The following opinions were filed May 12, 1931:
Fritz, J.
The action was tried upon the pleadings, and there is no dispute as to the facts. On August 13, 1928, [351]*351the plaintiff applied to the Railroad Commission for a valuation under sec. 184.11 (2), Stats., of the property of the Luck Light & Power Company, and a certificate of authority, to be issued by the commission under sec. 184.09, Stats., for the issue of securities to secure funds to pay for the property. On January 17, 1929, the commission issued a preliminary certificate authorizing the plaintiff to issue $58,800 par value of bonds at a discount of ten per cent, to procure funds to pay in part for the property, and reserved for later determination, upon its engineers completing their appraisal, the question as to what additional securities might be authorized against the property.
The Luck Light & Power Company had on its books an account entitled “Customers’ Line Extension Donations,” showing a balance of $12,034.91 received in cash as donations from prospective customers to finance the construction of a certain high-tension line, transformer installations, and branch-line extensions. That account was carried in that form pursuant to accounting rules, theretofore promulgated by the commission, which required the Luck Light & Power Company, as well as the plaintiff, to credit in such an account all customers’ donations, and also to debit the same to the proper fixed capital account on its books. In relation to such donations the answer alleged:
"... That rural rates in such cases were established upon a basis which did not provide for a return to the utility upon the capital thus donated by customers; that the customers’ donation plan above outlined made it possible for the electric utility to establish a lower rate for rural electric service which tended to promote the expansion of rural electrification to the benefit of the utility and also of the public; that the rate schedule of the Luck Light & Power Company under which the customers’ donations under consideration were made was constructed upon the principles above set forth and did not permit said Luck Light & Power Company to earn a return upon the amount of said customers’ dona[352]*352tions as set forth in the opinion of the commission here under review.”
On May 5, 1929, the commission determined that the value of the property was $80,000, free and clear of all in-cumbrances, but including the donations of $12,034.91 contributed by customers; that $67,965.09 was the maximum amount at which the plaintiff could purchase the property and place it on its books; that the $12,034.91 should be credited on plaintiff’s books to the “Customers’ Line Extension Donations” account; that “the financial condition, plan of operation, and proposed undertakings of the corporation are such as to afford reasonable protection to purchasers of the securities to be issued;” and that to obtain funds to complete the purchase, in addition to the bonds for $58,800, theretofore authorized, the plaintiff should be authorized to sell 150 shares of its common stock at $100 per share.
Plaintiff contends that it was entitled to capitalize the value of the acquired property without regard to the price which the vendor invested therein; that the commission erred in adopting the .sum of $67,965 as the base value for issuing securities instead of the sum of $80,000, at which the commission valued the property; and that the fact that the commission might not be required to include the value of the donated property in a rate base does not justify deducting the amount at which the donation is carried on the vendor’s books from the value of the property as determined under ch. 184, Stats., for the issuance of securities.
On the other hand, in its brief plaintiff’s counsel say that they do not “challenge the contention that the plaintiff is in the same position as the Luck Company should a question of rates arise.” Likewise, plaintiff’s counsel concede that when “the contributions were made to the Luck Company the rates in force and approved by the commission recognized that customers in rural communities might help the [353]*353company in financing extensions into marginal territory, and ■that the company was justified in giving such customers a lower rate on that account;” that should plaintiff apply to the commission “to increase its rates to the class of customers who have made such contributions, the fact of such contributions, the time when they had been made, the length of time that had elapsed during which a reduced rate had been given, the extent of that reduced rate, would all be factors which the commission would undoubtedly consider in determining whether or not it would grant an increase of ratesand further say: “Should the commission determine that a proposed rate increase asked by the plaintiff would unjustly enrich the plaintiff at the expense of customers who have made contributions, we presume the commission would deny the increase, and should the plaintiff bring an action to set aside the order of the commission, the question of the ruling of the commission in this respect would then be before the courts. It certainly is not before the courts now.”
The proceedings before the commission, and its determination as to the .value' of the property, the maximum amount at which it authorized the purchase, and the nature and extent of the securities which plaintiff could issue against the property, were pursuant to secs. 184.11 (2) and 184.09, Stats. 1929. Sec. 184.11 (2) provides:
“No public service corporation shall purchase, or in any way acquire the property of any other public service corporation or of any person furnishing service to the public, for the purpose of effecting a consolidation, unless the property to be acquired shall first be valued as provided in section 184.09, and then only at a sum not to exceed the value found by the commission and stated in the certificate of authority issued to such corporation for. the issuance of stocks, certificates of stock, bonds, notes, or other evidence of indebtedness.”
