Title: Basin Elec. Power Co-op., Inc. v. Department of Revenue, State of Wyo.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Basin Elec. Power Co-op., Inc. v. Department of Revenue, State of Wyo.1998 WY 158970 P.2d 841Case Number: 97-3, 97-4Decided: 12/16/1998Supreme Court of Wyoming

BASIN 
ELECTRIC POWER COOPERATIVE, INC., as operating agent for the Participant-Owners 
of the Missouri Basin Power Project, Petitioner (Plaintiff),

v.

DEPARTMENT OF REVENUE, STATE OF WYOMING; Board of 
County Commissioners for Platte County; Platte County Clerk, Respondents 
(Defendants).

 

The Board of County Commissioners for Platte County, 
Wyoming, Cross-Petitioner (Defendant),

v.

Basin Electric Power Cooperative, Inc., as operating 
agent for the Participant-Owners of the Missouri Basin Power Project; and the 
Wyoming Board of Equalization, Cross-Respondents 
(Plaintiffs).

 

Appeal from the District Court, 
Laramie County, Nicholas G. Kalokathis, J.

 

Richard G. Smith and Eugene 
A. Ritti of Hawley Troxell Ennis & Hawley LLP, Boise, Idaho; W. Perry Dray 
and Brandin Hay of Dray, Thomson & Dyekman, P.C., Cheyenne, Wyoming; and 
James W. Gusea of Gusea, Pattno and White, Cheyenne, 
Wyoming,

Representing Basin 
Electric Power Cooperative. Argument 
by Mr. Smith.

William U. Hill, Attorney 
General; Michael D. Basom, Assistant Attorney General, Representing State of 
Wyoming Department of Revenue. Argument by Mr. Basom.

David F. Palmerlee of 
Omohundro, Palmerlee and Durrant, Buffalo, Wyoming; and Bruce A. Hellbaum of 
Jones, Jones, Vines & Hunkins, Wheatland, Wyoming, Representing Board of 
County Commissioners of Platte County, Wyoming. Argument by Mr. 
Palmerlee.

No brief was filed, 
Representing Wyoming Board of Equalization.

 

Before LEHMAN, C.J., and THOMAS, MACY, GOLDEN and 
TAYLOR,* JJ.

 * Chief Justice at time of oral argument; retired 
November 2, 1998.

 

GOLDEN, 
Justice.

 [¶1] This case involves a petition and a 
cross-petition for review filed with the district court and subsequently 
certified to this Court pursuant to Rule 12.09 of the Wyoming Rules of Appellate 
Procedure. In Case No. 97-3 Basin Electric Power Cooperative (Basin) seeks 
review of that portion of the Wyoming State Board of Equalization's (Board) 
Findings of Fact, Conclusions of Law and Order (Decision), which affirmed the 
Department of Revenue's (Department) valuation of Basin's Wyoming property for 
ad valorem tax purposes. In Case No. 97-4 the Board of County Commissioners for 
Platte County (Platte County) appeals from the Board's reversal of the 
Department's determination that tax benefit transfers are part of the property's 
taxable value for ad valorem tax purposes.

 

[¶2] Before 1994, the 
Department's valuation methods for Basin and other non-profit rural electric 
cooperatives (RECs) were similar to the valuation methods used for 
investor-owned utilities (IOUs). In 1994, the Board required the Department to 
change its valuation methods for the RECs. However, neither the Department nor 
the Board provided a reasonable basis in the record for valuing non-profit RECs 
and IOUs differently. Therefore, the Department's valuation of Basin's property 
was not based on uniform taxation principles, in violation of Article 15, 
Section 11 of the Wyoming Constitution.1 Additionally, the valuation, and 
the methodology used to obtain it, were not supported by substantial evidence or 
by statutory or regulatory authority. Therefore, we reverse that portion of the 
Board's Decision from which Basin appeals in Case No. 
97-3.

 

[¶3] In Case No. 97-4, Platte County petitions for review 
of the tax benefit transfer issue. However, pursuant to WYO. STAT. 39-1-306 
(1990) and the Wyoming Administrative Procedure Act, Platte County is without 
standing to wage an attack on the Board's Decision.  In the absence of 
jurisdiction to review the Board's Decision on the basis of Platte County's 
petition for review, we dismiss the same.

 

                                             
ISSUES

 

[¶4] Petitioner Basin presents the following issues in its 
petition for review in Case No. 97-3:

 

I. Did the State Board err in 
failing to conclude that the 1994 assessment of Basin Electric's operating 
property violates Article 15, Section 11 of the Wyoming Constitution?

 

II. Did the State Board err in 
affirming the Department's 1994 assessment of Basin Electric's operating 
property?

 

III. 
Did the State Board err in granting Platte County's motion to intervene as a 
party to this proceeding?

 

Respondent Platte County contends the principal issue 
is:

 

[W]hether the Wyoming State 
Board of Equalization ("Board") correctly concluded in its Final Decision that 
the Department of Revenue ("Department") properly imputed and capitalized a 
for-profit income to capture the return on equity which Basin Electric Power 
Cooperative, Inc.'s ("Basin") members receive in the noncash form of lower cost 
of electric service, which resulted in the Department's 1994 appraised value of 
Basin of $2,083,000,000.

 

In its brief, Respondent Department submits the following 
issues:

 

1. Whether substantial evidence 
exists to support the Board of Equalization's action ("Board") upholding the 
Department's 1994 valuation of Basin Electric's operating property within the 
State of Wyoming?

 

2. Whether the Department's 
valuation of Basin Electric's electric operating property within the State of 
Wyoming for 1994 represents fair market value?

 

3. Whether the Board properly 
determined that the Department's valuation of Basin Electric for 1994 did not 
violate Article 15, Section 11, of the Wyoming Constitution?

 

In Case No. 97-4, Petitioner 
Platte County seeks review of that portion of the Findings of Fact, Conclusions 
of Law and Order of the Wyoming State Board of Equalization ("State Board") 
dated the 28th day of June, 1996 ("State Board Decision") relating to the 
subject of tax benefit transfers.

 

Respondent Basin presents an additional issue for review, 
concerning whether this Court has jurisdiction to hear Case No. 97-4, because 
the County allegedly failed to timely file its cross-petition for review. The 
Department, satisfied with the Board's Decision, did not petition for review of 
the tax benefit transfer issue.

 

                                              
FACTS

 

[¶5] Before 1961, rural electric cooperatives in the Great 
Plains region depended on power generated by hydroelectric facilities in the 
Missouri River Basin. The facilities were owned and operated by the Federal 
Bureau of Reclamation, which in turn sold power to its "preference customers," 
defined as "the rural electric customers and municipals in the region." However, 
by 1959, the hydroelectric facilities in the Missouri River Basin could not 
provide enough power to satisfy the increasing demand for electricity from the 
preference customers. The Bureau of Reclamation warned its preference customers 
that they needed to commence building, buying or acquiring additional power 
resources for their projected power requirements.

