of the
[PSC], after an investigation and opportunity for a hearing.”
See § 196.20(1), (2m).

¶23 A charge made by any public utility company for “any heat, light,
water, telecommunications service or power produced, transmitted, delivered or
furnished or for any service rendered or to be rendered in connection therewith
shall be reasonable and just.” See WIS. STAT. § 196.03(1) (emphasis added).
Relevant here, all parties to proceedings before the PSC “are encouraged to enter
into settlements when possible.” WIS. STAT. § 196.026(1). The PSC may approve

6
“Whether an agency’s action constitutes a ‘rule’ under WIS. STAT. § 227.01(13)
presents a question of law, which we review de novo.” Lamar Cent. Outdoor, LLC v. Division
of Hearings & Appeals, 2019 WI 109, ¶10, 389 Wis. 2d 486, 936 N.W.2d 573 (citation omitted).

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No. 2022AP1968

a settlement agreement only after, among other things, it “finds that the settlement
agreement … complies with applicable law, including that any rates resulting from
the settlement agreement are just and reasonable.” Sec. 196.026(7)(c) (emphasis
added).

¶24 According to Sierra Club, the PSC’s decision changing how it
calculated fixed charges is subject to rulemaking procedures under Lamar Central
Outdoor, LLC v. Division of Hearings & Appeals, 2019 WI 109, 389 Wis. 2d
486, 936 N.W.2d 573, because its decision requires an interpretation of the
ambiguous term “reasonable and just” in WIS. STAT. § 196.03(1). See also WIS.
STAT. § 196.026(7)(c).

¶25 In Lamar, a billboard company purchased a billboard built in the
1990s. Lamar, 389 Wis. 2d 486, ¶2. At the time of its construction, the billboard
complied with all applicable laws. Id. By the 2000s, however, the billboard’s
status changed to “legal, nonconforming” because the applicable laws were
amended and “no longer allow[ed] the [b]illboard where it [was] located.” Id., ¶4.

¶26 After purchasing the billboard, the billboard company applied to the
Wisconsin Department of Transportation (DOT) for permission to remove
vegetation that partially obscured the billboard. Id., ¶3. During the application
process, the DOT discovered that the billboard had been installed with a
temporary extension panel that increased the billboard’s total advertising area. Id.
The panel had been removed several years before the application process. Id. The
DOT claimed that “legal, nonconforming” billboards may not be enlarged and, if
one is enlarged, it becomes “illegal” and is subject to removal regardless of
whether the billboard’s owner attempts to “cure” the violation. Id., ¶¶5, 12. On

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No. 2022AP1968

this basis, the DOT denied the application and, shortly thereafter, sent the
billboard company an order requiring it to remove the billboard. Id., ¶¶5-6.

¶27 The DOT’s “position on the consequences of temporary violations of
a ‘legal, nonconforming’ sign’s permit” had “morphed over the years” based on
the agency’s interpretation of WIS. STAT. § 84.30 (“Any sign erected … in
violation of this section or the rules promulgated under this section, may be
removed … unless such sign is brought into conformance within said 60 days.”
(emphasis added)). Lamar, 389 Wis. 2d 486, ¶12. According to the DOT, the
billboard company could not bring the billboard into conformance because the
change in law from the 1990s prohibiting the sign in that location made
compliance “impossible.” Id. However, the DOT’s changed interpretation of
§ 84.30 was not made through the rulemaking process. Lamar, 389 Wis. 2d 486,
¶16.

¶28 On appeal, the DOT relied on the contested case clause to argue that
it could adopt and apply a new reasonable statutory interpretation in the contested
case without going through the rulemaking process. Id. Our state supreme court
noted that the DOT’s changed position regarding the consequences of temporary
violations of “legal, nonconforming” signs was “not necessarily problematic.” Id.,
¶11. The court stated:

It is to be expected that an administrative agency might,
from time to time, change the manner in which it applies
and enforces our State’s statutes and regulations.
Sometimes a prudential reordering of priorities or other
discretionary factors prompt the change. But sometimes
the change arises from a reevaluation of what the agency
believes a particular statute or regulation requires.

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No. 2022AP1968

Id. According to the court, the DOT’s changed interpretation of an ambiguous
statute implicated the latter of these situations, which required the agency to go
through the rulemaking process. Id., ¶¶11, 23, 38.

