*1 COMPANY, MADISON GAS & ELECTRIC Peti tioner-Respondent, †
v. PUBLIC SERVICE WISCONSIN, COMMISSION OF
Aрpellant. Appeals Court of Argued No. 88-0180. November April 1988. Decided
(Also reported 311.) in 441 N.W.2d Petition to review denied. †
For appellant by there briefs Steven M. were Mussallem, Madison, Schur Robert and J. oral and argument by Robert J. Mussallem. petitioner-respondent
For the was there a brief Nordeng Richard K. J. Hughes, and Edwin and Staf- Rosenbaum, ford, Hansen, Madison, Rieser & and argument by Nordeng. oral Richard K. Dykman Gartzke, P.J., Eich,
Before JJ. GARTZKE, P.J. The Public Service Commission appeals of Wisconsin from circuit court orders issued 227, Stats., a ch. review of the commission's rate order Docket order, No. 3270-UR-101. The commission's May 28, 1987, on entered established new rates for elec- gas tric and natural service Madison Gas & Electric Company, beginning Shortly peti- 1,1987. June after the comрany's request, filed, tion for review was and at the preliminary injunction the court issued a which contin- surcharges ued on the new service rates after the date the *3 commission's order had directed their elimination.1 On 14, 1987, order, December in its final the court deter- mined that the commission's order constituted retroac- ratemaking, contrary 196.37(1), tive Stats.,2 to sec. remanded the matter to the commission and ordered surcharges that the in remain effect until December 1987. We reverse. first,
We resolve three issues. The whether the com- supported by mission's order is substantial evidence of propriety record, turns on the of the commission's use of percent company's a 34 tax rate to estimate the federal expense. supports income tax The record the commis- sion's choice. The second issue is whether the commis-
1 The commission based its new service rates on the new rate, federal income tax surcharges and authorized June 1987 to reflect the 46 tax rate in effect for that month. The court surcharges continued the and reduced them to reflect requested by the 39.95 company. tax rate 196.37(1), Stats., 2 Section authorizes the commission to "determine [public and order utility] reasonable rates. . .to be imposed, the future." (Emphasis added.) observed and followed company's
sion's treatment of the federal income tax expense ratemaking. constituted retroactive We con- clude it not. The issue did third is whether the commis- by treating sion its abused discretion fed- expense jeopardizes eral a manner which its tax benefits. We no find abuse.
A fourth issue is raised the commission: whether preliminary injunction the circuit court's was an uncon- judicial ratemaking. stitutional exercise of Since we hold issuing the court erred on the merits when injunction, we need not reach the constitutional issue. preface by acknowledging
We our discussion prima rule that an order of the commission is facie valid. challenger The burden is on the to demonstrate that service rates are unreasonable. West Allis v. Public Ser Comm., 569, 579, vice Wis. 2d 167 N.W.2d (1969). Supports
1. Record Use 34 Tax Percent Rate company applied When the increase service prepared analysis rates, it an of its estimated revenues operating еxpenses period twelve-month May through April 30, 1988, the "1987-88 test year." subject That information was to the commission's ultimately part review and became of the basis for the *4 commission's service rate order. The commission's find- ings regarding company's projected revenues and expenses ratemaking process. are critical to the ratemaking purposes,
For federal income tax is expense. Calculating operating treated as an the com- pany's year federal income the 1987-88 test was by complicated various is factors. a calen- dar-year taxpayer. The Reform Tax Act of reduced corporate percent the federal rate income tax from 46 percent, beginning July 1, 99-514, 1987. Pub. L. No. (100 Cong. & sec. 1986 U.S. Code Admin. News Stat.) calendar-year taxpayer required 2085, 2249. A was 15(a) by compute sec. of the Internal Revenue Code to time-weighted its taxes for 1987 on the basis of a com- posite or blended rate.3 The blended tax rate for a 1987 calendar-year taxpayer percent, was 39.95 which we up percent And, round to 40 for convenience. as we have noted, the commission's service rate order under review was effective June estimating expense
When income tax year, using per- for the 1987-88 test rather than the 40 15(a) cent blended tax rate mandated sec. of the year 1987, Internal Revenue Code for calendar the com- applied mission a 36 blended tax rate for the test year. The commission calculatеd the 36 blended 15(a) by using prescribed tax rate the method in sec. time-weighted the Internal Revenue Code to determine a composite May through April tax rate for 1988.4 provides
3 Section 15 of the Internal Revenue Code in rele part: vant (a) any imposed chapter changes, If this and if year (unless change
the taxable includes the effective date of the day year), date is the first taxable then— (1) computed by applying tentative taxes shall be the rate period change, for the before the effective date of the and the period date, rate for the on and after such to the taxable income year; for the entire taxable (2) the tax for such taxable shall be the sum of that proportion days of each tentative tax which the number of period days each bears to the number of in the entire taxable year. only 4 Since the 36 appropriate tax rate would be year, the 1987-88 test but the service rates could remain effect indefinitely, using per- the commission set the service rates a 34 *5 corporate
The commission's calculation assumed percent May tax rates of and June 34 percent remaining for the ten months.
