Opinion ID: 2284798
Heading Depth: 2
Heading Rank: 2

Heading: Federal Income Tax Rate

Text: The Commission computed WGL's revenue requirements using the 48% federal corporate income tax rate, which was in effect until December 31, 1978. [46] Order 6060, at 9-10. People's Counsel and the GSA contend here, as they did before the Commission, that since the rates in issue here went into effect on March 16, 1979, upon the issuance of Order 6060, the Commission should have used instead the newly-enacted 46% tax rate, which became effective on January 1, 1979. The Commission and the Company respond that the 46% rate was properly rejected because of its remoteness from the test year. [47] If it were to be utilized, they argue, equity then would require that a number of post-test-period cost increases (which were not reflected in WGL's pro forma test-period expenses) also be incorporated. WGL additionally contends that People's Counsel's espousal of the 46% tax rate is inconsistent with its position opposing an attrition allowance. The Commission stated: Were we to consider the new 46 percent corporate income tax rate, fairness and consistency would dictate that we likewise consider other offsetting changes in the tax laws, together with changes in other expenses, such as higher wage rates for labor. And in fact, the reduction in the income tax rate effective in 1979 is not the only change in the tax laws. Both the taxable wage base and the percentage rate for the social security tax (FICA) have been increased for 1979. There could well be other changes which, in the aggregate, might more than offset any rate reduction occasioned by using the 46 percent tax rate. But People's Counsel has failed to address this question of offsetting post-test year increases in expenses. For the reasons stated, we cannot grant People's Counsel's exception on this point. [Order 6060, at 10 (footnote omitted).] The Commission's interest in using income and expense data from a discrete time period, the test year, and its reluctance continually to extend that period until the issuance of its Final Order, are, we conclude, not unreasonable limitations on the ratemaking process. See Potomac Electric Power Co. v. Public Service Commission, supra at 18-19. The Commission's use of the 48% tax rate must therefore be affirmed.