¶29 The supreme court articulated that the contested case clause “merely
recognizes that, in resolving specific matters, agency decisions will often
contain—but not create—a statement of policy, or interpretation of a statute as
applied to the matter at hand, and that they need not adopt a new rule for each
specific matter they resolve.” Id., ¶23. However, the contested case clause “does
not say that an agency need not promulgate a rule embodying the new
interpretation of an ambiguous statute before implementing it in a specific case.”
Id. In other words, an agency cannot “wait for a contested case or some other
resolution of a specific matter before announcing [a] new interpretation” of an
ambiguous statute in order to escape the rulemaking process. Id., ¶22. Nor can an
agency announce a new interpretation of an ambiguous statute prior to a contested
case or resolution of a specific matter and then apply that interpretation in such
case in order to escape the rulemaking process. See id.

¶30 Sierra Club concedes that “Lamar does not require the PSC to
conduct all ratemaking by rulemaking. The PSC remains free to conduct the
fact-intensive analysis involved in setting rates on a case-by-case basis by
applying existing law.” Sierra Club asserts, however, that Lamar does not allow
the PSC to “use the vehicle of a specific rate case to circumvent rulemaking by
announcing a new policy or reinterpreting the ambiguous statutory phrase
‘reasonable and just.’” In response, the PSC claims, among other things, that its
interpretation and application of “reasonable and just” did not require it to go
through the rulemaking process because, unlike the DOT’s decision in Lamar, its

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No. 2022AP1968

decision in this case was not a “rule” as that term is defined in WIS. STAT.
§ 227.01(13).

¶31 We agree with the PSC that it did not engage in rulemaking through
its decision at issue because a rule “does not include, and [WIS. STAT. §] 227.10
does not apply to, any action or inaction of an agency, whether it would otherwise
meet the definition under this subsection, that” “[f]ixes or approves rates, prices or
charges, unless a statute specifically requires them to be fixed or approved by
rule.”7 See WIS. STAT. § 227.01(13)(n). It is undisputed that the PSC’s decision
involved approving rates pursuant to WIS. STAT. §§ 196.026(7)(c) and 196.03(1).
Neither §§ 196.026(7)(c) nor 196.03(1) specifically require the PSC to promulgate
by rule the meaning of “reasonable and just” rates. Moreover, Sierra Club has
failed to cite to “a statute [that] specifically requires” rates “to be fixed or
approved by rule.” See § 227.01(13)(n).

¶32 Instead of citing to “a statute [that] specifically requires” rates “to be
fixed or approved by rule,” see WIS. STAT. § 227.01(13)(n), Sierra Club asserts
that “the non-rulemaking agency actions identified in § 227.01(13)[] are not
exceptions to WIS. STAT. § 227.10,” but rather “[t]hey are types of action covered
by” the contested case clause. According to Sierra Club, the holding in Lamar
therefore applies to the contested case clause as well as the list of exemptions
listed in § 227.01(13).

7
The PSC also argues that its approval of the settlement agreement was not a rule
because WIS. STAT. § 227.01(13)(b) and (c) apply. Because we conclude that § 227.01(13)(n)
applies to the PSC’s decision, we need not address the applicability of paragraphs (b) and (c).
See Patrick Fur Farm, 286 Wis. 2d 774, ¶8 n.1. For the same reason, we do not need to
determine whether WIS. STAT. §§ 196.03(1) or 196.026(7)(c) are ambiguous. See Lamar, 389
Wis. 2d 486, ¶38.

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No. 2022AP1968

¶33 Sierra Club’s interpretation of WIS. STAT. §§ 227.10 and 227.01(13)
has no basis in law. Section 227.01(13) expressly states that a “[r]ule does not
include” any agency action or inaction listed in § 227.01(13)(a)-(zz) and that
§ 227.10 “does not apply to” such action or inaction. See Cholvin v. DHFS, 2008
WI App 127, ¶30, 313 Wis. 2d 749, 758 N.W.2d 118 (stating § 227.01(13)(r)
“provides that a statement that might otherwise come within the definition of a
rule is not subject to formal rule-making requirements”). Because the rulemaking
requirements in § 227.10 do not apply to the exemptions listed in
§ 227.01(13)(a)-(zz), the contested case clause does not apply to the exemptions
either. Therefore, we reject Sierra Club’s assertion that § 227.01(13)(n) is a type
of action subject to the contested case clause.

