BEFORE THE STATE BOARD OF EQUALIZATION

FOR THE STATE OF WYOMING

IN THE MATTER OF THE APPEAL OF           )

PACIFICORP FROM A NOTICE OF              )         Docket No. 2005-74

VALUATION FOR TAXATION PURPOSES   )

BY THE PROPERTY TAX DIVISION              )

OF THE DEPARTMENT OF REVENUE         )

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER

APPEARANCES

Richard G. Smith of Hawley Troxell Ennis & Hawley, LLP for PacifiCorp (Petitioner or PacifiCorp).

Cathleen D. Parker of the Wyoming Attorney General’s Office for the Department of Revenue (Department).

JURISDICTION

On June 23, 2005, the Department mailed PacifiCorp its 2005 Notice of Valuation for Ad Valorem Tax Purposes. On July 15, 2005, PacifiCorp filed a timely appeal of the Department’s taxable value determination to the State Board of Equalization (Board) pursuant to Wyo. Stat. Ann. § 39-13-102(n). The Board may hear objections to the Department’s determination of valuation for ad valorem tax purposes, and has jurisdiction over this matter.

A hearing was held April 25 and 26, 2006, before the Board, consisting of Chairman Alan B. Minier, Vice Chairman Thomas R. Satterfield, and Board Member Thomas D. Roberts.

STATEMENT OF THE CASE

The Department relied on two different cost models to determine the value of PacifiCorp. For each model, the Department calculated a rate of economic obsolescence. The Department used those rates of economic obsolescence to adjust the value of company assets pertinent to each model, but did not apply those rates to adjust the value of PacifiCorp’s construction work in progress. PacifiCorp brought this appeal, arguing that its construction work in progress should have received the same adjustment for economic obsolescence which all its other assets received.

We find for PacifiCorp, and reverse the Department’s determination.

CONTENTIONS AND ISSUES

PacifiCorp stated the issues of fact and law for determination by the Board as follows:

The issue of whether construction work in progress should be adjusted for economic obsolescence in the two cost approach models utilized by the Department in calculating the unitary value for PacifiCorp’s operating property. This issue involves the determination of fair market value, which is primarily an issue of fact. To the extent it is considered to be a mixed issue of law and fact, Petitioner is contesting the Department’s application of methods to determine fair market value as they relate to the valuation of construction work in progress, in that they are arbitrary and in contravention of recognized valuation techniques.

[Petitioner’s Issues of Fact and Law and Exhibit Index, p. 1].

The Department stated a single issue of Fact and Law as follows:

Whether the Department’s treatment of Construction Work in Progress was contrary to the Wyoming Statutes, the Department’s Rules and Regulations or generally accepted appraisal standards (this is a mixed question of fact and law).

[Wyoming Department of Revenue’s Issue of Fact and Law and Exhibit Index, p. 1].

FINDINGS OF FACT

1.        Each year, the Department determines a fair market value for every electric utility with property in Wyoming. Wyo. Stat. Ann. § 39-13-102(m). To do so, the Department relies on generally accepted appraisal principles as articulated by it Rules. Wyo. Stat. Ann. § 39-13-103(b)(ii); Rules, Wyoming Department of Revenue, Chapter 7. In 2005, the Department prepared a valuation for PacifiCorp. [Exhibit 501]. PacifiCorp is a rate regulated electric utility which provides retail electric service in six states, and has property in four more. [Transcript Vol. I, p. 189].

2.        PacifiCorp objects to one element of the calculations supporting the Department’s valuation. [Transcript Vol. I, pp. 169, 178; Exhibits 102, 103]. PacifiCorp asks that the Department’s valuation be revised to adjust this single element, leaving all other aspects untouched. [Transcript Vol. I, pp. 179-180]. The element in question is the Department’s handling of construction work in progress (CWIP). [Exhibits 102, 103]. CWIP is an account on PacifiCorp’s balance sheet which contains accumulated costs for assets not yet placed in service. [Transcript Vol. I, p. 137].

