Court Opinion

ID: 5067349
Source: CourtListenerOpinion
Date Created: 2021-10-01 10:10:28.654216+00
Date Added: 2024-06-11T08:19:40.768193
License: Public Domain

CROW, Judge.
I concur in the result reached by the principal opinion, but arrive there by a different route.
This seemingly bewildering litigation becomes easier to understand if, at the outset, one can comprehend that the dispute, in this appeal, pertains only to the period from July 1, 1963, to December 31, 1973, and only to Empire’s accumulated deferred taxes related to accelerated depreciation during that period. The judgment of the Circuit Court of Jasper County (“the trial court”) left the Commission’s Report and Order of June 17, 1983 (Commission case number ER-83-42) intact except as to those accumulated deferred taxes during that period.
Accumulated deferred taxes related to investment tax credit (“ITC”) during the period from 1963 through 1970 are also referred to in the principal opinion, but one must understand that accumulated deferred taxes related to ITC are not the same as accumulated deferred taxes related to accelerated depreciation. The trial court did not disturb the Commission’s Report and Order in regard to any accumulated deferred taxes related to ITC.
The single question on this appeal is whether the Commission’s decision to treat Empire’s accumulated deferred taxes related to accelerated depreciation during the period from July 1, 1963, to December 31, 1973, as a deduction from rate base in calculating Empire’s revenue requirement in Commission case ER-83-42 was lawful and reasonable. The trial court said no, and reversed the Commission’s decision on that point. The Commission, on this appeal, challenges only that segment of the trial court’s judgment.1
The Commission, in its brief, concedes that if the tax-timing differences associated with Empire’s deferred reserves related to accelerated depreciation during the years in question were treated on a flow-through basis for ratemaking purposes, then deduction of the deferred reserves from Empire’s rate base is not warranted. Empire contends that the evidence before the Commission established that during the period in question, Empire was treating the tax-timing differences related to the deferred reserves arising from accelerated depreciation on a flow-through basis for ratemak-ing purposes. The Commission, of course, argues otherwise. Therein lies the dispute.
A chronology of certain significant events is helpful in understanding each side’s position.
' The parties agree that prior to 1954, taxpayers were required to use straight-line depreciation in calculating depreciation expense as a tax deduction. Consequently, in a 1952 rate increase case (Commission number 12,292), Empire’s tax expense for ratemaking purposes was necessarily based on the actual amount of tax expense incurred. This, as explained in the principal opinion, was flow-through treatment.
In 1954, when the amendment to the Internal Revenue Code gave taxpayers the option of using accelerated depreciation for calculating depreciation expense as a tax deduction, Empire began calculating depreciation that way.
On June 20, 1956, the Commission issued an accounting order authorizing Empire to normalize, for accounting purposes only, the tax-timing differences created by accelerated depreciation. The Commission’s order specifically provided that the authority therein was not to be controlling for rate-making purposes. As a result of this order, Empire began normalizing on its books *633the tax-timing differences created by accelerated depreciation, and thus created on its books an appropriate deferred tax reserve.
In a 1958 rate increase case (Commission number 13,728), the Commission required flow-through treatment by Empire for the tax-timing differences associated with accelerated depreciation in the calculation of Empire’s revenue requirement. This, again, constituted flow-through treatment for ratemaking purposes. As part of the Commission’s decision in that case, it stated it had instructed its staff to delete deferred tax expenses associated with liberalized depreciation from operating income statements of all utilities for ratemaking purposes.
After Empire’s 1958 rate increase case, the only changes in Empire’s Missouri retail electric rates for the next 15 years consisted of seven separate rate reductions, the first of which took effect on or about July 1, 1963. The subsequent reductions occurred intermittently through 1969. Each reduction was implemented by Empire’s filing of revised tariffs, and by the Commission’s allowing the tariffs to become effective without formal investigation. The Commission issued no Report and Order regarding any of the seven rate reductions.