Because the commission used the 34 determining company's rate when income tax expense, company contends that the service rates set supported by the commission are not substantial evi- company consistently dence in the record. The has maintained that no basis exists in the record for the assumption company commission's subject that the would be to a 34 income tax rate for the six last months of 1987. The claims that the commis- consequently sion underestimated the expenses by $1,278 company points million. The undisputed year taxpayer, fact that as a calendar it subject was to a 40 blended federal income tax rate on all net taxable income earned reviewing agency
A court must set aside action or agency remand the case to agency's if finds court that the depends any finding action on not fact is supported by substantial evidence the record. Sec. 227.57(6), Stats. The substantial evidence test is satis- taking if, fied into account all the evidence in the finding record, a mind reasonable could make the same аgency. fact as did the Madison Gas & Elec. v. Co. Comm., Public Serv. 109 Wis. 2d 325 N.W.2d (1982). 339, 342-43 Our review is of the commission's decision and not that of the circuit court. We therefore decide ourselves whether the substantial evidence deferring met, test has been without circuit court's decision. rate, surcharge
cent tax awith for the month of June which raised percent. effective tax rate for June *6 support the commission's use of The facts of record company's percent rate to determine the the 34 tax expense the last six months of 1987. The income tax for time-weighted composite. percent It 40 tax rate is a only percent July 1, tax rate effective reflects not the 34 percent 1987, in the 46 tax rate effect for the but also reason, of 1987. Fоr that use of the 40 first six months company's percent tax rate would overstate the year. approve expense for the last six months of the We as reasonable the commission's decision to use the 34 expense percent tax rate to determine the months of 1987. for the last six comparable agencies in other have made That states the reasonableness of the the same decision reinforces See Re Potomac Electric Power commission's decision. 1987) (Md. Co., 219, 83 P.U.R.4th 240 Pub. Serv. Comm. (commission May 1987, concluded as to rates effective . . "[t]he [service] blended tax rate for rates set. correct only percent the first should reflect the 46 tax rate for July period, 1, until two months of the rate-effective ."); pеrcent 1987, thereafter, . General a 34 rate. Re Telephone Northwest, 626, Co. P.U.R.4th 637 86 (Idaho 1987) (commission approved Pub. Util. Comm. percent service rate which tax rate for last assumed 1987); Electric six months of Re Western Massachusetts (Mass. Dept. Co., 87 P.U.R.4th 335-36 Pub. Util. 1987) (department percent than used 34 tax rate rather percent period July 1, 1987, tax rate for after because effect); that rate reflected the tax and Re Cleve- rate Illuminating Co., land Electric 89 P.U.R.4th 63-64 (Ohio 1987) (commission applied Pub. Util. Comm. tax rate rather than 40 rate because "would, doubt, latter income tax without a overstate" 1, 1987).5 expense period July after The Energy decisions the Federal Regulatory (FERC) support Commission the decision of the Wis- consin commission. utility's FERC denied a request rеhearing on directing FERC’s order utility to utilize a 34 percent beginning federal income tax rate July York, Inc., Company Consolidated Edison Newof 61,022 (1988). par. utility F.E.R.C. argued its "actual on percent. tax rate" 1987 income was 40 FERC held that the fact that the Internal Revenue Ser- required vice use of the 40 necessarily
does not mean that the Commission must accept the *7 ratemaking purposes. "blended" for rate One reason is that the Commission must set rates for designing the future and avoid rates which will not be utility's representative of the . .. true cost. have [W]e permitted only utilities to use the tax "blended" rate if rates were to be in effect the entire [service] year calendar . .. 1987.
