Title: PACIFICORP, INC., v. DEPT. OF REVENUE

State: wyoming

Issuer: Wyoming Supreme Court

Document:

PACIFICORP, INC., v. DEPT. OF REVENUE2000 WY 20213 P.3d 256Case Number: 99-279Decided: 11/15/2000Supreme Court of Wyoming
 
PACIFICORP, INC., 
Appellant (Petitioner), v.DEPARTMENT OF REVENUE, STATE OF 
WYOMING, Appellee (Respondent).

Certified from the 
District Court of Laramie County The Honorable Nicholas G. Kalokathis, 
Judge

Representing 
Appellant:W. Perry Dray of 
Dray, Thomson & Dyekman, P.C., Cheyenne, Wyoming; and Richard G. Smith of 
Hawley, Troxell, Ennis & Hawley, LLP, Boise, Idaho.Representing 
Appellee:Gay Woodhouse, Attorney General; Rowena L. Heckert, Deputy 
Attorney General; and Jay Jerde, Assistant Attorney 
General.

Before 
LEHMAN, C.J., and THOMAS, GOLDEN, HILL, and KITE, JJ.

THOMAS, 
Justice.

[¶1] The crux of 
this case is found in the claim of Pacificorp, Inc. (Pacificorp) that the 
Department of Revenue (Department) is required to apply a Wyoming market to book 
ratio in valuing Pacificorp's tax-exempt property for 1996. Pacificorp contends 
that the Department erred in valuing its tax-exempt property for 1996 because in 
adjusting for depreciation and obsolescence the Department was required to apply 
the Wyoming market to book ratio of 90.08% instead of the system market to book 
ratio of 82.4122%. Pacificorp argues that the Department is required to use the 
higher ratio, which applies specifically in Wyoming, rather than the more 
general ratio, which is derived from property in Wyoming and other 
jurisdictions. Pacificorp asserts that the appraisal formula applied by the 
Department is not rational because of the substitution of a general factor for a 
specific Wyoming factor in valuing Pacificorp's Wyoming property. The 
Department, as it did before the Board of Equalization (Board), relies upon the 
presumption of the correctness of an agency interpretation, the historical 
application of the same formula, the notification to taxpayers that the formula 
would be so constructed, and the failure of Pacificorp to meet its burden of 
persuasion by presenting evidence that the presumption of correctness was 
erroneous. It is our conclusion that the Department was not required to invoke 
the Wyoming market to book ratio to value the property in harmony with the law. 
We affirm the decision of the Board.

[¶2] This 
statement of the issues is found in the Brief of 
Appellant:

I. Did the State Board 
err in failing to conclude that the 1996 valuation of Pacificorp's exempt 
property by the Department of Revenue was erroneous, and that accordingly 
Pacificorp's ad valorem assessment for the 1996 tax year exceeded the fair 
market value of Pacificorp's property, in violation of W.S. §§ 39-2-102 and 
39-2-201(a)?

II. Did the State Board 
abuse its discretion and deny Pacificorp due process in denying Pacificorp's 
motion for leave to present testimony and other evidence at a hearing in this 
matter?

[¶3] This 
Statement of the Issues is found in the Brief of Appellee, filed on behalf of 
the Department:

I. Is the Wyoming State 
Board of Equalization's decision that PacifiCorp failed to meet its burden of 
proof in the expedited contested case arbitrary, capricious, an abuse of 
discretion or otherwise not in accordance with law?

II. Did PacifiCorp waive 
its right to challenge the expedited contested case procedure by participating 
in the expedited contested case without objecting to the expedited 
procedure?