¶34 Nothing in Lamar alters this conclusion. In that case, the DOT did
not argue that any of the exemptions listed in WIS. STAT. § 227.01(13)(a)-(zz)
applied, and the court did not address that issue.8 Accordingly, the legislature

8
Without authoritative support, Sierra Club contends that the supreme court in Lamar
“would have upheld the DOT’s position” “[i]f WIS. STAT. § 227.01(13)(b) and (c) allowed the
DOT to change policy outside rulemaking—as the PSC argues § 227.01(13)(n) does.” We deem
this argument to be undeveloped. See State v. Pettit, 171 Wis. 2d 627, 646-47, 492 N.W.2d 633
(Ct. App. 1992) (we need not address undeveloped arguments). The DOT did not argue that
§ 227.01(13)(b) or (c) applied, and the court made clear that its holding applied only to the
contested case clause when an agency interprets an ambiguous statute. See Lamar, 389 Wis. 2d
486, ¶23 n.11.

(continued)

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delegated to the PSC the authority to weigh discretionary factors in the manner in
which it applies and enforces WIS. STAT. §§ 196.03(1) and 196.026(7)(c) without
requiring the agency to go through the rulemaking process. 9 See Lamar, 389
Wis. 2d 486, ¶11.

B. The PSC did not violate the EPL.

¶35 Lastly, Sierra Club argues that the PSC’s decision violated the EPL
because the PSC “could have incentivized greater conservation, efficiency, and

In addition, we decline to address Sierra Club’s argument that, in order to avoid an
unconstitutional delegation of authority to the PSC, we must conclude that the agency was
required to promulgate a rule for its interpretation of the phrase “reasonable and just.” As MGE
argues, Sierra Club’s non-delegation arguments are supported only by general statements and
Sierra Club “merely recite[s] the proposition that some delegations of legislative authority are
unconstitutional.” The proper standard for a non-delegation analysis was articulated in Palm: A
legislative delegation of its authority to make law to an administrative agency is allowed “if the
purpose of the delegating statute is ascertainable and there are procedural safeguards to insure
that the board or agency acts within that legislative purpose.” Wisconsin Legislature v. Palm,
2020 WI 42, ¶33, 391 Wis. 2d 497, 942 N.W.2d 900 (citation omitted). Sierra Club fails to
develop an argument as to why the PSC’s authority to assess and enforce what is a “reasonable
and just” utility rate is an improper delegation of the legislature’s authority under the standard
articulated in Palm. See Pettit, 171 Wis. 2d at 646-47.
9
This conclusion is supported by the complex and largely case-by-case discretionary
analysis that goes into the PSC’s ratemaking. See City of West Allis v. PSC, 42 Wis. 2d 569,
577-78, 167 N.W.2d 401 (1969) (“It follows that rate-making agencies are not bound to the
service of any single regulatory formula; they are permitted, unless their statutory authority
otherwise plainly indicates, ‘to make the pragmatic adjustments which may be called for by
particular circumstances.’” (citation omitted)); Madison Gas & Elec. Co. v. PSC, 109 Wis. 2d
127, 136, 325 N.W.2d 339 (1982) (“The PSC has considerable discretion in determining the
factors upon which it bases its rate orders.”); Wisconsin Tel. Co. v. PSC, 232 Wis. 274, 329, 287
N.W. 122 (1939) (“[I]t is apparent that there is more than one rate that may be a just and
reasonable rate. It is the function of the [PSC] to determine the just and reasonable rate which
shall apply in a given situation.”); Wisconsin’s Env. Decade, Inc. v. PSC, 98 Wis. 2d 682, 696,
298 N.W.2d 205 (Ct. App. 1980) (stating that the “methods for computing precise cost allocation
and differential figures are complex”). Ratemaking involves: (1) developing a public utility’s
revenue requirement (i.e., how much revenue the utility needs to cover its expenses, plus a
reasonable level of return on its invested capital); (2) developing and analyzing cost-of-service
models so that the utility’s future sales will produce income equal to the revenue requirement;
and (3) developing a rate design. See Wisconsin Pub. Serv. Corp. v. PSC, 109 Wis. 2d 256,
259 n.2, 325 N.W.2d 867 (1982) (detailing the PSC’s ratemaking process).

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No. 2022AP1968

solar generation by setting fixed charges at $8.70 per month.” 10 Sierra Club
contends that when the PSC “has a choice between two rate designs, the [EPL]
requires the PSC to choose lower fixed charges that produce more customer
conservation, efficiency, and solar adoption.”