Id. (footnote omitted).
In West Texas Utilities Company, par. 38 F.E.R.C. 61,138, 61,369 (1987), at n. 5 FERC explained if a Co., Light
5 The
Re
cites
Delmarva Power &
85
(Del.
1987)
P.U.R.4th
143-44
Pub. Serv.
Re
Comm.
and
(Conn.
Corp.,
Connecticut Nat. Gas
Dept.
84 P.U.R.4th
435
1987)
supporting
position.
disagree.
Pub. Util.
as
its
We
In
Delmarva,
proposed
the Delaware commission
said that
staffs
percent
(consisting
37
blended tax rate
of
46
three months at
percent
percent)
and nine months at 34
for service rates effective
1, 1987,
April
"practical
logical
ratemaking
was both
and
purposes,"
rejected
proposal
possible
but
the
of a
because
tax
consequence.
193 utility through hypothetical had rates in effect March permit percent rate, it would on 46 not 1987based a utility remaining adopt service for the the rates percent rate, of based on a 40 "since months the resulting for all 1987 would then exceed tax rate 40%."
We are that the District Columbia Circuit aware Appeals rejected of the United States Court of has approach impliedly and that of the state com- FERC's Light Carolina Power & Co. v. missions we have cited. (D.C. 1988). F.E.R.C., In Cir. that case the F.2d utility's September 1, were 1987. service rates effective utility calendar-year taxpayer was a and Id. at 1099.The proposed rate for last four blended tax rejected position Id. The months 1987. court FERC's notwithstanding that, tax rate mandated 15(a) Code, for sec. of the Internal Revenue ratemak- applicable ing purposes to income the tax rate earned utility July was 46 and the before percent. The court was 34 described thereafter position "equivalent attempting FERC's as green prove that moon is cheese." Id. at made of The court offered no other rationale. position view, In that of Public our FERC's comparable state Service Commission of Wisconsin and agencies Maryland, Idaho, Ohio, Massachusetts and *8 approach expenses represent matching a reasonable against income. proposition part rests in
Carolina Power on effectively FERC refund on behalf of that had exacted a utility's paid customers excess sums cover utility's liability January August 1,1987 between utility by permitting 31, 1987. The court said that liability only portion in its "to recover a its actual through September 1, electriс rates from 1987 wholesale 194 year, portion the end of the [FERC] forced a refund of a pre-September 1, of its 1987 rates." Id. at 1101. part opinion, As we show the next of this retroac- ratemaking tive is not involved the case before us. The commission avoided an overcollection in the last six By imposing surcharge bring months. a for June 1987 to up the effective tax rate to 46 month, that it preserved utility pre-July earnings resulting to the predicated from a service rate on the 46 tax rate. disagree "green short, In we with cheese" ratio- nale for the Carolina Power decision and conclude that retroactivity to the extent it considerations, rests on present Consequently, factor is not here. dowe not con- controlling. sider Carolina Power to be We conclude that substantial evidence of record supports the commission's use of the 34 tax rate. Ratemaking
2. Retroactive
Not Involved
statutory authority,
In the absence of
the commis
power
utility
having
sion has no
fix
rates
retroactive
application or effect. Friends
Earth v. Public Service
Commission,
388, 411,
299,
2d
78 Wis.
254 N.W.2d
(1977);
Telephone
Wisconsin
Co. v. Public Service
(1939),
Comm.,
274, Wis.
