U-1034-99 Petition for Rehearing.pdf

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LAW OFFICE
EUGENE C.THOMAS
JOHN W. BARRETT
J.CHARLES BLANTON
R.B. ROCK
RICHARD C. FIELDS
RICHARD E.HALL
MYRON D. GABBERT, JR.
PAUL S. STREET
DONALD J. FARLEY
LOREN C.IPSEN
T. N. AMBROSE
LARRY C. HUNTER
PHILLIP S.OBERRECHT
JEFFREY A.STROTHER
MOFFATT, THOMAS, BARRETT & BLANTO~
GLENNA M. CHRISTENSEN CHARTERED
~~~~:/:.U:i~~¡~~S,JR. FIRST SECURITY BUILDING i; E ç £ i VEOMICHAEL G. McPEEK P. O. BOX 829
STEPHEN R. THOMAS
JON S. GORSKI
ROBERT C.GRISHAM
GERALD T. HUSCH
DONALD D. SAINT-JUST
THOMAS C. MANNSCHRECK
THOMAS V. MUNSON
KIRK R. HELVIE
RAYMOND D. POWERS
JAM IS M. JOHNSON
WILLIS C.MOFFATT
11907-19601
BOISE, IDAHO 8~~1"OY 24 AN II 32
OFFICE ADMINISTRATOR
THOMAS D. MciNTYRE
TELEPHONE
12061 345-2334
November ?r~lJlj ¡lQe,Z Li" r;ruHr... . "c. i.
", UTILITIES C.)MMISSION ,
" l1 ßcu15¿~
TELECOPIER
12061 345-2340
Idaho Public Utilities Commission
Statehouse M.ail
Boise, ID 83720
Attention:Ms. Myrna Walters
Re: Intermountain Gas Company
PUC Case No. U-I034-99
MTB&B File No. 11-500.82
Gentlemen:
We enclose the original and seven (7) copies
of our Petition for Rehearing for filing in the above-
entitled matter. Thank you.
.B
Enc.
cc: Mr. Russell Worthan - w/enc.
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~
¿PIED
'BZ NOY 24 nti II 3Z
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF INTERMOUNTAIN GAS COMPANY FOR )
APPROVAL OF ITS PROPOSED RATE )
SCHEDULES. . . ~ . . . . . . .. )
)
i r: J6LlC
"UTILITIES C MM1SSION "Case No. U-I034-99 ~~
PETITION FOR REHEARING
COMES NOW Intermountain Gas Company (Intermountain),
pursuant to Rule 11 of the Rules of Practice and Procedure of the
Public Utilities Commission and Idaho Code Section 61-626, and
petitions the Idaho Public Utilities Commission for rehearing of
its Order No. 17701 issued on November 4, 1982. Rehearing is
requested upon the issues of those portions of said order that
(1) require Intermountain to flow-through deferred state income
taxes and (2) require Intermountain to amortize past accumulated
deferred state income taxes and the past accumulated difference
between the old 48 percent federal income tax rate and the new
46 percent federal income tax rate over a five-year period. Said
rulings are unreasonable, erroneous and not in conformity wi th
law.
FLOW-THROUGH OF FUTURE DEFERRAS
The Commission, based on the testimony of staff witness
Hylen, has required Intermountain to flow-through all future
state deferred income tax benefits. On cross-examination, staff
witness Hylen testified that she was recommending this action not
because of any independent analysis of Intermountain's case, but
PETITION FOR REHEARING - i
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rather solely on the Commission's order in the recent Idaho Power
Company case. See: Transcript of October Hearings, pp. 89-93.
She agreed with the FMC witness who had raised that issue in the
Idaho Power proceeding and who had indicated that whereas the
flow-through of deferred tax benefit with regard to federal
income taxes would cause the loss of accelerated depreciation
deductions, state law did not mandate the same result.
Intermountain disagrees with this conclusion.
Section 167 (I) of the IRC disallows accelerated
depreciation for public util i ties if the regulatory bodies flow
through deferred federal income tax reserves to the rate payers.
Section 168 of the IRC has the same effect for newer public
utility property. Section 1.167(1)--I(a)(I) of the regulations
interpreting IRC Section 167 (I) states:
The normalization requirements of the
section 167(1) with respect to public utility
property defined in section 167(1)(3)(A)
pertain only to the deferral of Federal incometax liabil i ty resulting from the use of an
accelerated method of depreciation for computing
the allowance for depreciation under section
167 and the use of straight line depreciation
for computing tax expense and depreciation
expenses for purposes of establishing cost of
services and for reflecting operating results
in regulated books of account. Regulations
under section 167 (I) do not pertain to other
book-tax timing differences with respect to
state income taxes. . . .
(Emphasis added.) There is no similar regulation for IRC
Section 168.
