Case Title: COLORADO INTERSTATE GAS COMPANY v. WYOMING DEPARTMENT OF REVENUE

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 2001-04-04T00:00:00Z

Document:
COLORADO INTERSTATE GAS COMPANY v. WYOMING DEPARTMENT OF REVENUE2001 WY 3420 P.3d 528Case Number: 99-284Decided: 04/04/2001
 

 APRIL 
TERM, A.D. 2001

                                                                                                                    
April 4, 2001              

COLORADO 
INTERSTATE GAS COMPANY,

Appellant(Petitioner),

v.

WYOMING DEPARTMENT OF 
REVENUE,

Appellee(Respondent).

W.R.A.P. 12.09 
Certification from the District Court of Laramie 
County

The 
Honorable Nicholas G. Kalokathis, Judge

Representing 
Appellant:

Lawrence J. Wolfe of 
Holland & Hart, Cheyenne, WY; and Karen L. Pauley and Elizabeth B. Herdes, 
Colorado Springs, CO

 Representing 
Appellee:

Gay Woodhouse, Wyoming 
Attorney General; and Michael Dinnerstein, Assistant Attorney 
General

Before LEHMAN, 
C.J., and MACY*, GOLDEN, and HILL, JJ.

 HILL, J., 
delivered the opinion of the Court; LEHMAN, C.J., filed a dissenting 
opinion.

 *Retired June 2, 
2000.

            
HILL, Justice.

 [¶1]     Appellant, Colorado 
Interstate Gas Company (CIG), seeks review of the State Board of Equalization's 
(Board) tax valuation for 1996.  CIG 
asserts that the Department of Revenue (DOR) refused to predict the future and 
declined to accept CIG's evidence as the only correct view of how its tax 
valuation should be calculated.  A 
petition for review was filed in the district court and the matter was certified 
here in accordance with W.R.A.P. 12.09(b).

[¶2]      We 
affirm.

ISSUES

[¶3]      CIG asserts the 
Board erred in these respects:

A.  Did the Board err by endorsing DOR's 
selected income when DOR failed to take into account the impact of regulation on 
the value of Taxpayer's property as required by law?

C. 
[sic]  Did the Board err by 
endorsing DOR's selected income when DOR failed to forecast the anticipated 
future benefits as required by law?

DOR 
refines those issues thus:

1.  Did the Department fail to sufficiently 
consider the impact of FERC Order 636 given that the Department (1) only used 
income figures from years after FERC Order 636 became effective, and (2) only 
used income figures that CIG had itself already adjusted to take into account 
the effects of FERC Order 636?

2.  Should the Department have speculated as 
to future events rather than rely on actual income figures? 

  

FACTS

[¶4]      For tax year 
1996, the DOR calculated CIG's value using four methods: (1) historical cost 
less depreciation, (2) rate base indicator, (3) yield capitalization indicator, 
and (4) direct capitalization indicator.  
Each of these methods of deriving value depends upon the development of 
an industry capitalization rate.  A 
capitalization rate is a rate used to convert an income stream into an estimate 
of value.  DOR employed a three-year 
weighted average using 1993, 1994, and 1995 income taken against the 
capitalization rate to derive CIG's value for 1996.

[¶5]      These events 
transpired against a background of deregulation of the natural gas industry that 
transformed the way companies such as CIG did business.  The Federal Energy Regulatory Commission 
(FERC) began restructuring the natural gas industry in the 1980's.  It became clear on July 31, 1991, that 
the changes to be occasioned by FERC Order 636 were on the horizon, and that CIG 
knew changes in natural gas marketing and pipeline transportation would 
occur.  Order 636, which resulted in 
a change in traditional natural gas marketing and pipeline transportation by 
essentially making pipelines "open" transporters of natural gas, was introduced 
to the natural gas industry in a notice of proposed rule-making issued on July 
31, 1991.  The industry took part in 
the deliberative process prior to the issuance of the rule.  In April 1992, Order 636 became 
effective, and pipelines, including CIG, were required to begin complying with 
the order.

