COMMONWEALTH OF KENTUCKY, EX REL GREGORY D. STUMBO v. KENTUCKY PUBLIC SERVICE COMMISSION; KENTUCKY INDUSTRIAL UTILITY CUSTOMERS, INC.; KENTUCKY POWER COMPANY D/B/A AMERICAN ELECTRIC POWER
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RENDERED: DECEMBER 7, 2007; 2:00 P.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2006-CA-002349-MR
&
NO. 2006-CA-002350-MR
&
NO. 2006-CA-002552-MR
COMMONWEALTH OF KENTUCKY, EX REL
GREGORY D. STUMBO
v.
APPELLANT/CROSSAPPELLEE
APPEALS FROM FRANKLIN CIRCUIT COURT
HONORABLE SAM G. McNAMARA, JUDGE
ACTION NOS. 05-CI-01534; 05-CI-01543; 05-CI-01544
KENTUCKY PUBLIC SERVICE
COMMISSION; KENTUCKY
INDUSTRIAL UTILITY CUSTOMERS, INC.;
KENTUCKY POWER COMPANY D/B/A AMERICAN
ELECTRIC POWER
APPELLEES/CROSSAPPELLANTS
OPINION
AFFIRMING
** ** ** ** **
BEFORE: DIXON AND LAMBERT, JUDGES; ROSENBLUM,1 SENIOR JUDGE.
ROSENBLUM, SENIOR JUDGE: The Commonwealth of Kentucky, ex. rel. Gregory D.
Stumbo (AG), appeals from an order of the Franklin Circuit Court upholding the Public
1
Senior Judge Paul W. Rosenblum sitting as Special Judge by assignment of the Chief Justice
pursuant to Section 110(5)(b) of the Kentucky Constitution and KRS 21.580.
Service Commission's (Commission) determination that Kentucky Power (KP) is entitled
to immediately include in its rates certain environmental related costs pursuant to the
surcharge provisions of KRS2 278.183. Kentucky Industrial Utility Customers, Inc.,
(KIUC) cross-appeals upon the same issue as the AG. KP cross-appeals challenging the
tax calculations used by the Commission in flowing the environmental-related costs
through to its rates. For the reasons stated below, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
KP is an investor-owned electric utility which provides service in
Kentucky. The company is, along with four sister affiliate companies, a wholly owned
subsidiary of American Electric Power Company (AEP). Various aspects of KP's
operations, including its rates, are regulated by the Commission. KP provides electric
service in Kentucky from its own electric generating plants, but also purchases power
from its its sister AEP affiliate companies through an arrangement referred to as the AEP
Interconnection Agreement.
The AEP Interconnection Agreement is a power pooling agreement
approved by the Federal Energy Regulatory Commission (FERC) between the five sister
AEP affiliate companies. The Interconnection Agreement provides that AEP affiliates
which provide more generating capacity into the AEP pool than they require are
compensated for their surplus contribution through a mechanism referred to as a
“capacity equalization credit.” Ohio Power (OP) and Indiana & Michigan Power (IMP)
are the only surplus companies in the AEP system. Conversely, AEP affiliates which
2
Kentucky Revised Statutes.
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provide less generating capacity into the AEP pool than they require make a “capacity
equalization payment” to their sister AEP surplus affiliates.
KP is a deficit company with respect to the Interconnection Agreement and,
consequently, is required under the Interconnection Agreement to make a capacity
equalization payment which flows to OP and IMP. Embedded within the capacity
equalization payment are many generation related costs, one of which is the cost of
environmental compliance equipment installed in the generating plants of OP and IMP.
The environmental compliance equipment is a necessary component of coal
fired generating plants. In order to comply with environmental requirements related to
coal combustion, a utility wishing to burn high sulfur coal must invest in costly scrubbers
that remove sulfur from the high sulfur coal. Coal burning utilities must also comply
with stringent requirements regarding nitrogen oxide, mercury, particulates, and, it may
be anticipated in the near future, carbon dioxide because of its identification as a source
in the rise in global temperatures. There is no dispute that the environmental equipment
at issue is a necessary and vital component of coal fired generating plants.