From 1954 through 1973, the Commission issued four decisions applicable to utilities other than Empire in which flow-through treatment for ratemaking purposes was required regarding accumulated deferred taxes from accelerated depreciation. These four decisions involved three utilities, two of which were electric companies. The record discloses no Commission decisions from 1954 through 1973 directing the use of tax normalization ratemaking treatment for accumulated deferred taxes from accelerated depreciation.
In December, 1973, in a rate increase case (Commission number 17,816), Empire was authorized to establish rates on the basis of the tax normalization method of treating tax-timing differences associated with accelerated depreciation. This was the first rate case in which the Commission issued a Report and Order authorizing Empire to normalize, for ratemaking purposes, the tax-timing differences related to accelerated depreciation.
In 1982, when Empire sought the rate increase that spawned this litigation, Empire, in its prepared testimony and exhibits filed with the Commission, treated all accumulated deferred taxes related to accelerated depreciation as a deduction from Empire’s rate base, as if the tax-timing differences which produced the deferred reserves had been treated on a tax normalization basis for ratemaking purposes by the Commission. However, in supplemental testimony filed prior to the evidentiary hearings before the Commission, Empire, for the first time, asserted that the tax-timing differences related to the deferred reserves associated with accelerated depreciation for the period from 1954 through 1973 were treated on a flow-through basis for ratemaking purposes by the Commission. Consequently, Empire revised its calculation of its jurisdictional rate base by eliminating the deduction of those deferred reserves for the period from 1954 through 1973. Empire also eliminated the deduction of the deferred reserves associated with ITC during the period from 1963 through 1970, but the Commission restored that deduction, and the trial court did not disturb the Commission’s ruling on that item.
The Commission, in its findings in this case, noted that the issue whether Empire’s tax-timing differences which produced the accumulated deferred taxes related to accelerated depreciation had been treated on a flow-through basis or a tax normalization basis for ratemaking purposes required interpretation and evaluation of events which occurred as long as 30 years ago. The Commission observed that where no report and order determining a company’s elements of cost of service exists, the Commission cannot reach back in time and determine the intent of previous Commission actions that allowed rate decreases to go into effect without investigation or suspension. Thus, said the Commission, the *634real question whether Empire was flowing through tax-timing differences for rate-making purposes is impossible to determine. Furthermore, said the Commission, Empire’s witness admitted that the question could not be answered by looking at Empire’s books. The Commission reasoned that if the question cannot be answered from Empire’s books, and there are no reports and orders to look to, the Commission was constrained to agree with its staff that this is a very “cold trail.” The Commission consequently adopted its staff’s position that flow-through treatment had not been established.
At this point, it is helpful to note that the beginning date of the period in dispute on this appeal is July 1, 1963. That date, it will be recalled, was the date when the first of Empire’s seven rate reductions went into effect. The last Report and Order issued by the Commission regarding Empire’s rates prior to that date was the one in 1958 in Commission case 13,723, which, as already explained, had required flow-through treatment of the tax-timing differences associated with accelerated depreciation for ratemaking purposes.
It is also helpful to remember that December 31, 1973, the ending date of the period in dispute on this appeal, was evidently the final day before the Commission’s Report and Order in its case 17,816 took effect. That order, as previously noted, granted Empire a rate increase and authorized Empire to establish rates on the basis of the tax normalization method of treating tax-timing differences associated with accelerated depreciation.
In short, there is a Report and Order by the Commission (case 13,723) establishing that the flow-through method was utilized by the Commission in authorizing Empire’s rates prior to the reduction that went into effect July 1, 1963, and another Report and Order by the Commission (case 17,816) establishing that the tax normalization method was utilized by the Commission in authorizing Empire’s rates after December 31, 1973. There is, however, no Report and Order by the Commission establishing which method was utilized between July 1, 1963, and December 31, 1973, the period in question.