[¶4] At issue in 
this case is the valuation of Pacificorp's Wyoming property for 1996. For 
purposes of our discussion, the valuation process began with a unitary valuation 
of all of Pacificorp's property wherever it was situated. Pacificorp submitted 
the information utilized by the Department in its required annual report.1 That valuation was accomplished by 
the application of appraisal methods that had been used historically for the 
purpose of arriving at the unitary fair market value of Pacificorp's property.2 These included the historic cost 
less depreciation model, the rate base model, the yield capitalization model, 
the direct capitalization model, and the stock and debt model. From the 
application of these models, the Department arrived at a system-correlated value 
of $6,400,000,000.3 The Department then applied an 
allocation percentage of 22.183% to arrive at a Wyoming base value of 
$1,419,712,000.4 [R. 270] The system correlated 
value resulted in a market value to adjusted cost ratio of 82.4122%, which the 
Department then utilized in the exemption adjustment factor in arriving at the 
adjusted value of the Wyoming exempt property.

[¶5] The Board 
found that Pacificorp did not contest the unitary valuation or the Wyoming base 
value. Those findings rely upon the utilization of the unitary valuation and the 
Wyoming base value in Exhibit A, PacifiCorp Wyoming Valuation, which was 
presented by Pacificorp in its Trial Memorandum submitted to the Board. The 
Board's findings are confirmed by the Brief of Appellant, in which, after 
alluding to the unitary valuation step, and stating the Department determined it 
to be $6,400,000,000, Pacificorp states, "[t]hat valuation is not in dispute 
here." Subsequently, after describing the allocation step, Pacificorp states, 
"[t]he formula used by the Department with respect to electric utilities is also 
not in dispute in this case. That formula results in an allocation to Wyoming of 
22.183% of the System Value, producing a Wyoming Value of 
$1,419,712,000."

[¶6] The third 
step in the Wyoming appraisal was to deduct the value of the tax-exempt property 
in order to determine the value of the property subject to the Wyoming ad 
valorem tax. The Department made that computation by reducing the cost of the 
Wyoming tax-exempt property by the system valuation ratio of market value to 
adjusted cost, 82.4122%, which it then applied to the cost of the Wyoming 
tax-exempt equipment to arrive at the value of the tax-exempt equipment. In its 
appeal to the Board, Pacificorp described the crux of the case in this 
way:

The basis for this appeal 
is that there is no rational or logical reason why exempt property should be 
deducted based on a system-wide market-to-book ratio, when it is the Wyoming 
property that is being valued and it is Wyoming property that is being deducted 
in the exemption calculation.

[¶7] (Emphasis 
in original.) This claim was based upon Pacificorp's argument that when a 
portion of the company's system-wide value was allocated to Wyoming, Wyoming 
costs could be compared to the allocated portion of the system value, which 
resulted in a market to cost ratio of 90.08%. Pacificorp argued strenuously that 
the cost of the Wyoming tax-exempt property should have been discounted by that 
larger percentage which would have valued the tax-exempt property at 
$332,746,423 rather than the $304,422,470 value assigned by the Department. The 
result of adopting the methodology advanced by Pacificorp would have been a 
reduction of valuation of its Wyoming property by 
$28,323,953.

[¶8] The Board, 
in its Findings of Fact, Conclusion of Law, Decision and Order, capsulized the 
contention of Pacificorp in Findings of Fact, Nos. 6 and 
17:

6. There was an exemption 
adjustment factor applied to the net exempt property value to reduce the value 
of the exempt property to present-day value. The factor used by the Department 
was 82.4122%. The Department's adjustment factor was a system to market book 
ratio. The Department's Adjustment factor was calculated as 
follows:

"The Exemption Adjustment 
Factor is equal to the System Correlated Value divided by the Total Operating 
Property and Equipment (Line VI plus Line VIII in the Valuation Section of the 
HCLD Model)." * * *.

It is this "Exemption 
Adjustment Factor" Petitioner asserts is wrong. The Petitioner believes the 
adjustment factor should be the state equipment value to market book 
ratio.

* * 
*

17. Attached to 
Petitioner's Trial Memorandum and referred to in the Memorandum was The Study of 
State-Assessed Property, Procedural Audit of Methodologies, December 9, 1994. 
This is the only evidence before the Board to demonstrate the Department's 
system to market-book ratio is incorrect and that the ratio Petitioner wants the 
Department to use, the state to market-book ratio is correct. This study 
included a recommendation as follows:

"Recommendation 
#19

In most cases, it should 
make little valuation difference whether the deduction for non-taxables is made 
based upon a relationship between system value or allocated state value and 
property investment. When a significant difference does arise, the appraiser 
should first reconsider his/her allocation factor then, when comfortable, base 
the deduction for non-taxables on the investment relationship between 
non-taxables and total state investment (i.e. state investment in non-taxable 
assets divided [by] total state investment) and apply this ratio to the 
allocated state value."

