Opinion ID: 2202769
Heading Depth: 1
Heading Rank: 4

Heading: wmata's contentions

Text: In December 1981 WMATA extended its Metro subway service on the Red Line for approximately two miles, from the Dupont Circle station to the Van Ness station. This extension of service added three additional passenger stations and two traction stations. WMATA sought an upward adjustment of $627,035 in PEPCO's test-year revenues based on the increase in electricity purchases that would result from the extended rail system. In rejecting WMATA's proposed adjustment, the Commission said: While in the past, the Commission has permitted adjustments in WMATA's billing determinants to reflect known and certain changes in Metro's ratcheted billing demands, here WMATA is seeking an adjustment of estimated annualized revenue dollars. However, WMATA offers no explanation of how that dollar figure was derived, so that the Commission is unable to evaluate the estimate. In the circumstances, we reject the proposed adjustment, which does not embody a known and certain change, but rather is based on an unverifiable estimate. Order No. 7716 at 91. WMATA argues (1) that the Commission erroneously shifted the burden of proof from PEPCO to WMATA on this issue, and (2) that the Commission had additional opportunity to direct PEPCO, or its own staff or the expert witnesses, to present the dollar estimates that [would] meet its needs for understanding the proper level of dollar amount that should be recognized for the additional operation of Metro. These arguments are unpersuasive. WMATA asserts in its brief, as it did in its application for reconsideration, that there cannot be better support for a `certain and known change' than the fact itself that Metro is operating the extended rail system. In light of the record as a whole, however, this fact is entitled to little or no weight. As PEPCO demonstrated, there was no assurance that periodic increases in demand would be repeated in future billings. In fact, William Schmidt, a PEPCO witness, established that WMATA's actual demand in April 1982 was lower than the demand recorded in April 1981, despite the Red Line extension in December 1981. WMATA offered no countervailing evidence to support its contention that the test-year revenues should be adjusted. We find no error in the Commission's rejection of WMATA's proposal.
WMATA argues that its tax-exempt status under the WMATA Compact [8] entitles it to a rate discount equal to its proportionate share of the District of Columbia gross receipts tax paid by PEPCO. The Commission properly rejected this argument. Title III, § 78 of the Compact, D.C.Code § 1-2431 (1981), provides in pertinent part: [T]he Authority [WMATA] . . . shall not be required to pay taxes or assessments upon any of the property acquired by it or under its jurisdiction, control, possession or supervision or upon its activities in the operation and maintenance of any transit facilities or upon any revenues therefrom, and the property and income derived therefrom shall be exempt from all federal, State, District of Columbia, municipal and local taxation. This exemption shall include, without limitation, all motor vehicle license fees, sales taxes and motor fuel taxes. Under D.C.Code § 47-2501 (1981), [9] PEPCO must pay an excise tax on the privilege of furnishing franchised public utility services in the District. Chesapeake & Potomac Telephone Co. v. District of Columbia, 117 U.S.App.D.C. 21, 25, 325 F.2d 217, 221 (1963). WMATA contends that the legal incidence of this tax falls in part upon it, since the economic burden of tax is borne by PEPCO's retail customers. We do not agree. In United States v. New Mexico, 455 U.S. 720, 102 S.Ct. 1373, 71 L.Ed.2d 580 (1982), the Supreme Court considered the immunity of the federal government from state taxation [10] in a case involving a gross receipts tax imposed by New Mexico on the sale of goods and services in that state. The United States challenged the payment of that tax by three contractors doing business with the federal government, arguing that the burden of the tax really fell on the United States because it would be paid out of the contractors' earnings under their government contracts. In holding unanimously that the federal government's immunity did not extend to the contractors, the Court declared: [I]mmunity may not be conferred simply because the tax has an effect on the United States, or even because the Federal Government shoulders the entire economic burden of the levy. . . . [T]ax immunity is appropriate in only one circumstance: when the levy falls on the United States itself, or on an agency or instrumentality so closely connected to the Government that the two cannot realistically be viewed as separate entities, at least insofar as the activity being taxed is concerned. Id. at 734-735, 102 S.Ct. at 1382-1383. In the present case, the gross receipts tax increases the rate paid by WMATA in the same proportion as it increases the rates of PEPCO's other customers. It is ultimately the customers, not PEPCO, whose money pays the tax. This shift of the economic burden, however, does not mean that the legal incidence of the tax falls on the customers. United States v. New Mexico, supra ; Gurley v. Rhoden, 421 U.S. 200, 204-205, 95 S.Ct. 1605, 1608-1609, 44 L.Ed.2d 110 (1975); United States v. Maryland, 471 F.Supp. 1030 (D.Md. 1979). Compare D.C.Code §§ 47-2002, 47-2003 (1981) with D.C.Code § 47-2501 (1981) (the former providing for the recovery of the sales tax directly from the purchaser). Rather, as the Commission concluded, PEPCO bears the incidence of the tax, and, through its cost-of-service rates, passes the economic burden of the tax along to its retail customers. Order No. 7716 at 119. Following the rationale of United States v. New Mexico, supra , we hold that WMATA's immunity from taxation is not infringed because a component of its electric rate serves to reimburse PEPCO for the gross receipts tax it must pay to the District. The tax is merely one of the many costs which PEPCO must bear in order to provide electric service to its customers. The legal incidence of the tax remains at all times on PEPCO, just as it remained on the contractors in United States v. New Mexico . WMATA does not pay the tax at all, but merely reimburses PEPCO for its payment of the tax. WMATA's immunity remains inviolate.