[¶6]      Despite the fact 
that Order 636 became effective in 1992, CIG disputes that 1993 was a proper 
reflection of its income because it had not yet fully implemented FERC Order 
636.  The Board disagreed.  DOR accounted for the effects of FERC 
Order 636 by:  (1) selecting a net 
operating income that was based on the post-FERC Order 636 income, and (2) by 
using post Order 636 income that was already adjusted by CIG to take account of 
the effects of Order 636.

STANDARD 
OF REVIEW

[¶7]      When reviewing 
administrative decisions, this Court is guided by Wyo. Stat. Ann. 
§ 16-3-114(c) (LEXIS 1999), which provides in pertinent 
part:

            
(c)  To the extent necessary 
to make a decision and when presented, the reviewing court shall decide all 
relevant questions of law, interpret constitutional and statutory provisions, 
and determine the meaning or applicability of the terms of an agency 
action.  In making the following 
determinations, the court shall review the whole record or those parts of it 
cited by a party and due account shall be taken of the rule of prejudicial 
error.  The reviewing court 
shall:

. 
. . .

(ii)  Hold unlawful and set aside agency 
action, findings and conclusions found to be:

(A)  Arbitrary, 
capricious, an abuse of discretion or otherwise not in accordance with 
law;

(B)  Contrary 
to constitutional right, power, privilege or immunity;

(C)  In excess of statutory jurisdiction, 
authority or limitations or lacking statutory right;

(D)  Without 
observance of procedure required by law; or

(E)  Unsupported 
by substantial evidence in a case reviewed on the record of an agency hearing 
provided by statute.

[¶8]      This Court will 
defer to an agency's findings of fact if they are supported by substantial 
evidence.  Whiteman v. Workers' 
Safety and Compensation Division, 984 P.2d 1079, 1081 (Wyo. 1999).  Substantial evidence is "relevant 
evidence that a reasonable mind can accept as adequate to support an agency's 
conclusion."  Id. (quoting 
Casper Oil Company v. Evenson, 888 P.2d 221, 224 (Wyo. 1995)).  We will affirm an agency's conclusions 
of law only if they are in accordance with the law.  Snyder v. State ex rel. Worker's 
Compensation Division, 957 P.2d 289, 293 (Wyo. 1998).  When an agency's determinations involve 
elements of law and fact, or ultimate facts, we do not give them the same 
deference we reserve for findings of basic fact.  Basin Electric Power Cooperative, 
Inc. v. Department of Revenue, 970 P.2d 841, 850 (Wyo. 1998).  Instead, we separate the factual 
elements from the legal elements to determine whether the correct rule of law 
has been correctly applied to the facts and defer to the agency's ultimate 
factual finding only if there is no error in either stating or applying the law. 
970 P.2d  at 850-51.  The controversy 
in the case at bar involves the proper application of appraisal methods to the 
facts, which is an issue of ultimate fact and requires de novo review. 
970 P.2d  at 851.

[¶9]      The Department's 
valuations for state-assessed property are presumed valid, accurate, and 
correct.  Chicago Burlington 
& Quincy Railroad Company v. Bruch, 400 P.2d 494, 499 (Wyo. 1965).  This presumption can only be overcome by 
credible evidence to the contrary.  
Id.  In the absence of 
evidence to the contrary, we presume that the officials charged with 
establishing value exercised honest judgment in accordance with the applicable 
rules, regulations, and other directives that have passed public scrutiny, 
either through legislative enactment or agency rule-making, or both.  Id.

[¶10]   The petitioner has the initial 
burden to present sufficient credible evidence to overcome the presumption, and 
a mere difference of opinion as to value is not sufficient.  Teton Valley Ranch v. State Board of 
Equalization, 735 P.2d 107, 113 (Wyo. 1987).  If the petitioner successfully overcomes 
the presumption, then the Board is required to equally weigh the evidence of all 
parties and measure it against the appropriate burden of proof.  Basin, 970 P.2d  at 851.  Once the presumption is successfully 
overcome, the burden of going forward shifts to the DOR to defend its 
valuation.  Id.  The petitioner, however, by challenging 
the valuation, bears the ultimate burden of persuasion to prove by a 
preponderance of the evidence that the valuation was not derived in accordance 
with the required constitutional and statutory requirements for valuing 
state-assessed property.  
Id.