 

[¶6] As a result, rather than continuing to depend upon 
federal power or investor-owned utilities (IOUs), several generation and 
transmission cooperatives and distribution cooperatives banded together to 
supplement their power resources and to provide alternative sources of power. 
Basin was formed in 1961 to provide an alternative source of power generation to 
its member cooperatives. Basin is currently owned by eight generation and 
transmission cooperatives which, together with a group of distribution 
cooperatives, comprise Basin's Class A membership. The eight generation and 
transmission cooperatives are, in turn, owned by over one hundred distribution 
cooperatives, which provide electricity to ultimate consumers.

 

[¶7] Basin operates four major generating facilities, 
including its 42.27% interest in Laramie River Station, located in Platte 
County, Wyoming. The other owners of the Laramie River Station are Tri-State 
Generation and Transmission Association, Lincoln Electric System, Heartland 
Consumers Power District, Western Minnesota Municipal Power Agency, and Wyoming 
Municipal Power Agency.

 

Procedural background

 

[¶8] Valuation of electric utilities for ad valorem tax 
purposes is governed by WYO. STAT. § 39-2-201(a)(iii) (Cum. Supp 1993).  Pursuant to the 
statutes in effect in 1994,2 the Department was to value and assess the 
property of electric utilities at fair market value for annual taxation 
purposes. "Fair market value" is 

the amount in cash, or terms 
reasonably equivalent to cash, a well informed buyer is justified in paying for 
a property and a well informed seller is justified in accepting, assuming 
neither party to the transaction is acting under undue compulsion, and assuming 
the property has been offered in the open market for a reasonable time. . . 
.

 

WYO. STAT. § 39-1-101(a)(vi) (Cum.Supp. 1993). The statutes 
in effect at the time of the 1994 assessment directed the Board to perform the 
duties specified in Article 15, Section 10 of the Wyoming Constitution,3 to review Department assessments of property 
and tax determinations, and to hear appeals from any person aggrieved by any 
final administrative decision of the Department. WYO. STAT. §§ 39-1-304(a) and 
302 (Cum. Supp. 1993). The Board also possessed the authority to prescribe, by 
rule and regulation, the appraisal methods and systems for determining fair 
market value, but only after recommendation from the director of the 
Department.  
WYO. STAT. § 39-2-102 (Cum. Supp. 1993).

 

[¶9] In 1991, Platte County appealed from the Department's 
valuation of the six non-profit owners of the Laramie River Station and later 
filed another appeal challenging the appraisals for the years 1988 through 1993. 
Both appeals were settled in early October 1993. On October 11, 1993, the Board 
entered an Order Initiating Review, "[p]ursuant to Article 15, Section 10, [of 
the] Wyoming Constitution, W.S. 39-1-304(a)(xiii), and W.S. § 39-1-304(a)(xx)." 
The order directed the Department to:

 

report in writing to the Board 
all information relating to the assessment of property of all Wyoming rural 
electric cooperative utilities as will be necessary and desirable to afford the 
Board a reasonable opportunity to review the state assessment practices, 
methodology, formulas or systems, and to determine whether such practices, 
methodologies, formulas or systems comprise a fair and reasonable approach for 
uniformly establishing fair market value of such property as required by 
law.

 

[¶10] After hearings in a non-contested format, the Board 
issued its Investigative Report (Report), dated May 3, 1994, which discussed the 
Department's appraisal methodology, using Basin as a case study. The Report 
announced that the Department's pre-1994 valuations of Basin were erroneous 
because the highest and best use of the property is as an investor-owned 
utility, rather than a non-profit entity.

 

[¶11] In accordance with the directives from the Board's 
Report, the Department changed its appraisal methods for Basin and assumed the 
typical buyer, for fair market value appraisal purposes, would be an 
investor-owned utility. Believing the methods established in the Board's Report 
were mandatory, the Department identified and used the Board's alternative 
methods to value Basin. The Department's 1994 appraisal of Basin, using the 
appraisal methods from the Board's Report, was issued shortly after the Report 
was issued. The change in valuation methods produced a change in Basin's system 
value from $1.22 billion in 1993 to $2.08 billion in 1994.

 

[¶12] Pursuant to WYO. STAT. § 39-1-302(c) (Cum.Supp. 
1993), Basin appealed from the Department's 1994 valuation of its Wyoming 
property to the Board, primarily arguing that the valuation was disproportionate 
to other Wyoming electric utilities and that the valuation violated the 
"uniformly valued" and "equal and uniform" provisions of the Wyoming 
Constitution. The Board allowed Platte County to intervene in the appeal because 
a substantial portion of Basin's assets are located in Platte County, 
constituting a significant percentage of the County's tax base.

 

[¶13] The Board upheld the Department's use of the 
appraisal techniques presented in the Board's Report, but held that the 
Department erred in determining that tax benefit transfers should be included as 
part of Basin's property value. The Board ordered the Department to recalculate 
Basin's cost approach indicator and to consider the loss in value to Basin's 
property resulting from tax benefit transfers. Basin and Platte County petition 
for review those portions of the Decision which adversely affect them.

 

                           
                DISCUSSION

 

[¶14] Before undertaking the substantive analysis of the 
issues presented for review, we must address two preliminary matters. The first 
matter concerns whether Platte County has standing to petition for review in 
Case No. 97-4. The second issue concerns the authority of the Board to hold an 
"investigatory hearing" and require the Department to comply with an 
"Investigative Report."

 

Case No. 97-4

 

[¶15] The Department acquiesced in the Board's Decision, 
including those issues presented by Case No. 97-4, leaving Platte County as the 
sole petitioner. At no stage in the proceedings did any party raise the question 
of whether or not, under the statutes of this state, or by any other authority, 
Platte County had a right to appeal the Board's Decision to the district court 
or to this Court.  
Ordinarily this Court refrains from inquiring into questions not raised 
by the parties; however, because the right of appeal is statutory and 
jurisdictional, we have a duty to determine that the appeal has been properly 
taken so as to invoke our jurisdiction. Pritchard v. State Div. of Voc. Rehab., 
Dept. of Health and Social Svs., 540 P.2d 523, 524 (Wyo. 1975).

 

The right of judicial review of 
an administrative decision is statutory. Actions of an administrative agent are 
not reviewable unless made so by statute. Legislative intent to restrict 
judicial review of an administrative action must be clear and persuasive reason 
must exist to believe that restriction was the legislative purpose.

 

Holding's Little America v. Bd. of County Comm'rs of 
Laramie County, 670 P.2d 699, 702 (Wyo. 1983).