KRS 278.183 provides a mechanism whereby electric utilities such as KP
are entitled to immediately recover environmental compliance costs through a special
environmental surcharge rather than having to wait until a general rate case to seek
recoupment. In reliance upon this mechanism, on March 8, 2005, KP filed an application
with the Commission requesting approval to amend its environmental surcharge plan and
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tariff in order to recover the environmental compliance costs which are embedded in its
capacity equalization payment.
The environmental compliance equipment costs KP sought to recover in its
Application through the environmental surcharge were related to equipment actually
installed at AEP affiliate companies in a surplus position under the Agreement (OP and
IMP) and not to equipment installed in KP generating facilities. Specifically, the
equipment associated with the costs were installed in OP and IMP generating facilities
located in West Virginia (four facilities), Ohio (three facilities), and Indiana (two
facilities).
The AG, by and through his Office of Rate Intervention, and KIUC, a
consortium of industrial utility consumers, intervened in the case before the Commission
in opposition to KP's Application. They argued that the costs sought to be recovered by
KP in its Application do not qualify for recovery through KRS 278.183.
In an Order dated September 7, 2005, the Commission substantially
approved the recovery of the environmental costs as proposed by KP in its Application,
though certain individual cost items not at issue in this appeal were disapproved. Over
KP's objection, the Order also factored the provisions of Section 199 of the Internal
Revenue Code Tax Code and the corporate tax rate reduction contained in House Bill 272
of the 2005 Regular Session of the General Assembly into the tax gross-up calculations in
determining the final increase in revenue requirements associated with the environmental
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surcharge increase. With slight modifications, the Commission denied the AG, KIUC,
and KP's petitions for rehearing.
The AG and KIUC appealed the Commission's allowance of the surcharge
recovery and KP appealed the Commission's treatment of tax issues to Franklin Circuit
Court. On October 26, 2006, the circuit court entered an order affirming the
Commission's Order. This appeal followed.
STANDARD OF REVIEW
“The [Commission] acts as a quasi-judicial agency utilizing its authority to
conduct hearings, render findings of fact and conclusions of law, and utilizing its
expertise in the area and to the merits of rates and service issues.” Simpson County
Water Dist. v. City of Franklin, 872 S.W.2d 460, 465 (Ky. 1994). “The jurisdiction of
the commission shall extend to all utilities in this state.” KRS 278.040(2). Further,
“[t]he commission shall have exclusive jurisdiction over the regulation of rates and
service of utilities[.]” Consequently, the standard of review for an order entered by the
Commission is necessarily circumscribed. “In all trials, actions or proceedings arising
under the preceding provisions of this chapter or growing out of the commission's
exercise of the authority or powers granted to it, the party seeking to set aside any
determination, requirement, direction or order of the commission shall have the burden of
proof to show by clear and satisfactory evidence that the determination, requirement,
direction or order is unreasonable or unlawful.” KRS 278.430. The orders of the
Commission “can be found unreasonable only if it is determined that the evidence
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presented leaves no room for difference of opinion among reasonable minds.” Kentucky
Indus. Utility Customers, Inc. v. Kentucky Utilities Co., 983 S.W.2d 493, 499 (Ky. 1998)
(citing Energy Regulatory Com'n v. Kentucky Power, 605 S.W.2d 46 (Ky.App. 1980).
Although the Commission is granted sweeping authority to regulate public
utilities pursuant to the provisions of KRS Chapter 278, it is nonetheless a creature of
statute. Therefore, it “has only such powers as granted by the General Assembly.” PSC
v. Jackson County Rural Elec. Co-op., Inc., 50 S.W.3d 764, 767 (Ky.App. 2000).