[¶11]   Moreover, in examining the 
propriety of the valuation method, our task is not to determine which of the 
various appraisal methods is best or most accurately estimates fair market 
value; rather, it is to determine whether substantial evidence exists to support 
usage of the chosen method of appraisal.  
Amoco Production Company v. Board of Equalization, 899 P.2d 855, 
858 (Wyo. 1995); Holly Sugar Corporation v. Board of Equalization, 839 P.2d 959, 963 (Wyo. 1992).

DISCUSSION

[¶12]   Reduced to their essences, CIG 
raises these two issues.  First, CIG 
claims DOR should not have included 1993 in using a three-year weighted average 
of CIG's income because CIG had not fully implemented FERC Order 636.  Second, CIG claims that DOR should have 
forecasted into the future the impacts of FERC Order 636.

[¶13]   As to the first of these issues, we 
will merely refer to our standard of review.  There are several methods by which CIG's 
tax valuation might properly and accurately have been calculated.  After careful consideration of the 
record, we conclude that the method used by DOR, and accepted by the Board, is a 
proper and accurate method of making such a calculation.  CIG's brief demonstrates quite ably that 
there is a method of calculation, which might have reduced their tax liability, 
but that, of course, is not a function of this Court or of the judicial review 
process.

[¶14]   CIG's second claim is equally 
subject to summary disposition.  In 
contending that DOR refused to project CIG's future income potential, it relies, 
in part, upon a DOR employee's statement that he could not predict the 
future.  CIG contends that our 
decision in Basin, 970 P.2d 841 at 856, is so at odds with such a 
verbalization that we must reverse and remand to the Board.  CIG contends that it evinced a refusal 
on the part of DOR, as well as of the Board, to engage in making income 
projections.  We do not see such a 
tension.  The record demonstrates 
that the Board took into account all evidence presented by DOR, as well as that 
of CIG.  The methodology used by DOR 
included elements that projected CIG's future income.  The record demonstrates that DOR arrived 
at a rationally based and accurate valuation of CIG's 1996 fair market 
value.

[¶15]   The order of the Board is affirmed 
in all respects.

LEHMAN, 
Chief Justice, dissenting.

[¶16]   I respectfully 
dissent.  The majority opinion holds 
that the Department of Revenue's (DOR) inclusion of 1993 income in the 
three-year weighted average to calculate Colorado Interstate Gas's (CIG) tax 
valuation was a proper and accurate method of determining CIG's tax 
liability.  I disagree.  As a general rule, the Board of 
Equalization (the Board) is required to take into account legally enforceable 
restrictions when it determines value.  
Basin Electric Power Coop. v. Dep't of Rev., 970 P.2d 841, 856 
(Wyo. 1998).  In my opinion, the 
Board failed to properly consider the fact that CIG's 1993 income level was not 
indicative of what its income levels would be post-FERC Order 
636.

[¶17]   Although FERC announced its 
intention to adopt FERC Order 636 in April of 1991 and issued FERC Order 636 in 
April of 1992, the provisions of the order did not apply to CIG until CIG 
completed compliance with the rule by filing and getting FERC's approval of 
CIG's new tariff setting forth CIG's plan to restructure the business to meet 
the demands of FERC Order 636.  This 
occurred when FERC approved CIG's settlement tariff proposal on September 3, 
1993, making FERC Order 636 applicable to CIG on October 1, 1993.  The legally enforceable restriction 
created by FERC Order 636, therefore, did not exist until October 1, 1993, and 
the 1993 income level did not accurately reflect the consequences of FERC Order 
636.  The dramatic decrease in 
income in 1994 of over $13.25 million is undeniable evidence that CIG's 
post-FERC Order 636 income will be significantly lower than its 1993 level. 

[¶18]   Although the Board recognized that 
CIG did not begin operating fully under FERC Order 636 until October of 1993, it 
concluded that DOR's use of 1993 income was appropriate, reasoning that it was a 
year that a reasonable business investor could have concluded the effects of 
FERC Order 636 would be evident.  
This logic is incompatible and improperly allows the use of an income 
level that did not fully reflect the effects of FERC Order 
636.

[¶19]   For these reasons, I would reverse 
and remand the appraisal to the DOR for 
recalculation.