[354]*354That section absolutely prohibits a purchase, such as is involved in this action, unless “the property to be acquired shall first be valued as provided in section 184.09,” and then further expressly provides that even after such valuation the purchase can be made only at a sum stated by the commission in its certificate of authority to issue securities, which sum shall not exceed the value found by the commission. Sec. 184.09, so far as now material, provides:
“(1) No public service corporation shall issue any securities until it shall have obtained authority for such issue from the commission.
“(2) In case the securities are to be issued for money only, the corporation shall file with the commission a statement, . . . setting forth (a) the amount and character of the proposed securities; (b) the purposes for which they are to be issued; (c) the terms on which they are to be issued, and (d) the total assets and liabilities, and the previous financial operations and business of the corporation, in such detail as the commission may require. . . .
“(3) To determine whether the proposed issue complies with the provisions of this chapter, the commission shall make such inquiry or investigation, hold such hearings and examine such witnesses, books, papers, documents or contracts, as it may deem material.
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The following opinions were filed May 12, 1931:
Fritz, J.
The action was tried upon the pleadings, and there is no dispute as to the facts. On August 13, 1928, [351]*351the plaintiff applied to the Railroad Commission for a valuation under sec. 184.11 (2), Stats., of the property of the Luck Light & Power Company, and a certificate of authority, to be issued by the commission under sec. 184.09, Stats., for the issue of securities to secure funds to pay for the property. On January 17, 1929, the commission issued a preliminary certificate authorizing the plaintiff to issue $58,800 par value of bonds at a discount of ten per cent, to procure funds to pay in part for the property, and reserved for later determination, upon its engineers completing their appraisal, the question as to what additional securities might be authorized against the property.
The Luck Light & Power Company had on its books an account entitled “Customers’ Line Extension Donations,” showing a balance of $12,034.91 received in cash as donations from prospective customers to finance the construction of a certain high-tension line, transformer installations, and branch-line extensions. That account was carried in that form pursuant to accounting rules, theretofore promulgated by the commission, which required the Luck Light & Power Company, as well as the plaintiff, to credit in such an account all customers’ donations, and also to debit the same to the proper fixed capital account on its books. In relation to such donations the answer alleged:
"... That rural rates in such cases were established upon a basis which did not provide for a return to the utility upon the capital thus donated by customers; that the customers’ donation plan above outlined made it possible for the electric utility to establish a lower rate for rural electric service which tended to promote the expansion of rural electrification to the benefit of the utility and also of the public; that the rate schedule of the Luck Light & Power Company under which the customers’ donations under consideration were made was constructed upon the principles above set forth and did not permit said Luck Light & Power Company to earn a return upon the amount of said customers’ dona[352]*352tions as set forth in the opinion of the commission here under review.”
On May 5, 1929, the commission determined that the value of the property was $80,000, free and clear of all in-cumbrances, but including the donations of $12,034.91 contributed by customers; that $67,965.09 was the maximum amount at which the plaintiff could purchase the property and place it on its books; that the $12,034.91 should be credited on plaintiff’s books to the “Customers’ Line Extension Donations” account; that “the financial condition, plan of operation, and proposed undertakings of the corporation are such as to afford reasonable protection to purchasers of the securities to be issued;” and that to obtain funds to complete the purchase, in addition to the bonds for $58,800, theretofore authorized, the plaintiff should be authorized to sell 150 shares of its common stock at $100 per share.
Plaintiff contends that it was entitled to capitalize the value of the acquired property without regard to the price which the vendor invested therein; that the commission erred in adopting the .sum of $67,965 as the base value for issuing securities instead of the sum of $80,000, at which the commission valued the property; and that the fact that the commission might not be required to include the value of the donated property in a rate base does not justify deducting the amount at which the donation is carried on the vendor’s books from the value of the property as determined under ch. 184, Stats., for the issuance of securities.