287 N.W.
(1940);
denied,
cert.
Because the new service rates were effective June applying company's proposed the expense rate to determine indeed, its tax would as the said, commission have resulted "an overcollection ratepayers from the for calendar 1987." The overcollection would have occurred the last six Avoiding months of 1987. an overcollection under future ratemaking. service rates is not retroactive undisputed surcharges It is the added to the period through new service rates for the June brought up the effective income tax rate to 46 necessary preserve for that month. This was to the company expense the benefit the full income tax it Eliminating surcharges would have that month. at the end of that month reduced the effective tax rate percent. simply thereafter to 34 But that elimination prevented company overcollecting during from July through Again, avoiding months December 1987. an overcollection under future service is rates not retro- ratemaking. active by issuing erred circuit court conclude that the
We continuing injunction preliminary order and final through surcharges beyond 30, 1987 December June 31, 1987. Jeopardy to Tax Benefits order asserts that commission's nearly
puts million in federal benefits $40 risk at *11 enjoy. company the com- It asserts that could otherwise and should be is therefore unreasonable mission's order as an abuse of discretion. set aside explained by company, under the Internal As may advantage public Code, take utilities depreciation Revenue only they if use the methods accelerated ratemaking accounting for "normalization" method reporting purposes, in secs. as defined and financial 167(1) 168(c)(3)(B) Code. Under normaliza- of the accounting, utility computes actual income tax a its tion depreciation. liability utilizing At the same accelerated computes utility's regulatory agency time, the util- expense ratemaking purposes using ity's for income tax depreciation. straight-line difference between the The expense utility's tax and the current federal ratemaking purposes must be amount established depreciation account, known for in a reserve accounted company depreciation" savings or TSD. The as "tax "underestimating" its that the commission's contends in smaller contribu- will result a federal income rate if than the commis- tion TSD account ratemaking sion had the 40 used purposes. company,
According if Revenue to the the Internal were the normalization rules determines that Service treatment, violated the commission's tax the com- pany right depreciation, would lose the to accelerated only not its as to current tax returns but also as to those "open" company still with IRS. This would cost the million in $40 about lost tax benefits.
The does not contend that the order under definitely will review result in the loss of million $40 It tax benefits. concedes that whether normalization persons rules are violated is an issue on which reasonable differ, can and the Internal Revenue Service has not spoken specifically company concludes, to the issue. The thought disturbing however, with the that because the repercussions resulting financial from an error great, commission could be so the commission's decision highly imprudent, arbitrary run the risk is an use of power, reject and an abuse of its discretion. We company's argument. implication apply the cоurts should analysis reviewing
financial risk when administrative unacceptable. Many decisions is decisions of administra- agencies consequences. tive have serious Courts are not permitted agency to find that an has abused its discre- *12 merely consequences tion because substantial financial may possibil- an attend error not to shown exist but the ity absolutely legisla- of which cannot be excluded. The assigned agencies right ture has to the to make discre- tionary right discretionary decisions. The to make right wrong." decisions includes "a limited to v. be State Pharr, 334, 345, 115 Wis. 2d 340 N.W.2d 502-03 (1983). legislature assigned contrast,
In the has to the highly power discretionary courts a restricted to review by agencies. decisions A court cannot reverse or remand agency а case to an unless court the finds of is outside the agency's discretion that the exercise law; agency delegated to the is range discretion of rule, officially agency an stated with inconsistent an .; practice. . or prior agency is agency policy or a statutory of constitutional or otherwise violation judg- substitute its provision; but the court shall not agency issue discretion. ment that of the on an for 227.57(8), Stats. Sec.
