Court Opinion

ID: 9773546
Source: CourtListenerOpinion
Date Created: 2023-08-29 17:49:02.734306+00
Date Added: 2024-06-11T07:31:54.923259
License: Public Domain

DIES, Chief Justice,
concurring.
I concur with the majority that since our Supreme Court has found that the matters complained of by Tenneco go to the weight rather than the propriety of the evidence, we should affirm the judgment of the trial court.
However, since all agree of the difficulty of assessing a segment of a gas pipeline for ad valorem taxes, it is hoped that these comments may improve the task in future assessments.
It is undisputed that Tenneco, Inc., is regulated by the Federal Power Commission as to the rates it may charge for interstate gas. These rates or earnings are mostly determined by the net book value, which is the original cost less depreciation set by the commission. The lines involved here were constructed many years ago, and it is undisputed the cost of reproduction (same materials) or replacement would be several times more today. So, today’s cost of reproduction, since it is not considered by the Federal Power Commission in setting rates, is at best an uncertain method to determine market value.
Realizing this, Mr. Pritchard (for Polk County) and Mr. Green (for Tenneco) made their appraisals on the capitalization of income approach — the relationship between net value and the total cost of operating a business.1 Mr. Pritchard used the 1975 net income of Tenneco as its probable future earnings — about $119,000,000. Mr. Green used a slightly smaller figure.
Their main difference was in the selection of the “cap rate”. Pritchard chose 7.6 percent, Green 11 percent. The higher the “cap rate”, the lower value figure obtained. A one percent change in the “cap rate” in Tenneeo’s case results in an almost 10 percent change in the estimated value ($100,-000,000).
Pritchard’s 7.6 percent “cap rate” (13.1 times the net profit of $119,000,000) results in a total value of $1,574,033,184 for the entire system, of which Polk County has .198 percent.
The depreciated net book value of Tenne-co as allowed by the Federal Power Commission (on which their rates are based) is $1,180,263,117. Applying Pritchard’s 7.6 percent to this would produce an income of some $89,000,000, an insufficient sum to satisfy the requirements of Federal Power Commission v. Hope National Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1943).2
Tenneco’s annual interest charge on bonds and long term debt is $78,971,297. The annual dividend on preferred stock is $21,638,241; so, using the income of Pritch-ard’s “cap rate” would produce a deficit of over $10,000,000 and leave nothing for the common stockholders.
Of course, net book value and market value are not the same, but unless a prospective buyer was willing to accept a lesser rate of return than the regulatory commission allows, he would want to stay close to the net book value.
It is for these reasons I feel Mr. Pritch-ard’s “cap rate” is unrealistic.
The other witness value for the County, Mr. Bledsoe, made a schedule based on present costs of reproduction, less depreciation. He would not identify his source of data, admitted his figures were a “guide”, and stated that the schedule covered pipelines other than gas.
*419A prospective purchaser of a regulated gas pipeline would only be interested in buying income. If that income is wholly regulated by the Federal Power Commission, the market value of that pipeline would be mainly determined by the allowed income. Any assessment by any taxing authority should take this into account.

. If a purchaser wanted a return of 10 percent on his investment on a $10,000 income, this would indicate the purchaser would pay $100,-000 for the property.

. Enough revenue not only for operating expenses but also for the capital costs of business (service on the debt and dividends on the stock); return to the equity owner commensurate with return on investments in other enterprises having corresponding risks; a return sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and attract capital.