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IN THE SUPREME COURT OF THE STATE OF IDAHO

Docket No. 38307

PACIFICORP, 

 Petitioner-Respondent,

v.

IDAHO STATE TAX COMMISSION, 

 

 Respondent-Appellant.

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Boise, August 2012 Term

2012 Opinion No. 153

 

Filed: December 24, 2012

Stephen W. Kenyon, Clerk 

 

_________________________________________

Appeal from the District Court of the Fourth Judicial District of the State of 

Idaho, Ada County. Hon. George D. Carey, Senior District Judge.

The judgment of the district court is affirmed. Costs are awarded to PacifiCorp.

Hon. Lawrence Wasden, Idaho Attorney General, Boise, for Appellant. Carl E. 

Olsson argued.

Wood Jenkins LLC and Crapo Smith PLLC, Salt Lake City, Utah, for 

Respondents. David Crapo argued.

__________________________________

W. JONES, Justice

I. NATURE OF THE CASE

The Idaho State Tax Commission (“the Commission”) appeals the Judgment of the 

district court, holding that PacifiCorp, an Oregon corporation, proved by a preponderance of the 

evidence that the Commission’s valuation of its taxable operating property in Idaho was

erroneous pursuant to I.C. § 63-409(2). The Commission contends that the district court’s 

decision is not supported by substantial and competent evidence because the appraisal 

methodologies utilized by PacifiCorp’s appraiser are so unreliable as to amount to incompetent 

evidence.

II. FACTUAL AND PROCEDURAL BACKGROUND

PacifiCorp is a regulated electric utility that operates hydroelectric, wind, and thermal 

generating plants in Arizona, California, Colorado, Idaho, Montana, Oregon, Utah, Washington, 

and Wyoming. It provides electrical power to approximately 7.1 million customers. PacifiCorp

also owns, or has interests in, electric transmission and distribution assets.
2

On March 21, 2006, a wholly owned subsidiary of MidAmerican Energy Holdings 

Company (“MidAmerican”) acquired 100% of the common stock of PacifiCorp from a wholly 

owned subsidiary of ScottishPower, plc, (“ScottishPower”), a public limited company in the 

United Kingdom, for a reported value of $9,200,000,000—of which $5,100,000,000 was paid in 

cash with $4,100,000,000 in net debt and preferred stock to remain outstanding. ScottishPower 

primarily caused its subsidiary to sell PacifiCorp due to a forecasted $5,000,000,000 investment 

needed over the next five years to update its infrastructure. As such, PacifiCorp’s current 

business profile did not match well with its investors’ expectations for dividends and returns.

As a result of the sale, MidAmerican through its subsidiary now controls all the voting 

securities of PacifiCorp, including all of its common and preferred stock. MidAmerican is a 

subsidiary and holding company of Berkshire Hathaway, Inc. (“Berkshire Hathaway”), and is 

engaged in the energy business. Berkshire Hathaway primarily caused its subsidiary to purchase 

PacifiCorp as part of its long term investment strategy in electric power.

PacifiCorp is subject to comprehensive regulation by the Federal Energy Regulatory 

Commission (“FERC”) and other local, state, and federal regulatory agencies. FERC requires 

PacifiCorp to submit a FERC Financial Report. This report includes FERC Form No. 1, which 

comprises an annual regulatory financial reporting requirement of major electric companies, and 

FERC Form No. 3-Q, which is a quarterly regulatory requirement that supplements the financial 

reporting requirement (hereinafter FERC Form No. 1 and FERC Form No. 3-Q shall be referred 

to collectively as “the FERC Form”). 18 C.F.R. §§ 141.1, 141.400 (2007). Several provisions in 

the FERC Form account for depreciation. The Code of Federal Regulations, in 2007, defined 

“depreciation” as applied to a depreciable electric plant as follows:

[T]he loss in service value not restored by current maintenance, incurred in connection 

with the consumption or prospective retirement of electric plant in the course of service 

from causes which are known to be in current operation and against which the utility is 

not protected by insurance. Among the causes to be given consideration are wear and 

tear, decay, action of the elements, inadequacy, obsolescence, changes in the art, changes 

in demand and requirements of public authorities.

18 C.F.R. § 101.12 (2007) (emphasis added). Both parties dispute whether “depreciation” in the 

FERC Form accounts for (1) all forms of obsolescence, or (2) merely depreciation and functional 

obsolescence, which is “[o]bsolescence that results either from inherent deficiencies in the 

property . . . or from technological improvements available after the use began.” Black’s Law 

Dictionary 1182 (9th ed. 2009).
3

PacifiCorp’s rates are based on a revenue requirement that the Idaho Public Utilities 

Commission (IPUC) determines should provide it with the opportunity to recover its operating 

costs and earn a reasonable market return on its invested capital (“the rate base”).

1 The rates are 

not subject to change unless a new rate case is filed with the IPUC and the IPUC orders a 

modified rate base. Rate regulation also affects PacifiCorp’s earnings because the investments 

allowed to be included in the rate base vary between jurisdictions. For example, the IPUC

excludes assets financed with deferred income taxes from the rate base. PacifiCorp has also

incurred increased operating costs and engaged in significant investments in property and 

equipment that are not automatically included in the rate base due to the infrequencies of rate 

cases and regulatory lag. PacifiCorp contends that primarily because of rate regulation, its

average net rate of return on its plant in service has been 7.2% over the five years immediately 

preceding January 1, 2008, while the investor required rate of return for the regulated electric 

utility industry has been 9.1%. As a result, PacifiCorp contends that its net rate of return or actual 

rate of return as of January 1, 2008, was 20.88% less than the market rate of return. 

For ad valorem tax purposes, operating property in Idaho is annually assessed at market 

value as of 12:01 a.m. of the first day in January in the year in which such property taxes are 

levied. I.C. § 63-205(1). The tax involved in this appeal is the ad valorem property tax on 

PacifiCorp’s operating property in Idaho as of the valuation date of January 1, 2008. With regard 

to electric utilities, “operating property” includes

[A]ll rights-of-way accompanied by title . . . and all immovable or movable 

property operated in connection with any public utility . . . wholly or partly within 

this state, and necessary to the maintenance and operation of such road or line, or 

in conducting its business, and shall include all title and interest in such property, 

as owner, lessee or otherwise . . . .

2

I.C. § 63-201(15) (2007). Market value is defined as follows:

[T]he amount of United States dollars or equivalent for which, in all probability, a 

property would exchange hands between a willing seller, under no compulsion to 

 1 It should be noted the IPUC, not the Idaho State Tax Commission, sets the rate base and enters orders regarding the 

rate base. Further, the IPUC only determines rates within Idaho.

2 Idaho Code section 63-201 was amended in 2008. With regard to electric utilities, it states, in relevant part, that 

“operating property” consists of “real and personal property operated in connection with . . . [the] utility . . . wholly 

or partly within this state, and which property is necessary to the maintenance and operation of the . . . utility . . . .”

I.C. § 63-201(16).
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sell, and an informed, capable buyer, with a reasonable time allowed to 

consummate the sale, substantiated by a reasonable down or full cash payment.3

I.C. § 63-201(14) (2007). In determining market value, an assessor will consider the comparable 

sales approach, the cost approach, and the income approach. IDAPA 35.01.03.217.02.

Furthermore, with regard to an electric utility’s operating property, the unit method of market 

valuation is preferred. IDAPA 35.01.03.405.01. The unit method values operating properties by 

measuring their contribution to the overall unit. Under the unit method, “the value of the tangible 

and intangible property is equal to the value of the going concern . . . . For interstate property, 

allocation factors shall be used to determine what part of the system value is in Idaho.” Id. “The 

appraiser shall attempt to measure obsolescence, if any exists. If obsolescence is found to exist, it 

may be considered in the cost approach.” IDAPA 35.01.03.405.05.c. Obsolescence is defined as 

“[a] diminution in the value or usefulness of property . . . .” Black’s Law Dictionary 1182 (9th 

ed. 2009). For tax purposes, obsolescence is usually distinguished from physical deterioration or 

depreciation. Black’s Law Dictionary 1182 (9th ed. 2009). External obsolescence (also referred 

to as economic obsolescence) “results from external economic factors, such as decreased demand 

or changed governmental regulations.” Black’s Law Dictionary 1182 (9th ed. 2009).

On June 16, 2008, the Commission completed an appraisal of PacifiCorp’s operating 

property for the tax year beginning on January 1, 2008, which was prepared by Jerott Rudd, 

Senior Appraiser with the Commission’s Central Assessment Bureau. With regard to the cost 

approach, Rudd utilized the historic cost less depreciation methodology (“HCLD Method”), 

which is a commonly employed cost approach. To arrive at his cost approach estimate, Rudd 

primarily relied on PacifiCorp’s FERC Form for the period ending in December 31, 2007. Rudd 

did not provide a separate deduction for external obsolescence. He elaborated that “[he]

believe[s] . . . [external obsolescence] was accounted for . . . in the depreciation [as reported in 

the FERC Form]. Rudd testified that market to book value is a strong indicator of obsolescence.

Rudd also testified that he would have considered accounting for additional external

obsolescence if there was market evidence to support such a deduction, but he added “[that] . . . 

the market evidence that [he] had for PacifiCorp . . . did not indicate obsolescence.”

Rudd’s appraisal estimated a cost approach market value of $11,122,536,280. (With 

regard to the income approach, Rudd utilized the yield capitalization of net operating income 

 3 That section was amended in 2008. It is now found in subsection (15) in I.C. § 63-201.
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methodology (“Yield Capitalization Method”) to arrive at his estimate of $6,761,521,809. Rudd 

did not employ the comparable sales approach because he contended that there were no 

comparable sales of similar operating properties. Rudd did not utilize the comparable sales 

approach’s counterpart, the stock and debt approach, which is often used by appraisers when the 

comparable sales approach is inapplicable, because PacifiCorp’s stock is not outstanding and 

because of the significant premium which MidAmerican paid for the investment value of 

PacifiCorp.