The exercised its discretion with commission In rules. its discussion respect to the normalization rates, already quoted, commission we have tax which rates, including service June noted that the new recovery federal income at surcharges, ¿ for taxes provided year, that to com- the calendar and savings tax requirements, "the ply with normalization tax rates." depreciation respective reflected] 227.57(8), under sec. find that a basis exists We cannot Stats., decision.6 for us to reverse the commission's approach itself to the has satisfied that
FERC requirements the commission normalization taken Changes Rate requirements. not See does violate those imply have abused its 6 We not that commission would do it, any company to risk would other discretion had avoid benefit, accepted company's position regarding wise lose a tax proposed by the wiser course—that normalization. Which is the to commission's staff —is for the commission or the company's proposal. chose the decide. The Delaware commission said, Delmarva, Delaware commission 85 P.U.R.4th at ments, horrendous. stakes here are on this issue. As between two overcollection Should Delmarva date), the tax It could would involve tens millions of dollars consequences too be three large found apply months to all in violation of the normalization require to Delmarva and is bad open far, Delmarva alternatives, far the lesser of years gamble (for ratepayers Delmarva, tax allowance two evils. in taxes. The with would require- law be Id.
Relating to Corporate Federal Income Tax Rates for Utilities, 24,987 Reg. (1987) (later Public 52 Fed. codi- 35.27) (normalization fied at 18 C.F.R. 35.13 secs. and satisfied either use rate for half first and second half per- or use of 40 year, cent full "since the total amounts for the approach same," under either would straight- be and line depreciation depend revenues). does not on seasonal opinion questions
FERC's on tax cannot bind the FERC, however, Internal Revenue Service or the courts. has about 175 utilities subject jurisdiction. 52 Fed. 24,988. Reg. at FERC must have concluded that those risk utilities no loss of tax through benefits use of the 34 tax rate for the last half of 1987. Knowledge of FERC's conclusion lessens the discomfort the company's argument initially normalization appeal. caused this
4. Conclusion stated,
For the reasons we have the circuit court erred when it the preliminary injunction issued decision, when it its final rendered which in combination continued the June 1987 surcharges imposed by the through commission the end of that year. calendar Wе therefore reverse the orders the circuit court and direct it to remand the matter to the commission for such proceedings may necessary. further as dispo- be Our unnecessary any sition makes discussion of the commis- sion's contention unconstitutionally that the court exer- powers cised ratemaking when surcharges it ordered the continued.
By the Court. —Orders reversed and cause remanded for further consistent proceedings opinion. with this *14 (dissenting).
DYKMAN, issue The crux of the J. testimony by appeal a staff is shown the of this raised the commission: witness developed new using the rates as
[M]y tax rate was 1986, namely Reform Act of a the Tax prescribed 1st, July percent rate effective 1987. There- tax 34 year fore, in test after June I took months the 1987, perсent 30th, tax rate and used a 34 for those 1,1987,1 prior July 46 The used a months. months average of 12 tax I took an those percent rate. composite up with rate of 36 months and come a income percent federal taxes. changed corporate rates from
The tax reform act tax July percent, percent Because to 34 effective 1987. 46 year taxpayer, company is a calendar its 1987 percent, percent nor but a blended neither 46 34 rate was year taxpayer Simplified, rate for a calendar rate. that year average one- one-half at 46 was the of year percent. However, at 34 income taxes are calcu- half semiannually. monthly yearly, Thus, or lated not required comрany pay Internal Revenue Service 40 tax on its 1987 net income at a rate. income way calculating is no avoid method of There this income taxes. Internal Revenue Service federal might it irrelevant that or less income be deems more quarter, month, in or earned one one one six-month period. Therefore, neither nor the the commission dispute company paid majority can that federal net earned income taxes disputed Nor can it be for the calendar per- company paid 1988, the federal income taxes of 34 its net cent of income. not itself
The commission did concern with the company actually pay 1987 net rate that would on applied monthly income, Instead, it tax rates to income. possible method not real world. "The ultimate test of a formula is whether it bears a reasonable rela reality tionship to and conforms to state and federal laws Department and constitutions." Soo Line R. v.Co. (Ct. Revenue, 331, 341, 89 Wis. 2d 278 N.W.2d 1979), App. grounds, as on other 97 Wis. aff'd modified (1980). 2d N.W.2d The commission's pay formula assumed that the *15 would federal percent July income taxes a at 34 31, tax rate from assumption to December 1987. That bears no rela- tionship reality. reality, company paid per- In during cent of its net income that time as federal income Merely majority taxes. because the commission and the company paid assert that the taxes at a lesser rate does not make it so.
