Court Opinion

ID: 5173490
Source: CourtListenerOpinion
Date Created: 2022-01-02 05:13:40.920877+00
Date Added: 2024-06-11T08:26:11.313651
License: Public Domain

BAKES, Justice,
concurring specially:
The Court’s opinion correctly notes that, “This Court has affirmed the Commission’s previous orders adopting a hypothetical capital structure,” citing General Telephone Co. v. Idaho Public Utilities Commission, 109 Idaho 942, 712 P.2d 643 (1986); Citizens Utilities Co. v. Idaho Public Utilities Commission, 99 Idaho 164, 579 P.2d 110 (1978); Petition of Mountain States Telephone & Telegraph Co., 76 Idaho 474, 284 P.2d 681 (1955). By these cases, this Court has approved the commission’s adjustment of a utility’s actual costs of debt and equity to reflect the hypothetical capital structure approved by the commission. The effect of this has been in these cases to reduce the amount of return on equity resulting from the altered hypothetical capital structure. While today’s opinion may merely be carrying the hypothetical capital structure to its logical extreme by also adjusting the deduction for federal income taxes paid, the cases cited in the dissent correctly point out that it may well result in an unreasonable impairment of the right of a utility to receive a fair return on its investment.
I write only to express my concern that the same logical analysis, used to justify the extension of the hypothetical capital structure to the allowance for federal income taxes paid, may not be applied when the utility is under-capitalized, rather than over-capitalized. Thus, where a utility does not have adequate equity in its debt-equity ratio, as was the case in Intermountain Gas Co. v. Idaho Public Utilities Comm’n, 97 Idaho 113, 540 P.2d 775 (1975), the commission should logically adopt a similar SO-SO hypothetical capital structure for such a utility, increasing the equity and proportionately reducing the debt, which would, in most cases, not only increase the utility’s rates in order to provide a return on the increased hypothetical equity, but also increase the utility's rates in order to reflect the higher federal income tax expense which would have resulted from the lower interest expense deduction for federal income tax attributable to the reduced hypothetical debt structure. If the commission’s practice of adopting a hypothetical capital structure is going to be applied evenhandedly, it should be applied to the benefit of those utilities which have an under-capitalized equity structure, as well as to the detriment of those which have an overcapitalized equity structure, as in the present case. If the commission applies today’s rule to the benefit of under-capitalized utilities as well as to the detriment of over-capitalized utilities, then the Court’s decision in this case is arguably reasonable and fair. However, if the commission only applies this hypothetical capital structuring rule to the detriment of those utilities which have an excess equity capital structure, but not to the benefit of those utilities which have an inadequate equity capital structure, then they have merely created another “one-way street,” Washington Water Power Co. v. Idaho Public Utilities Comm’n, 105 Idaho 276, 668 P.2d 1007 (1983) (Bakes, J., concurring in the judgment, at page 284, 668 P.2d 1007), and I would then concur with the conclusion of Chief Justice Shepard in his dissent that such an action is arbitrary, capricious, and an abuse of discretion on the part of the commission which would amount to a taking of the utility’s property without payment of just compensation.