Rudd placed a 45% weight on his cost approach estimate and a 55% weight on his

income approach estimate, resulting in a unit value of $9,273,982,721. He explained why he 

applied those weights to the cost and income approaches: 

Historically, for many years, the Tax Commission applied a 50/50 weighting to the cost 

and income for electric utility properties. That 50/50 weighing I believe was upheld by 

the Board of Equalization decisions in the past. In 2007, I . . . changed the weighting 

slightly to a 45/55 weighting. I felt that I could still do that.

Rudd reduced the market value by $240,761,350 for the value of PacifiCorp’s non-taxable 

intangible property. He multiplied that figure by the Idaho allocation factor of 3.745822% (“the 

allocation factor”) to obtain an Idaho allocated value of $338,368,433. Additional adjustments 

for various deductions and exemptions resulted in a final estimated Idaho taxable valuation of 

$263,667,243.

PacifiCorp appealed Rudd’s appraisal to the Commission, pursuant to I.C. § 63-407, 

asserting that it was entitled to an adjustment for functional and external obsolescence in the cost 

approach, and that the capitalization rate applied in Rudd’s appraisal incorrectly estimated the 

cost of equity. The Commission held that the market value of PacifiCorp’s operating property 

was to be set at $8,877,075,014 for ad valorem tax purposes. It further ordered that the Idaho 

taxable value for that property was to be set at $252,382,819. In reaching its valuation, the

Commission determined that 7.93% should be deducted from the cost approach valuation for 

additional obsolescence, resulting in a cost approach value of $10,241,519,153. No adjustments

were made to Rudd’s income approach estimate. After weighing the Commission’s adjusted cost 

approach valuation and Rudd’s unadjusted income approach valuation by 45% and 55%, 

respectively, the Commission concluded that for the 2008 tax year, the market value of 

PacifiCorp’s operating property was $8,877,075,014, which was reduced by $230,457,249 for 

the value of non-taxable intangible property. The result was then multiplied by the allocation 
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factor and additional adjustments for various deductions and exemptions were made, resulting in 

a final Idaho taxable value of PacifiCorp’s operating property of $252,382,819.

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Thereafter, PacifiCorp timely filed a Petition for Judicial Review, pursuant to I.C. § 63-

409, with the district court on September 24, 2008, contending that the Commission’s valuation 

was erroneous. At trial, PacifiCorp relied primarily on the appraisal of Thomas K. Tegarden of 

Tegarden & Associates, Inc., an MAI appraiser and expert in utility valuation. Norman Ross,5 a 

Tax Director with PacifiCorp, who is accredited in business valuation and a certified public 

accountant, and Steven McDougal,6 Director of Revenue Requirements with PacifiCorp, also 

provided their expert opinions as to the validity of Tegarden’s appraisal and the value of 

PacifiCorp’s operating property at trial.

In his appraisal, Tegarden estimated that the fair market value of PacifiCorp’s operating 

property was $8,350,000,000. Tegarden utilized the same valuation methodologies for the cost 

and income approaches that were employed by Rudd: the HCLD Method and Yield 

Capitalization Method, respectively.7 Tegarden did not utilize the comparable sales approach or 

the stock and debt approach. Concerning his decision not to employ the comparable sales 

approach, Tegarden stated that there is very limited actual sales data for valuing public utilities in 

general and that the 2006 sale of PacifiCorp represented a significant investment value premium.

When PacifiCorp was sold in 2006, ScottishPower wanted to unload PacifiCorp, which it 

acquired in 1999, because it would have had to invest $5,000,000,000 in infrastructure over the 

next half decade, which would take away cash dividends from its investors. ScottishPower was 

 4 The district court incorrectly stated that the Commission’s final Idaho taxable value of PacifiCorp’s operating 

property was $252,382,129. (Attach. F, at 61.) The actual Idaho taxable value determined by the Commission was 

$252,382,819.

5 Norman Ross, Tax Director with PacifiCorp, is accredited in business valuation and a certified public accountant. 

He testified that PacifiCorp’s goal is to achieve a market rate of return on its investments, which he contended had

been difficult, if not impossible, to achieve due to allocation issues, the economy, and rate regulation. He further 

testified that Rudd’s and Eyre’s cost approach is deficient because it relies too heavily on book depreciation.

6 Steven McDougal, Director of Revenue Requirements with PacifiCorp, testified that PacifiCorp has not been 

earning its allowed rate of return for a number of years due to many external factors. He opined that as of December 

of 2007, PacifiCorp was experiencing a return on rate base of 7.467%, while the allowed rate of return was near 

10.2% to 10.6%. With regard to the depreciation reported in the FERC Form, he stated that the obsolescence 

referred to in that filing is really functional obsolescence, meaning it has to do with the functional characteristics of 

the asset. He also testified that Eyre’s and Rudd’s appraisals rely too heavily on book value with regard to their cost 

approach to valuation. McDougal is not a certified appraiser and never expressed any opinion of value.

7 Tegarden testified that his unit appraisal complied with the Uniform Standards of Professional Appraisal Practice.
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also concerned about the movement in the United States away from deregulation and 

PacifiCorp’s inability to achieve a market required rate of return. Tegarden recognized that 

Berkshire Hathaway caused its subsidiaries to purchase PacifiCorp to further its long term 

investment strategy in electric utilities, and that the price paid for PacifiCorp represented more of

an investment value price rather than the market value price of PacifiCorp. With regard to the 

stock and debt approach, Tegarden stated that this approach was inapplicable for many of the 

same reasons the comparable sales approach was inapplicable and because PacifiCorp had no 

securities outstanding.

With regard to Tegarden’s cost approach, he estimated that the value of PacifiCorp’s 

operating assets was $8,811,000,000. Tegarden used the figures supplied in the FERC Form to 

determine the historical cost of the operating assets and the physical depreciation and functional 

obsolescence of those assets, resulting in a figure of $11,135,919,587. He thereafter made

adjustments for external obsolescence, which he contends amounted to an additional 20.88% 

deduction, or $2,325,180,010. Tegarden arrived at his external obsolescence estimate by using 

the capitalization of income loss method, which is a generally accepted methodology. Tegarden 

characterized external obsolescence as the loss in value due to causes outside of the property, 

including the effect of supply and demand, government regulation, changes in operating costs, 

changes in interest rates, changes in employment, effect of zoning, the political climate, credit 

markets, and environmental concerns, among others. Tegarden testified that historically the most 

important factor for a utility, though, was government regulation. The theory behind Tegarden’s 

method of measuring external obsolescence is that “a willing, informed buyer of a regulated 

utility will expect a market rate of return of net operating income.” If the net operating income of 

the utility is more than the market rate of return, this will be reflected in external appreciation of 

the value of the operating property. On the other hand, if the net operating income is less than the 

market rate of return, this will be reflected in external depreciation of the value of the operating 

property. Tegarden contends that PacifiCorp’s net operating income over the immediately 

preceding five-year period was 7.2%, while the net operating income for PacifiCorp’s peer 

group, the expected market rate of return on net operating income, was 9.1%, resulting in a 

20.88% negative difference between PacifiCorp’s rate of return and the market rate of return.

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 8 In explaining his method of calculating external obsolescence, Tegarden stated: 
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This figure was rounded from 20.879%. Treating the 20.88% negative difference as economic 

obsolescence, Tegarden made an additional deduction of $2,325,180,010 in addition to the FERC 

Form’s depreciation ($11,135,919,587 x 20.88%=$2,325,180,010 (which was presumably 

rounded from $2,325,180,009.7656), resulting in a cost approach estimate of $8,810,739,577 

($11,135,919,587 − $2,325,180,010=$8,810,739,577).9 Tegarden then rounded his cost 

approach estimate to $8,811,000,000.

With regard to Tegarden’s income approach, he used the Yield Capitalization Method.

The Yield Capitalization Method involves a determination of value based on cash flow divided 

by a capitalization rate of growth. Tegarden estimated cash flow, or net operating income, to be 

around $750,000,000, which included income for the existing plant, construction work in 

progress, and rate changes. He further estimated that the capitalization rate10 was 9.10%, 

resulting in a valuation estimate of $8,242,000,000.

11 Tegarden applied a 19% weight to the cost

approach and a 81% weight to the income approach, resulting in a valuation of PacifiCorp’s 

operating property as of January 1, 2008, of $8,350,000,000 (19% x $8,811,000,000 (cost 

approach) + 81% x $8,242,000,000=$8,350,110,000, which was rounded to $8,350,000,000).12

When asked why he afforded an 81% weight to his income approach estimate and only a 

19% weight to his cost approach estimate, Tegarden stated that “investors in these types of 

 

A prospective purchaser of the operating electric property of PacifiCorp would require a market 

rate of return. If the net operating income for each of the last five years is divided by the average 

net plant which earned that income, the rate of return on assets can be calculated. The latest years, 

the latest five-year average, the latest three-year average, and five-year trend rates of return were 

7.12%, 6.30%, 6.61%, and 7.23%, respectively. We selected 7.20% as representative of the rate of 

return level which can be reasonably expected for the Company. This rate of return is based on net 

operating income intended by the regulatory commissions to cover the cost of capital. If this 

7.20% selected rate of return is compared with the investor required return of 9.10%, the achieved 

rate of return is 1.90% below the investor required return (9.10%-−7.20%=1.90%). This 1.90% 

deficiency in rate of return equates to a 20.88% obsolescence factor (1.90% / 9.10%= 20.88%). 