 

[¶16] WYO. STAT. § 39-1-306 grants the right to appeal from 
a decision of the State Board of Equalization. It provides:

 

Any person[,] including the 
state of Wyoming[,] aggrieved by any order issued by the board, or any county 
board of equalization whose decision has been reversed or modified by the state 
board of equalization, may appeal the decision of the board to the district 
court of the county in which the property or some part thereof is situated.

 

WYO. STAT. § 39-1-306 
(1990).

 

[¶17] The task before us is to determine whether a board of 
county commissioners is a "person," with the right to appeal the Board's 
Decision. In the statutes pertaining to taxation and revenue, "person" is 
defined as 

an individual, partnership, 
corporation, company or any other type of association and any agent or officer 
of any partnership, corporation, company or other type of association.

 

WYO. STAT. § 39-1-101(a)(xiii) (Cum.Supp. 1993). The board 
of county commissioners sought review of the Board's Decision in its official 
capacity. The board of county commissioners is not included in the plain 
language of the definition of "person," and the plain language of WYO. STAT. § 
39-1-306 (1990) does not otherwise provide a board of county commissioners with 
a right of appeal from the Board's Decision.

 

[¶18] In fact, the right of appeal from an adverse ruling 
is specifically denied to an "agency" by the Wyoming Administrative Procedure 
Act (WAPA). See WYO. STAT. §§ 16-3-114(a) (1997) and 16-3-101(b)(vii) and (i) 
(Cum.Supp. 1993). The WAPA provides, in part:

 

any person aggrieved or 
adversely affected in fact by a final decision of an agency in a contested case, 
or by other agency action or inaction, or any person affected in fact by a rule 
adopted by an agency, is entitled to judicial review. .

          
. .

 

WYO. STAT. § 16-3-114(a) 
(1997).

 

The WAPA defines a "person" as 
any individual, partnership, corporation, association, municipality, 
governmental subdivision or public or private organization of any character other than an agency.

 

WYO. STAT. § 16-3-101(b)(vii) (Cum.Supp. 1993) (emphasis 
added). The definition assigned the term "person" specifically excludes 
agencies. An "agency" is defined as 

any authority, bureau, board, commission, department, division, officer or 
employee of the state, a county, city or town or other political subdivision of 
the state, except the governing body of a city or town, the state legislature 
and the judiciary.

 

WYO. STAT. § 16-3-101(b)(i) (Cum.Supp. 1993) (emphasis 
added). The board of county commissioners is a "board" pursuant to the Wyoming 
Administrative Procedure Act and falls within the definition of an "agency" 
which is specifically precluded from seeking review of an administrative 
decision. See Holding's Little America, 670 P.2d  at 701-02 (board of county 
commissioners is an agency as defined by the Wyoming Administrative Procedure 
Act).

 

[¶19] Absent statutory authority granting the board of 
county commissioners the right to seek review of a Wyoming State Board of 
Equalization decision, we hold that the board of county commissioners lacks 
standing. We must dismiss the appeal because we are without jurisdiction to hear 
it. Brandt v. TCI Cablevision of Wyoming, 873 P.2d 595, 598 (Wyo. 1994). Case 
No. 97-4 is dismissed.

 

[¶20] However, Case No. 97-3 does not present the same 
jurisdictional dilemma. Basin is an appropriate party to petition for review, 
the Department is the respondent and Platte County is not attempting an 
independent appeal. Therefore, we will address Case No. 97-3 on the merits.

 

The 1994 Investigative 
Report

 

[¶21] We find the following in the Board's Decision:

 

In June, 1991, Platte County 
initiated its appeal of the Department valuation of the six non-profit owners of 
the Laramie River Station near Wheatland, Wyoming. A separate appeal was 
subsequently filed challenging appraisal years 1988 through 1993. Both appeals 
were settled in early October, 1993. On October 11, 1993, this Board entered its 
"Order Initiating Review," Docket No. 93-159, [footnote omitted] to consider 
Department assessment practices and methodology for all Wyoming rural electric 
cooperative utilities to determine whether such practices comprised a fair and 
reasonable approach for establishing the fair market value of such utilities. 
After hearings in a non-contested format, the Board issued an Investigative 
Report dated May 3, 1994 discussing the Department appraisal methodology, using 
Basin as a case study. The Department 1994 Basin appraisal was issued shortly 
after the Board Investigative Report.

 

[¶22] The Board's 1994 Report ("Report") determined that 
the Department's previous valuations of Basin were in error because the highest 
and best use of Basin's property was not as a non-profit, Basin-type property. 
Instead, the Board determined that the highest and best use of the property was 
as an investor-owned utility (IOU).

 

[¶23] The fundamental flaw in the Board's action is that it 
failed to acknowledge that its authority is limited to the adjudication of 
taxation issues and rulemaking. The Board lacks authority to hold a "fact 
finding proceeding" which is neither a contested case, nor a proceeding 
authorized by the Wyoming Administrative Procedure Act. With the Wyoming 
Government Reorganization Act, the legislature created two separate entities 
with separate duties and responsibilities. See WYO. STAT. §§ 39-1-301 (Cum.Supp. 
1993) and 9-2-2007 (1997). The Board simply does not have authority to hold an 
investigative hearing or to submit an "Investigative Report" to the Department 
concerning the Department's appraisal methods without the Department director's 
recommendation. See WYO. STAT. § 39-2-102 (Cum.Supp. 1993). There is no evidence 
in the record that the Department's director made any such recommendation.

 

[¶24] Even if the Department recommended that the Board 
investigate the Department's appraisal methods and systems for determining fair 
market value pursuant to WYO. STAT. § 39-2-102, the Board is required to 
prescribe, by rule and regulation, appraisal methods 
for determining fair market value. WYO. STAT. § 39-2-102 (Cum.Supp. 1993). The 
Board must follow the procedures found in the WAPA when it prescribes rules and 
regulations. WYO. STAT. § 16-3-103 (Cum.Supp. 1993). The Board did not follow 
the WAPA requirements when it held its "Investigative Hearing" and issued its 
"Investigative Report." In fact, the Board's use of the Report circumvented the 
requirements of the WAPA and the directives from the legislature concerning the 
separation of the duties of the Board and the Department. Therefore, because the 
Report was not properly adopted, it was not valid, and the Department was not 
required to adhere to its mandates. WYO. STAT. § 16-3-103(c) (Cum.Supp. 
1993).

 

[¶25] WYO. STAT. § 16-3-111 (1997) provides, in pertinent 
part:

 

No officer, employee, contract consultant, federal employee 
or agent who has participated in the investigation, preparation, presentation or 
prosecution of a contested case shall be in that or a factually related case 
participate or advise in the decision, recommended decision or agency review of 
the decision. . . .
 

