Opinion ID: 2520907
Heading Depth: 1
Heading Rank: 6

Heading: rate base and net book cost

Text: BOTA noted that original cost more closely reflected fair market value when one looks at the contribution of the assets in Kansas in terms of their contribution to the unit as a whole. The question presented to this court on review is not one of law but a question of fact. More specifically, the question is whether BOTA's decision in using the original cost method to arrive at fair market value of CIG's property in Kansas is supported by substantial [evidence] when viewed in light of the record as a whole, K.S.A. 77-621(c)(7), or is otherwise unreasonable, arbitrary or capricious, K.S.A. 77-621(c)(8). In the record before us, we find substantial competent evidence to support BOTA's finding. BOTA concluded that no state uses rate base to allocate unit value either alone or in conjunction with other factors. Ample evidence in the record supports this conclusion. Thus, BOTA properly rejected rate base. Net book cost allocation results in fully depreciated assets receiving no allocation of unit value. Yet, CIG's fully depreciated assets in Kansas are in service and provide value to the system by generating income. This value, fully 28.4% of CIG's property in Kansas, would escape ad valorem tax by using a depreciated cost allocation. Testimony before BOTA demonstrated that because CIG's income is determined based upon the volume of gas flowing though its system, net book cost allocation does not accurately account for fully depreciated property that is being used to the same extent as newer property. BOTA notes that there is no more correlation between net book cost and market value than there is between original cost and market value. Ample evidence supports these conclusions. CIG argued that original cost allocation imports value into Kansas and distorts the resulting fair market value of CIG's Kansas assets. CIG, however, presented no evidence that the original cost method imported value into the state out of proportion to CIG's presence in Kansas. CIG argued that its method, the allocation based on net book value, was the only accurate method of arriving at fair market value and then using this method argued that the evidence clearly demonstrated that original cost allocation nearly doubled the valuation of CIG's Kansas assets. CIG's conclusion that allocation by original cost resulted in the importation of value rests upon the conclusion rejected by BOTA that its allocation by net book value was an accurate indicator of CIG's property in Kansas. However, CIG's argument presented no evidence that original cost imported value into Kansas but merely supports the finding that there is a marked difference in values between CIG's method of calculation and the one used by the PVD.