9 In his appraisal, Tegarden stated that his estimate of external obsolescence recognizes that PacifiCorp has earned, 

on average, less than the market required rate of return on its total net investment in plant and equipment. He further 

elaborated that part of his external obsolescence estimate is attributable to the exclusion of properties purchased with 

deferred income taxes from the rate base and the effects of competition.

10 Tegarden based his capitalization rate estimate on the band of investment technique. 11 Rudd estimated cash flow to be around $690,000,000 and the capitalization rate to be 8.89%, resulting in a 

valuation estimate of $7,761,529,809. Tegarden’s cash flow estimate was larger than Rudd’s because he attempted 

to account for future earnings anticipated as a result of the construction in progress and because his estimate 

included floatation adjustments, which are the expenses involved in issuing debt and equity.

12 With regard to the weight afforded each approach in his appraisal, Tegarden mistakenly testified that he applied a 

80% weight to his income approach and a 20% weight to his cost approach.
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properties are more concerned about the future and what can be earned, the cash flow they can 

expect. They’re not as concerned about historical cost, what was paid for the property. That’s 

water over the dam.”13 To determine the market value of PacifiCorp’s operating property in 

Idaho as of January 1, 2008, Tegarden accounted for the allocation factor and made various

adjustments similar to those employed by Rudd to arrive at an estimate of $230,680,003.

Thereafter, the Commission presented its case and relied primarily on the appraisal and 

testimony of Rudd; the appraisal and testimony of D. Brent Eyre, a certified appraiser licensed in 

Utah and Washington; and the testimony of Dr. Ben Johnson, a consulting economist with Ben 

Johnson Associates, Inc.14 In his appraisal, Eyre utilized the stock and debt approach. He also 

employed the HCDL Method with regard to his cost approach and the discounted cash flow 

methodology (“Discounted Cash Flow Method”) with regard to his income approach. At trial, 

Eyre disagreed with both Rudd’s and Tegarden’s appraisals because they did not utilize the 

comparable sales approach or the stock and debt approach to valuation, contending that they 

could have factored in the sale of PacifiCorp to MidAmerican in March of 2006. Eyre also 

disagreed with Tegarden’s deduction for external obsolescence, contending that the depreciation 

reported in the FERC Form accounts for all forms of obsolescence and that Tegarden’s cost and

income approaches should have factored in deferred income taxes as a form of additional 

income.

Eyre testified that the market to book value ratio, which the FERC Form presents a strong 

indication of, generally accounts for all forms of obsolescence. Under cross-examination, Eyre 

admitted that depreciation studies, from which the depreciation figures in the FERC Form are

calculated, generally occur every four or five years. Regarding the main differences between 

Tegarden’s and Eyre’s income approaches, Tegarden factored in float costs with regard to the 

 13 With regard to weighing the indicators of value, Tegarden stated that “throughout the appraisal process, the 

appraiser is making decisions, judgments, and evaluating the relevance, importance, and reliability of the data used 

in each approach.” “[R]econciliation[, which is the process by which an appraiser subjectively weighs the various 

approaches to valuation,] is not a mathematical exercise but rather a serious judgmental exercise by the professional 

appraiser to reach a logical conclusion of value.” In this regard, the appraiser must place the most emphasis and 

weight on the approach with the strongest and most supportable market evidence.

14 Dr. Ben Johnson, who is the president of Ben Johnson, Associates, Inc., is a consulting economist. He is not a 

certified appraiser and holds no accounting degrees. Johnson contended that “[a]s an economist and an observer of 

market values through [his] work, [he has] . . . some understanding of market values.” as to whether it, in fact, 

precisely picks up every possible form of obsolescence, I don’t think you can assert that.” Johnson also admitted that 

depreciation studies generally occur every 4 or 5 years. He further testified that Tegarden should have accounted for 

PacifiCorp’s deferred income taxes in his net operating income estimate.
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Yield Capitalization Method while Eyre accounted for around a 2% rate of growth in perpetuity 

in his net operating income calculation with regard to the Discounted Cash Flow Method. After 

weighing his estimates accordingly, Eyre arrived at a cost approach estimate of 11,135,900,000, 

which was afforded a 20% weight; an income approach estimate of $11,372,200,000, which was 

afforded a 50% weight; and a stock and debt approach estimate of $11,393,700,000, which was 

afforded a 30% weight, resulting in an estimated unit value for all of PacifiCorp’s 2008 operating 

property of $11,007,000,000 and an Idaho taxable value, after the allocation factor and the 

adjustments were made, of $412,300,000.

The district court entered its Memorandum of Findings of Fact and Conclusions of Law 

on September 16, 2010, holding that PacifiCorp established by a preponderance of the evidence 

that the Commission’s valuation was erroneous.15 The district court then entered its Judgment on 

October 19, 2010. The Commission thereafter timely filed its Notice of Appeal on November 24, 

2010, and Amended Notice of Appeal on December 13, 2010.

III. ISSUE ON APPEAL

The issue on appeal is whether the district court’s Judgment is clearly erroneous when it 

rejected the Commission’s valuation approach and adopted PacifiCorp’s valuation approach.

IV. STANDARD OF REVIEW

PacifiCorp filed its Petition for Judicial Review of the Commission’s appraisal of its 

operating property in the district court pursuant to I.C. § 63-409. Subsection (1) of that statute 

provides that “[t]he appeal may be based upon any issue presented by the taxpayer to the state

tax commission and shall be heard by the district court in a trial de novo without a jury in the 

same manner as though it were an original proceeding in that court.” In any appeal taken 

pursuant to I.C. § 63-409, the burden of proof to establish by a preponderance of evidence that 

the valuation is erroneous falls on the party seeking affirmative relief. I.C. § 63-409(2).

The district court held that PacifiCorp established by a preponderance of the evidence 

that the Commission’s valuation was erroneous. “Findings of fact will not be set aside on appeal 

 15 Specifically, the district court held that “in many respects[, this action] was a battle of the experts.” It recognized 

that “[e]ach of the witnesses has considerable experience in his particular field. Nevertheless, having had the special 

opportunity of listening to each witness as he gave live testimony and was subjected to rigorous cross examination, 

the court was especially impressed by Mr. Tegarden and found his testimony and opinions to be more credible, more 

reliable, more persuasive, and entitled to greater weight than the testimony and opinions of the witnesses for the Tax 

Commission.” The district court stated that it “reviewed the criticisms of Mr. Tegarden’s valuations but [found] 

them to be unpersuasive.” After evaluating all the evidence, the district court held that the Commission’s valuation 

was erroneous and that based on a preponderance of the evidence, “Tegarden’s estimate of the value of PacifiCorp’s 

operating property as of January 1, 2008, is the most accurate estimate of value in the record.”
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unless they are clearly erroneous.” Kennedy v. Schneider, 151 Idaho 440, 442, 259 P.3d 586, 588 

(2011). This Court recognizes that “[a] trial court’s findings of fact will be upheld on appeal[, 

and, therefore, are not clearly erroneous,] if the findings are supported by substantial and 

competent evidence. It is the province of the trial judge to weigh the conflicting evidence and 

testimony and to judge the credibility of witnesses.” The Senator, Inc. v. Ada Cnty. Bd. of 

Equalization, 138 Idaho 566, 569, 67 P.3d 45, 48 (2003). “This Court exercises free review over 

the district court’s conclusions of law to determine whether the court correctly stated the 

applicable law and whether the legal conclusions are sustained by the facts found.” Kennedy, 151 

Idaho at 442, 259 P.3d at 588.

V. ANALYSIS

A. The District Court’s Judgment was not clearly erroneous.

In its opening brief, the Commission provides a list of reasons why it believes that 

Tegarden’s cost approach to valuation is unreliable and therefore incompetent. As the district 

court recognized, this appeal represents, in many respects, “a battle of the experts.” The district 

court was faced with the difficult task of evaluating competing theories of valuation that, for the 

most part, utilized generally accepted valuation theories. All the experts testified that their 

subjective appraiser judgments were utilized within the bounds of their respective professional 

standards. The experts for PacifiCorp and the Commission each have considerable experience in 

their particular fields. As such, the district court correctly understood that its only task was to 

“listen[] to each witness as he gave live testimony and was subjected to rigorous cross 

examination,” and then render its decision after weighing the credibility of the experts, their 

appraisals, and their theories. The district court noted that it “was especially impressed by Mr. 

Tegarden and found his testimony and opinions to be more credible, more reliable, more 

persuasive, and entitled to greater weight than the testimony and opinions of the witnesses for the 

Tax Commission.” Furthermore, the court determined that the criticisms of Tegarden’s 

valuations were unconvincing.

On appeal the Commission argues that the Tegarden approach is so unreliable it is not 

competent evidence. But the Commission did not challenge the competency of Tegarden’s 

testimony in the district court. Each of the arguments presented by the Commission relate solely 

to the credibility of expert witnesses, the probative value of their appraisals, and the utilization 

by the experts of their appraiser judgments in applying those theories. The Commission has 
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generally not provided this Court with any arguments relating to the district court’s conclusions 

of law, which this Court can review de novo. Instead, the Commission’s qualms with Tegarden’s 

approach are factual in nature and go towards rebutting the credibility of Tegarden’s testimony 

and his appraisal.

It is widely recognized that “evidence in order to be admissible must be competent, 

relevant, and material.” E.g., 53 C.J.S. Libel and Slander; Injurious Falsehood §335 (2012) 

(emphasis added); 53 C.J.S. Licenses §114 (2012); 29A C.J.S. Eminent Domain §600 (2012); see 

also Black’s Law Dictionary 635 (9th ed. 2009) (“admissible evidence . . . Also termed 

competent evidence . . .”); Black’s Law Dictionary 639 (9th ed. 2009) (“relevant evidence . . . 

also termed competent evidence.”). The Idaho Rules of Evidence provide that “[e]rror may not 

be predicated upon a ruling which admits or excludes evidence unless . . . a timely objection or 

motion to strike appears of record, stating the specific ground of objection. . . .” Idaho R. Evid. 