[¶26] The Board's promulgation of the Investigative Report 
and the subsequent reliance on that report in the contested case hearing smacks 
of bias and prejudice sufficient to implicate due process concerns. See Fallon 
v. State Bd. of Medical Examiners, 441 P.2d 322, 327 (Wyo. 1968); Devous v. 
State Bd. of Medical Examiners, 845 P.2d 408, 417-18 (Wyo. 1993). This is 
especially so when, as here, the legislature is clear in its mandate that the 
Board and the Department have separate and distinct duties. The Board has 
authority to hear contested cases and to promulgate rules and regulations 
pursuant to the WAPA. Any other exercise of authority violates the clear intent 
of the legislature.

 

[¶27] The Department believed the Report "required the 
Department to identify and use an alternative method to value Basin in 
consideration of the flaws in the valuation method applied to participants of 
the Laramie River Station before 1994," and the Department applied the methods 
found in the Investigative Report as if the Report had the force and effect of 
law. A reviewing court must reverse actions taken by an administrative agency 
which exceed the agency's statutory authority. WYO. STAT. § 16-3-114(c)(ii)(C) 
(1997). The actions taken by the Department in accordance with what it deemed to 
be a mandate from the Board to change its appraisal methods in accordance with 
the Report are null and void. See State Bd. of Equalization v. Jackson Hole Ski 
Corp., 737 P.2d 350, 356 (Wyo. 1987), modified, 745 P.2d 58 (1987).

 

[¶28] The important substantive issues arising from the use 
of the Report are likely to present themselves again. Therefore, we will 
evaluate the validity of the Report's assumptions, including whether the 
separate classification of the non-profit RECs is constitutional. Accordingly, 
we turn now to consideration of the substantive issues in this valuation 
controversy.

 

Standard of Review

 

[¶29] WYO. STAT. § 16-3-114(c) (1997) delineates the scope 
of appellate review for agency decisions:

 

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:

 

          (i) Compel 
agency action unlawfully withheld or unreasonably delayed; and

 

(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.

 

[¶30] Borrowing from the federal Third Circuit, we have 
articulated the difference between findings of basic fact and ultimate facts as 
follows:

 

Basic facts are the historical 
and narrative events elicited from the evidence presented at trial, admitted by 
stipulation, or not denied, where required, in responsive pleadings. Inferred 
factual conclusions are drawn from basic facts and are permitted only when, and 
to the extent that, logic and human experience indicate a probability that 
certain consequences can and do follow from the basic facts. * * * No legal 
precept is implicated in drawing permissible factual inferences. But an inferred 
fact must be distinguished from a concept described in a term of art as an 
'ultimate fact.' So conceived, an ultimate fact is a mixture of fact and legal 
precept[.]

 

Union Pacific R.R. Co. v. Bd. of Equalization, 802 P.2d 856, 860 (Wyo. 1990) (quoting Universal Minerals, Inc. v. C.A. Hughes & Co., 
669 F.2d 98, 102 (3rd Cir. 1981) (emphasis in Union Pacific)).

 

[¶31] When faced with contested issues of fact, we examine 
the entire record to determine if the agency's findings are supported by 
substantial evidence. Laramie County Bd. of Equalization v. State Bd. of 
Equalization, 915 P.2d 1184, 1189 (Wyo. 1996). If so, we do not substitute our 
judgment for that of the agency and must uphold the factual findings on appeal. 
Id. Substantial evidence is more than a scintilla of evidence; it is relevant 
evidence which a reasonable mind might accept in support of the conclusions of 
the agency.  
Id.

 

[¶32] If a conclusion of law is in accord with the law, it 
is affirmed. Union Pacific, 802 P.2d  at 860 (quoting Employment Security Comm'n 
v. Western Gas Processors, Ltd., 786 P.2d 866, 871 (Wyo. 1990)). We consider 
three distinct possibilities when reviewing agency determinations of questions 
of law. Id. If the agency has correctly applied its findings of fact to the 
correct rule of law, the agency's conclusions are affirmed. Id. However, if the 
agency applied its findings of fact to the wrong rule of law or if the agency 
incorrectly applied its findings of fact to the correct rule of law, we must 
correct the error and reverse. Id.

 

[¶33] When an agency's determinations contain elements of 
law and fact, we do not treat them with the deference we reserve for findings of 
basic fact. Id. When reviewing an "ultimate fact," we separate the factual and 
legal aspects of the finding to determine whether the correct rule of law has 
been properly applied to the facts. Id. We do not defer to the agency's ultimate 
factual finding if there is an error in either stating or applying the law. Id. 
at 861.

 

[¶34] "In examining the propriety of the valuation method, 
'our task is not to determine which of 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 Prod. Co. v. State Bd. of Equalization, 899 P.2d 855, 858 
(Wyo. 1995) (quoting Holly Sugar Corp. v. State Bd. of Equalization, 839 P.2d 959, 963 (Wyo. 1992)). However, the disagreement between the parties here does 
not concern the Department's choice of appraisal methods.4 The 
controversy concerns the proper application of those methods to the facts, which 
is an issue of ultimate fact, requiring de novo review. Additionally, the 
Board's decision to treat Basin differently from investor-owned utilities, 
creating a separate classification for non-profit entities, presents a 
constitutional issue which is also subject to de novo review.

 

The Valuation Decision

 

[¶35] The Decision discusses Basin's burden of proof and 
burden of persuasion in the hearing before the Board as follows (footnotes 
omitted):

 

72. An assessor's valuation for 
local-assessed property, and the Department valuation established for 
state-assessed property, are presumed valid, accurate, and correct, a 
presumption which survives until overturned by credible evidence.  In the absence of 
evidence to the contrary, it is presumed the official charged with establishing 
value, be it a county assessor or a Department appraiser, exercises honest 
judgment in accordance with the applicable statutes, rules, regulations, and 
other directives which have passed public scrutiny, either through legislative 
enactment or agency rulemaking, or both. Chicago Burlington & Quincy 
Railroad Co. v. Bruch, 400 P.2d 494, 499 (Wyo. 1965). If, however, a valuation 
is determined without benefit of rules, regulations or clear statutory 
authority, the appraiser/assessor cannot and should not benefit from the validity presumption. In 
the Matter of Appeal of Wisconsin Electric Company (1992 private rail car 
assessment), State Board Docket No. 92-176, June 17, 1993.

 

73. In this appeal, the 
applicable constitutional provisions, statutes, and rules . . . provide the 
required foundation for recognizing the validity presumption in favor of the 
Department value. Basin therefore, in challenging this value, 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 (Wyo. 1987); J. Ray McDermott & 
Co. v. Hudson, 370 P.2d 364, 370 (Wyo. 1962) and Chicago Burlington & Quincy 
Railroad Co. v. Bruch, 400 P.2d 494, 499 (Wyo. 1965).