¶36 “The EPL states Wisconsin’s energy policy and gives agencies and
governmental units a list of energy source options and the priority in which they
should be considered when making decisions.” Clean Wis., 282 Wis. 2d 250, ¶98.
It provides, “to the extent cost-effective, technically feasible and environmentally
sound, the [PSC] shall implement the priorities under [WIS. STAT. §] 1.12(4) in
making all energy-related decisions and orders, including … rate setting.” WIS.
STAT. § 196.025(1)(ar). Section 1.12(4) states:

In meeting energy demands, the policy of the state is that,
to the extent cost-effective and technically feasible, options
be considered based on the following priorities, in the order
listed:

(a) Energy conservation and efficiency.

(b) Noncombustible renewable energy resources.

(c) Combustible renewable energy resources.

(cm) Advanced nuclear energy using a reactor design or
amended reactor design approved after December 31, 2010,
by the U.S. Nuclear Regulatory Commission.

(d) Nonrenewable combustible energy resources, in the
order listed:

10
The PSC contends that the EPL does not apply to its decision because, pursuant to
WIS. STAT. § 196.025(1)(b)1., the decision occurred “[i]n a proceeding in which an
investor-owned electric public utility company is a party” and the PSC and MGE complied with
the remaining requirements under that statute. We decide this case on the narrowest possible
grounds and therefore, we need not address this issue. See Patrick Fur Farm, 286 Wis. 2d 774,
¶8 n.1. Instead, we assume without deciding that the EPL applies to the PSC’s decision in this
case.

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No. 2022AP1968

1. Natural gas.

2. Oil or coal with a sulphur content of less than
1 percent.

3. All other carbon-based fuels.

¶37 In other words, the PSC must apply the priorities listed in WIS.
STAT. § 1.12(4) to ratemaking only “to the extent” a particular rate is
“cost-effective, technically feasible and environmentally sound.” See id.; WIS.
STAT. § 196.025(1)(ar). As is relevant to ratemaking, the PSC applies the EPL in
the context of determining whether a utility rate is “reasonable and just.”
See Clean Wis., 282 Wis. 2d 250, ¶122; WIS. STAT. §§ 196.03(1), 196.026(7)(c).
Thus, the relevant question for the PSC in the ratemaking context is: Given the
requirements of §§ 196.03(1) and 196.026(7)(c), what is the highest priority
energy option that is also cost-effective, technically feasible, and environmentally
sound?11 See Clean Wis., 282 Wis. 2d 250, ¶122 & n.34. Our review of the

11
Sierra Club contends that Clean Wisconsin, Inc. v. PSC, 2005 WI 93, ¶121, 282
Wis. 2d 250, 700 N.W.2d 768, does not stand for the proposition “that the PSC can ‘weigh’ the
[EPL]’s mandate against the PSC’s own policy preferences.” As we will explain, we do not
interpret the PSC’s decision as disregarding the EPL in place of the agency’s own policy
preferences. By WIS. STAT. § 196.025(1)(ar)’s plain meaning, the PSC must comply with both its
statutory ratemaking requirements and the requirements set forth in the EPL. To do so, the PSC
must make a factual determination as to whether a particular rate would be reasonable and just
and, then, to the extent cost-effective, technically feasible, and environmentally sound, apply the
priorities listed in the EPL. See § 196.025(1)(ar); Clean Wis., 282 Wis. 2d 250, ¶162 (concluding
that “substantial evidence exist[ed] to support the various factual findings made by the PSC in
applying the provisions of the EPL and” the other relevant statutory requirements at issue). To
the extent Sierra Club disagrees with our interpretation of the EPL, we reject those arguments as
they are contrary to the plain language in WIS. STAT. §§ 196.025(1)(ar) and 1.12(4).

(continued)

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No. 2022AP1968

PSC’s ratemaking decision, including the application of the priorities in § 1.12(4),
is limited to whether the decision is “supported by substantial evidence in the
record.” See WIS. STAT. § 227.57(6); Clean Wis., 282 Wis. 2d 250, ¶162.

¶38 Here, the PSC stated in its decision that the “fundamental
obligation” in setting utility rates “is to set just and reasonable rates that ensure the
adequate provision of utility service.” MGE submitted with the settlement
agreement hundreds of pages of rate calculations based on its revenue and costs of
service. In turn, the PSC conducted its own studies, and its experts reached a fixed
rate fifty-eight cents higher than that proposed in the settlement agreement. In
simplified terms, the approved fixed-rate design covers “fixed costs” incurred by
MGE. Sierra Club points to no evidence suggesting that these calculations were in
error or that the ultimate figures approved for fixed charges were unreasonable.
See Clean Wis., 282 Wis. 2d 250, ¶46.