103. 

On appeal, it is asserted that competency of evidence and credibility of witnesses are one 

and the same—that is incorrect. Competency is an evidentiary prerequisite to admission. If 

evidence is incompetent, it is the opponent’s obligation to object to that evidence when offered 

for admission. Idaho R. Evid. 103. This Court will not consider objections to the admission of 

evidence that are not preserved in the record and that are raised for the first time on appeal. E.g, 

State v. Perry, 150 Idaho 209, 224, 245 P.3d 961, 976 (2010) (“Generally Idaho’s appellate 

courts will not consider error not preserved for appeal through an objection at trial.”). If the 

methods employed by Tegarden were so unreliable as to render them incompetent, then an 

objection to that effect should have been lodged with the district court when offered. But because 

the Commission failed to object and challenge the competency of Tegarden’s approach below, 

this Court will not evaluate whether Tegarden’s approach is competent. Instead this Court will 

assume that the evidence and testimony admitted in the trial court and not challenged as 

incompetent by the Commission is competent. Therefore, this Court’s inquiry is limited to 

whether the district court’s decision, based on the testimony and evidence received and not 

objected to, was clearly erroneous. 

This Court, when it reviews a district court’s decisions will uphold the trial court’s 

factual findings unless clearly erroneous. Idaho R. Civ. P. 52(a). We recognize that “[i]t is the 

province of the trial judge to weigh the conflicting evidence and testimony and to judge the 
13

credibility of witnesses.” The Senator, Inc., 138 Idaho at 569, 67 P.3d at 48. Evidence is 

substantial if “a reasonable trier of fact would accept it and rely upon it in determining whether a 

disputed point of fact has been proven.” Id. This Court will not reweigh the evidence on appeal. 

Gooby v. Lake Shore Mgmt. Co.,136 Idaho 79, 82, 29 P.3d 390, 393 (2001).

The Commission asserts that Tegarden’s appraisal is unreliable because his external 

obsolescence deduction was duplicative because the FERC Form properly accounted for all 

forms of obsolescence. The Commission also contends that Tegarden’s appraisal is unreliable 

because it assumes that PacifiCorp will always lose money and does not sufficiently account for 

PacifiCorp’s deferred income taxes. Furthermore, the Commission claims that Tegarden’s 

appraisal is unreliable because it failed to employ either the comparable sales approach or the 

stock and debt approach to valuation and because it never specified the respective weights it 

employed when it reconciled the cost and income approaches, unlike the district court. Finally, 

the Commission argues that Tegarden’s appraisal is unreliable because it is too subjective. As 

mentioned, the reliability of Tegarden’s approach was an issue for the trial court to decide after 

weighing evidence and considering the testimony and credibility of the witnesses. For the 

reasons discussed below, the district court’s decision finding Tegarden’s approach more reliable 

than the approached proposed by the Commission was not clearly erroneous.

1. It Was Not Clearly Erroneous For the District Court to Conclude That External 

Obsolescence Is Not Sufficiently Accounted for in the FERC Form.

The Commission argues that because PacifiCorp’s self-reported depreciation in the FERC 

Form already includes “obsolescence,” it is improper for PacifiCorp to provide another

deduction. With marginal elaboration, the Commission, as support for its proposition that 

depreciation in the FERC Form accounts for external obsolescence, cites to Title 18, Part 101 of 

the Code of Federal Regulations, which includes the term “obsolescence” within the definition of 

“depreciation.”

Indeed, that statute does include “obsolescence” in its definition of depreciation.

Evidence was presented at trial suggesting that “obsolescence,” as applied in that statute, does 

not provide for all forms of obsolescence, including external obsolescence. All of the appraisers

asserted that “obsolescence” in the FERC Form generally accounts for book depreciation of the 

operating assets and functional obsolescence, not external obsolescence. The Commission never 

rebutted these assertions. The Commission’s expert appraisers both admitted that they would 

have accounted for external obsolescence had they found market evidence to support those 
14

deductions, suggesting that they understood that the FERC Form did not incorporate all forms of 

obsolescence. On this point Dr. Johnson testified as follows:

We know that in principle the intent of the regulatory process is to pick up all 

significant forms of obsolescence. There is no intent to exclude economic 

obsolescence [from the FERC Form]. But as to whether it, in fact, precisely picks 

up every possible form of obsolescence, I don’t think you can assert that. I think it 

would be very fact specific as to the extent to which an independent judgment of 

obsolescence would or would not match the accounting rules.

In addition, the Commission’s experts admitted that depreciation studies, which provide the basis 

for the depreciation figures in the FERC Form, generally occur every four or five years. Based 

on this testimony and the Commission’s inability to provide adequate authority rebutting these 

assertions, we conclude that it was not clearly erroneous for the trial court to determine that 

“obsolescence,” as it is defined in the FERC Form, does not account for economic obsolescence.

2. It Was Not Clearly Erroneous for the District Court to Accept Tegarden’s Approach 

Despite the Commission’s Arguments that Tegarden’s Appraisal Assumes that 

PacifiCorp Will Always Lose Money and That Tegarden Should Have Considered 

PacifiCorp’s Deferred Income Taxes In His Cost of Capital Projection.

The Commission contends that because Tegarden and McDougal testified that PacifiCorp 

will never recover its cost of capital from the rate base, Tegarden’s appraisal is unreliable.16 The 

Commission also asserts that Tegarden’s appraisal is unreliable because it assigns no value to 

PacifiCorp’s deferred income taxes. As support for its assertion, the Commission cites broadly to 

a confidential memorandum expressing PacifiCorp’s confidence in its future financial prospects.

It also points out that Dr. Johnson testified that by taking deferred income taxes into account, 

PacifiCorp’s “real cost of capital is approximately. . . 7%, not 9.1%.”

At trial, the Commission did not challenge the methods of Tegarden as incompetent—it 

now seeks to do so. Because the Commission failed to challenge the competency of the Tegarden 

approach below, we will not decide whether it was competent; only whether it was clearly 

erroneous for the trial court to conclude that it was more reliable than the approaches advanced 

by the Commission. The reliability and credibility of the methods employed are questions of fact 

that the district court was required to weigh and evaluate—to which we grant deference. In this 

 16 The Commission stated, on several occasions, that it was confining this appeal to a discussion of Tegarden’s cost 

approach. In fact, the Commission only provided this Court with one issue on appeal, “May PacifiCorp deduct 

obsolescence from the cost approach to value without offering evidence of the cause of the obsolescence, the 

quantity of the obsolescence, and that the asserted obsolescence actually affects the property?” Therefore, this 

opinion will only address cost of capital in relation to Tegarden’s external obsolescence estimate.
15

“battle of the experts” the district court weighed the testimony and methods of each expert. After 

doing so, it found the Tegarden approach more reliable. 

The Commission proposes that Tegarden’s appraisal is unreliable because it assumes that 

PacifiCorp will never recover its cost of capital from the rate base. The Commission points to a 

few statements in the transcripts made by Tegarden. Those statements do not describe 

PacifiCorp’s failure to recover its cost of capital in perpetuity. Tegarden’s appraisal provided a 

cost of capital estimate of 9.1%, as of January 1, 2008. He utilized the band of investment 

technique to reach his cost of capital estimate. Furthermore, the record asserts that PacifiCorp 

has not been recovering its cost of capital from the rate base for a number of years. Tegarden’s 

appraisal reflects those deficiencies. The Commission asserts that his projections suggest that 

PacifiCorp will never recover its cost of capital. As mentioned before, Tegarden’s appraisal 

reflects that PacifiCorp has been unable to recover its cost of capital from its base rate as of 

January 1, 2008. The district court’s finding that Tegarden’s appraisal does not assert that 

PacifiCorp will never recover its cost of capital from its base rate is not clearly erroneous.

The Commission also bases its argument on appeal on Dr. Johnson’s assertion that by 

classifying PacifiCorp’s deferred income taxes as net operating income, it would necessarily 

change Tegarden’s cost of capital calculation to 7%, as opposed to 9.1%. Dr. Johnson is an 

economist, not an appraiser or an accountant. Dr. Johnson testified that he was not rendering any 

opinion of value. He testified that “[a]s an economist and an observer of market values through 

my work, I have some understanding of market values. And I believe based on that 

understanding of market values that some of the discussion that’s taking place, allegations of 

external obsolescence because of regulation, are mistaken.” He further testified that he never 

provided a cost of capital study and that his projections only represent his opinions. Even though 

the Commission assured the district court that Dr. Johnson’s testimony was not intended to 

establish valuation, the Commission seems intent on using it for that purpose on appeal. Despite 

the continued invitations to reweigh the evidence on appeal, this Court will not do so. It was not 

improper for the trial court to determine that Johnson’s testimony had very little, if any, 

probative value in establishing the reliability of Tegarden’s approach.

Finally, concerning the confidential memorandum, the Commission does not provide any 

argument as to the substantive value of that document with regard to Tegarden’s appraisal.

Instead, the Commission merely states that if this Court were to read that document, the 
16

“Holmesian mystery” of PacifiCorp’s market value will be solved. Yet, it was not clearly 

erroneous for the trial court to decide that future earnings envisioned in a ten year plan does not 

indicate value in any of the aforementioned approaches to valuation.

3. It Was Not Clearly Erroneous for the District Court to Find Tegarden’s Appraisal 

Reliable Even Though it Does Not Utilize the Comparable Sales or Stock and Debt 

Approaches to Valuation.