 

74. . . . In this matter 
however, the evidence presented by Basin through its exhibits as well as 
testimony of its own and other witnesses, clearly indicates more than a mere 
difference of opinion, and constitutes sufficient credible evidence to overcome 
the validity presumption in favor of the Department. The Board is thus required 
to equally weigh the evidence of all parties measured against the appropriate 
burden of proof.

 

75. . . . The burden of going 
forward then shifts to the Department to defend its 1994 value, which burden was 
fulfilled through the evidentiary presentation of the Department and Platte 
County. Basin, however, having challenged the valuation, shoulders the ultimate 
burden of persuasion to prove by a preponderance of evidence the Department 
value was not derived in compliance with the required constitutional and 
statutory methodology standard for valuing a state-assessed property.

 

          
* * *

 

77. Most, if not all, challenges 
to property valuation for ad valorem tax assessment are rooted in the Wyoming 
Constitution, Article 15, Section 11, which provides in relevant part:

 

(a) All property, except as in 
this Constitution otherwise provided, shall be uniformly valued at its full 
value as defined by the Legislature, in three (3) classes as follows:. . . .

 

          
(d) All taxation shall be equal and uniform within each class of 
property.

 

The Wyoming Supreme Court, in at 
least eleven decisions, has consistently interpreted this constitutional 
requirement to mandate "only a rational method [of appraisal], equally applied 
to all property, which results in essential fairness." Holly Sugar v. State 
Board of Equalization, 839 P.2d 959, 962 (Wyo. 1992) quoting Teton Valley Ranch 
v. State Board of Equalization, 735 P.2d 107, 115 (Wyo. 1987). Broken into its 
components, this standard requires: 1) a rational method; 2) equally applied to 
all property; and 3) essential fairness. It is thus the burden of Basin as the 
party challenging the Department valuation to prove by a preponderance of 
evidence at least one of the elements of the standard has not been 
fulfilled.

 

[¶36] The various experts applied approved methodologies 
differently, resulting in a significant discrepancy in the fair market value of 
Basin's Wyoming property. Platte County's appraiser, Mr. Goodwin, found a system 
value of $2,200,000,000; Mr. Uhrich, from the Department of Revenue, found a 
system value of  $2,083,000,000; and Basin's appraisal expert, 
Mr. Schoenwald, found a system value of $1,434,162,000.5

 

[¶37] As a result of the Investigative Report, the 
Department applied approved appraisal methods incorrectly. We find that the 
Board's Decision is erroneous in its conclusions regarding: 1) the highest and 
best use of Basin's property; 2) the all-requirements contracts; 3) imputed 
income; 4) the capitalization rates; and 5) the separate classification of 
non-profit utilities. Those conclusions resulted in an increase of almost one 
billion dollars to Basin's system valuation. As we will discuss below, those 
conclusions have no basis in the law, and we find no authority for them in the 
applicable statutes, the Board's Rules, or the factual findings made by the 
Board in its Decision.

 

Highest and Best Use

 

[¶38] Before the Board's May 3, 1994 Investigative Report, 
In the Matter of the Review of the Property of Wyoming Rural Electric 
Cooperative Utilities, the Department's valuation considered the highest and 
best use of Basin's assets was to continue as a non-profit generation and 
transmission property. Pursuant to the perceived mandate of the 1994 Report, 
however, the Department's 1994 valuation of Basin assumed the highest and best 
use of Basin's assets is as an income-producing electric generation and 
transmission property from the perspective of a profit-motivated investor. The 
Department valued Basin assets in 1994 assuming the typical buyer would be an 
investor-owned utility (IOU), an assumption used in all approaches to value as a 
result of the Board's Report.

 

[¶39] Although the Decision states that Basin does not 
contest the Department's finding that the highest and best use of the assets at 
issue is for electric generation and transmission, that statement is misleading. 
The highly specialized nature of the facility precludes it from being used for 
any other purpose. The controversy here is whether the Department's distinction 
between non-profit/for-profit entities is rationally based on fact or authorized 
by law. The Decision fails to address the issue beyond the bald assertion, at 
the beginning of its findings of fact and its conclusions of law, that Basin 
should be valued differently because the highest and best use of the property is 
no longer as a nonprofit REC.6

 

[¶40] The only citation to any legal authority in the 
Decision's discussion of highest and best use is a footnote citation to a 
treatise, The Appraisal of Real Estate (10th ed. 1992). At , the treatise 
defines "highest and best use" as "the reasonably probable and legal use of 
vacant land or an improved property, which is physically possible, appropriately 
supported, financially feasible, and that results in highest value." THE 
APPRAISAL INSTITUTE, THE APPRAISAL OF REAL ESTATE 275 (10th ed. 1992). 
Conspicuously absent from the Decision is any reference to the Board's rules, 
Wyoming statutes, or case law. The Decision fails to indicate any rule or 
statute directing the Department to value property at its highest and best use 
or, more importantly, what such a determination would entail. See In the Matter 
of Bessemer Mountain, Rissler & McMurry v. Environmental Quality Council, 
856 P.2d 450, 454 (Wyo. 1993) ("[T]he administrative agency must invoke 
expertise to create standards, which will furnish notice to the public of how 
the decision may be reached. The creation of such standards serves to eliminate 
any need to develop standards on a case by case basis, which is time-consuming; 
may lead to inconsistent results; and severely inhibits judicial review.")

 

[¶41] Of particular concern here is the absence of 
authority supporting the application of the highest and best use analysis to 
differentiate between non-profit and for-profit entities. In this case, the 
"use" of the property is as an electric utility. The entity's financial and 
management structure is simply irrelevant to a "highest and best use" 
analysis.

 

[¶42] The Board's analysis then leaps from defining highest 
and best use as "the reasonably probable and legal use of vacant land or an 
improved property, which is physically possible, appropriately supported, 
financially feasible, and that results in highest value" to a "most profitable" 
analysis and concludes that Basin would be more profitable if it was a 
for-profit entity. However, the Board's own definition of highest and best use 
contains absolutely no mention of "most profitable." In fact, while "results in 
highest value" may relate to "most profitable," the Board's Decision is devoid 
of findings or analysis concerning the other factors found in the definition of 
highest and best use.

 

[¶43] "[The] highest and best use is shaped by the 
competitive forces within the market where the property is located. Therefore, 
the analysis and interpretation of highest and best use is an economic study of 
market forces focused on the subject property."  APPRAISAL OF REAL ESTATE, supra, at 275-76. 
Reviewing the Decision, we find no evidence that the Department or the Board 
undertook the necessary economic study of the market forces affecting Basin's 
property. The purpose of WYO. STAT. § 16-3-110 (1997)7 is "to require 
the articulation of basic facts from which ultimate findings of fact are 
determined in order to facilitate judicial review." Harris v. Wyo. Tax Comm'n, 
718 P.2d 49, 51 (Wyo. 1986).

