Opinion ID: 1950946
Heading Depth: 1
Heading Rank: 4

Heading: Accrued Taxes

Text: As we previously noted, the parties agree that taxes are a customer source of capital and must be considered in calculating cash-working capital. The lead-lag study utilized in this case recognizes that there are lags in the payment of certain operating expenses that work in favor of Pepco as well as against it. Since taxes are collected from the ratepayers in advance of their payment, Pepco has customer funds available for its use in covering the gap between the time it must pay expenses incidental to rendering service and the time revenue for that service is received. The record shows that in test year 1975, Pepco enjoyed an 85.7-day delay in the payment of taxes other than federal income taxes. This positive lag (or lead) in payments was appropriately recognized by the Commission in its lead-lag study. It utilized a O lag for federal income taxes, however, because Pepco was entitled to an approximately $10 million tax refund due to substantial investment tax credit carry-backs. This excess amount of tax liability was carried on Pepco's books throughout 1975 and represented a negative accrual or a positive lag in receipts of cash. People's Counsel contended in the proceedings below and now asserts on appeal that this lag study is deficient in that it failed to account for all accrued taxes, especially federal income taxes. In support of her argument, People's Counsel refers to Pepco's Account 236 which reflects the average of the twelve monthly balances of all taxes accrued during test year 1975 in addition to those accrued in past years, but not paid for any reason. The average amount of accruals represented by this account is $7,890,000. [12] The Commission used in its lead-lag study a detailed time analysis of the accruals of each tax involved, which has the effect of increasing the time lag in payment of expenses while substantially decreasing the net time lag between revenues and expenses. The result is a reduction in Pepco's cash-working capital requirement. This method of accounting for taxes has been used by other commissions. E. g., Chesapeake & Potomac Telephone Co. v. Public Service Commission, supra . [13] As the Commission has demonstrated, if the Commission's treatment of tax accruals is removed from the lead-lag study, the net lag between the payment of expenses and revenues increases. This also causes a corresponding increase in the cash-working capital requirement. If People's Counsel's figure of $7,890,000 were then substituted for the Commission's treatment of taxes and used as an offset, the amount of cash-working capital actually increases by $199,767 (D.C. portion). The amount of cash-working capital arrived at by the Commission through its method is, therefore, reasonable. It is the result reached not the method employed which is controlling. Federal Power Commission v. Hope Gas Co., supra, 320 U.S. at 602, 64 S.Ct. at 287. If the rate order is not unreasonable, we may not reverse even if the method used to reach that result contains infirmities. Id. Under the end-result test enunciated by the court in Federal Power Commission v. Hope Gas Co., supra, we cannot condemn the Commission's order regarding this issue as unjust or unreasonable in its impact on either the consumers or investors. [14] Affirmed.