On the other hand, in its brief plaintiff’s counsel say that they do not “challenge the contention that the plaintiff is in the same position as the Luck Company should a question of rates arise.” Likewise, plaintiff’s counsel concede that when “the contributions were made to the Luck Company the rates in force and approved by the commission recognized that customers in rural communities might help the [353]*353company in financing extensions into marginal territory, and ■that the company was justified in giving such customers a lower rate on that account;” that should plaintiff apply to the commission “to increase its rates to the class of customers who have made such contributions, the fact of such contributions, the time when they had been made, the length of time that had elapsed during which a reduced rate had been given, the extent of that reduced rate, would all be factors which the commission would undoubtedly consider in determining whether or not it would grant an increase of ratesand further say: “Should the commission determine that a proposed rate increase asked by the plaintiff would unjustly enrich the plaintiff at the expense of customers who have made contributions, we presume the commission would deny the increase, and should the plaintiff bring an action to set aside the order of the commission, the question of the ruling of the commission in this respect would then be before the courts. It certainly is not before the courts now.”
The proceedings before the commission, and its determination as to the .value' of the property, the maximum amount at which it authorized the purchase, and the nature and extent of the securities which plaintiff could issue against the property, were pursuant to secs. 184.11 (2) and 184.09, Stats. 1929. Sec. 184.11 (2) provides:
“No public service corporation shall purchase, or in any way acquire the property of any other public service corporation or of any person furnishing service to the public, for the purpose of effecting a consolidation, unless the property to be acquired shall first be valued as provided in section 184.09, and then only at a sum not to exceed the value found by the commission and stated in the certificate of authority issued to such corporation for. the issuance of stocks, certificates of stock, bonds, notes, or other evidence of indebtedness.”
[354]*354That section absolutely prohibits a purchase, such as is involved in this action, unless “the property to be acquired shall first be valued as provided in section 184.09,” and then further expressly provides that even after such valuation the purchase can be made only at a sum stated by the commission in its certificate of authority to issue securities, which sum shall not exceed the value found by the commission. Sec. 184.09, so far as now material, provides:
“(1) No public service corporation shall issue any securities until it shall have obtained authority for such issue from the commission.
“(2) In case the securities are to be issued for money only, the corporation shall file with the commission a statement, . . . setting forth (a) the amount and character of the proposed securities; (b) the purposes for which they are to be issued; (c) the terms on which they are to be issued, and (d) the total assets and liabilities, and the previous financial operations and business of the corporation, in such detail as the commission may require. . . .
“(3) To determine whether the proposed issue complies with the provisions of this chapter, the commission shall make such inquiry or investigation, hold such hearings and examine such witnesses, books, papers, documents or contracts, as it may deem material. It may also make a valuation of all the property of the corporation if it deems it pertinent. It shall determine the amount of such securities reasonably necessary for the purposes for which the same are to be issued.
“(4) If the commission shall determine that such proposed issue complies with this chapter, and that the financial condition, plan of operation and proposed undertakings of the corporation are such as to afford reasonable protection to purchasers of the securities to be issued, it shall issue to the corporation a certificate of authority, stating: (a) The amount of such securities reasonably necessary and the character of the same:; (b) the purposes for which they are to be issued, and (c) the terms upon which they are to be issued. . . .
[355]*355“(6) Such corporation shall not apply said securities to any purpose not specified in such certificate, nor issue such securities on any terms not specified in such certificate.”
That section likewise absolutely prohibits the issuance by any public-service corporation of any securities for money only, until it shall have obtained a certificate of authority for such issue from the commission. The corporation is required to file with the commission a verified statement which shall state, among other specified matters, the “previous financial operations and business of the corporation.” The commission may make a valuation of all the property if it deems it pertinent, and is expressly required to “determine the amount of such securities reasonably necessary for the purposes for which the same are to be issued.” To entitle the corporation to the certificate, the commission must determine that the proposed issue complies with ch. 184, Stats., and that (1) the financial condition, (2) plan of operation, and (3) proposed undertakings are such as to afford reasonable protection to purchasers of the securities. Consequently, when plaintiff desired to acquire the Luck Company property and issue securities to raise money for its purchase, because of secs. 184.09 (1) to (4) and 184.11 (2), Stats., it could not consummate the purchase until the commission had appraised the property and stated in a certificate (authorizing the issuance of securities) a purchase price, which could not exceed the appraised value; and plaintiff could not issue any securities until it had obtained from the commission a certificate authorizing such issue. But to entitle plaintiff to the issuance of such a certificate there had first to be a determination that the financial condition, plan of operation, and proposed undertakings of the corporation were “such as to afford reasonable protection to purchasers of the securities to be issued.” Factors which affect the rate [356]*356base and the'rates are necessarily involved in the “plan of operation” and “proposed undertakings” to such an extent that they must necessarily be considered by the commission in determining whether a project affords “reasonable protection to purchasers of the securities.”