 

[¶44] The Board's conclusory "finding" that the highest and 
best use of Basin's property is as an investor-owned utility is unsupported by 
the law or basic facts necessary for such a determination. We do not uphold 
agency decisions which are not supported by basic facts, properly applied to the 
law. Therefore, we reverse the Board's determination that the highest and best 
use of Basin's property is as an investor-owned utility.

 

All Requirements Contracts

 

[¶45] "A general tenet of property tax law is that when 
land is subject to a restriction which affects its value, then that restriction 
should be considered in determining the property's fair market value." CAT 
Partnership v. County of Santa Cruz, 63 Cal. App. 4th 1071, 74 Cal. Rptr. 2d 652, 
660 (1998). "This principle is related to the requirement that the land be 
valued at its highest and best use subject to the condition that the use be one 
which is legally permissible." Id. "A use which is forbidden because of an 
enforceable restriction is generally a use that is not legally permissible." 
Id.

 

[¶46] Basin is a super generation and transmission 
association. Basin sells its power to smaller generation and transmission 
cooperatives and to a small number of distribution cooperatives, which are known 
as "Class A members." The Class A members then sell the power to rural electric 
distribution cooperatives which distribute power to the ultimate retail 
consumer. Basin has been a non-profit entity since its inception. Basin's 
Articles of Incorporation provide that "[t]he Association shall at all times be 
operated on a cooperative non-profit basis for the mutual benefit of its 
patrons."

 

[¶47] Basin's Class A members purchase power from the 
Western Area Power Administration, which administers the hydroelectric 
facilities of the federal government. If the members have any additional 
electricity requirements, they must be purchased from Basin, pursuant to 
contracts known as "all-requirements contracts." In its Decision the Board 
quoted from one of Basin's typical all-requirements contracts, which provides 
for review and revision of rates 

so that it shall produce 
revenues which shall be sufficient, but only sufficient, with the revenues of 
the seller from all other sources, to meet the cost of the operation and 
maintenance . . . of the generating plants, the transmission system and related 
facilities of the seller . . . and to provide for the establishment and 
maintenance of reasonable reserves.

 

[¶48] Rural Electric Cooperatives (RECs), such as Basin, 
receive financing from the Rural Electric Association (REA). In return for that 
financial assistance, the REA regulates and supervises RECs. The REA requires 
RECs to obtain all-requirements contracts, described above. These contracts are 
then pledged to the REA as security for the debt. The REA not only approves the 
all-requirements contracts; it also determines whether the REC's rates are too 
high or too low. The all-requirements contracts limit Basin's rates to amounts 
necessary to cover Basin's costs, plus a margin.

 

[¶49] Against that background, we examine the applicable 
rules of the Department of Revenue. Chapter XXXIII of the Board's Rules sets 
forth accepted valuation methods for state-assessed properties. To determine 
"fair market value" with the "willing buyer/willing seller" standard, RULES, Ch. 
XXXIII, Section 4(g), appraisal techniques which may be used by the Department, 
provide for consideration of the "regulatory and economic environment." RULES, 
Ch. XXXIII, Section 6. When using the income approach, the cash flow or income 
to be capitalized "must also take into account all legally enforceable 
restrictions on the property." RULES, Ch. XXXIII, Section 6(b)(iii)(B)(1).

 

[¶50] Basin takes issue with the Board's determination that 
Basin's all-requirements contracts are not legally enforceable 
restrictions.  
Basin argues that the all-requirements contracts are legally enforceable 
restrictions affecting its ability to generate income and should be considered 
when using the income approach to determine its value. The question presented is 
a legal one: whether a property owner's participation in a non-profit rural 
electric cooperative constitutes a "legally enforceable restriction on the 
property" which must be taken into account in the income approach to value.

 

The types of restrictions that 
constitute enforceable restrictions have been described as virtually any 
government restriction designed to serve the interest of public health, safety, 
morals and/or general public welfare. As one commentator stated, "Generally, any 
sort of binding agreement with a government agency should qualify [as an 
enforceable restriction]. . . ."

 

CAT Partnership, 74 Cal. Rptr. 2d  
at 659 (citations omitted).

 

[¶51] The Oregon Supreme Court ad valorem tax decision, 
Bayridge Associates Ltd. Partnership v. Dept. of Rev., 321 Or. 21, 892 P.2d 1002 
(Or. 1995), which the Board cites in its discussion of the tax benefit transfer 
issue,8 provides a useful discussion of a similar 
question. Bayridge interpreted an Oregon statute which required the taxing 
authority to adjust market value to reflect or take into account "governmental 
restrictions as to use." Bayridge, 892 P.2d  at 1005. The "[t]axpayers entered 
into an agreement with OHA that limited the rents that taxpayers could charge to 
tenants residing in taxpayers' properties and limited the pool of tenants to 
whom they could rent apartments," id. at 1006, in exchange for section 42 
federal tax credits. Id. at 1004-06. Like the Board here, the taxing authority 
in Bayridge argued that "availability of section 42 tax credits does not create 
a 'governmental restriction,' because (a) the taxpayer chooses to participate in 
the program and (b) the program results in financial gain to the taxpayer." Id. 
at 1005.

 

[¶52] The Bayridge court opined:

 

Nothing in the text of [the 
statute] suggests that a "governmental restriction" must be involuntary at its 
inception.  
Neither does the text suggest that a taxpayer may not derive an economic 
benefit from a "governmental restriction."  The text of [the statute] does not 
distinguish between voluntary and involuntary, or between beneficial and 
non-beneficial, "governmental restrictions." We are not at liberty to read in 
such requirements.

 

Id. We agree with that reasoning. Nothing in the 
Department's rules requires that the legally enforceable restriction be 
involuntary. The Board's conclusion that the all-requirements contracts "cannot 
be considered a governmental limitation commonly referred to as police power - 
the right of the government to impose reasonable limitations to protect and 
promote the health, safety and general welfare of the public, like zoning," is 
not supported by the rule's text or any fair reading thereof. The 
all-requirements contracts are binding agreements with a government agency, 
limiting Basin's profit. They are, therefore, a legally enforceable restriction 
and must be recognized in the income approach to valuation.

 

Imputed Income9

 

[¶53] By virtue of the Board's Investigative Report (1994), 
the Department assumed that using the actual income of Basin did not capture all 
of the economic benefits members received in the form of rates lower than 
otherwise would have been charged. The Department then used financial data from 
comparable companies using price/earnings ratios to impute the level of income. 
Basin's projected annual income was $130,000,000, while the Department's imputed 
income level for Basin was $160,454,020.