Whether the Commission exceeded the scope of its authority is a question of law that we
scrutinize closely and review de novo. Com., Transportation Cabinet v. Weinberg, 150
S.W.3d 75 (Ky.App. 2004). Cincinnati Bell Telephone Co. v. Kentucky Public Service
Com'n, 223 S.W.3d 829, 836 (Ky.App. 2007). Finally, as always, we review questions of
law de novo. City of Greenup v. Public Service Com'n, 182 S.W.3d 535, 539 (Ky.App.
2005).
APPEAL NOS. 2006-CA-002349-MR AND 2006-CA-002350-MR
In Appeal Nos. 2006-CA-002349-MR and 2006-CA-002350-MR the AG
and KIUC, respectively, appeal the circuit court's affirming of the Commission's Order
permitting KP to recover the environmental costs embedded in its payments under the
Interconnection Agreement. They have filed a joint brief on the issue. They argue that
the costs are not recoverable under the surcharge because (1) the plain language of KRS
278.183 does not permit recovery of the costs; (2) the facilities are not owned or
controlled by KP and are not within the jurisdiction of the Commission and are not
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recoverable when the “entire scope” of the statute is considered; (3) recovery under the
surcharge would be inconsistent with the legislative intent of KRS 278.183; and (4) the
costs should be recovered only through the traditional ratemaking process in the course of
a general rate case.
STATUTORY LANGUAGE
The AG and KIUC contend that the plain language of KRS 278.183
precludes the recovery of the embedded environmental cost component of KP's capacity
equalization payment from being recovered through KRS 278.183. The statute provides,
in relevant part, as follows:
(1) Notwithstanding any other provision of this chapter,
effective January 1, 1993, a utility shall be entitled to the
current recovery of its costs of complying with the Federal
Clean Air Act [3] as amended and those federal, state, or local
environmental requirements which apply to coal combustion
wastes and by-products from facilities utilized for production
of energy from coal in accordance with the utility's
compliance plan as designated in subsection (2) of this
section. These costs shall include a reasonable return on
construction and other capital expenditures and reasonable
operating expenses for any plant, equipment, property,
facility, or other action to be used to comply with applicable
environmental requirements set forth in this section.
Operating expenses include all costs of operating and
maintaining environmental facilities, income taxes, property
taxes, other applicable taxes, and depreciation expenses as
these expenses relate to compliance with the environmental
requirements set forth in this section.
(2) Recovery of costs pursuant to subsection (1) of this
section that are not already included in existing rates shall be
by environmental surcharge to existing rates imposed as a
positive or negative adjustment to customer bills in the
3
42 U.S.C.A. § 7401 to 7515.
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second month following the month in which costs are
incurred. Each utility, before initially imposing an
environmental surcharge pursuant to this subsection, shall
thirty (30) days in advance file a notice of intent to file said
plan and subsequently submit to the commission a plan,
including any application required by KRS 278.020(1), for
complying with the applicable environmental requirements
set forth in subsection (1) of this section. The plan shall
include the utility's testimony concerning a reasonable return
on compliance-related capital expenditures and a tariff
addition containing the terms and conditions of a proposed
surcharge as applied to individual rate classes. Within six (6)
months of submittal, the commission shall conduct a hearing
to:
(a) Consider and approve the plan and rate surcharge if the
commission finds the plan and rate surcharge reasonable and
cost-effective for compliance with the applicable
environmental requirements set forth in subsection (1) of this
section;
(b) Establish a reasonable return on compliance-related
capital expenditures; and
(c) Approve the application of the surcharge.
The AG and KIUC argue that the Commission has misconstrued the
meaning of the term “its costs” to give surcharge treatment to costs that plainly fall
outside the framework of the statute. They contend that “KRS 278.183 plainly states the
Company can recover 'its costs' of complying with environmental regulations. By any
common understanding of that language, costs incurred by other utilities are not
Kentucky Power's ('its') costs.”
