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Lewis v. Beyer

Court of Appeals of Oregon

April 23, 2014

KEN LEWIS and UTILITY REFORM PROJECT, Plaintiffs-Respondents,

Argued and Submitted August 15, 2013.

Marion County Circuit Court. 07C11429. Paul J. Lipscomb, Senior Judge.

Karla H. Ferrall, Assistant Attorney General, argued the cause for appellant. With her on the brief were Mary H. Williams, Deputy Attorney General, and Anna M. Joyce, Solicitor General. With her on the reply brief were Ellen F. Rosenblum, Attorney General, and Anna M. Joyce, Solicitor General.

Daniel W. Meek argued the cause and filed the brief for respondent Utility Reform Project.

No appearance for respondent Ken Lewis.

Before Duncan, Presiding Judge, and Armstrong, Judge, and Schuman, Senior Judge.


Page 60

[262 Or.App. 488] SCHUMAN, S. J.

The Public Utility Commission (the PUC) appeals from a supplemental judgment of the Marion County Circuit Court awarding attorney fees to plaintiffs Ken Lewis and the Utility Reform Project (URP) after plaintiffs prevailed in an action under ORS 183.490 to compel the PUC to order four utilities to establish " automatic adjustment clauses" pursuant to Senate Bill (SB) 408 (2005) and former ORS 757.268 (2005).[1] In an earlier iteration of this case, Lewis v. Beyer, 235 Ore App 367, 370-71, 232 P.3d 980 (2010), we remanded the supplemental judgment to the trial court so that the court could provide a more complete explanation of the rationale for its attorney fee award, as required by McCarthy v. Oregon Freeze Dry, Inc., 327 Ore 84, 90--91, 957 P.2d 1200 (1998). On remand, the court explained that the award

Page 61

was based on several statutes as well as equitable principles. We reverse.

As we explained in Industrial Customers of Northwest Utilities v. PUC, 240 Ore App 147, 149, 246 P.3d 1151 (2010):

" Under Oregon law, a public utility is allowed to build into its rates the amount that the utility expects to pay in income taxes. There was, for a long while, no regulatory mechanism to subsequently verify whether the utility's tax projections--and the amount assumed in rates--bore any relationship to the amount of taxes actually paid by the utility. In 2005, the Oregon legislature passed a law intended to close that loophole, thereby prohibiting public utilities from charging ratepayers for taxes far in excess of what the utilities actually pay. The law requires a public utility to annually file a tax report with the [PUC], which the commission then reviews to determine the difference between the amount of taxes assumed for ratemaking purposes and taxes ultimately paid either by the utility or by the utility's affiliated corporate group that are 'properly attributed to the regulated operations of the utility.' [ Former ] ORS 757.268(4). If the commission determines that the difference between the taxes assumed in rates and the taxes paid is $100,000 or more, it triggers an automatic [262 Or.App. 489] adjustment to the rate schedule, otherwise known as an 'automatic adjustment clause.'"


In simplest terms, SB 408 provided a method for utilities to " true up" their initial estimated or assumed taxes based on taxes actually paid. The PUC adopted OAR 860-022-0041 to implement the new law. The rule provides detailed instructions for the calculation of taxes and the reporting of tax information by utilities and further requires the PUC to establish an ongoing docket for each tax report. OAR 860-022-004(3) - (7). As with former ORS 757.268, if the PUC finds a difference of $100,000 or more between the taxes assumed in rates and the taxes paid, OAR 860-022-004(8) requires a utility to file an amended tariff to implement a rate adjustment, either upward or downward, depending on whether the assumed taxes were lower than actual taxes or higher.

However, the determination of a difference of $100,000 and a utility's establishment of an automatic adjustment clause does not result in the automatic implementation of a rate adjustment without further consideration by the PUC. Under former ORS 757.268(8), the PUC has discretion to make certain adjustments to the rates resulting from automatic adjustment clauses and is required to terminate the automatic adjustment clause in certain circumstances. Specifically, the PUC may include in a utility's rates deferred taxes resulting from accelerated depreciation or other tax treatment of utility investment and tax requirements and benefits that are required to be included in rates in order to ensure compliance with the normalization requirements of the federal tax law. The PUC must terminate an automatic adjustment clause if the PUC determines that the automatic adjustment clause would have a material adverse effect on customers of the public utility. Further, the PUC may not approve any rate resulting from an automatic adjustment clause if the rate is not " fair, just and reasonable." ORS 757.210. Finally, and most significantly for purposes of this case, under SB 408, the automatic adjustment clause requirement expressly applies only to taxes paid and collected from ratepayers on or after January 1, 2006:

[262 Or.App. 490] " If an automatic adjustment clause is established under section 3 of this 2005 Act, notwithstanding any other provision of section 3 of this Act, the automatic adjustment clause shall only apply to taxes paid to units of government and ...

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