 

[¶54] The Board determined that Basin's non-profit status 
mandated by the all-requirements contracts requires it to charge below market 
rates and concluded that the "Department appropriately capitalized 'market rent' 
when it imputed a level of income based on the earnings/price ratios of 
companies in the same general line of business as Basin."

 

[¶55] However, use of "market rent" to impute income 
ignores the legally enforceable restriction found in the all-requirements 
contracts. As discussed earlier, the Board's rules require it to take into 
account legally enforceable restrictions when applying the income approach to 
value. "Throughout [valuation] cases [we find] the rule . . . that tax 
authorities should take into consideration all factors which relate to value." 
J. Ray McDermott & Co. v. Hudson, 370 P.2d 364, 368 (Wyo. 1962). The legally 
enforceable restrictions may not be ignored. Therefore, the Department erred 
when it capitalized an imputed income rather than Basin's actual income.

 

Capitalization Rates

 

[¶56] In the Board's Decision we find the following: "In 
the Board's 1994 Investigative Report we found a non-profit stream of income 
could not be capitalized with a for-profit capitalization rate." The Board then 
found that direct capitalization techniques and methodologies were proper 
methodologies, properly applied to Basin. However, the Department imputed a 
for-profit income to Basin, then applied a direct capitalization rate, different 
from the yield capitalization rates it applied to for-profit utilities, because 
Basin is a non-profit company. It is logically inconsistent to impute a 
for-profit income and then to apply a capitalization rate which appears to be 
designed for use with a non-profit stream of income. Additionally, 

[The direct capitalization] 
model requires the use of P/E (price/earnings) ratios, i.e., mathematical ratios 
derived from comparing the price at which particular companies' stock sold with 
the earnings of those companies. If an appraiser uses P/E ratios, it is vital 
that the ratios be for "comparable" companies, i.e., be derived from companies 
sufficiently similar to the company being evaluated to make use of the ratios 
analytically meaningful.

 

Union Pacific Railroad Co. v. Dept. of Rev., 315 Or. 11, 
843 P.2d 864, 874 (Or. 1992).

 

[¶57] The Department takes the untenable position that 
non-profit utilities are sufficiently different from investor-owned utilities to 
justify use of different valuation methodologies and capitalization rates, yet 
uses investor-owned utilities as "comparables" in its direct capitalization 
approach. The direct capitalization approach takes on many of the same 
characteristics as the stock and debt approach to value. Union Pacific, 843 P.2d  
at 874. The Board determined that the stock and debt approach was so unreliable 
that it gave no weight to that approach in its final determination. It logically 
follows that the direct capitalization rate must be just as unreliable.

 

[¶58] The Board's rationale for using a direct 
capitalization rate, rather than the same yield capitalization rate it uses for 
those purportedly "comparable" companies, is arbitrary, capricious and not in 
accordance with the law. The Department has not sufficiently defended, and the 
Board has not sufficiently justified, the application of different 
capitalization rates. Therefore, we reverse the Board's conclusion that "direct 
capitalization techniques and methodologies employed by the Department were 
proper methodologies and were properly applied."

 

Separate Classification of 
Non-profit Utilities

 

[¶59] The Wyoming Constitution mandates uniform assessment 
and equal and uniform taxation. Wyo. Const. Art. 15, § 11.

 

Early on, Justice Blume 
recognized a truth inherent in the area of property valuation: "There is no such 
thing as absolute value. A stone cannot be other than a stone, but one man may 
give a different valuation to a piece of land than another." Bunten v. Rock 
Springs Grazing Ass'n, 29 Wyo. 461, 475, 215 P. 244, 248 (1923). Accordingly, 
this court has consistently interpreted Wyo. Const. art. 15, § 11 to require 
"only a rational method [of appraisal], equally applied to all property which 
results in essential fairness."

 

Holly Sugar Corp. v. State Bd. 
of Equalization, 839 P.2d 959, 964 (Wyo. 1992).

 

[¶60] "The Constitutional command is that the Legislature 
shall provide for a uniform and equal rate of assessment and taxation.  Assessment is a 
prerequisite to the application of any rate of taxation, and assessment includes 
listing and valuation. This is fundamental, and cannot be evaded by any shift or 
device whatever." Rocky Mountain Oil and Gas Assoc. v. State Bd. Of 
Equalization, Department of Revenue and Taxation, 749 P.2d 221, 235-36 (Wyo. 
1987). The Investigative Report directed the Department to treat non-profit 
utilities differently from investor-owned utilities, resulting in a de facto 
classification. "In ad valorem taxation, a rational basis for a disputed 
classification must be shown with equal treatment of similarly definable 
taxpayers." Id. at 236. Appraisal methods must be equally applied to all 
property within the class. Holly Sugar, 839 P.2d  at 963-64 and see Union Pacific 
R.R. v. Bd. of Equalization, 802 P.2d 856, 862-63 (Wyo. 1990) (Urbigkit, C.J., 
specially concurring). "Discrimination may arise in various ways, for instance 
by the adoption of a wrong or illegal rule, principle, or method; and an unjust 
tax resulting therefrom has frequently been enjoined as illegal." J. Ray 
McDermott, 370 P.2d  at 369.

 

[¶61] Pursuant to our analysis of the Board's Investigative 
Report and the Department's subsequent valuation of Basin's property in 
accordance with that Report, we find that the Board's decisions affirming the 
Department's valuation constituted an abuse of discretion and were 
unconstitutional. As discussed above there is no rational basis in the record 
for treating non-profit and for-profit entities differently. We hold that the 
tax is on the property, not the owner, and a valuation for tax purposes must 
value the property, not the ownership type. See Recreation Centers of Sun City, 
Inc. v. Maricopa County, 162 Ariz. 281, 782 P.2d 1174, 1181 (Ariz. 1989).

 

                                           
CONCLUSION

 

[¶62] We reverse and remand Case No. 97-3 for further 
action in accordance with this opinion. Because the board of county 
commissioners lacks standing to appeal from a decision of the State Board of 
Equalization, Case No. 97-4 is dismissed for lack of jurisdiction.

           

FOOTNOTES

1 Article 15, Section 11 of the Wyoming Constitution 
provides:

 

(a) All property, except as in this constitution otherwise 
provided, shall be uniformly valued at its full value as defined by the 
legislature, in three (3) classes as follows:

 

(i) Gross production of minerals and mine products in lieu 
of taxes on the land where produced;

 

          
(ii) Property used for industrial purposes as defined by the legislature; 
and

 

          
(iii) All other property, real and personal.