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The Commission, however, determined that the plain language of KRS
278.183 unambiguously permitted the recovery of the embedded environmental
compliance costs contained in its capacity equalization payment, stating as follows:
The environmental surcharge statute expressly authorizes a
utility to recover by surcharge its costs of complying with
specified environmental requirements. The statute does not
restrict surcharge recovery to costs incurred at facilities
owned by the utility or at facilities located in Kentucky. The
language of the statute is unambiguous, and neither KIUC not
the AG have raised a claim to the contrary.4
September 7, 2005, Commission Order, pg. 14.
The interpretation of a statute is a matter of law. Commonwealth v.
Garnett, 8 S.W.3d 573, 575-6 (Ky.App. 1999). However, while we ultimately review
issues of law de novo, we afford deference to an administrative agency's interpretation of
the statutes and regulations it is charged with implementing. Board of Trustees of
Judicial Form Retirement System v. Attorney General of Com., 132 S.W.3d 770, 787
(Ky.2003); Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843845, 104 S.Ct. 2778, 2782-2783, 81 L.Ed.2d 694 (1984) (If the statute is silent or
ambiguous with respect to the specific issue, the question for the court is whether the
agency's answer is based on a permissible construction of the statute).
4
The AG and KIUC do not cite us to their preservation of the “plain language” issue as required
by CR 76.12(4)(c)(v) and the Commission's discussion of the issue indicates that they, indeed,
may not have squarely raised the issue in the administrative proceedings. “Failure to properly
raise an issue before an administrative body precludes a person from asserting that issue in an
action for judicial review of the agency's action.” Parrish v. Kentucky Bd. of Medical Licensure,
145 S.W.3d 401, 413 (Ky.App. 2004). Nevertheless, we elect to address the issue on the merits.
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Here, the AG and KIUC contend that the plain meaning of the statute
excludes the environmental cost flow through, whereas the Commission concludes that
the statute unambiguously permits the flow through.
In our view, the statute is not as plain as the Commission supposes and
there is room for alternative interpretations. In other words the statute is, as claimed by
the AG and KIUC, ambiguous, or at least silent upon the issue. Hence we believe it
appropriate in our review to give deference to the Commission's interpretation as
described in Chevron. Upon application of that deference, we cannot conclude that the
Commission's interpretation of the KRS 278.183 is unreasonable or unlawful.
The crucial language at issue is the phrasing “a utility shall be entitled to
the current recovery of its costs of complying with the Federal Clean Air Act [] as
amended and those federal, state, or local environmental requirements which apply to
coal combustion wastes and by-products from facilities utilized for production of energy
from coal[.]”
It is undisputed that (1) the costs under consideration are, ultimately, costs
associated with complying with the class of environmental regulations as identified in the
statute; (2) that those costs apply to coal combustion wastes and by-products, albeit from
out of state facilities; and (3) that the costs originate from facilities utilized for production
of energy from coal. Hence, those aspects of the phrasing weigh in favor of the
Commission's interpretation.
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With respect to the term “its costs,” a reasonable interpretation of the
statute is that “its (KP's) costs” include those costs embedded within its capacity
equalization payment which relate to environmental compliance costs incurred by the out
of state generating facilities. It is undisputed that such costs are included in the payment.
A “payment” is substantially synonymous with a “cost” and, it follows, that KP incurs a
“cost” associated with environmental compliance each time it makes a payment under the
Agreement. Accordingly, such costs are “its costs.”
In summary, the Commission has made a reasonable interpretation of KRS
278.183, and we give deference to that interpretation under the Chevron doctrine. The
Commission's interpretation is consistent with an outcome obtainable under the normal
rules of statutory construction. On the other hand, the AG and KIUC's argument that the
statute's plain language does not permit a flow through of the costs is unpersuasive;
actually, the statute is ambiguous or, at best, silent. Accordingly, we will not disturb the
Commission's construction of KRS 278.183.