The Commission permitted PEPCO to increase its revenues by $34,003,000 through an across-the-board rate increase, which was not really across the board because it excluded residential and street lighting customer classes. WMATA argues that this particular increase forces it to pay part of the cost of service for residential and master-metered apartment customer classes, that the rate of return it provides to PEPCO under the RT tariff is higher than the average rate of return under the GS tariff, and that the Commission used incorrect billing determinants in designing the RT tariff. [11] With respect to the first of these arguments, the Commission ruled: We cannot agree with WMATA that it should be exempted from bearing its proportionate share of the revenue gaps produced by the transfer of the master-metered apartments to the residential class and the introduction of the RAR rate. WMATA has offered no grounds for treating it differently than the other commercial classes. Order No. 7751 at 18. WMATA does not point to any evidence in the record, nor can we find any, which would support a different conclusion. [12] As for WMATA's contentions regarding the rate of return under the RT tariff as compared with that under the GS tariff, the Commission recognized that the across-the-board rate increase . . . [would] produce from WMATA a rate of return slightly higher than the average for the GS class. Order No. 7716 at 155. However . . . growth in energy use and demand requirements of the WMATA system have required an increase in average system cost above what they would have been without the increased WMATA usage. Id. at 156. In its order denying WMATA's application for reconsideration, the Commission concluded: WMATA's argument merely confuses relative size of class with relative class rates of growth. Contrary to WMATA's claim, Metro's disproportionately high rate of growth is entirely consistent with PEPCO's overall growth pattern, and it, together with Metro's peak-oriented consumption pattern, completely justify [ sic ] a rate of return from Metro slightly higher than that from the GS average. Order No. 7751 at 18. We agree. Finally, with respect to WMATA's argument regarding the inaccuracy of the billing determinants, the Commission said: WMATA . . . appears also to be confused regarding the establishment of its rates in our previous case, [Formal Case] No. 748. There we approved rates designed to equalize the RT and GS rates of return for the test year. It is no surprise that those rates, once approved, might produce somewhat different returns in the year subsequent to the test year. Billing determinants obviously will not remain constant, but this fundamental fact in no way undermines the validity of the authorized rates. Order No. 7751 at 18. Again we agree with the Commission. We see no legal error and no unfairness which would justify disturbing the Commission's ruling.
Finally, WMATA contends that the cost-allocation methodology authorized by the Commission was biased against the Metro RT class. Specifically, WMATA argues that the Commission erred in not recognizing that WMATA should be treated as a jurisdictional customer and that PEPCO's AED/NCP [13] methodology penalizes a customer like WMATA that does not peak at the same time PEPCO peaks by allocating higher costs to it. In rejecting both contentions, the Commission observed: Since it is not practical for PEPCO to meter the load flows between its retail jurisdictions on a continuous basis due to the density of the system and the preponderance of underground boundary crossings, PEPCO determines the jurisdictional NCP from a combination of actual meter read data and load survey data by customer classes for each jurisdiction. Once the system costs have been allocated to the relevant jurisdiction, the NCP for the customer classes within the jurisdiction are used to further allocate jurisdictional costs to the various customer classes. This is a proper application of the AEC cost allocation technique and is consistent with the allocation methodology employed by PEPCO in [Formal Case] No. 758. Use of this method allows load characteristics of the different classes to be specifically recognized, and in addition, recognizes that base load generating units installed for off peak service have a higher capital cost and lower energy cost than units added primarily for peaking purposes. The data presented by Mr. Labonski indicate that WMATA is indeed highly coincident with the PEPCO system and contributes a high fraction of its maximum demand at the time of the PEPCO system peak, and that the peak thus far incurred in 1982, at 5 p.m. on July 19, 1982 (4146 MW) was highly coincident with the normal time of the WMATA peak. WMATA's request that it be treated as a separate jurisdiction in PEPCO's jurisdictional cost allocation would entail a rather fundamental revision of the study methodology. WMATA offers no reason for its apparent failure to make this request in [Formal Case] No. 758 where it more properly belonged. While WMATA claims the present method is biased against it, the Commission has been given no specifics as to the extent of any adverse impact on WMATA arising from the claimed bias. More than WMATA has offered is required in order to persuade the Commission to direct a change in an allocation methodology so recently approved by it. Order No. 7716 at 161. WMATA has not sustained its burden of demonstrating legal error in this ruling. See People's Counsel v. Public Service Commission, supra, 399 A.2d at 46; Goodman v. Public Service Commission, supra, 309 A.2d at 101. Its arguments on these points raise issues that are really questions of regulatory policy; [14] our review of a Commission order, however, is limited to questions of law. . . . D.C. Code § 43-906 (1981). Policy decisions are within the exclusive domain of the Commission. They are beyond both the jurisdiction and the competence of a reviewing court. Affirmed.