3.        PacifiCorp contends the value of assets in its CWIP account must be adjusted to account for economic obsolescence. Generally speaking, economic (or external) obsolescence is a loss in value from any cause external to the property. [Transcript Vol. II, p. 255]. Economic obsolescence can be caused by rate regulation which acts as a restriction on earnings. [Transcript Vol. II, p. 256]. The adjustments in value in this case generally represent a reduction in value to PacifiCorp’s assets caused by operating in a regulatory environment.

A. How the Department determined value, and PacifiCorp’s objection

4.        The Department thoroughly documented its calculation of PacifiCorp’s system market value. [Exhibit 501]. The Department’s appraiser, James Felton, relied on three different approaches to value (also known as indicators or models), in the following proportions:

[Exhibit 501, p. 018 (nomenclatures as in original table); Transcript Vol. I, pp. 28-29]. PacifiCorp does not dispute the Weight Percentages which Felton accorded to the three different indicators of value. [Exhibit 501, p. 018, third column]. It disputes the Computed Values for the first two indicators. [Exhibit 501, p. 018, second column].

5.        For all of its valuation calculations, the Department relied on cost and other financial information PacifiCorp prepared for its various regulators, including the Federal Energy Regulatory Commission and the Wyoming Public Service Commission. PacfiCorp reported that information to the Department. [Transcript Vol. I, pp. 72, 94; Exhibit 501, pp. 014-016; Transcript Vol. II, p. 281]. PacifiCorp presented the data used for the Department’s 2005 tax calculations in a consistent format for calendar years 2001 through 2004. [Exhibit 501, pp. 014-016].

6.        The “Adjusted HCLD” indicator is a value calculation based on historical cost less depreciation. In practice, this means the net book value of the property, subject to economic adjustment. [Transcript Vol. I, p. 34]. The complete calculation is shown as a page of the Department’s Exhibit 501. [Exhibit 501, p. 03].

7.        The first step in the Department’s Adjusted HCLD calculation was to compute Average Operating Property and Equipment Subject to Economic Adjustment. [Exhibit 501, p. 03; Transcript Vol. I, p. 34]. The appraiser used PacifiCorp’s account balances to determine an adjusted asset value for the end of calendar years 2003 and 2004. [Exhibit 501, p. 03].

8.        For both of these years the appraiser (1) determined Total Plant in Service, Owned and Leased; (2) subtracted Accumulated Depreciation, Amortization and Depletion; and (3) added Plant Not in Service. [Exhibit 501, p. 03; Transcript Vol. I, pp. 34-35]. The majority of Plant in Service was characterized as Production Plant, Transmission Plant, and Distribution Plant. [Exhibit 501, p. 03]. Plant Not in Service included only amounts for Fuel Stocks, and Plant Materials and Operating Supplies. [Exhibit 501, p. 03]. Plant in Service, less depreciation, was the largest factor in the calculation, $8,010,681,587 at the end of 2004, as compared to $153,697,560 for Plant Not in Service at the end of the same period. [Exhibit 501, p. 03].

9.        The appraiser then averaged his results for the two year-end calculations to reach a single value for Average Operating Property and Equipment Subject to Economic Adjustment. [Exhibit 501, p. 03; Transcript Vol. I, pp. 35, 39]. Conceptually, this value represents the averaged value of PacifiCorp assets used to calculate economic obsolescence using the Adjusted HCLD model. It is a step in the Department’s calculation of value, not an end point. [Transcript Vol. I, pp. 34-39].

10.      These averaged assets did not include CWIP. [Exhibit 501, p. 3]. The Department has historically excluded CWIP from the averaged assets, then, in a later step, added the full value of CWIP into a final value calculation otherwise adjusted for economic obsolescence. [Transcript Vol. II, p. 308]. Part of the reason for this unique treatment of CWIP relates to its nature. [Transcript Vol. I, pp. 44-45, Vol. II, pp. 308-309].