KP CONTROL/COMMISSION JURISDICTION/“ENTIRE SCOPE”
As an extension of the above argument the AG and KIUC argue that KRS
278.183 applies only to costs incurred at KP's in-state physical facilities over which the
Commission has direct jurisdiction. They allege that because the costs at issue are not
under KP's direct control nor the Commission's direct jurisdiction, they are not
recoverable under the statute. Because the arguments substantially overlap, under this
heading we also consider the AG and KIUC's argument that the surcharge is not
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recoverable when the “entire scope” of the statute is considered. This latter argument,
too, focuses on the out of state location of the environmental equipment and the
consideration that the equipment is beyond the jurisdictional reach of the Commission.
“A court may not interpret a statute at variance with its stated language.”
SmithKline Beecham Corp. v. Revenue Cabinet, 40 S.W.3d 883, 885 (Ky.App. 2001).
The first principle of statutory construction is to use the plain meaning of the words used
in the statute. See Revenue Cabinet v. O'Daniel, 153 S.W.3d 815 (Ky. 2005); KRS
446.080(4). “[S]tatutes must be given a literal interpretation unless they are ambiguous
and if the words are not ambiguous, no statutory construction is required.”
Commonwealth v. Plowman, 86 S.W.3d 47, 49 (Ky. 2002). We lend words of a statute
their normal, ordinary, everyday meaning. Id. “We are not at liberty to add or subtract
from the legislative enactment or discover meanings not reasonably ascertainable from
the language used.” Commonwealth v. Harrelson, 14 S.W.3d 541, 546 (Ky.2000).
Upon application of the foregoing principles, we find nothing in the statute
which would limit its application to costs incurred at KP's in-state physical facilities and
over which the Commission has direct jurisdiction. Such language is simply not included
in the statute, and we will not read such a requirement into it. At best the statute is
ambiguous or silent on the issue. We accordingly refer back to our previous discussion
explaining that the Commission's interpretation of the statute was reasonable - including
its interpretation that the statute does not limit recovery under the surcharge to costs
incurred at KP's in-state physical facilities over which the Commission has direct
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jurisdiction. We accordingly will not disturb the Commission's interpretation of the
statute. Chevron, supra.
LEGISLATIVE INTENT
The AG and KIUC additionally contend that the Commission's
interpretation of the statute is erroneous because it is not consistent with the legislative
intent of the statute. In support of their argument they cite to the following language
from Kentucky Indus. Utility Customers, Inc. v. Kentucky Utilities Co., 983 S.W.2d 493
(Ky. 1998)
The legislative intent of the statute [KRS 278.183] was to
promote the use of high sulfur Kentucky coal by permitting
utilities to surcharge their customers for the cost of a scrubber
which is part of a power plant that cleans high sulfur coal in
order to meet the acid rain provisions of the Federal Clean Air
Act amendments of 1990. This Court recognizes that both
high sulfur and low sulfur coal are mined in Kentucky. The
high sulfur coal is mined primarily in Western Kentucky
whereas low sulfur coal is mined primarily in Eastern
Kentucky. The legislature believed that some Kentucky coal
was in a disfavored position because high sulfur coal was the
product that required pollution control devices.
Id. at 496.
We are not persuaded that it follows from the Supreme Court's description
of the legislative intent of KRS 278.183 that the costs under consideration may not be
recovered through the surcharge. To the contrary, we believe such recovery is entirely
consistent with the legislative intent of promoting the use of high sulfur coal. The
facilities at issue are located in West Virginia, Ohio, and Indiana. The adapting of these
adjacent-state facilities to burn high sulfur coal, it is reasonable to conclude, does
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“promote the use of high sulfur Kentucky coal” by stimulating the demand for high sulfur
coal in general. Hence, if anything, application of the legislative intent of the statute as
stated in KIUC v. KU weighs against the AG and KIUC's position.