[¶9] (Emphasis 
in original.) In its Conclusions of Law, the Board said:

22. The Department's 
valuation established for state-assessed property, is 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 rule making, or both. Chicago Burlington 
& Quincy Railroad Co. v. Bruch, 400 P.2d 494, 499 (Wyo. 
1965).

[¶10] The Board 
then concluded that the Board's rules required Pacificorp to assume the burden 
of going forward with evidence as well as the ultimate burden of persuasion. It 
concluded that Pacificorp had failed to present the requisite credible evidence 
to overcome the presumption of validity, and it had failed to meet its burden of 
persuasion.

[¶11] With 
respect to an asserted procedural right of Pacificorp to have an opportunity to 
present evidence after it had anticipated the assignment of the matter to the 
expedited docket, and the Board had so assigned it, the Board ruled that 
Pacificorp "had ample opportunity to present evidence either in writing or to 
object to the assignment of expedited docket * * *," and it had failed to take 
advantage of either opportunity. The Board then affirmed the Department's 
valuation of the property.

[¶12] Pacificorp 
sought judicial review of the Board's decision in the District Court of the 
First Judicial District, County of Laramie. That court then certified the case 
to this Court under the provisions of W.R.A.P. 12.09.

[¶13] In Basin 
Elec. Power Co-op., Inc. v. Department of Revenue, State of Wyo., 970 P.2d 841, 
851 (Wyo. 1998), we spoke to our function as a reviewing court in this 
way:

"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.3d 959, 963 (Wyo. 1992)). However, the 
disagreement between the parties here does not concern the Department's choice 
of appraisal methods. The controversy concerns the proper application of those 
methods to the facts, which is an issue of ultimate fact, requiring de novo 
review.

[¶14] (Footnote 
omitted.) In addition, the Department reminds us of the standard adopted when 
reviewing a failure to meet the burden of proof assigned to a 
party:

"When an agency decides 
that the party charged with the burden of proof has failed to meet that burden, 
the case is reviewed under the `[a]rbitrary, capricious, an abuse of discretion 
or otherwise not in accordance with law' language of Wyo. Stat. § 
16-3-114(c)(ii) (1990). City of Casper v. Utech, 895 P.2d 449, 452 (Wyo. 1995). 
On appeal the complainant, Pederson in this instance, has the burden of proving 
arbitrary administrative action. Knight v. Environmental Quality Council of 
State of Wyo., 805 P.2d 268 (Wyo. 1991); Wyoming Bancorporation v. Bonham, 527 P.2d 432, 439 (Wyo. 1974); Marathon Oil Co. v. Welch, 379 P.2d 832, 836 (Wyo. 
1963); Whitesides v. Council of City of Cheyenne, 78 Wyo. 80, 319 P.2d 520, 526 
(1957). The agency, as the trier of fact, is charged with weighing the evidence 
and determining the credibility of witnesses. Utech, 895 P.2d  at 451, and cases 
there cited. The deference normally accorded to the findings of fact by a trial 
court is extended to the administrative agency, and the agency's decision as to 
the facts will not be overturned unless it is clearly contrary to the 
overwhelming weight of the evidence. Wyoming Steel & Fab, Inc. v. Robles, 
882 P.2d 873, 875 (Wyo. 1994)."

[¶15] Pederson 
v. State ex rel. Wyoming Workers' Compensation Div., 939 P.2d 740, 742 (Wyo. 
1997). Pederson has been followed as recently as Murray v. State ex rel. Wyoming 
Workers' Safety and Compensation Div., 993 P.2d 327, 329-30 (Wyo. 
1999).

Hat Six Homes, 
Inc. v. State, Dept. of Employment, Unemployment Ins. Com'n, 6 P.3d 1287, 1292 
(Wyo. 2000).

