Case Name: City of Akron et al., Appellants, v. Public Utilities Commission of Ohio et al., Appellees
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1977-07-06
Citations: 51 Ohio St. 2d 27
Docket Number: No. 76-1176
Parties: City of Akron et al., Appellants, v. Public Utilities Commission of Ohio et al., Appellees.
Judges: O’Neill, C. J., Herbert, W. Brown and Sweeney, JJ., concur.
Reporter: Ohio State Reports, Second Series
Volume: 51
Pages: 27–33

Head Matter:
City of Akron et al., Appellants, v. Public Utilities Commission of Ohio et al., Appellees.
[Cite as Akron v. Pub. Util. Comm. (1977), 51 Ohio St. 2d 27.]
(No. 76-1176
Decided July 6, 1977.)
Messrs. Steer, Strauss, White & Tobias, Mr. Robert J. White, Mr. Theodore K. High and Mr. F. Bruce Abel, for appellants.
Mr. William J. Brown, attorney general, Mr. Charles S. Rawlings and Mr. John W. Bentine, for appellee Public Utilities Commission.
Messrs. Jones, Day, Reavis é Pogue, Mr. Victor E. DeMarco, Mr. Lanty L. Smith, Mr. Roy F. Ryan III, Mr. Donald W. Morrison, Mr. Charles B. Ballou and Mr. Ronald L. Orloff, for intervening appellee Ohio Bell Telephone Company.

Opinion:
Paul W. Brown, J.
In 1969, after this court's decision in Cincinnati Gas & Electric v. Pub. Util. Comm., supra (173 Ohio St. 473), federal tax law was modified with respect to the use of accelerated depreciation for public utilities. Present Section 167(l) of the Internal Revenue Code, and others which authorize the accelerated depreciation method, are somewhat tangled, but their effect is clear, as every witness before the board agreed. The statute requires that if a public utility uses accelerated depreciation, it must normalize. If normalization is denied and the utility is required to flow through, the utility is disqualified from using accelerated depreciation and must use straight-line. Since the accounting procedure for normalization uses straight-line depreciation which then creates a reserve for the tax obligation resulting from the tax deferral, the effect is that all of the rates and expenses stay the same in any event, but the utility loses the advantage of using the reserve fund as cost-free capital, which it would have if it uses both the accelerated depreciation method and normalization.
The provisions of this new law applied only to post-1969 property, and only if the utility elected to use accelerated depreciation. Ohio Bell, which had formerly used straight-line depreciation, elected to switch to accelerated depreciation, and informed the commission of this decision by letter in April 1970, and has used accelerated depreciation and normalized in the years since. Another effect of the federal law is that if the utility switches back to straight-line (as it presumably would be required to do if not permitted to normalize), it would immediately have to file amended returns for earlier years using straight-line, and would accordingly have to pay as taxes all the amounts which had been deferred in those years. This would amount to a very substantial sum, for in the test year alone, Ohio Bell deferred over 45 million dollars.
Clearly, depreciation is an elastic concept which is designed to function differently under different circumstances. One need be neither an economist nor an accountant to perceive that the intention of Congress in allowing accelerated depreciation is to stimulate continuing expansion and upgrading of facilities, while annual depreciation for the rate-making purpose must, in fairness to ratepayers current or remote, be more directly related to the economic value of the property over some rational projection of its useful life.
Since we conclude that the commission's inclusion in the ratemaking formula as an expense for the test year of the tax figure arrived at by normalizing tax liability computed by the accelerated depreciation method was neither unreasonable nor unlawful, and that under these facts the determination by the commission concerning normalization is in the best interests of the ratepayers, the order of the commission is affirmed.
Order affirmed.
O'Neill, C. J., Herbert, W. Brown and Sweeney, JJ., concur.
Celebrezze and Locher, JJ., dissent.