RECOVERY THROUGH GENERAL RATE CASE
Finally, the AG and KIUC argue that the better method for recovery of the
costs at issue is through the traditional rate making process which is undergone in a
general rate case. They argue that there may have been cost reductions in other areas of
KP's operations which would offset the environmental related costs under consideration,
and that KP may be currently earning a fair rate of return such that the flowing through of
the costs would lead to an excessive return.
We do not construe this argument as a permissible basis for disturbing the
Commission's decision. As previously noted, the legislature enacted an environmental
surcharge statute and the Commission has reasonably interpreted that statute to permit the
recovery of the environmental compliance costs embedded in its capacity equalization
payment. The argument that it would be better if the costs were recovered in a general
rate case rather than through a surcharge is nothing more than a policy argument beyond
the scope of our review. Accordingly, this argument is best addressed to the legislature.
APPEAL NO. 2006-CA-002552-MR
TAX GROSS-UP FACTOR
Once it is determined the amount of costs KP is entitled to recover under
the environmental surcharge, those costs may not simply be added to its revenues dollar
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for dollar. Rather, the company must be provided with a revenue increase which, upon
the deduction of the corresponding tax liability, will leave the utility with the net sum it is
entitled to recover under the surcharge. In order to calculate the amount of revenues
which will be required to accomplish this, a “tax gross-up” factor is determined which,
when divided into the permissible costs to be recovered, will produce the corresponding
increase in revenue requirements.
Over KP's objection, the Commission factored into the tax gross-up
calculation the provisions of Section 199 of the Internal Revenue Code and the corporate
tax rate reduction contained in House Bill 272 of the 2005 Regular Session of the General
Assembly.
As an investor owned-for-profit company, KP is subject to state and federal
taxes. In reality, KP does not file a federal stand-alone tax return; rather, its income and
expenses are incorporated into AEP's consolidated tax return along with its sister
affiliates. KP does, however, file a stand-alone state tax return, though KP alleges that
House Bill 272 may, in the future, require it to file a consolidated state tax return.
Historically, for purposes of establishing KP's rates, in effect, a hypothetical stand-alone
tax return for both state and federal taxes is calculated, and the resulting tax is the tax
included in the rates charged to Kentucky rate payers. The record discloses that this
method is advantageous to KP, and, accordingly, KP approves of the method. This standalone method is, in effect, the method the Commission used in calculating the tax grossup factor in the present case, including the tax effects of Section 199 and House Bill 272.
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SECTION 199
Section 199 did not result in a lowering of the corporate tax rate. Rather,
the section created a special income tax deduction for “domestic manufacturers.”
Income tax deductions, of course, result in a lower taxable income and, consequently, a
lower tax liability. Therefore, if the normal method of computing KP's tax recovery is
utilized - the stand-alone entity method - the inclusion of the Section 199 deduction will
result in a lower hypothetical tax liability and, it follows, a lower revenue requirement
than if the tax deduction is not included.
KP argues, however, that the Commission's recognition of the deduction is
flawed based upon two factors: (1) KP is not a stand-alone company; it therefore does
not separately compute its Section 199 benefit; and it may not receive any benefit at all,
and (2) the actual effect of Section 199 on the level of tax expense cannot be accurately
projected until the consolidated return is prepared and the Section 199 deduction is
allocated to each member.
At this point our standard of review bears repeating: pursuant to the
provisions of KRS 278.430, a party seeking to set aside a determination of the
Commission bears the burden of proof to show by clear and satisfactory evidence that the
Commission's determination is unreasonable or unlawful.
Here the Commission is applying the method it has used historically - the
stand-alone entity method - which, it appears, KP is in overall agreement with. Use of
that method will, no doubt, have its ups and downs for the utility. However, a new
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federal tax deduction has been passed into law which the Commission reasonably
recognized in calculating KP's allowable tax expense. Simply put, recognizing that
deduction was neither unreasonable nor unlawful.