The Commission contends that Tegarden’s appraisal is unreliable because he did not 

employ either the comparable sales approach or stock and debt approach to valuation. The 

Commission claims that, pursuant to I.C. § 63-201(15) and IDAPA 35.01.03.217.02 (2007),

Tegarden should have considered the $9,200,000,000 sale of PacifiCorp to MidAmerican’s 

subsidiary in March of 2006 in its valuation.

Tegarden determined that the comparable sales approach and the stock and debt approach 

to valuation had limited usefulness with regard to determining the market value of PacifiCorp’s 

operating property. With regard to the comparable sales approach, he asserted, “[t]here is a very 

limited amount of actual sales data to be used as an evidence of value for the valuation of major 

going-concern business enterprises such as public utilities.” He further recognized that the

comparable sales approach generally provides the primary indicator of market value in appraisals 

of properties that are not purchased for their income producing characteristics, that frequently 

sell in the market place, and that are the result of arm’s length transactions between reasonably

informed buyers and sellers. None of the experts refute that PacifiCorp was purchased by a 

subsidiary of MidAmerican as a long term investment, and that the sale price of PacifiCorp more 

accurately represented long-term investment value as opposed to market value. In fact, the 

parties don’t dispute that around $1,074,000,000 of PacifiCorp’s sale price represents intangible 

goodwill.

Tegarden did consider the comparable sales approach in his assessment of valuation and 

determined that it was not useful. Although the Commission’s expert, Eyre, employed the stock 

and debt approach, the district court, Rudd, and Tegarden recognized that it had limited 

usefulness, primarily because PacifiCorp has no outstanding shares of stock and because of the 

large premium paid for PacifiCorp’s shares of common stock. The Idaho Administrative Code 

does not require the use of the comparable sales approach. IDAPA 35.01.03.217.02 (2007). It 

requires only that an appraiser “will consider” that approach when making his or her appraisal. 

The district court, Rudd, and Eyre all choose not to use the comparable sales approach for the 
17

same reason that Tegarden did not utilize that approach. Therefore, it was not clearly erroneous 

for the district court to find Tegarden’s appraisal reliable; despite not utilizing the comparable 

sales or stock and debt approaches.

4. The Commission’s Argument that the Weight Tegarden Applied to His Cost Approach 

and Income Approach Estimates Varies from the Weights Employed by the District 

Court is Without Merit.

The Commission next contends that Tegarden’s appraisal is not reliable because the

weights he afforded the cost and income approaches differ from the weights that the district court 

afforded those approaches in its Judgment. The district court recognized that Tegarden assigned 

the income approach an 81% weight and the cost approach a 19% weight. At trial, Tegarden

testified that he assigned his income approach estimate an 80% weight and his cost approach 

estimate a 20% weight; he likely misspoke. With regard to the cost approach and income 

approach to valuation, Tegarden estimated that the market value of PacifiCorp’s operating 

property was $8,811,000,000 and $8,242,000,000, respectively. After weighing these approaches

and rounding his estimate, he arrived at a market value of $8,350,000,000. The only way 

Tegarden could have arrived at this rounded valuation was by utilizing a 19% weight for the cost 

approach and an 81% weight for the income approach (19% x $8,811,000,000 (cost approach) + 

81% x $8,242,000,000 (income approach) = $8,350,110,000 as opposed to 20% x 

$8,811,000,000 (cost approach) + 80% x $8,242,000,000 = $8,355,800,000).17

 17 With regard to his rationale for utilizing or not utilizing the various approaches to valuation and affording them 

the weights that he did, Tegarden stated:

The cost approach was analyzed in detail and given careful consideration. The cost of 

reproduction and cost of replacement were considered. Because the earnings base is limited to 

original cost less depreciation these costs should be given very little credence. The original cost 

less depreciation is considered the best starting point in the cost approach. However, due to the 

inability of the Company to consistently earn a market rate of return, it was necessary to estimate 

the amount of obsolescence present in the property. With the deduction of all forms of 

depreciation, the cost approach is an important indicator in determining the value of an electric 

company, and was given due consideration in the final estimate of value. 

The income approach was also given careful consideration. The potential income stream 

of the company has been analyzed. It was necessary to consider Company projections, rate case 

decisions, and other historical data in predicting future income. These estimates were correlated 

with our own estimates, based on our analysis of the expected earnings. The money market has 

been analyzed and much study given to the estimation of a reasonable rate of capitalization. A 

prospective purchaser of electric property would very carefully consider the earning capability of 

the property. The income approach is a strong indication of value, and it was given considerable 

weight in the final estimate of value.

The sales comparison approach could not be used in the ordinary manner as there are no 

arm’s length market value sales of truly comparable properties. The stock and debt approach was 

considered as a substitute for the sales comparison approach. The common stock is owned entirely 
18

The Commission’s witness, Rudd, testified that the weight afforded each approach is 

based primarily on appraiser judgment:

[F]or many years, the Tax Commission applied a 50/50 weighting to the cost and 

income approach for electric utility properties. That 50/50 weighting I believe was 

upheld by the Board of Equalization decisions in the past. In 2007, I . . . changed 

the weighting slightly to a 45/55 weighting. I felt I could still do that.

The Commission concurred with Rudd and left the weights he applied to the cost and income 

approaches unchanged. Likewise, Tegarden corroborated Rudd’s testimony:

[T]hroughout the appraisal process, the appraiser is making decisions, judgments, 

and evaluating the relevan[ce], importance, and reliability of the data used in each 

approach . . . [R]econciliation[, which is another term for weighing,] is not a 

mathematical exercise but rather a serious judgmental exercise by the professional 

appraiser to reach a logical legal conclusion of value. Therefore the appraiser 

must place the most emphasis and weight of consideration with the strongest and 

most supportable market evidence.

Based on Tegarden’s and Rudd’s testimony, it is evident that an appraiser largely relies on his or 

her own judgments when he or she reconciles these approaches. The Commission’s contention 

that there is some sort of discrepancy between Tegarden’s appraisal and the district court’s

Judgment is without merit.

5. The Fact that Tegarden Utilized His Appraiser Judgment when He Made His 

Appraisal Does Not Render the District Court’s Reliance on Said Judgment 

Erroneous.

The Commission asserts that Tegarden’s external obsolescence estimate is too dependent 

on the expected rate of return and the required rate of return, which the Commission suggests 

Tegarden could easily manipulate, and that Tegarden’s required rate of return of 9.10% differed 

significantly in terms of monetary value when it is compared with either Rudd’s 8.89% required 

rate of return estimate or Eyre’s 8.72% required rate of return estimate.

At trial, the Commission’s expert Eyre testified: “[Appraisal practice is not an exact 

science,] it’s fraught with numerous judgments [and] assumptions. And obviously, the reliability 

of an appraisal is based upon the validity and the ability of the appraiser to defend those 

 by MidAmerican Energy and is not traded in the securities markets. For this appraisal report, sale 

of PacifiCorp’s common stock to MEHC was analyzed even though it is clear that the purchase 

was an investment value decision rather than a market value decision. Also, the stock and debt 

approach was considered but not believed to be a sound indicator in the final estimate of market 

value for this report. Therefore, we have not included the stock and debt approach as an indicator 

of market value for this appraisal report.
19

judgments and assumptions.” This sentiment was repeated throughout the trial. In fact, Rudd 

testified that he would have accounted for external obsolescence, if he was satisfied that there 

was sufficient market evidence. In this vein, he stated as follows: 

If the market supported such a suggestion by the company that there was 

economic or external obsolescence and the market supported it, I mean, yeah, I 

would be happy as an appraiser to provide economic obsolescence adjustment if I 

felt as an appraiser that it was warranted and that there was market evidence that 

told me that it needed to be made. I have no problem with that.

Likewise, although Eyre testified that he believed that the FERC Form’s depreciation accounts 

for all forms of obsolescence, he testified that the cost indicator has a large amount of 

subjectivity, which sometimes creates controversy. In describing the HCLD Method, he stated 

that “it’s objective insofar as . . . if you use HCLD, you’ve got a very objective source to drive 

the numbers. It’s subjective in the fact as to your analysis of those numbers and the relative 

nature of them as they relate to your observations of the market as a whole.” Like Rudd, Eyre 

testified that he could find no market evidence indicating external obsolescence outside what was 

reported in the FERC Form. Based on these assertions, it was not erroneous for the district court 

to find that the decision to provide a deduction for external obsolescence is a product of appraiser 

judgment.

At no point was it suggested by the Commission that Tegarden is a “trailblazer” when it 

comes to appraising the operating assets of an electric company. He utilized many of the same 

methods and theories that Rudd and Eyre employed. Throughout, Rudd and Eyre testified that 

they believed that Tegarden’s use of his appraiser judgment was misplaced or farfetched. But 

PacifiCorp countered these assertions by providing experts who testified as to the misuse of 

Rudd’s and Eyre’s appraiser judgments in their appraisals. The district court was faced with 

three equally compelling, yet generally subjective, appraisals. It rendered its decision based 

primarily on the soundness of Tegarden’s theories and his ability to defend those theories and 

judgments during cross-examination.

Furthermore, the Commission’s argument that Tegarden utilizes “obsolescence in the 

air”18 to arrive at his estimate of external obsolescence is also unconvincing for the same 

reasons. The Commission is essentially reasserting that Tegarden’s approach is too subjective.

 18 It is unclear whether “obsolescence in the air” is a term that the Commission made up for the purpose of this 

appeal. That term is generally used with regard to military defense systems.
20

The fact that Tegarden, Rudd, and Eyre arrived at different required rate of return estimates is 

irrelevant and only highlights the subjective nature of these estimates in general.

6. The Commission’s Suggestions to Make Tegarden’s Appraisal More Reliable Are Not 

at Issue.