11.      A regulated utility like PacifiCorp cannot earn revenue on CWIP before completion of regulatory approval. [Transcript Vol. I, pp. 69, 138, 290, 312]. Generally speaking, regulators allow a utility to charge its customers a rate which includes (1) a return on its rate base, and (2) operating expense. [Transcript Vol. I, p. 142; regarding rate base, see ¶ 21 and Exhibit 503, pp. 115-116]. Assets in the CWIP account are not included in the utility’s rate base. [Transcript Vol. I, p. 142]. Before the utility can charge customers for a return against assets in the CWIP account, the assets must be placed in service, and the regulator must deem the assets used and useful. [Transcript Vol. I, p. 139].

12.      After calculating PacifiCorp’s averaged assets, appraiser Felton then selected a Working Net Operating Income. Again using data provided by PacifiCorp, Felton calculated an Adjusted Net Operating Income for calendar years 2000 through 2004. [Exhibit 501, p. 07]; infra, ¶ 32. Felton selected a three year weighted average of these results as being representative. [Exhibit 501, p. 06; Transcript Vol. I, p. 35]. PacifiCorp does not dispute Felton’s selection of this three year weighted average as being an appropriate Working Net Operating Income for purposes of the economic obsolescence calculation for the Adjusted HCLD indicator. [Exhibit 102, line H; Exhibit 103, line C].

13.      Felton next calculated a Return on Average Operating Property and Equipment. To do so, he simply divided his selected Working Net Operating Income by the averaged assets, as follows:

[Exhibit 501, p. 03; Transcript Vol. I, p. 36]. The 5.7803% represents Felton’s determination of what PacifiCorp actually earned on the assets he identified as Plant in Service, adjusted for Accumulated Depreciation, Amortization and Depletion, and Plant Not in Service. [Transcript Vol. I, p. 36]; supra, ¶ 8.

14.      Felton then compared this achieved rate of return with an expected market rate of return, or the Wyoming Capitalization Rate of Return. [Exhibit 501, p. 03; Transcript Vol. I, pp. 36, 58]. The Department annually determines the expected market rate of return for the electric utility industry through a formal process. [Transcript Vol. I, pp. 36, 48]. The industry market rate of return is not in dispute. [Exhibit 102, line J; Exhibit 103, line E]. The record nonetheless includes the derivation of the 9.5% rate. Felton presented the investment band derivation of the Wyoming Capitalization Rate of Return as part of his Yield Capitalization indicator calculations. [Transcript Vol. I, p. 48; Exhibit 501, p. 06].

15.      Felton compared the achieved rate of return with the expected market rate of return by determining the difference between the two rates, and dividing the difference by the expected rate of return. [Exhibit 501, p. 03]. The result was a negative 39.1547% [Exhibit 501, p. 03; Transcript Vol. I, pp. 36, 58], which represents the Department’s determination of an appropriate rate of economic obsolescence to be applied to PacifiCorp’s assets. [Transcript Vol. I, pp. 36-37].

16.      Felton then reduced the value of PacifiCorp’s Year-End 2004 Operating Property and Equipment Subject to Economic Adjustment by the calculated rate of economic obsolescence. [Exhibit 501, p. 03; Transcript Vol. I, p. 37]. After computing an economic obsolescence factor by reference to 2003-2004 average of operating property and equipment, Felton applied the factor to year-end 2004 assets. PacifiCorp does not dispute this adjustment.

17.      We arrive at the first point of dispute after reviewing these undisputed calculations.

18.      Felton’s last step was to add the full book value of the year-end CWIP account to the Year-End Operating Property and Equipment which had already been adjusted for economic obsolescence. [Exhibit 501, p. 03; Transcript Vol. I, pp. 37, 46]. While the Department referred to CWIP as Operating Property Not Subject to Economic Adjustment, but CWIP was the only asset included in that class of property. [Exhibit 501, p. 03]. The year-end value of the CWIP account was $439,891,117. [Exhibit 501, p. 03 and p. 015, line 119, column E]. The Department recorded the final steps of its HCLD calculation, including the economic obsolescence adjustment of 39.1547%, supra, ¶ 15, as follows:

[Exhibit 501, p. 03].