It is this regulation that has led the FMC witness in the
Idaho Power Company case to his conclusion that the normalization
PETITION FOR REHEARING - 2
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requirements of IRCSection 167 (I) do not apply to state income
taxes. First, the underlined portion of the regulation indicates
that, on its face, the regulations would apply to accelerated
depreciation as it applies to state income taxes, but would not
apply to the timing differences wi th respect to the time state
income taxes are booked and the time they are actually incurred.
There is no .support for the proposition that this regulation
applies to accelerated depreciation as applied to state income
taxes.
Addi tionally, the Idaho leg islature has adopted the
Internal Revenue Code as state law. Idaho Code Section 63-3002
states:
It is the intent of the legislature by
the adoption of this act, insofar as possible
to make the provisions of the Idaho act
identical to the provisions of the Federal
Internal Revenue Code relating to the
measurement of taxable income, to the end that
taxable income reported each taxable year by
a taxpayer to the Internal Revenue Service
shall be the identical sum reported to this
state, subject only to modifications contained
in the Idaho law ¡ to achieve this result by
the application of the various provisions of
the Federal Internal Revenue Code relating to
the definition of income, exclusions therefrom,
deductions (personal and otherwise), accounting
methods, taxation of trusts, estates,
partnerships and corporations, basis and other
pertinent provisions to gross income is defined
therein, resulting in a final amount called
"taxable income" in the Internal Revenue Code¡
to impose a tax on residents of this state
measured by taxable income wherever derived
and on the income of nonresidents which is the
result of activity within or derived from
sources within this state. (Emphasis added.)
PETITION FOR REHEARING - 3
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Since IRC Section 167 (I) and IRC Section 168 pertain to the
"measurement of taxable income, H "deductions" and "accounting
methods" used by Intermountain Gas Company for Idaho state tax
purposes, they have been adopted by the Idaho legislature.
Therefore, the federal regulation interpreting IRC Section 167 (I)
saying that the section does not apply to state matters is
inappropriate since the state has adopted the same section.
Addi tionally, IRC Section 168, which has no such qualifying
statement in the regulations ,would apply with absolutely no
reservations.
Therefore, since the Idaho legislature has adopted
IRC Section 167(1) and IRC Section 168, the tax normalization
requirements of those sections for federal income tax purposes
are the same with regard to state income tax purposes. If this
Commission requires Intermountain to flow through the deferred
state income tax benefits, there is a very serious risk that
Intermountain will lose the right to take accelerated depreciation
for state income tax purposes.
Intermountain is in the process of requesting the State
Tax Commission for a declaratory ruling on whether it will lose
the right to take accelerated depreciation in calculating its
state income taxes if the Commission does not revise its order
wi th regard to the flow-through of deferred state income tax
benefits. Intermountain asks that the Commission reconsider its
position on this issue and change its ruling in Order No. l7701
to allow normalization until the State Tax Commission has issued
PETITION FOR REHEARING - 4
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its declaratory ruling. Then, if the State Tax Commission rules
that Intermountain would not lose the right to take accelerated
depreciation if it flowed through deferred state tax benefits,
the Commission could revise its order to require such flow-through.
AMORTIZATION OF PAST DEFERRED TAXES
The Commission has required Intermountain to amortize
past deferred state income tax benefits and the difference
between the old 48 percent federal tax rate and the new 46 percent
federal tax rate to its ratepayers over the next five years.
While the Commission does have the authority to require a utili ty
to refund money collected on an improper tariff, it does not have
the authority to require a util i ty to refund money collected
pursuant to a fair, just and equitable rate put into effect by
the Commission in a previous general rate case. Staff witness
Hylen admitted that the refund would come from rates the
Commission had found just and reasonable in previous rate cases.
See: Transcript of October Hearings, p. 93.
The function of the Commission rate-making process is a
leg islati ve one. Grindstone Butte Mutual Canal Co. v. Idaho
Power Co., 98 Idaho 860, 574 P.2d 902 (1978). The Commission may
exercise its rate-making authority only prospectively. Lemhi
Telephone Co. v. Mountain States Telephone ~Telegraph Co., 89
Idaho 692, 571 P.2d 753 (1977).
When observing the rate-making process as a legislative
function of the Commission, it is apparent that a utility
collecting rates pursuant to a rate order of the Commission is
PETITION FOR REHEARING - 5
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doing so pursuant to an administrative rule having the full force
and effect of statutory law. 3 Mezines, Stein & Gruff,
Administrative Law § 14.01 (1977). A later order of the Commission
ordering a refund of a portion of those authorized rates would
operate with the same effect of a statute to, in effect, make
illegal what the utility had done pursuant to the protection of
the previous rate order, which was also the equivalent of a
statute. This would be a clear violation of Article I,
Section 16 of the Idaho Constitution which prohibits ex post
facto laws.