¶39 In addition, the PSC stated that it did not interpret the EPL as
requiring the agency “to disconnect fixed charges from fixed costs.” As that
principle applied to the fixed charges in this case, the PSC found that
implementing the EPL’s priorities, such as noncombustible renewable energy

Sierra Club also asserted in its brief-in-chief that Clean Wisconsin is no longer good law
because it relied on deference to the PSC’s interpretation of the EPL. See WIS. STAT.
§ 227.57(11); Tetra Tech EC, Inc. v. DOR, 2018 WI 75, ¶3, 382 Wis. 2d 496, 914 N.W.2d 21.
MGE contends that the analysis in Clean Wisconsin cited in the body of this discussion—i.e.,
that the PSC must consider both the EPL and its other statutory duties in order “to gauge whether
an option is cost effective or technically feasible”—“was independent of any PSC interpretation
of the [EPL], and comports with the decades of cases evaluating rate structures.” See Clean Wis.,
282 Wis. 2d 250, ¶162. Sierra Club does not respond to this argument, and we therefore deem it
conceded. See United Co-op v. Frontier FS Co-op, 2007 WI App 197, ¶39, 304 Wis. 2d 750,
738 N.W.2d 578 (concluding that a lack of response in a reply brief to an argument made in a
respondent’s brief constitutes a concession). We also independently conclude that
Clean Wisconsin’s holding comports with the plain meanings of the EPL and WIS. STAT.
§§ 196.03(1) and 196.026(7)(c), for the reasons articulated earlier in this footnote.

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No. 2022AP1968

resources, would not be cost-effective. Moreover, the PSC disagreed with
Sierra Club that setting the fixed rates contained in the settlement agreement
“would encourage customers to use more energy” in violation of the EPL.
See WIS. STAT. § 1.12(4)(a). The PSC reasoned:

Even though the amount of the fixed customer charge does
have an incidental effect on certain energy efficiency
measures and renewable energy resources, a substantial
portion of a typical customer’s bill will remain variable,
even under the fixed charge levels to which the [s]ettling
[p]arties agreed. Thus, the opportunity to encourage
conservation efforts remains.

Ultimately, the PSC concluded that the “purpose of rate design is … to connect the
rates customers pay to the costs the utility incurs. Connecting those costs to the
rates customers pay encourages efficient utility scale planning.”

¶40 Again, Sierra Club fails to demonstrate how or why the PSC’s
findings are unreasonable. See Clean Wis., 282 Wis. 2d 250, ¶46. Instead,
Sierra Club asks this court to reweigh the factual evidence in the record, including
the evidence submitted by Sierra Club that it contends demonstrates that lower
fixed utility costs increase energy conservation. However, as required by statute,
the PSC considered whether the fixed rates in the settlement agreement would be
reasonable and just and then found that a lower rate would not be cost-effective.12

12
Sierra Club asserts that “[t]here is no evidence in the record that a lower fixed
charge … is not cost-effective, technically feasible or environmentally sound.” We disagree.
The record is replete with information on why a fixed charge rate design that incorporates costs
other than those proposed by Sierra Club is arguably more cost-effective. For example, the PSC
considered several cost-of-service studies (COSS). Sierra Club has failed to explain why the
PSC’s reliance on the COSS was in error or why the COSS results were incorrect.

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No. 2022AP1968

¶41 Even so, the PSC determined that the settlement agreement’s fixed
rates would still encourage energy conservation. Notably, after weighing all of the
evidence submitted—including expert reports—the PSC disagreed with Sierra
Club that the fixed rates contained in the settlement agreement “would encourage
customers to use more energy” in violation of the EPL. In fact, the PSC found that
a large portion of most consumers’ energy bills would remain variable, thus
encouraging conservation. Although Sierra Club may disagree with these findings
by arguing that a lower fixed cost would result in greater energy conservation and
would remain cost-effective, “a reasonable person could arrive at the same
conclusion as the agency.” See Clean Wis., 282 Wis. 2d 250, ¶46.

CONCLUSION

¶42 In short, the PSC’s ratemaking decisions, including the decision in
this case approving MGE’s fixed rates, are not rules as defined under WIS. STAT.
§ 227.01(13). In addition, the PSC complied with the EPL, and its decision
approving the fixed rates was supported by substantial evidence. We therefore
affirm.

By the Court.—Order affirmed.

Recommended for publication in the official reports.

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