19.      PacifiCorp objects to adding CWIP to the value calculation in its full amount. Instead, PacifiCorp requests that the CWIP value be reduced by the same obsolescence factor as all other assets. PacifiCorp introduced various exhibits during the course of the hearing to illustrate this point. [Exhibits 101, 102, 107, 108, 110]. PacifiCorp’s desired effect on HCLD value can be stated as follows:

[By calculation from ¶ 18; Exhibit 102]. This PacifiCorp HCLD value would be substituted for the computed value in the appraiser’s overall calculation of system value. Supra, ¶ 4.

20.      The mathematics of obsolescence for the Rate Base indicator are generally the same as for the Adjusted HCLD model. [Transcript Vol. I, p. 45].

21.      The Rate Base indicator is cost-based, like Adjusted HCLD, but relies on a different list of assets, one tied to the assets which rate regulators take into account when determining what PacifiCorp may charge its customers. [Exhibit 503, pp. 115-116]. The result is a calculation like the Adjusted HCLD indicator but relying on a smaller universe of assets. The Department’s calculation broadly categorized these assets as Plant in Service, Working Capital, and Current and Accrued Assets. [Exhibit 501, p. 04]. Net Deferrals were subtracted from this listing of Assets to calculate a Total Rate Base. [Exhibit 501, p. 04].

22.      Similar to the Adjusted HCLD model, Felton calculated Total Rate Base with account balances for the year end of 2003 and 2004, then averaged the two to reach an Average Rate Base. [Exhibit 501, p. 04]. (The calculation refers to Average Rate Base and Non-Capitalized Leased Assets, but PacifiCorp had no Non-Capitalized Leased Assets, so we refer to only the Average Rate Base. [Exhibit 501, p. 04].) PacifiCorp did not dispute the appraiser’s listings of rate base assets, or the calculation. [Exhibit 103].

23.      Felton appended a footnote to the Plant in Service category of assets, in which he stated that Plant in Service did not include “Construction Work in Progress, Plant Held for Future Use, Acquisition Adjustments, Property Leased to Others, and Non-Capitalized Leased Property.” [Exhibit 501, p. 04].

24.      As with the Adjusted HCLD indicator, Felton used the averaged assets to determine an achieved Return on Average Rate Base. Felton used the same selected Working Net Operating Income as in the Adjusted HCLD calculation. Supra, ¶ 12. He calculated the achieved rate of return by dividing Working Net Operating Income by Average Rate Base, with the following result:

[Exhibit 501, p. 04]. PacifiCorp did not dispute any of these calculations.

25.      The next step was to compare this achieved rate of return with an expected market rate of return, or the Wyoming Capitalization Rate of Return. [Exhibit 501, p. 04; Transcript Vol. I, p. 58]. Felton used the same 9.5% employed in the Adjusted HCLD calculation. Supra, ¶ 14. By comparing the achieved rate of return with the expected market rate of return, see supra, ¶ 15, Felton calculated an adjustment percentage which represents economic obsolescence – in this case, a negative 29.7800%. [Exhibit 501, p. 04; Transcript Vol. I, p. 58].

26.      Felton then reduced the value of PacifiCorp’s Year-End 2004 Total Rate Base by this economic obsolescence percentage. [Exhibit 501, p. 04]. As in the Adjusted HCLD indicator, Felton computed an economic obsolescence factor by reference to an average of operating property, then applied the factor to the value year-end 2004 assets. PacifiCorp does not dispute this adjustment.

27.      We arrive at the second point of dispute after reviewing these undisputed calculations.

28.      Felton’s last step was to add the full value of the year-end CWIP account to the Year-End Total Rate Base which had already been adjusted for economic obsolescence. [Exhibit 501, p. 04]. While the Department characterized CWIP as a Non-Rate Base Item, CWIP was the only asset included in that class of property. [Exhibit 501, p. 04]. The year-end value of the CWIP account was $439,891,117, the same value used in the Adjusted HCLD calculation. [Exhibit 501, p. 04 and page 015, line 119]. The Department recorded the final steps of its Rate Base calculation, including the economic obsolescence adjustment of 29.78%, supra, ¶ 25, as follows:

[Exhibit 501, p. 04].

