Opinion ID: 1059654
Heading Depth: 2
Heading Rank: 2

Heading: Parental Debt Adjustment

Text: 7 The Commission applied a parental debt adjustment that allocated tax benefits received by GTE's parent company, GTE Corporation, to GTE and in turn to GTE's ratepayers. This adjustment is based on tax savings resulting from the parent corporation capitalizing on its equity investment in a regulated subsidiary. The tax savings is available if the parent company chooses to file a consolidated tax return. GTE complains that this adjustment was a departure from the Commission's previous policy of determining a utility's taxes on a stand alone basis and that the Commission's assumption that debt incurred by GTE Corporation is proportionally invested in its subsidiaries is inaccurate. GTE does not assert that this adjustment is per se improper for ratemaking purposes, only that it should not have been used in this case. The Commission has applied adjustments to a consolidated tax return in other cases and, like other state regulatory bodies, has applied this specific adjustment in at least one other case. Application of Virginia-American Water Co., Case No. PUE950003, 1997 S.C.C. Ann. Rep. 333. This adjustment, like the adjustment discussed above, is an accounting adjustment which, although a departure from the approach used in previous cases, is within the discretion of the Commission to impose. 8 We also reject GTE's assertion that the adjustment should not have been applied because it was based on improper assumptions such as fictional jurisdictional interest and fictional jurisdictional tax savings. The ratemaking process is not a matter of scientific precision and must incorporate a number of assumptions. The Commission's judgments in fixing a reasonable rate of return are judged by a zone of reasonableness. Commonwealth of Virginia v. Virginia Elec. & Power Co., 211 Va. 758, 769, 180 S.E.2d 675, 683 (1971)(citations omitted). There was testimony that GTE Corporation supports all subsidiary investments and that such support is not directly limited to cash flow between affiliates. Therefore, according to Commission staff, it would be improper to limit this allocation to specific debt or equity issuances of GTE Corporation to GTE. Thus, the record supports the Commission's decision to apply the parent company debt adjustment and there is no error in that decision.