The Commission suggests that Tegarden’s appraisal can be made more reliable, if this 

Court would require PacifiCorp to provide evidence to show the causes of obsolescence, the 

quantity of obsolescence, and that obsolescence really affects the properties in question. The 

Commission claims that PacifiCorp only provided the district court with three causes of external

obsolescence: regulatory law; the fact that the Commission does not allow for the inclusion of 

assets financed with deferred income taxes in the rate base; and economic lag. Again, this Court 

is not going to reweigh the evidence as to how Tegarden’s approach could be made more 

reliable. This is a question of fact for the trial court to weigh and consider. After doing so, the 

district court determined that Tegarden, his methodologies, and his use of his appraiser judgment

were more credible and reliable than the Commission’s experts and their methodologies. The 

Commission has not provided any convincing argument or authority suggesting the district 

court’s reliance on the aforementioned facts—which were not challenged as incompetent and 

therefore presumed to be competent for purposes of this appeal—amounted to a clearly 

erroneous judgment.

VI. CONCLUSION

Because the district court’s Judgment was not clearly erroneous and was supported by 

substantial and competent evidence, the Judgment of the district court is affirmed. Attorney’s 

fees were not requested. Costs are awarded to PacifiCorp.

HORTON, J., concurring.

I join in the Court’s opinion. I write separately in response to the dissent and because the 

majority opinion is much longer than it needs to be. Although the dissent had advanced powerful 

arguments as to why Tegarden’s testimony ought not have been admitted, the Commission does 

not assert that the district court erred by admitting the testimony. Rather, the Commission argues 

that the district court erred by relying on that testimony. This argument fails to acknowledge the 

limited role of an appellate court.

Following trial, the district court found that Tegarden’s testimony was more persuasive 

than that offered by the Commission. When this Court reviews a district court’s determination of 

the value of a utility’s operating property following a trial de novo, this Court must “defer to the 
21

district court’s findings of fact that are supported by substantial evidence.” Idaho Power Co. v. 

Idaho State Tax Comm'n, 141 Idaho 316, 321, 109 P.3d 170, 175 (2005). Stated differently, this 

Court will set aside the district court’s factual findings only if they are clearly erroneous. 

McCormick Int’l USA, Inc. v. Shore, 152 Idaho 920, 923, 277 P.3d 367, 370 (2012); I.R.C.P. 

52(a). 

I find it noteworthy that the Commission did not acknowledge the standard of review 

applicable to this appeal until oral argument. The phrases “substantial evidence” and “clearly 

erroneous” are nowhere to be found in its briefing. This glaring omission undoubtedly reflects 

the Commission’s recognition that application of the governing standard of review dictates that 

PacifiCorp must prevail in this appeal. This inevitable result reflects two fundamental 

propositions: The valuation of PacifiCorp’s operating property is a matter of expert opinion; and 

this Court is not free to second-guess the district court’s determination that PacifiCorp’s expert 

was more credible than those of the Commission. The balance of this concurrence merely 

explains the legal basis for these two propositions.

All pertinent sources of Idaho law – statutory, administrative rules and our previous 

decisions – recognize that placing a value on property is an exercise in professional judgment. 

The Idaho Code states that “‘Appraisal’ or ‘real estate appraisal’ means an analysis, opinion or 

conclusion relating to the value, nature, quality, or utility of specified interests in, or aspects of, 

identified real estate.” I.C. § 54-4104(1). The administrative rules governing assessment of 

operating property expressly recognize that the appraisal report will reflect the appraiser’s 

opinions. IDAPA 35.01.03.405.08 (2007) explains: “Reconciliation, also called correlation, is an 

opinion regarding the weight that should be placed on each approach. The appropriate weight to 

be given each indicator is based on the appraiser’s opinion of the inherent strengths and 

weaknesses of each approach and the data utilized.” (emphasis added). These rules also 

expressly confer discretion upon the appraiser to exercise judgment when arriving at a valuation. 

IDAPA 35.01.03.405.05 (2007), addressing the cost approach, provides “the appraiser may 

consider replacement, reproduction, original or historical cost.” (emphasis added). IDAPA 

35.01.03.405.05.b (2007), provides that “[c]onstruction work in progress may be considered in 

the cost approach” and IDAPA 35.01.03.405.05.c (2007) states that “[i]f obsolescence is found 

to exist, it may be considered in the cost approach.” (emphasis added).
22

In Idaho State Tax Comm’n v. Staker, 104 Idaho 734, 737-38, 663 P.2d 270, 273-74 

(1982), this Court quoted the Arizona Court of Appeals’ summation in State v. Rella Verde Apts. 

Inc., 544 P.2d 675, 681 (Ariz. Ct. App.1976): “Appraising is not an exact science, it is merely an 

estimate of value.” Thus, evidence of valuation of property is the province of experts.

As previously noted, the Commission does not assert that the district court erred by admitting 

Tegarden’s testimony. Rather, the Commission invites this Court to conclude that the district 

court erred by relying on that testimony. This Court is not free to do so. “Once an expert’s 

opinion is admitted, it is up to the trier of fact to weigh the opinion against any conflicting 

testimony. City of McCall v. Seubert, 142 Idaho 580, 585, 130 P.3d 1118, 1123 (2006).” Coombs 

v. Curnow, 148 Idaho 129, 137, 219 P.3d 453, 461 (2009). The citation in Coombs to City of 

McCall is significant, because there, the City made virtually the same argument as the 

Commission has advanced and we rejected the argument. 

The City argues that this Court should grant a new trial to determine the value of 

the Seubert property because the jury improperly relied on the flawed 

methodology of Seubert’s appraisal expert, Mark Richey, in awarding her 

damages. Richey’s methodology, however, was not flawed, just different. 

“[W]eighing the testimony of expert witnesses is uniquely within the competence

of the trier of fact.” Rueth v. State, 103 Idaho 74, 78, 644 P.2d 1333, 1337 (1982). 

City of McCall, 142 Idaho at 585, 130 P.3d at 1123. This Court rejected the City’s position, 

stating: “In essence, the City merely argues that its expert’s appraisal of the Seubert’s property is 

more reliable than Seubert’s and, therefore, the jury erred in relying on Seubert’s expert’s 

valuation of the land.” Id. at 586, 130 P.3d at 1124 (emphasis original). This Court could simply 

substitute party names in this appeal to arrive at the same conclusion.

Further, our decision in City of McCall is notable for its reliance on the earlier decision in 

Rueth, because that opinion is instructive as to the conclusion that this Court must reach. In 

Rueth, this Court noted that factual findings of a trial court will only be overturned if clearly 

erroneous, adding: “This standard of appellate review is salutory in effect, and reflects the view 

that deference must be afforded to the special opportunity to assess and weigh the credibility of 

the witnesses who appear before it personally.” Rueth, 103 Idaho at 77, 644 P.2d at 1336 (citing 

Jensen v. Bledsoe, 100 Idaho 84, 593 P.2d 988 (1979)). After discussing the differing opinions 

advanced by the parties’ respective expert witnesses, this Court concluded:
23

The Department’s argument overlooks the fact that weighing the testimony of 

expert witnesses is uniquely within the competence of the trier of fact. ... In this 

case, the district court’s decision not to follow [the Department’s expert 

witness’s] testimony completely, although disappointing to the Department, does 

not render its findings of fact clearly erroneous. Simply stated, each side’s expert 

presented differing opinions to the district court based on differing 

methodologies, and it was within the sound discretion of the district court to 

accept or reject each expert’s opinions.

Id. at 78, 644 P.2d at 1337. 

The Commission could only prevail in this appeal if this Court abandoned our 

constitutional role as an appellate court and became a trial court. Today’s decision reflects this 

Court’s unwillingness to do so.

Justice EISMANN, CONCURS.

J. JONES, Justice, dissenting.

While I agree with much of what the Court says in its opinion regarding the 

Commission’s handling of evidentiary issues in the district court,19 I disagree with the ultimate 

conclusion reached in the opinion. The Commission presented only one issue on appeal:

May PacifiCorp deduct obsolescence from the cost approach to value without 

offering evidence of the cause of the obsolescence, the quantity of the 

obsolescence, and that the asserted obsolescence actually affects the property?

I would hold that PacifiCorp failed to establish entitlement to a 20.88% reduction in the taxable 

value of its property under the cost approach, based on “external obsolescence.” PacifiCorp’s 

 19 It may be that the Commission remembers when an assessor’s appraisal of property was presumed correct and 

would only be overturned where the taxpayer was able to show by clear and convincing evidence that the assessor’s 

evaluation “was manifestly excessive, fraudulent or oppressive; or arbitrary, capricious and erroneous resulting in 

discrimination against the taxpayer.” Merris v. Ada County, 100 Idaho 59, 64, 593 P.2d 394, 399 (1979). That 

changed on April 8, 2003, when the Governor signed into law House Bill 302, emergency legislation that 

established a “preponderance of the evidence” standard for tax appeals. 2003 Idaho Sess. Laws, 703; I.C. § 63-

409(2). As the statement of purpose accompanying the legislation said:

This legislation changes the legal standard from one that requires proof that an assessment is 

manifestly excessive, arbitrary and capricious, or fraudulent and oppressive, to one that requires 

simply that the assessment is erroneous. It changes the burden of proof to satisfy that standard 

from a “clear and convincing” burden to the normal “preponderance of the evidence” standard 

applicable to most civil cases. 

With this less favorable evidentiary standard, the Commission must step up its game by competently challenging 

questionable evidence submitted on behalf of a taxpayer. 
24

claim for an external obsolescence deduction in the amount of approximately $2,325,180,010 

cannot be sustained on either legal or factual grounds, in my estimation.

