Opinion ID: 353770
Heading Depth: 3
Heading Rank: 3

Heading: Vanceburg's Applications for Rehearing

Text: 26 Disputing the validity of the dam-use charges assessed in the Commission's 29 March 1976 licensing orders, Vanceburg filed with the Commission, on 29 April and 14 May 1976 respectively, applications and supplemental applications for rehearing. 24 In its supplemental applications, Vanceburg contended that the assessed charges were unlawful because they were computed in a way which improperly deprived Vanceburg of the advantage of being a tax-exempt municipality. 25 27 Specifically, Vanceburg pointed out that in computing the net benefits, from which the dam-use charges were derived, the Commission had not included any income tax cost in estimating either the annual costs of operating the proposed hydroelectric projects or the annual costs of operating the hypothetical steam plant alternatives. The Commission had excluded such costs because its costing studies were based on real costs, that is, costs which would actually be incurred by a licensee, and Vanceburg, by virtue of its tax-exempt status, would not in fact incur income tax costs in operating either the hydroelectric or fossil fuel plants. 28 However, Vanceburg observed that an investor-owned utility, in the same position as Vanceburg, would incur annual income tax costs in operating the hydroelectric or steam plants, and it estimated that these annual tax costs would be equal to about 2% Of the estimated capital costs of the plants. Vanceburg then demonstrated that if the dam-use charges were recomputed according to the sharing-of-net-benefits method with the 2% Tax factor included as part of the annual costs of the proposed hydroelectric projects and the steam plant alternatives as it would be for an investor-owned utility then the cost differentials between the comparative projects were substantially reduced, and, therefore, the annual charges were significantly lower. These results were illustrated in appendices to Vanceburg's supplemental rehearing applications. One of these appendices is set forth in the margin, 26 but the following table reflects their significant features:Thus, in the right-hand column, where a tax cost is included as it would be for an investor-owned utility, the cost savings or net benefits to be shared are only $70,100 and $80,800, yielding annual charges of $35,050 and $40,400 respectively. However, in the left-hand column, where no tax cost is included, as it was not in the Commission's licensing order on account of Vanceburg's tax-exempt status, the cost savings or net benefits to be shared are substantially increased to $487,400 and $455,800, yielding annual charges of $243,700 and $277,900 respectively. 29 Acknowledging that as a municipality it would not actually incur tax costs, Vanceburg argued, nevertheless, that the Commission was required to include imaginary tax costs in its computations in order to measure properly the benefits, in the form of cost savings, actually accruing to Vanceburg from the use of Government dams. Vanceburg contended that the exceedingly high net benefit figures achieved by excluding tax costs did not represent cost savings accruing to Vanceburg from the use of Government dams, but rather represented mainly tax savings conferred on Vanceburg by Federal and state tax statutes. Thus, in Vanceburg's view, the tax savings which resulted from its tax-exempt status were not part of the cost savings, or net benefit, derived from the dams and, therefore, could not be shared by the Government. By excluding tax costs, Vanceburg asserted, the Commission was unlawfully attempting to write itself in on these substantial tax savings. 30 Calculations Using Calculations Used in 2% Annual Cost to 29 March Orders--no Represent Income Tax Cost Included Tax Effect -------------------- ------------------ A. Cannelton Project: ------------------ 1. Estimated Annual Cost of Proposed Hydroelectric Project: $3,970,300 $4,648,600 2. Estimated Annual Cost of Hypothetical Steam Plant Alternative: $4,457,700 $4,718,700 3. Net Benefit: $ 487,400 $ 70,100 4. Annual Charge: $ 243,700 $ 35,050 ---------- ---------- B. Greenup Project --------------- 1. Estimated Annual Cost of Proposed Hydroelectric Project: $3,963,000 $4,639,900 2. Estimated Annual Cost of Hypothetical Steam Plant Alternative: $4,418,800 $4,720,700 3. Net Benefit: $ 455,800 $ 80,800 4. Annual Charge: $ 227,900 $ 40,400 ---------- ---------- 31 Stating that it would lose the advantage of being a municipality unless the Commission included imaginary tax costs in its dam-use charge calculations, Vanceburg concluded its supplemental rehearing applications by praying that the Commission recalculate the charges, giving Vanceburg full advantage of its municipality status. 27 32