[¶16] In arguing 
its claim of error in this Court, Pacificorp relies upon Recommendation #19 from 
the Study of State-Assessed Property, Procedural Audit of Methodologies, 
December 9, 1994, quoted by the Board in its Findings of Fact, Conclusion of 
Law, Decision and Order. Claiming a significant difference in valuation, it 
asserts that the Department should be bound by the principle articulated in the 
study:

When a significant 
difference does arise, the appraiser should first reconsider his/her allocation 
factor then, when comfortable, base the deduction for non-taxables on the 
investment relationship between non-taxables and total state investment (i.e. 
state investment in non-taxable assets divided [by] total state investment) and 
apply this ratio to the allocated state value.

[¶17] Pacificorp 
couples this assertion with reliance on Holly Sugar Corp. v. State Bd. of 
Equalization for State of Wyo., 839 P.2d 959, 966 (Wyo. 1992) and J. Ray 
McDermott & Co. v. Hudson, 370 P.2d 364, 370 (Wyo. 1962), contending that 
those cases demonstrate that the Board must use specific valuation information 
when it is available, and must take into account factors peculiarly applicable 
to the taxpayer in arriving at valuations. Pacificorp also argues that under 
Basin Elec. Power Co-op., Inc., 970 P.2d  at 852, this controversy involves the 
application of the appraisal method to the particular facts, which is reviewable 
de novo.

[¶18] In its 
appellate brief, Pacificorp advises this Court that, "[t]he correct answer in 
this case should be derived from logic, common sense and the application of 
simple mathematics." This Court then is favored with mathematical wizardry that, 
on the surface, appears to demonstrate the logic and common sense that 
Pacificorp contends leads to the result that it claims. We are not satisfied so 
readily by the record and the arguments which are propounded on behalf of 
Pacificorp.

[¶19] The 
essential fallacy in the valuation method proposed by Pacificorp in Exhibit A to 
its Trial Memorandum before the Board is that it purports to identify Wyoming 
plant costs and the cost of Wyoming non-taxable assets, which it then 
substitutes, after netting those figures, as the cost factor in determining the 
Wyoming market to book ratio while retaining the Wyoming base value as 
determined by the Department as the market factor. This substitution results in 
what Pacificorp describes as a "significant difference" between the Wyoming 
market to book ratio and the system market to Wyoming book ratio. This approach 
gives little credence to the caveat appearing on of the Study of State-Assessed 
Property, Procedural Audit of Methodologies:

The rationale for this 
approach [multiply the net book investment in non-taxable property (as reported 
in the annual report) by the ratio of total system value to total system 
investment] is to deduct value from value rather than cost from value. Having 
determined the market value of the property in Wyoming, it would be 
inappropriate to deduct the cost, rather than the market value, of the 
non-taxable property.

[¶20] (Emphasis 
in original.) By relying upon the Wyoming base value, which is a product of the 
adjustment previously made by applying the system market to Wyoming book ratio, 
while invoking Wyoming costs for the non-taxable property, Pacificorp is 
comparing it to Wyoming costs, which results in an inappropriate deduction of 
Wyoming "cost, rather than the market value, of the non-taxable property." In 
arriving at the critical ratios for the valuation method that Pacificorp 
proposes, it is using the Wyoming adjusted value from the Department formula, 
but instead of using Wyoming costs adjusted by the same factor, it is using 
actual costs. This despite the fact that the non-taxable assets were discounted 
by the system market to Wyoming book ratio formula before they were included in 
the assets allocated to Wyoming.

[¶21] The method 
proposed by Pacificorp, if it had been invoked by the Department, would have 
resulted in substantially the same criticism of the Department that we voiced in 
Basin Elec. Power Co-op., Inc., 970 P.2d at 856-57:

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,

[¶22] "[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).

[¶23] 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. * * 
*

[¶24] 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.

[¶25] The method 
proposed by Pacificorp in this case is indeed a comparison of apples with 
oranges, and it is an anathema in terms of a logical and consistent appraisal 
method.

