Opinion ID: 2366694
Heading Depth: 1
Heading Rank: 4

Heading: unamortized investment tax credits of $1,856,028

Text: In its original report and order the commission did not deduct the unamortized investment tax credit from the company's rate base. This court directed the commission to explain its reason for doing so. The commission in its supplementary report and order explained that: The investment credit established by the Revenue Act of 1962 was terminated on April 18, 1969. Since that date, however, the Company has continued to flow-through the benefits of prior credits under that Act, thus increasing earnings over the productive life of the plant giving rise to such credits. These amounts have been reflected in the Company's accounting exhibits and in our determination of the Company's allowable operating expenses and taxes. In our opinion, to both increase the Company's earnings by the amount of the annual amortization and decrease its rate base by the unamortized reserve would be contrary to the intent of the investment tax credit law. That intent was to encourage capital investment by providing the investor with a tax reduction to the extent that qualified investments were made. That intent was evidenced by a specific requirement in a 1964 amendment to the 1962 Revenue Act whereby federal regulatory bodies were forbidden from deducting the unamortized reserve from a utility's rate base. Although that prohibition did not specifically bar such deduction by a state regulatory body, similar credits under the 1971 Revenue Act (Job Development Credit) are available to a public utility only if the federal or state regulatory body makes no rate base deduction for the unamortized reserve. We are convinced that the method we have used which results in a sharing of the benefits of the Investment Tax Credit by giving the consumer the benefit of the annual amortization and the Company the benefit of the use of the funds derived from the credit is a fair and reasonable approach to the treatment of this item. The council argues that the commission's reasoning is defective for two reasons: (1) the customers are not benefited by the annual amortization because the amortization is a direct result of their having been charged with taxes higher than the actual tax paid in the first instance; (2) the company has the advantage of the cash generated through normalization even where the deferrals are deducted from the rate base. We do not agree. The commission's proposed handling of this special tax deduction would have the effect of spreading the saving over the life of the article or the plant which gave rise to the tax saving, rather than applying it in full to the year in which the capital expenditure was made. We feel that the commission was correct in its treatment of the unamortized investment tax credit, as it benefits the consumer because the company's annual revenue requirements are reduced by the annual amortization of the tax credit reserve, and it benefits the company in that the company has capital available to it at zero cost.