 

(b) The legislature shall prescribe the percentage of value 
which shall be assessed within each designated class. All taxable property shall 
be valued at its full value as defined by the legislature except agricultural 
and grazing lands which shall be valued according to the capability of the land 
to produce agricultural products under normal conditions. The percentage of 
value prescribed for industrial property shall not be more than forty percent 
(40%) higher nor more than four (4) percentage points more than the percentage 
prescribed for property other than minerals.

 

(c) The legislature shall not create new classes or 
subclasses or authorize any property to be assessed at a rate other than the 
rates set for authorized classes.

 

(d) All taxation shall be equal and uniform within each 
class of property. The legislature shall prescribe such regulations as shall 
secure a just valuation for taxation of all property, real and personal.

           

2 The Department was created in 1990 as part of the Wyoming 
Government Reorganization Act of 1989, WYO. STAT. §§ 9-2-1701 through -1708 
(1997). Thereafter, the Board and the Department were two separate entities with 
separate duties and responsibilities. See WYO. STAT. §§ 39-1-301 (Cum.Supp. 
1993) and 9-2-2007 (1997). The Board and the Department were reorganized in 
1995. 1995 Wyo. Sess. Laws Ch. 209, p. 461. The valuation for the 1994 tax year 
is at issue here. Therefore, significant portions of the statutory provisions 
and agency rules relevant to this controversy have been changed, requiring use 
of the 1990 Replacement Volume, the 1993 Cumulative Supplement to Title 39 of 
the Wyoming Statutes and the August 12, 1993, version of the Board of 
Equalization Rules and Regulations (RULES).  Additionally, in 1998, the legislature 
recodified the tax statutes, which are now found in Chapters 11 through 19 of 
Title 39.

  

3 Article 15, Section 10 of our constitution provides:

 

The duties of the state board shall be to equalize the 
valuation on all property in the several counties and such other duties as may 
be prescribed by law.

  

4 The Board's Rules allow the Department to use the 
following types of appraisal methods: 1) market approaches to value - which 
include the sales comparison approach and the stock and debt approach; 2) cost 
approaches to value - which include the replacement cost, reproduction cost and 
historical cost approaches; and 3) income capitalization to value approach. 
RULES, Ch. XXXIII, § 6.

  

5 For the most part, the experts for Platte County and the 
Department used the methodologies suggested in the Report, while Basin's expert 
used pre-Report methodologies.

  

6 The Board's entire basis for applying the valuation 
methods differently is found in the following paragraphs in the Decision. Its 
findings of fact include the following (footnotes omitted):

 

4. The Department 1994 valuation of Basin assets is based 
on the assumption the highest and best use of Basin assets is as an 
income-producing electric generation and transmission property from the 
perspective of a profit-motivated investor. Basin does not contest the highest 
and best use of its assets at issue is for electric generation and transmission. 
Additional clarification is needed, however, to better understand the context in 
which the Department's appraisal was made.

 

5. The Department valued Basin assets in 1994 assuming the 
typical buyer would be an investor-owned utility (IOU).  The Department used 
the perspective of an IOU buyer in all approaches to value as a result of a 
material finding in this Board's 1994 Investigative Report In the Matter of the 
Property of Rural Wyoming Electric Cooperative Utilities (May 3, 1994). The 
Board said at that time:

 

The Department conclusion on highest and best use [in its 
1993 investigation] is also erroneous as a matter of appraisal principles, and 
is internally inconsistent . . . [Highest and best use] relates to the typical 
investor's conclusions about the most profitable use of a property, and has 
nothing to do with whether or not the current owner seeks a profit. Further, it 
is inconsistent for the Department to defend its capitalization rate, which is 
based on data relating to IOU [investor-owned utilities] properties and, in the 
same document, conclude the most profitable use of the property is as a 
nonprofit operation.

  

6. Basin argues it cannot achieve the imputed income 
derived by the Department under the income and cost approaches assuming an 
average return on equity or return on investment achieved by investor-owned 
utilities operating in Wyoming. Basin, however, did not otherwise provide any 
evidence of the nature of the "typical investor."

 

          
In the Decision's conclusions of law we find:

 

79. Clearly the present and actual use of the property is 
not intended to generate profit, but rather to provide power to its owners at 
the lowest possible cost. Basin uses its property to maximize cost savings; a 
prospective profit-motivated purchaser would seek to maximize return of and on 
investment. Mr. Goodwin's remarks are instructive: "A property's highest and 
best use is not contingent on the kind of owner, whether it be a co-op or some 
other kind of nonprofit entity or a sub S corporation or an individual, it 
shouldn't have any effect on the underlying market value of those assets. We 
want to try to measure the earning capacity at their highest and best use." He 
further said, "I need to assume that we have a typical owner and a typical 
purchaser. That's the context that every market value appraisal should be made 
within." Maximizing cost savings is but the flip side of the same 
profit-motivating coin. It is therefore reasonable to view highest and best use 
from the perspective of a potential investor seeking to maximize earning 
capacity in order to quantify the benefits of ownership Basin's 
members/owners/consumers receive. While it is important to value the assets as 
is, that is, in their current condition and in consideration of current market 
conditions, we conclude it is just as important to view the assets from the 
perspective of a potential profit-motivated purchaser throughout each valuation 
analysis in order to be consistent. Accordingly, we conclude the highest and 
best use assumed by the Department in the 1994 appraisal, which was as an 
income-producing electric generation and transmission property from the 
perspective of a profit-motivated investor, is appropriate.

        

7 WYO. STAT. § 16-3-110 provides:

 

A final decision or order adverse to a party in a contested 
case shall be in writing or dictated into the record. The final decision shall 
include findings of fact and conclusions of law separately stated. Findings of 
fact if set forth in statutory language, shall be accompanied by a concise and 
explicit statement of the underlying facts supporting the findings. . .

         

8 The tax benefit transfer issue concerned valuation 
pursuant to the "cost approach" to value. As such, the Board's reliance on the 
"legally enforceable restriction" language from the income approach section of 
the rules appears to be inappropriate.

  

9 Without reaching the issue on the merits, we note that 
this Court has held that use of hypothetical costs and hypothetical royalties is 
inappropriate in determining valuation for tax purposes. Appeal of Monolith 
Portland Midwest Co., Inc., 574 P.2d 757, 761 (Wyo. 1978); Hillard v. Big Horn 
Coal Co., 549 P.2d 293, 301 (Wyo. 1976). Absent compelling evidence and legal 
argument that use of imputed income is appropriate and other non-profit entities 
are treated in the same manner, it is improper to impute income to a taxpayer 
when using the income capitalization approach to value. See also Recreation 
Centers of Sun City, Inc. v. Maricopa County, 162 Ariz. 281, 782 P.2d 1174, 1182 
(Ariz. 1989) (income approach is inappropriate for valuing non-profit 
cooperative).