Two recent cases arising in California adequately set
forth the law regarding refunds of rates previously authorized by
a regulatory body. In the case of Pacific Telephone ~ Telegraph
Co. v. Public Utilities Commission, 44 Cal Rptr. I, 401 P.2d 353
(1965), the California Public Utilities Commission ordered
Pacific Telephone & Telegraph to refund to its ratepayers
approximately $80,000,000 of rates the utility had collected
pursuant to the rates set in a previous California Public
Utili ties Commission order. The California Supreme Court ruled
that the California Public Utili ties Commission had no power to
order such a refund. Section 728 of the California Public
Utilities Code provided that the Commission, after the hearing,
shall determine and fix by order the just, reasonable and
sufficient rates "to be thereafter observed and in force." The
California Court stated:
PETITION FOR REHEARING - 6
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The Legislature has instructed the Commission
that after a hearing it is to make its order
fixing rates to be enforced thereafter.
401 P.2d at 362 (emphasis in original.)The court also ruled:
The fixing of a rate in the first instance is
prospective in its application and legislative
in its character. Likewise, the reducing of
that rate would be prospective in its
application and legislative in its character.
401 P.2d at 364. The court then cited cases construing Ohio,
Indiana and Michigan law that supported its decision. All three
of these states have statutes providing that rate orders act
prospectively.See Public Utilities Commission of Ohio v. United
Fuel Gas Co., 317 U.S. 456,63 S. Ct. 69,89 L. Ed. 396 (1943)¡
Indiana Telephone Corp. v. Public Service Commission of ~ndiana,
131 Ind. App. 114, i 71 N. E. 2d ILL (160) ¡ Michigan Bell Telephone
Co. v. Michigan Public Service Commission, 315 Mich. 533, 24
N. W. 2d 200 ( 194 6 ) .
It must be noted that the Idaho legislature has passed a
law setting forth the powers of the Commission that is almost
identical to the California statute cited in the previously noted
case. Idaho Code Section 61-502 provides that the Commission
"shall determine the just, reasonable or sufficient rates, fares,
tolls, rentals, charges, classifications, rules, regulations,
practices or contracts to be thereafter observed and in force and
shall fix the same by order as hereinafter provided . .n
(Emphasis added.) Therefore, the same rule of law should apply
in this case.
The California Supreme Court has recently affirmed its
holding in the Pacific Telephone & Telegraph Co. case cited above
PETITION FOR REHEARING - 7
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in the case of City of Los Angeles v. Public Utilities, 102 Cal.
Rptr. 313, 497 P. 2d 785 (1972). In this later case, the
California court said:
(T) he fixing of a rate of prospective in its
application and legislative in its character
. .. (the code provides that) the Commission
is given power to prescribe rates prospectively
only, and that the Commission could not, even
on grounds of unreasonableness, require refunds
of charges fixed by formal findings which had
become final.
* * *
To permit the Commission to redetermine whether
the preexisting rates were unreasonable as of
the date of its order and to establish new
ra tes for the purpose of refunds would mean
that the Commission is establishing rates
retroactively rather than prospectively.
497 P.2d at 803-04. To permit the Commission to order partial
refunds of rates collected by Intermountain pursuant to a
previous order of the Commission would allow prohibited
retroacti ve rate-making and would constitute an illegal ex post
facto law.
Intermountain respectfully requests the Commission to
modify its Order No. i 7701 so as to delete the requirement to
flow-through of past deferred state income tax benefits and the
difference between the 48 percent and 46 percent federal income
tax rates.
PROCEDURE ON REHEARING
It is the po.sition of Intermountain that this petition
for rehearing is adequately supported by the evidence already in
the record and the legal authorities set forth herein. Therefore,
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Intermountain does not request an additional hearing and
respectfully requests the Commission to grant rehearing by
modifying Order No. 17701 as requested herein.
DATED this U~ day of November, 1982.
BARRETT & BLANTqN,
By
T. . AmbroseAt orneys for
G s Company
ost Office Box 829
Boise, Idaho 83701
Telephone: [phone]
PETITION FOR REHEARING - 9
-.
CERTIFICATE OF MAILING
I HEREBY CERTIFY that on the i.4~ day of November,
1982, I served the foregoing PETITION FOR REHEARING upon:
Frederic V. Shoemaker
R. Michael Southcombe
CLEMONS, COSHO & HUMPHREY
1110 First Interstate Bank Building
Boise, Idaho 83702
James N. Roethe
PILLSBURY, MADISON & SUTRO
Post Office Box 7880
San Francisco, California 94102
Dan L. Poole
ELAM, BURKE, EVANS, BOYD & KOONTZ
Post Office Box 1559
Boise, Idaho 83701
N. Randy Smi th
MERRILL & MERRILL
Post Office Box 991
Pocatello, Idaho 83201
Joan M. Cloonan
J. R. SIMPLOT COMPANY
Post Office Box 27
Boise, Idaho 83707
Marsha H. Smi th
IDAHO PUBLIC UTILITIES COMMISSION
472 West Washington Street
Boise, Idaho 83702
by depositing true copies thereof in t e United States mail,
postage prepaid, in envelopes address d to said attorneys atabove addresses.
PETITION FOR REHEARING - 10