29.      PacifiCorp objects to adding CWIP to the Rate Base value calculation in its full amount. Instead, PacifiCorp requests that CWIP be reduced by the same obsolescence factor as all other rate base assets. PacifiCorp’s desired Rate Base value can be stated as follows:

[By calculation from ¶ 28; Exhibit 103]. This PacifiCorp Rate Base value would be substituted for the computed value in the appraiser’s overall calculation of system value. Supra, ¶ 4.

30.      While PacifiCorp does not dispute the Department’s calculations using the Yield Capitalization model [Exhibit 501, p. 06], the details of the calculation bear on a claim that the Department has been inconsistent in its handling of CWIP.

31.      With the Yield Capitalization indicator, Felton attempted to project future income which could be expected from net book assets at the end of calendar year 2004, and using the market capitalization rate, determined the assets required to generate that future income. [Transcript Vol. I, pp. 47-49; Exhibit 501, p. 06]. PacifiCorp does not dispute Felton’s Yield Capitalization calculations.

32.      Felton’s statement of his Yield Capitalization calculations begins with the historical information shown on the following table:

[Exhibit 501, p. 06]. In this table,

Net Operating Income (NOI) reflects calculations using PacifiCorp’s figures [Exhibit 501, p. 07];

PPI Adjusted NOI equals Net Operating Income for the same year, multiplied by the Producer Price Index (PPI) factor found in the “PPI Adjustment” column, in order “to bring old dollars up to current values” [Transcript Vol. I, p. 46];

Book Investment includes the same assets used to calculate Operating Property and Equipment Subject to Economic Adjustment in the Adjusted HCLD model, i.e. Plant in Service, Owned and Leased, adjusted for depreciation, and Plant Not in Service. [Compare Exhibit 501, p. 03]. It accordingly does not include Construction Work in Progress;

The performance ratio expresses the relationship between net operating income and the average of Book Investment for that same year and the preceding year.

[Transcript Vol. I, p. 47].

33.      Using the data on the table, Felton made six alternative calculations for Net Operating Income, for PPI Adjusted NOI, and for the Performance Ratio. These six calculations were: (1) a Three-Year Average, (2) a Three-Year Weighted Average, (3) a Five-Year Average, (4) a Five-Year Weighted Average, (5) a Five-Year Trend, and (6) a Five-Year Trend on Book Investment. [Exhibit 501, p. 06; Transcript Vol. I, pp. 46-47]. Felton then selected the results of the Three-Year Weighted Average as best for his subsequent calculations. [Transcript Vol. I, p. 47].

34.      Felton used this three-year weighted average Net Operating Income in his Adjusted HCLD and Rate Base Calculations. Supra, ¶¶ 12, 24. He used the related three-year weighted average PPI Adjusted Net Operating Income of $488,828,073 for the Yield Capitalization calculations. He identified that amount as his Appraiser Selected Net Operating Income for the purposes of the remaining calculations. [Exhibit 501, p. 06].

35.      Felton used the same market Capitalization Rate in the Yield Capitalization calculations as in his Adjusted HCLD and Rate Base calculations. Supra, ¶¶ 14, 25; [Exhibit 501, p. 06].

36.      Felton’s final Yield Capitalization calculation was as follows:

[Exhibit 501, p. 06].

37.      Felton reached his final Yield Capitalization Value by dividing Adjusted Net Operating Income ($497,852,073) by the Capitalization Rate of 9.5%. [Transcript Vol. I, pp. 48-49]. The Yield Capitalization Value reflects the assets necessary to generate the Adjusted Net Operating Income assuming a market rate of return for the industry.