PacifiCorp’s expert, Tegarden, utilized the income shortfall method to determine external 

obsolescence and to set a cost value for the company’s taxable property. According to Tegarden, 

“generally external obsolescence is caused by governmental regulations, governmental 

restrictions, zoning, rent control, competition, changes in supply and demand, changes in the 

economy, and changes in interest rates or costs of capital,” but “probably the main cause, is the 

regulatory aspects that affect PacifiCorp.” This includes “the regulatory commission’s specific 

exclusion of certain properties from the rate base, i.e. those properties financed by the funds 

provided by the deferral of federal income taxes.” External obsolescence also includes regulatory 

lag―delay in getting new plant and equipment into the company’s rate base. Tegarden projected 

that PacifiCorp could expect a 7.2% rate of return on its plant in service in 2008. He asserted that 

a PacifiCorp investor would expect a 9.1% rate of return. He then calculated external 

obsolescence as follows:

Expected Rate of Return on Plant in Service 7.20%

Rate of Return Required by Investors = 9.10%

Percent Actual Rate of Return 

 of Investor Required Rate of Return = 79.12%

Percent Obsolescence in Existing Plant:

 100.00% [minus] 79.12% = 20.88%

Tegarden testified that it is not necessary to identify each individual factor contributing to 

external obsolescence and the amount attributable to each. Rather, he merely performs a 

“complete-unit-concept appraisal” that attributes any deficiency between the 7.2% and 9.1% 

return rates to external obsolescence, thereby reducing the taxable value of PacifiCorp’s property 

by 20.88%, resulting in a reduction of $2,325,180,010. 

This income shortfall method of determining cost certainly simplifies matters for the 

taxpayer. There is no need to go into the excruciating accounting detail necessary to establish 

and document the depreciation of plant and equipment for income tax and regulatory purposes.

The method relieves the taxpayer of the bother of specifically identifying the assets alleged to be 

affected by external obsolescence and quantifying the amount of obsolescence affecting any 

particular asset. You need only identify a projected rate of return and a rate of return that will 
25

make investors happy and multiply the assets by the difference between the two in order to 

reduce your taxes―a sort of proof by smoke and mirrors approach. According to Tegarden, 

“[T]he higher [the projected rate of return], the lower the obsolescence.” Conversely, the higher 

the rate of return that will keep investors satisfied, the more external obsolescence a company 

can claim and the less property tax it will be required to pay.

The district court concluded that Tegarden’s cost approach was reasonable from an 

evidentiary standpoint and more persuasive than the approach advocated by the Commission. 

Therefore, PacifiCorp’s cost analysis was adopted by the court. However, I find the approach 

lacking on both factual and legal grounds. 

This Court has not previously dealt with the income shortfall method and, therefore, it is 

worth examining how other courts in PacifiCorp’s service area have dealt with the issue. The 

decisions of those courts are not in any way binding on this Court but it certainly seems 

appropriate to consider how our sister states have ruled on similar claims made by this multistate corporation.

The Commission cites Pacific Power & Light Co. v. Dept. of Revenue, State of Oregon, 

775 P.2d 303 (Or. 1989). Pacific Power & Light Co. (Pacific) is a predecessor of PacifiCorp. In 

that case, PacifiCorp’s predecessor did not specifically identify the income shortfall method. 

However, as here, both parties started with the depreciation reported on the company’s annual 

FERC Form 1 filing. Id. at 307. In addition to the depreciation reflected on the FERC filing, 

Pacific claimed obsolescence for “property purchased with funds held for ‘deferred income 

taxes’ (DIT)” and for property purchases entitled to investment tax credits (ITC), which were 

treated the same way as DIT for regulatory purposes. Id. at 305, 307. Oregon’s Tax Court 

considered the “obsolescence” label “to be misleading” but allowed the deductions for both DIT 

and ITC because Pacific was not able to earn on them. Id. at 307. The Oregon Supreme Court 

reversed, saying:

The Department argues that this analysis results in a portion of the tangible assets 

of Pacific inappropriately being exempted from taxation. We agree. Accepting (as 

the Tax Court and the parties apparently did) the idea that what we are searching 

for is what a hypothetical willing buyer of this property would pay to a 

hypothetical willing seller, it seems clear to use that a willing buyer of the plant 

and equipment would be agreeable to paying a figure close to [historic cost less 

depreciation], because the buyer could then earn off all that expenditure.
26

We say “close,” because there is much evidence in this record to the effect that 

regulation to some extent diminishes the earning potential of regulated property 

and, therefore, a willing buyer would wish to discount the property to some 

degree. Thus, Pacific’s property may be affected by a measure of obsolescence. 

But−as the Tax Court recognized−DIT and ITC are no measure of (or surrogate 

for) that obsolescence. Both are property purchased through tax allowances for 

certain capital investments.

Both DIT and ITC are property and have intrinsic value. . . . Absent any 

satisfactory evidence establishing an appropriate measure of obsolescence, it is 

inappropriate to make any deduction for it by subtracting in toto the values for 

DIT and ITC−the only deduction for which Pacific argues. We agree with the 

Department that the Tax Court erred in making the deduction. 

Id. at 57−58. In the present case, Tegarden speculates that DIT is “one of the primary causes” of 

external obsolescence. However, there is no evidence in the record to establish an appropriate 

measure of external obsolescence of PacifiCorp’s DIT assets, nor of the other assets claimed to 

be externally obsolescent, including the identity and value of those assets. 

In a subsequent case not involving PacifiCorp or its predecessor, the Oregon Supreme 

Court declined to adopt the income shortfall method or “income-deficiency method” urged by 

the taxpayer. Delta Air Lines, Inc. v. Dept. of Revenue, State of Oregon, 984 P.2d 836, 849 (Or. 

1999). The Court stated it was “unable to conclude from the evidence before us what type of 

obsolescence adjustment−if any−is required,” based on that method. Id. The Court continued:

[W]e find it significant that, as Delta’s appraiser testified, by using the incomedeficiency method, his cost indicator always would have equaled his income 

indicator, because his cost indicator measured obsolescence by examining the 

projected income stream. At best, therefore, Delta’s income deficiency method is 

illogical, because it incorporates income figures that account for only owned 

assets, while it uses cost figures that account for both owned and leased assets. At 

worst, Delta’s income-deficiency method strips the cost approach of its use as an 

independent determiner of value, because it always will track the result under the 

income approach.

Id. (emphasis added) Likewise, in this case, Tegarden’s cost indictor measured obsolescence by 

examining the projected income stream.

Another PacifiCorp state, Montana, was no more enamored with the income shortfall 

method. In PacifiCorp v. State of Montana, Dept. of Revenue, 253 P.3d 847 (Mont. 2011), the 

Montana Supreme Court had before it several of the participants involved in the present case. 

Attorney David J. Crapo, who ably represented PacifiCorp in the present case, was counsel for 
27

PacifiCorp, the appellant in the Montana case. Tegarden acted as PacifiCorp’s expert and Eyre as 

Montana’s. The Montana Tax Appeal Board rejected “the income shortfall method―the method 

advanced by PacifiCorp to demonstrate that about $2.6 billion worth of additional obsolescence 

existed.” Of some interest is the fact that PacifiCorp did not appeal that decision. Id. at 853. 

Nevertheless, PacifiCorp contended that it was entitled to the additional deduction for external 

obsolescence, even though it was not disclosed on its FERC Form 1. Id. at 854. 

The Montana Court accepted the Revenue Department’s position that the FERC Form 1 

reflected all forms of obsolescence since, as the Court pointed out, the FERC definition of 

depreciation included “wear and tear, decay, action of the elements, inadequacy, obsolescence, 

changes in the art, changes in demand and requirements of public authorities.” Id. at 854 

(emphasis in original). The Montana Court apparently read “requirements of public authorities,” 

to equate to governmental regulations and restrictions. This certainly is a common sense reading. 

The Court went on to say, however, that additional reductions or adjustments might be made “if 

a taxpayer could show that additional depreciable value existed,” but that PacifiCorp had failed 

to provide “a figure for how much obsolescence had not been captured.” Id. The Court noted that 

the Tax Appeal Board had “rejected Tegarden’s income shortfall approach because, among other 

reasons, it failed to account for income from properties that PacifiCorp had purchased with 

deferred income taxes.” Id. According to the Court, “[a]bsent the evidence based on the rejected 

income shortfall method, [the Tax Appeal Board] had no evidence before it that suggested that 

unaccounted-for obsolescence existed.” Id. at 855. The Court concluded, “PacifiCorp bore the 

burden of proving the Department’s method inadequate. PacifiCorp came forward with no 

evidence of additional obsolescence that the Department had failed to analyze.” Id. In this case, 

also, PacifiCorp made no accounting of income it may have received from properties that it had 

purchased with deferred income taxes and, more importantly, failed to identify and value DIT 

properties, or any other assets claimed to be externally obsolescent.

The Utah Supreme Court has similarly taken a skeptical view of claims asserting an 

entitlement to economic obsolescence deductions under the cost approach. In a case where a 

taxpayer claimed an economic obsolescence rate of 31%, the Court first cited a case involving a 

predecessor of PacifiCorp―Utah Power & Light Co. v. Utah State Tax Comm’n., 590 P.2d 332 

(Ut. 1979)―in which it had held that a taxpayer must not only show error in an assessment, but 

must also “provide a sound evidentiary basis upon which the Commission could adopt a lower 
28

valuation.” Alta Pac. Assoc., Ltd. v. Utah State Tax Comm’n., 931 P.2d 103, 112 (Ut. 1997). The 

Court rejected the economic obsolescence claim stating:

Nowhere in [Alta’s] appraisals’ explanation for its 31% economic obsolescence 

rate were the specific federal restraints mentioned. During their testimony, the 

owners’ appraisal experts also failed to explain how each of the federal burdens 

impacted the appraisal. Thus, even if Sevier County’s assessments were flawed 

for failing to account for each and every regulatory burden, reversal of the 

Commission’s approval would be inappropriate because the owners failed to 

suggest a sound alternative method to correct the flaws.