During company's year, paid test it federal eight income taxes for months of at a rate, and for four months of 1988 at a 34 rate. explains percent compos- No one how this results a 36 every ite If rate. filed income tax returns reflecting expenses pre- months, six income and for ceding position months, six the commission's would everyone agrees, however, make sense. As that method of paying income taxes is fictional. majority, sustaining
The faced with the task = equivalent finding of a commission that rea- 2+2 rate, sons that because the 40 is rate a blended company's use of that rate would overstate the expense.1 is no more That a reason to sustain the com- why
1 The majority gives explanation no a tax rate blended Indeed, expense. overstates the thе Internal Reve only accepted, required nue Service not but If that rate. use of a particular expense, tax rate would an overstate actual one would expect prohibit the Internal Revenue Service to use of rate, require not it. opinion correct is conclude that than to
mission Tuesday. just It sounds better. on it was written because Appeals the District of Columbia Or, the Court as indistinguishable put the one it, in from a case Circuit deciding: we are brief, suggested in its and its counsel
FERC 15(a) repeatedly argument, at that —section asserted notwithstanding Revenue Code of the Internal —the prior L CP & applicable to income earned tax rate thereafter, 1,1987 34%. July was 46% and the prove equivalent attempting to us as This strikes by аsserting it green cheese moon is made of that the L quick CP & did not— times in succession. several returns plainly not entitled to—file two and was six months and one for the first calendar petitioner filed one for the last six. another return, corpo- single purposes of that return applicable to income of 40% was rate income tax rate 1,1987 July effective date earned before and after statutory change. of the *16 Light F.E.R.C., & Co. v. 860 F.2d Carolina Power (D.C. 1988) (emphasis original). Cir. only appellate decision Carolina Power is the addressing and the the issue about which holding disagree. Power's Carolina commission Because contrary majority's mandate, Power Carolina is to majority to follow The declines must be reckoned with. (1) was unrea- Power rеasons: the case Carolina for two proposition soned, on the decision was based because its (2) (or not) green cheese; and made of that the moon is is concepts retroac- Power is based on of the Carolina case present ratemaking, in this case. an issue not tive distinguish majority Caro- uses Both reasons Power incorrect. lina are
Green Cheese —Unreasoned Decision
The Carolina Power opinion
nothing
has
to do with
green cheese. Instead it examines the Federal Energy
Regulatory Commission's assertion that Carolina Power
& Light paid its 1987 federal
at a rate of 46
prior
July
at
1987 and
a rate of 34 percent
Power,
after that date. Carolina
I cannot join majority's assertion that other than a on composition, comment the moon's "[t]he [Dis- trict Columbia court offered no other ratio- Circuit] holding]." opinion nale Majority at 194.1 believe [for gave decision, that the court a reason for its I agree with that reason. Ratemaking
Retroactive majority asserts that the Carolina Power deci- sion was based on ratemaking retroactive considerations. The short answer to is this that the Carolina Power rejected court this notion: petitioner observes,
As
finding
FERC has made no
petitioner profited
excessively during the first
eight
Indeed, petitioner
months of 1987.
suggests
*17
that were the Commission to conduct an overall eval-
&
early 1987,
uation
CP
profitability during
L's
no
issue,
course,
finding
This
we
such
could be made.
resolve,
the Commission did not frame its
cannot
action,
disposition in
a refund
and we are
this case as
presented
to test the
thus not
with a sufficient record
Texas to CP & L's
of West
application
Commission's
ratemaking.
filing as an instance of retroactive
omitted.)