38.      Felton made an adjustment for Estimated Income from Expansion Construction Work in Progress, supra, ¶ 36, to account for assets which would be available to PacifiCorp going forward, and which would therefore generate revenue. [Transcript Vol. I, p.48]. Expansion CWIP is contrasted with replacement CWIP. Expansion CWIP represents an addition to PacifiCorp’s assets, while replacement CWIP represents investment to replace assets already in service. [Transcript Vol. I, pp. 50-51]. Since the replaced assets will be retired, they will not be available to generate future revenue, and must not be considered when projecting future revenue. [Transcript Vol. I, p. 50].

39.      Information about expansion CWIP was available from the same accounts as CWIP itself, although expansion CWIP is expressed as a percentage of overall CWIP. [Exhibit 501, p. 15, lines 119, 120]. For 2004, the percentage was 55.80%, so at the end of 2004, the value of expansion CWIP was $245,459,243. [Transcript Vol. I, p. 53; Exhibit 104].

40.      Felton multiplied the value of expansion CWIP assets by a projected rate of earnings, also used for all other PacifiCorp assets, to estimate CWIP income. [Transcript Vol. I, pp. 53-54; Exhibit 104]. Felton divided his Selected Net Operating Income of $488,828,073 by year-end 2004 Book Investment of $8,164,379,147 to estimate this projected rate of return of 5.99%. [Transcript Vol. I, p. 52; Exhibit 104]. He then multiplied this rate of return by the expansion CWIP value $245,459,243, supra, ¶ 39, and rounded to nearest thousands to determine the estimated income of $14,696,000 attributed to expansion CWIP. [Transcript Vol. I, p. 54; Exhibit 104].

41.      Felton’s calculation of the rate of return applied to CWIP followed the template he used to determine an achieved rate of return in the Adjusted HCLD and Rate Base models. However, for those two models he used a three year weighted average net operating income which was not adjusted by the reference to the Producer Price Index. Compare supra, ¶¶ 12, 24. He also used an average of year-end 2003 and 2004 assets, rather than year-end 2004 assets. Compare supra, ¶¶ 16, 22. The approach to determining an achieved rate of return is otherwise consistent.

42.      PacifiCorp argues Felton’s treatment of CWIP in his Yield Capitalization calculations is inconsistent with his treatment of CWIP in the Adjusted HCLD and Rate Base calculations. In the Yield Capitalization calculations, Felton adjusted the pertinent CWIP component based on the achieved rate of return thereby treating CWIP the same as all other assets. [Transcript Vol. I, p. 54]. No such adjustment is made to CWIP in the Adjusted HCLD and Rate Base calculations. [Transcript Vol. I, pp. 54-55].

43.      The overall system value derived from all three indicators, supra, ¶ 4, when recomputed using the economic obsolescence adjustments urged by PacifiCorp, is about $106,000,000 less than the Department’s value of $5,421,000,000, supra, ¶ 4. [Transcript Vol. I, pp. 179-180; and by calculation from ¶¶ 14, 19, 29]. Substituting the PacifiCorp Adjusted HCLD and Rate Base values yields the following:

[By calculation from ¶¶ 4, 19, 29].

B. PacifiCorp’s evidence

44.      In its case in chief, PacifiCorp called James Felton to explain the Department’s position on treatment of CWIP. [Transcript Vol. I, pp. 28 et seq.]. The principal focus of this testimony was the Department’s refusal to adjust CWIP for economic obsolescence in the Adjusted HCLD and Rate Base models. A secondary focus of this testimony was the rationale for applying an obsolescence adjustment to the CWIP component of the Yield Capitalization model.

45.      Felton explained that, in the Adjusted HCLD and Rate Base models, the Department views the net book value of CWIP as being the same as fair market value. [Transcript Vol. I, p. 37]. The Department assumes that cost and fair market value are equivalent. [Transcript Vol. I, p. 37].

46.      Felton further stated the Department viewed the net book value of CWIP as fair market value because CWIP experienced no depreciation from either functional or physical obsolescence, according to regulatory accounting procedures. [Transcript Vol. I., pp. 61, 85]. In contrast, plant in service experienced such depreciation. [Transcript Vol. I, pp. 65, 84, 91-92].