The trial court found that the Commission’s decision in the instant case (ER-83-42) excluding from Empire’s rate base the accumulated deferred taxes associated with accelerated depreciation from July 1, 1963, through December 31, 1973, was unreasonable and unlawful, and contrary to the competent and substantial evidence upon the whole record. The reasons given by the trial court were: (1) the Commission specifically disallowed, in Empire’s 1958 rate case, number 13,723, any deferred tax expense related to accelerated depreciation; (2) in addition to specifically disallowing these deferred taxes from Empire’s cost of service in the 1958 case, the Commission acknowledged that it had previously directed its staff to delete such deferred tax expenses in all rate proceedings; (3) the Commission issued no other rate orders involving Empire’s cost of service until 1973; (4) there was no evidence that the Commission’s directive to its staff was ever rescinded or altered during the period in dispute; and (5) there was no evidence that the Commission ever permitted recovery of deferred taxes associated with accelerated depreciation in the rates authorized to be charged by Empire or by any other utilities under the Commission’s jurisdiction prior to 1973. Therefore, said the trial court, it would be unreasonable for the Commission to assume that Empire would propose rate reductions beginning in 1963 based upon a cost of service which included deferred tax expense related to accelerated depreciation. It would be even more unreasonable, added the court, for the Commission to assume that its staff would accept, or that the Commission would approve, for implementation, rate changes premised on a cost of service which included deferred tax expense associated with accelerated depreciation.
Reduced to essentials, the trial court’s rationale was that the last Report and Order by the Commission regarding Empire’s rates prior to the period in dispute required *635that the tax-timing differences associated with accelerated depreciation be accorded flow-through treatment for ratemaking purposes, that there was evidence that this remained the policy of the Commission during the period in dispute, and that there was no evidence of any Commission decision during the period in question directing the use of tax normalization ratemaking treatment for accumulated deferred taxes from accelerated depreciation. That being so, the trial court reasoned that the Commission could not assume that Empire, in any of the seven rate reductions during the period in dispute, would have proposed rates based upon a cost of service which included deferred tax expense related to accelerated depreciation. The trial court felt it would be even more unreasonable for the Commission to assume that its staff would have accepted, or that the Commission would have approved for implementation, rate reductions during that period premised on a cost of service which included deferred tax expense associated with accelerated depreciation. In essence, the trial court determined that it would be unreasonable to assume that Empire, in presenting its rate reductions, or the Commission, in approving them, departed from the established policy of flowing-through, for ratemaking purposes, the tax-timing differences associated with accelerated depreciation.
In arguing that the trial court erred, the Commission concedes that in its 1958 Report and Order in case 13,723, it directed flow-through ratemaking treatment for Empire’s tax-timing differences related to accelerated depreciation. The Commission also acknowledges that under § 386.490.3, RSMo 1978, all orders of the Commission shall continue in force until changed or abrogated by the Commission or until found unlawful or unconstitutional. However, says the Commission, this statutory provision cannot reasonably be interpreted to have barred Empire from proposing, within a rate filing subsequent to the 1958 Report and Order, the use of tax normalization ratemaking treatment for accelerated depreciation tax-timing differences. The Commission argues that to so construe the statute would effectively eliminate the possibility of the Commission modifying its previously established positions upon the initiative of utilities in Commission proceedings. The Commission theorizes that Empire could have incorporated tax normalization ratemaking treatment into its seven rate reduction tariff filings during the period in issue; consequently, the focus of the Commission in its determination in the instant case necessarily centered on the evidence presented by Empire in support of its assertion that flow-through treatment was used in all seven rate reductions. The Commission reminds us that the burden was on Empire to prove its contention.