[¶26] It is 
clear from the record, and Pacificorp does not dispute the fact, that the same 
valuation methodology was applied to all public utilities of the same class. To 
adopt for Pacificorp the adjustment it sought would have resulted in a deviation 
from the uniformity requirement of Wyo. Const. art. 15, § 11. See Gray v. 
Wyoming State Bd. of Equalization, 896 P.2d 1347, 1351 (Wyo. 1995). We hold that 
the ruling by the Board was not arbitrary, capricious, an abuse of discretion or 
otherwise not in accordance with law so as to require correction pursuant to 
Wyo. Stat. Ann. § 16-3-114(c)(ii) (Lexis 1999). Even applying the de novo review 
suggested in Basin Elec. Power Co-op., Inc., we are in accord with the Board 
that Pacificorp failed to carry its burden of producing evidence to overcome the 
presumption of correctness that attaches to the valuation methodology used by 
the Department.

[¶27] This 
latter holding brings us to consideration of the claim by Pacificorp that the 
Board abused its discretion and deprived Pacificorp of due process "in denying 
Pacificorp's motion for leave to present testimony and other evidence at a 
hearing in this matter[.]" The Matter of the Appeal of Pacificorp was assigned 
to the Expedited Docket by the Briefing Order (Expedited Docket) entered by the 
Board on May 7, 1997, in accordance with the Rules and Regulations of the Board, 
which provide in pertinent part:

Section 14. Expedited 
Contested Case.

(a) A contested case may 
be expedited if the case is:

(i) A matter in which 
there are no disputed issues of material fact; or

(ii) A matter in which 
the parties agree to an expedited proceeding, provided the Board retains the 
authority to convert at any time the proceeding to a regular contested case when 
it appears essential facts must be determined in order to permit adequate 
presentation and disposition of the case.

(b) Any party shall have 
ten (10) days from the date of the Board order scheduling a matter as an 
expedited case to request reconsideration.

(c) An expedited 
contested case shall consist of review of any written argument and evidence. 
Limited oral argument to the Board after submission of all written material 
shall be permitted upon written request of a party.

[¶28] Pacificorp 
did not request reconsideration of the assignment of the matter to the expedited 
docket within the ten-day period provided in the rules of the Board. That was 
consistent with the anticipation by Pacificorp, that the case would be 
expedited, set forth in its transmittal letter for its notice of appeal on July 
16, 1996. It was not until July 11, 1997, that Pacificorp sought leave to 
present testimony concerning the issues in its Trial Memorandum filed on that 
day.

[¶29] On this 
question, the Department relies upon In re Wright, 983 P.2d 1227, 1231 (Wyo. 
1999), for the proposition that Pacificorp waived its right to object to the 
assignment of the matter to the expedited docket. We hold that Pacificorp 
actively participated in the expedited docket assignment without objection, with 
knowledge of its right to request reconsideration of that assignment within ten 
days, and manifested an intention to relinquish that right. Furthermore, in 
light of our analysis of the claim of Pacificorp that the valuation by the 
Department was erroneous, we cannot visualize any evidence that Pacificorp could 
have submitted at a contested case hearing that would have justified the 
erroneous appraisal methodology that it proposed. We hold no error occurred with 
respect to the assignment of the matter to the expedited docket neither by the 
Board nor in its Order Denying Petitioner's Request to Present 
Testimony.

[¶30] The 
determination set forth in the Findings of Fact, Conclusion of Law, Decision and 
Order of the Board of Equalization is affirmed.

Footnotes

1 Wyo. State 
Bd. of Equal., Rules and Regulations, ch. XXXIII, § 5 (Oct. 12, 
1995).

2 Wyo. State 
Bd. of Equal., Rules and Regulations, ch. XXXIII, §§ 6 and 7 (Oct. 12, 
1995).

3 Wyo. State 
Bd. of Equal., Rules and Regulations, ch. XXXIII, § 8 (Oct. 12, 
1995).

4 Wyo. State 
Bd. of Equal., Rules and Regulations, ch. XXXIII, § 9 (Oct. 12, 
1995).