47.      Felton acknowledged the practical consequences of the Department’s approach. An electric generator placed in service shortly before year end would be adjusted for economic obsolescence, while a similar generator placed in service shortly after year end would not. [Transcript Vol. I, p. 40]. Felton acknowledged that he had no reason to believe CWIP would earn at a different rate of return than all other PacifiCorp property. [Transcript Vol. I, p. 45]. However, for property not in service by the end of a year, Felton said it would be speculative to figure out the effect of the new equipment on achieved rate of return until preparing calculations for the next tax year. [Transcript Vol. I, p. 60].

48.      The Department did not think adjustment to CWIP made common sense. Felton considered it “bizarre” for a utility to invest in CWIP when the assets would immediately be worth less than the price paid for them. Felton noted that under the Adjusted HCLD indicator, PacifiCorp’s investment in CWIP would be worth only 60% of its cost. [Transcript Vol. I, pp. 88, 104, 124].

49.      Felton prepared appraisals for the unregulated railroad industry as well as the regulated electric utility industry. [Transcript Vol. I, p. 79]. For unregulated companies like railroads, the Department included CWIP as an item subject to the obsolescence adjustment. [Transcript Vol. I, p. 57]. The rationale for doing so was that companies not subject to rate regulation were free to earn revenues against CWIP immediately, subject to the constraints of market competition. [Transcript Vol. I, pp. 57, 68-69]. The Department apparently projected some income from CWIP for such companies. [Transcript Vol. I, pp. 119-122; Transcript Vol. II, pp. 398-399]. Felton was not clear about how this was done, or why it was appropriate to impute income to CWIP if a railroad’s pricing already included a return against the CWIP portion of a railroad’s assets. [Transcript Vol. I, pp. 119-122].

50.      Felton explained that obsolescence is applied to expansion CWIP in the Yield Capitalization model because the Yield Capitalization model is forward looking, and requires different assumptions than the Adjusted HCLD and Rate Base models. [Transcript Vol. I, p. 63]. The Yield Capitalization model tries to project future income and capitalize that future income, while the other two models look backward to incomes achieved with the plant in service. [Transcript Vol. I, pp. 63, 113]. The distinction between expansion and replacement CWIP is unnecessary in the two cost models, since the replacement of existing plant has not occurred during the historical periods on which the cost models rely. [Transcript Vol. I, p. 95].

51.      PacifiCorp called two witnesses who responded to the explanations offered by Felton.

52.      Tom Teagarden is a Certified Assessment Evaluator with extensive experience in the appraisal of electric utilities. [Transcript Vol. I, pp. 222-226; Exhibit 106]. Most notably for the purposes of this case, he is the author and principal instructor of the “Basic Utility Public Appraisal Course” annually sponsored by the Wyoming Department of Revenue. [Exhibit 504]. The Board recognizes Teagarden as an expert regarding generally acceptable appraisal principles pertaining to public utilities. The Board finds the opinions which follow to be credible and persuasive. Infra, ¶¶ 53-60.

53.      Teagarden stated that no appraisal literature supports the notion that cost or net book value is the same as market value. [Transcript Vol. I, p. 228]. To get from cost to market value, an appraiser must first subtract physical depreciation and functional obsolescence. [Transcript Vol. I, p. 229]. The appraiser must then test for economic obsolescence by some form of income calculation. [Transcript Vol. I, p. 229]. In Teagarden’s view, the Department has calculated a reasonable economic obsolescence percentage for its cost models in this case. [Transcript Vol. I, pp. 230-231]. However, the Department must apply economic obsolescence to all of PacifiCorp’s property – its total plant – to reach a market value. [Transcript Vol. I, pp. 231, 246-247].

54.      Generally speaking, adding a nonadjusted cost figure to a value figure contaminates the estimate of market value. [Transcript Vol. I, p. 232]. In its Adjusted HCLD and Rate Base indicators, the Department has effectively treated CWIP as being more valuable than PacifiCorp’s other property. [Transcript Vol. I, p. 231]. An appraiser should not assume that CWIP earns a higher rate of return in the absence of supporting evidence. [Transcript Vol. I, pp. 232, 236]. Property should be added to a valuation at its likely contribution to value, not its cost. [Transcript Vol. I, p. 235].