(Footnotes
Power,
Carolina
When the old service rates were expense using was estimated a 46 federal income May 31,1987. until rate. The old rates continued five actual tax rate for the first Because the percent, enjoyed greater months 1987 was 40 it expense predicted, income and esti- return than all other being unfortunate, This is an but none- mates accurate. necessary implication system prohib- theless a of a that theory ratemaking. However, its retroactive behind Unexpected changes prohibition that is realistic. expenses utility will favor a on some occa- sions, and favor customers on other occasions. Over leading justice inequities time, out, for both will even utility. and the customers the commission's reasons
The trial court examined using rate, and considered whether a nonexistent tax ratemaking: procedure implicated this retroactive briefly argues that it is true The PSC "[W]hile possi- that the Commission was concerned about bility income tax that overcollection of federal expense might from the use of the Com- result method, method pany's it does not follow that *18 actually by adopted the Commission involved retro- ratemaking." 14) (Reply p. active at Despite Briеf statement, language this the clear the of order is that prevent intended overearning commission in 1987, year sought calendar and that it to reach that by setting year result rates for the test that in result recoupment year 40% tax for the calendar —even already though during part rates collected the first uncontroverably 1987 were based on a final [sic] order of recoup- the PSC that used a 46 ment rate. I not am sure that this action can be better than the language described virtue of used Supreme the Wisconsin when Court it reiterated power: the rein ratemaking on the PSC's "[T]he may sufficiently Commission not. . .make a rate low recapture Telephone the excesses." Wisconsin Co. PSC, 274, (1939). v. 232 Wis.
The commission's decision no but question leaves thаt the trial court was correct: company requested
The has an effective tax rate of 31,1987. period May 40% for the 1-December commission has determined that use the com- pany's proposed rate would result an overcollec- ratepayers tion calendar 1987. from rates, Under current will have recovered for income at rate taxes an effective of 46% from 31, (it January May 1 to is assumed that new 1987). go (Emphasis rates will into effect on June supplied.) undoubtedly
The commission was correct company's use of a 40 for 1987 would result previous in an year. overcollection for that A and now- company's inaccurate estimate of the first-half federal expense caused overcollection. Hоw- 1987's ever, 28,1987, May commission's decision was dated Therefore, became effective on June effects of federal income tax rates effect before June 1987 could not justify be used to a fictional and lower estimate of the second half 1987 federal so, income taxes. When the commission did it set rates *19 retroactively.
If, asserts, majority as the Carolina Power was case, really a retroactive ratemaking holding then the of Power Carolina is that the accounting by method used case, FERC constituted retroactive In ratemaking. this the commission used the identical accounting method by used FERC in the Carolina Power case. The conclu- inescapable: sion is the commission's treatment of the expense federal income tаx constituted retro- active ratemaking, an act the commission concedes it may not do.
In reality, the commission was attempting to correct for a in practice flaw inherent the using year a test predict income expenses. Some items of income and expense necessarily are they unknowable until accrue. utility's Thus a may by be altered unexpected patterns, weather but an estimate of income based on normal patterns acceptable weather is year. for a test This is because way no better of predicting the future can be devised.
Federal income taxes are different. It seems strange when, "estimate" taxes for a year future test absent action congress, Yet, future ratеs are if certainty. a year" future, "test predict is used to year" the the "test actual, concept requires that not fictional figures be Therefore, used. though the and the commis- sion both knew that tax in year rates the test would not years, be the same as in future concept using a test predictive as years of future was not If abandoned. the commission change wished to the rules which the
game played, was it should not have in done so inning. middle of the fifth year" setting
Because it used "test method ignored during rates, but actual effect year, test agree the commission's conclusion is irrational. I
with trial court that the commission's reason part recapture its order was what it believed company's past were the I excesses. would therefore affirm trial court's remand for further commission action.