HOUSE BILL 272
House Bill 272 reduced the Kentucky corporate income tax rate applicable
to KP from 8.25% to 7% in 2005 and 2006, and then to 6% in 2007. In calculating the
tax gross-up factor, the Commission recognized the change.
KP argues, however, that the Commission unfairly took into account only
the change in the tax rate without also considering other provisions of the House Bill.
Specifically, KP states that “[i]nstead of filing as a single corporate taxpayer, using a
separate income tax return, HB 272 could be construed to require Kentucky Power to file
a consolidated Kentucky income return with its parent (AEP) and sister companies. If
this were to occur, the amount of Kentucky income tax will be calculated and paid on a
consolidated return basis - so the state income tax expense would never be the same as
that which would have been owed had Kentucky Power filed a separate return.”
Hence, again, KP is against this method because recognizing its allocated
share from the consolidated return may mean more in taxes recoverable through its rates
than if the tax liability is computed under the stand-alone method. Because we believe
the circuit court succinctly addressed the problem with KP's argument, we adopt the
following from its discussion of the tax issues:
The [Commission's] methodology is greatly beneficial to
Kentucky Power because its stand-alone calculation is greater
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than its actual share of the AEP-consolidated tax calculation,
and the [Commission] allows Kentucky Power to set rates
based on the stand-alone taxes rather that the lower
consolidated taxes.
Against this backdrop, Kentucky Power argues that the
[Commission] should not reflect the new IRS 199 deductions
[and House Bill 272 rate reduction], which reduce federal and
state taxes on a stand-alone basis, because AEP is not able to
fully utilize these deductions to calculate its consolidated
taxes or Kentucky Power's share thereof. In other words,
Kentucky Power argues that it should be reimbursed by
ratepayers for the higher level of hypothetical taxes payable
under the stand-alone methodology, but the tax deductions
[and rate reductions] available under that methodology should
be ignored and should not be factored into the calculation of
its stand-alone taxes.
The Court finds that if Kentucky Power wants the
[Commission] to continue to allow rate recovery for taxes
based on the stand-alone methodology, and Kentucky Power
has made it very clear that it does, it must accept any and all
tax deductions [and rate reductions] available on a standalone basis. Kentucky Power has made no argument that the
IRS 199 and corresponding state deductions [and House Bill
272 tax rate reductions] would not be available to Kentucky
Power if it did file an individual tax return. Because the
stand-alone methodology calculates a utility's tax burden
based on what the utility would pay if it did file an individual
tax return, the Court finds that the decision of the
[Commission] to reflect the IRS 199 and corresponding state
tax deductions [and House Bill 272 rate change] in Kentucky
Power's environmental surcharge gross-up factor is neither
unlawful or unreasonable.
CONCLUSION
For the foregoing reasons the judgment of the Franklin Circuit Court is
affirmed.
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ALL CONCUR.
JOINT BRIEF FOR APPELLANT/CROSS- BRIEF FOR APPELLEE/CROSSAPPELLEE COMMONWEALTH OF
APPELLANT KENTUCKY POWER:
KENTUCKY EX. REL. GREGORY D.
STUMBO ATTORNEY GENERAL
Bruce F. Clark
AND APPELLEE/CROSS-APPELLANT R. Benjamin Crittenden
KENTUCKY INDUSTRIAL UTILITIES Frankfort, Kentucky
COMMISSION:
Michael L. Kurtz
Kurt J. Boehm
Cincinnati, Ohio
Counsel for Kentucky Industrial Utility
Customers, Inc.
Lawrence W. Cook
Assistant Attorney General
Office of Rate Intervention
Frankfort, Kentucky
BRIEF FOR APPELLEE PUBLIC
SERVICE COMMISSION:
David S. Samford
Richard W. Bertelson, III
Quang D. Nguyen
Frankfort, Kentucky
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