Id. at 113. 

The State of Arizona, which is also in PacifiCorp’s service area, likewise takes a dim 

view of allowing a claim for external obsolescence where it is unsupported by actual proof. In 

Eurofresh, Inc. v. Graham County, 187 P.3d 530, 537 (Ariz. App. 2008), after citing a number of 

cases from other states, including Utah’s Alta Pacific decision, the court said, “These authorities 

together teach that a taxpayer claiming external obsolescence must prove both the cause of the 

asserted obsolescence and that the subject property is actually affected by that cause.” The court 

held that, “as a matter of law, a taxpayer claiming external obsolescence must offer probative 

evidence of the cause of the claimed obsolescence, the quantity of such obsolescence, and that 

the asserted cause of the obsolescence actually affects the subject property.” Id. at 538. 

The Commission proffered another decision from the same court, Southwest Airlines Co. 

v. Arizona Dept. of Revenue, 2012 WL 3041179 (Ariz. App. 2012), wherein Tegarden acted as 

expert for the taxpayer and Eyre acted as expert for the state.20 The court noted that, “[i]n 

applying the cost method, Tegarden determined that additional deductions from the statutory 

formula were needed to account for obsolescence.” Id. at 4. The court continued:

In its specific criticisms of Tegarden’s opinions, the Department argues his 

reliance upon the income-shortfall approach to perform a cost valuation was 

erroneous. It argues Tegarden’s analysis was flawed because, inter alia, rather 

than compare Southwest’s income to the income of other airlines, Tegarden 

“created a comparison market by hypothesizing an entirely subjective figure for 

what he thought that [Southwest’s] earnings should be and compared the 

hypothetical earnings to its actual earnings.” The tax court accepted Eyre’s 

criticism of this method as circular.

 20 It should be noted that the Southwest decision contains a notice that “This decision does not create legal precedent 

and may not be cited except as authorized by applicable rules.” With that cautionary note and with the understanding 

that, even without it, the decision is no way binding on this Court, it is interesting to get the Arizona court’s take on 

the income shortfall method.
29

Moreover, the Department argues that the income-shortfall approach that 

Tegarden used has been rejected by the Western States Association of Tax 

Administrators. See PacifiCorp, 253 P.3d at 854−55 (rejecting use of incomeshortfall approach); Transcon. Gas Pipe Line Corp. v. Bernards Twp., 545 A.2d 

746, 754 (N.J. 1988) (noting “circularity” of the approach).

Id. Thus, the court thought it inappropriate for Tegarden to hypothesize a subjective figure for 

what he thought the taxpayer’s earnings should be and then compare the hypothetical earnings to 

its actual earnings in order to derive an external obsolescence deduction. 

I agree with the skepticism expressed by these courts for allowing a large deduction of 

taxable value for external obsolescence, where there is no competent evidence to establish that 

the obsolescence actually exists. PacifiCorp postulates that it is entitled to a one-fifth reduction 

in the assessed value of its property under the cost approach because it is not achieving the rate 

of return its investors would prefer. The Commission characterizes PacifiCorp’s position as 

using the “assumption of obsolescence to reduce the cost approach to the income approach.” The 

Commission argues:

It does this by using the same “investor required rate of return” it used to develop 

the income approach. Stripped of its gloss, the basic argument is: (1) the cost 

approach yields a value significantly higher than the income approach, (2) the 

reason for the discrepancy must be obsolescence, therefore (3) use the percentage 

difference between the assumed actual rate of return and assumed “investor 

required rate of return” to determine the assumed obsolescence. Now the income 

approach and cost approach agree. The reasoning is circular and has the result of 

gutting the cost approach to value by relying on a critical income approach factor 

to calculate the cost approach.

In my estimation, the income deficiency or shortfall method of establishing cost is unreliable, as 

a matter of law, where the taxpayer fails to establish the claimed obsolescence assumed by that 

method by offering competent evidence: to establish the factors comprising the claimed 

obsolescence, to identify the assets affected thereby, and to quantify the amount of obsolescence 

for each asset. The record here contains no such evidence. Thus, I would hold, as have our 

sisters states in similar circumstances, that PacifiCorp has failed to carry its burden of 

establishing entitlement to an additional deduction for external obsolescence.21

 21 While I do not have a bone to pick with the district court’s decisions in admitting or considering PacifiCorp’s 

evidence, that evidence is simply insufficient, as a matter of law, to establish its entitlement to an external 

obsolescence deduction.
30

In this case, PacifiCorp merely speculates, through use of the income shortfall method, 

that some sort of external obsolescence is keeping it from making the amount of money it wants 

to make. It could be “competition, changes in supply and demand, changes in the economy, and 

changes in interest rates or costs of capital,” but “probably” the main cause is the “regulatory 

aspects that affect PacifiCorp.” The company contends that the depreciation it disclosed on its 

FERC Form 1 did not include external obsolescence but offers no explanation as to why it 

apparently ignored the FERC definition of depreciation―which includes “obsolescence, changes 

in the art, changes in demand and requirements of public authorities”―and failed to report those 

items. All of these elements appear to be included in Tegarden’s description of external 

obsolescence, particularly the last element, which would seem to equate to governmental 

regulation. I am inclined to agree with the Montana Supreme Court that the amount a utility 

designates as depreciation on its FERC Form 1 includes all obsolescence unless the utility can 

establish through competent evidence that additional depreciable value actually exists. 

PacifiCorp v. State of Montana, 253 P.3d at 854. If PacifiCorp contends that a primary cause of 

its “lower-than-adequate rate of return on all property is the regulatory commission’s specific 

exclusion of certain properties from the rate base, i.e., those properties financed by the funds 

provided by the deferral of federal income taxes,” it would seem that such properties would 

easily be identifiable, that the amount expended upon them out of deferred income taxes could be 

quantified, and that the effects on earnings, both positive and negative, could be shown.22

Instead, PacifiCorp urges a blue sky approach where none of this proof need be proffered.23

PacifiCorp contends that part of the external obsolescence results from regulatory 

lag―delay by regulators in getting property placed into the rate base. However, PacifiCorp fails 

to establish a value for this factor. PacifiCorp is perfectly capable of calculating a value for 

regulatory lag. In Utah Power & Light Co. v. Idaho Public Utilities Comm’n., 102 Idaho 282, 

284−85, 629 P.2d 678, 680−81 (1981), this Court overruled the Idaho Public Utilities 

Commission’s decision denying PacifiCorp’s predecessor a 1% factor in its allowed rate of 

return for regulatory lag or “attrition.”24 The Court further allowed a regulatory lag or attrition 

 22 Such a showing would have the added benefit of establishing whether and to what extent such assets were located 

in Idaho.

23 It isn’t entirely clear how inclusion of DIT properties in the rate base would improve PacifiCorp’s earnings when 

it is apparently earning less than its allowed rate of return. Some explanation and evidence in this regard would also 

be helpful and appropriate. 24 Of interest is the Court’s observation that:
31

allowance in a subsequent rate of return requested by Utah Power in Utah Power & Light Co. v. 

Idaho Public Utilities Comm’n., 105 Idaho 822, 826−27, 673 P.2d 422, 427−28 (1983). If 

PacifiCorp’s predecessor could document and quantify a regulatory lag factor in proceedings 

where it sought to increase its allowed rate of return, it certainly could do the same in a case 

where it seeks to decrease the amount of its property taxes by claiming regulatory lag.

Before concluding, an observation regarding Tegarden’s use of the income deficiency 

method is appropriate. In support of his calculation of external obsolescence, Tegarden cites The 

Valuation of Real Estate, 3rd, by Ralph A. Ring and James H. Boykin. In his appraisal, Tegarden 

includes an example from page 424 of the Ring and Boykin publication, demonstrating the 

calculation of external obsolescence. The example shows a 2% loss in earnings resulting in a 

17.4% deduction for external obsolescence, calculated “by the difference in the rate of return 

allowed by regulatory agencies and the rate of the return that the investment market indicates as 

competitive to attract a willing, able, and informed purchaser (investor).” Yet, instead of using 

PacifiCorp’s allowed rate of return as of January 1, 2008, the Commission’s valuation date of the 

property, which the Commission points out was 8.27%, Tegarden used a projected rate of return 

based on PacifiCorp’s five previous years of actual earning experience. Tegarden provided no 

explanation as to the departure from the methodology utilized by Ring and Boykin. We are left 

to speculate. 

The Commission’s regulations for assessment of utility company operating property 

certainly contemplate the possibility of a deduction for obsolescence. Rule 405.05.c provides:

The appraiser shall attempt to measure obsolescence, if any exists. If 

obsolescence is found to exist, it may be considered in the cost approach.

IDAPA 35.01.03.405.05.c. Here, the Commission’s appraiser did not find obsolescence to exist, 

other than as may have been claimed by PacifiCorp in its FERC Form 1. To obtain the benefit of 

any additional obsolescence that PacifiCorp may have neglected to include in the FERC Form 1, 

despite the FERC definition of depreciation, it was incumbent upon PacifiCorp to establish 

through competent evidence the factors comprising the claimed obsolescence, the amount 

attributable to each factor, and the effect on earnings, both positive and negative, of each factor. 

 A rate of return authorized by a Commission is not a guarantee of any level of revenues. . . . 

Conflicting views exist as to whether a utility’s failure to earn an authorized rate is, in and of 

itself, the final test of [regulatory lag].

Id. at 285, 629 P.2d at 681.
32

PacifiCorp has failed to do so and, therefore, I would reverse the district court’s holding adopting 

PacifiCorp’s cost valuation. 

Chief Justice BURDICK CONCURS.