Empire concedes it has the burden of demonstrating that the Commission’s order is unlawful and unreasonable and unsupported by competent and substantial evidence upon the whole record. Empire maintains, however, that its burden is satisfied by (a) the Commission’s 1958 Report and Order in its case 13,723 which conclusively establishes that at that time the tax-timing differences associated with deferred reserves related to accelerated depreciation were given flow-through treatment for ratemaking purposes, (b) the fact that the Commission’s policy, during the period in dispute, that such deferred tax expenses were to be disallowed as a cost of service element in setting rates in other rate cases was never altered or rescinded, and (c) § 386.490.3, RSMo 1978, which provides that all orders of the Commission shall continue in force until changed or abrogated by the Commission or until found unlawful or unconstitutional. These factors, says Empire, compelled a finding by the Commission that Empire’s rates in the seven rate reductions beginning July 1, 1963, and extending through December 31, 1973, were established by according flow-through treatment for the deferred reserves related to tax-timing differences associated with accelerated depreciation. Empire insists that the trial court was correct in reasoning that Empire would not have proposed a rate reduction during that *636period “in which they would have tried to slip in tax normalization,” and in reasoning that neither the Commission’s staff nor the Commission itself would have approved any rates so calculated.
The Commission, on the other hand, emphasizes that where the burden of proof is upon the utility, and the Commission, by its decision, determines that the utility has failed to meet its burden of proof, the issue before the reviewing court is whether the Commission’s decision is clearly contrary to the overwhelming weight of the competent and substantial evidence upon the whole record. The Commission reminds us that we are not to substitute our judgment for that of the Commission. State ex rel. Dyer v. Public Service Commission, 341 S.W.2d 795, 802[8] (Mo.1960), cert. denied, 366 U.S. 924, 81 S.Ct. 1351, 6 L.Ed.2d 384 (1961).
The Commission points out that there was a “complete absence from the record of any documentation by [Empire] as to the cost of service elements in general, and the accelerated depreciation tax-timing difference ratemaking method, in particular, which were included in any of Empire’s seven rate reductions of the 1960’s.” The need for such documentation, says the Commission, “is particularly acute in a situation such as presented in this case where Empire is seeking a judgment from the present-day Commission as to the composition of a non-suspended rate change which occurred more than twenty years ago.” The Commission insists that the fact that a limited number of Missouri utilities other than Empire were directed to use flow-through ratemaking treatment for accelerated depreciation tax-timing differences within an approximate 20-year period falls short of establishing that the Commission maintained a universal, unyielding policy on this issue for all utilities under its jurisdiction.
Given the posture of the record and the contentions of the respective parties, our task, as I see it, is to decide whether, despite the Commission’s policy requiring flow-through ratemaking treatment for accelerated depreciation tax-timing differences during the period in question, the Commission could nonetheless properly hold — by reason of the absence of documentary evidence by Empire that it had followed that policy in the seven rate reductions during the period in question— that Empire had failed to prove that its rates during such period had been based on flow-through ratemaking treatment for accelerated depreciation tax-timing differences. More simply put, was the Commission compelled to presume that Empire, the Commission’s staff, and the Commission, in the seven rate reductions during the period in dispute, utilized the flow-through method instead of the tax normalization method, or was the Commission justified in requiring Empire to produce documentary evidence that flow-through had in fact been used, and in ruling that Empire had failed to sustain its burden of proof when no such documentation was forthcoming?
It is not for us to decide the fact question of whether flow-through or tax normalization was used. Our inquiry is only whether the Commission’s finding that Empire failed to prove that flow-through was used is contrary to the weight of the competent and substantial evidence upon the whole record.
Recognizing that our decision is confined to that issue, and recalling that Empire, when it initially filed its prepared testimony and exhibits with the Commission in this case, treated all accumulated deferred taxes related to accelerated depreciation as a deduction from its rate base, as if the tax-timing differences which had produced the deferred reserves had been treated on a tax normalization basis for ratemaking purposes, I am convinced that we cannot disturb the Commission’s finding. In my view, a fact-finder, on this record, could have reasonably reached either of the results argued for by the respective parties. That being so, the Commission’s finding must be upheld.
For the foregoing reasons, I concur in the result reached by the principal opinion.

. As explained in the principal opinion, Empire initiated this proceeding in the trial court. The trial court affirmed the Commission’s order in all respects save the one which forms the basis for this appeal by the Commission. Empire did not appeal.