Reasonable protection to investors requires more than that the property which is to secure the investments shall be of sufficient value to insure the repayment thereof. To afford reasonable protection the “plan- of operation” and the “proposed undertakings” for which the property can be used must be such as to afford reasonable assurance that the probable earnings of the property will be adequate to currently pay interest or dividends upon the investment. And the probable earnings cannot be ascertained without first determining the probable amount of the rate base. In determining that amount it is proper to exclude contributions advanced by customers. Sutter Butte Canal Co. v. Railroad Comm. 202 Cal. 179, 191, 259 Pac. 937.
In Gilchrist v. Interborough R. T. Co. 279 U. S. 159, 210, 49 Sup. Ct. 282, the court said, in relation to the claim that a utility had the right to have the total value of property, as to which it had but a leasehold, interest under a favorable lease, included in the rate base, that .it is “unprecedented and ought not to be accepted without more cogent support than the present record discloses.!’
In the case at bar it is undisputed that the rate schedule of the Luck Company was constructed upon a basis which did not provide for a return to the utility upon the capital which its customers had donated, and that it did not permit the utility to earn a return upon those donations. Plaintiff’s counsel concede that the fact of such contributions, the time at which they were made and which has since elapsed during which. reduced rates were given, and the extent thereof, would all be factors which the commission would consider [357]*357in determining whethér it would grant an increase of rates; and in our opinion those matters would all be proper factors for its consideration.
Although, as plaintiff contends, a rate base and a security-base are not necessarily the same, still, when it becomes necessary to determine whether the security base affords “reasonable protection to purchasers of securities,” the rate base is necessarily involved and must be taken into consideration. The fact that there were substantial donations upon which the utility was not permitted to earn a return, directly and materially affects the probable rates and prospective earnings of the property which is offered as security, and must necessarily be taken into consideration in determining whether the undertaking affords reasonable protection to im vestors for the interest or .dividends on the securities, as well as for the principal invested therein. Consequently, in the case at bar, in order to determine whether plaintiff’s proposed undertakings and plan of operation as to the Luck Company property. afforded reasonable protection .to purchasers of obligations secured by that property, it was proper for the commission to take into consideration the amount of the donations and the consequent rate base.
There is no basis in the record now before us for plaintiff’s contention that the commission erred in deducting from the appraised value of the entire property the amount of the original contributions without making any allowance for depreciation on the property represented by those contributions. The record, for instance, is devoid of any facts because of which it can be inferred that the value of the property acquired with the donations has diminished because of wear or deterioration which has not been fully remedied by repairs or replacements, the cost of which was included in the current expense for maintenance and the consequent charges for service, which were paid by the patrons. At [358]*358all events, whether now or upon some future application in relation to rates, or otherwise, any deduction should be made for depreciation or obsolescence, in connection with excluding from the rate base the value of property acquired with the donations, involves and depends upon facts which are properly matters for the consideration of the commission, and, if issues of .fact arise, the determination thereof is within the province of the commission, as the competent fact-finding body.
Plaintiff also contends that if the statutes authorize the commission to refuse authority to issue securities against the contributed property, such statutes and the commission’s order operate to deprive plaintiff of property without due process of law, and deny plaintiff the equal protection of laws, contrary to the Fourteenth amendment of the federal constitution. The contention erroneously assumes that a public utility corporation has the absolute right to issue securities to the full extent of the appraised value of its property. As this court held in State ex rel. Central S. H. & P. Co. v. Gettle, 196 Wis. 1, 220 N. W. 201,—in passing upon the authority of the Railroad Commission under sec. 184.09, Stats., as amended in 1927, — the authority of a public-service corporation to issue stocks and bonds is a mere privilege. “It was not in the nature of a natural or inherent right. It was a right which the legislature could take away, at least at any time before the relator came into possession of vested rights. It could also prescribe additional conditions precedent to the conferring of the right. This is what it did by the enactment of ch. 444. Thereafter the Railroad Commission was not authorized to issue such certificate of authority in the absence of a finding by it that ‘the financial condition, plan of operation, and proposed undertakings of the corporation are such as to afford reasonable protection to the purchasers of the securities to be issued.’ ”
[359]*359It follows that the judgment of the circuit court must be reversed.
By the Court. — Judgment reversed, with directions to enter judgment affirming the order of the Railroad Commission.