55.      Teagarden explained that PacifiCorp’s CWIP is part of the unit of all PacifiCorp properties. [Transcript Vol. I, p. 233]. All properties in a unit are treated as contributing equally to value. [Transcript Vol. I, p. 233, Vol. II, p. 298]. In this context, the word “unit” applies to a group of assets being treated the same way. [Transcript Vol. I, p. 273]. For regulators, the unit is property used in providing the regulated function. [Transcript Vol. I, p. 273]. For appraisers, the unit includes nonoperating assets. [Transcript Vol. I, p. 273].

56.      Because CWIP is part of the unit of all PacifiCorp properties, the same regulatory restriction which reduces the value of PacifiCorp’s other properties also reduces the value of CWIP “right off the bat.” [Transcript Vol. I, pp. 237-239]. People nonetheless continue to invest in regulated electric utilities because the companies are fairly stable, and investors are willing to accept less return for less risk. [Transcript Vol. II, p. 282]. PacifiCorp’s other witness, Norman Ross, Tax Director for PacifiCorp, infra, ¶ 61, added that management has no choice but to invest. As a default service provider in an assigned territory, the utility’s obligation to serve its customers outweighs its opportunity to decline to invest based on an inability to earn a return. [Transcript Vol. I, p. 148]. Teagarden further observed that newly deployed equipment, in most respects indistinguishable from CWIP, is adjusted for economic obsolescence even though the Department does not allow such an adjustment for CWIP. [Transcript Vol. I, p. 239].

57.      Teagarden explained that he does not make the same types of adjustments for railroads as for electric utilities. The difference is there is no restriction on the earnings of railroads. [Transcript Vol. II, p. 260]. A railroad may be able to set rates which account for CWIP as part of their assets, if competition allows. [Transcript Vol. II, p. 261]. When CWIP is allowed in a rate base for a nonregulated utility, Teagarden includes income from CWIP and CWIP itself in the total obsolescence calculation. [Transcript Vol. II, p. 279]. Teagarden notes that one of the inconsistencies in the Department’s approach is that the Department’s calculations allow economic obsolescence for the CWIP of railroads, but not for the CWIP of regulated electric utilities. [Transcript Vol. I, p. 245].

58.      Teagarden cautioned against including CWIP in the asset base of an economic obsolescence calculation when CWIP has no associated income. [Transcript Vol. II, p. 278]. The effect of including CWIP in the asset base when CWIP has no associated income is to indicate economic obsolescence which does not exist. [Transcript Vol. II, pp. 280, 289]. If one is using income generated exclusively from existing assets (not including CWIP) to calculate an achieved rate of return, that income should be divided exclusively by the same assets to calculate economic obsolescence on an apples-to-apples basis; CWIP should not be included in those assets. [Transcript Vol. II, p. 278].

59.      In a rate regulated environment, there is no reason to expect income associated with CWIP which would justify including CWIP in the denominator of the calculation used to determine an achieved rate of return. By definition for a regulated utility, CWIP does not earn a return. [Transcript Vol. II, p. 290]. Even trivial amounts of income from CWIP would accordingly be an aberration. [Transcript Vol. II, p. 278].

60.      Teagarden accepted the Department’s Yield Capitalization calculations, but pointed out that the Department projected income for CWIP at the same rate as for PacifiCorp’s other earning assets. [Transcript Vol. I, p. 239]. The Department’s position on its cost approach calculations is accordingly at odds with its position on its income approach calculations. [Transcript Vol. II, pp. 263, 270].

61.      Norman Ross is PacifiCorp’s director of all PacifiCorp tax functions except income tax. [Transcript Vol. I, p. 129]. Ross’s background includes taking Teagarden’s course. [Transcript Vol. I, p. 132]. Ross naturally agrees with Teagarden on the main points of PacifiCorp’s critique of the Department’s calculations. [E.g., Transcript Vol. I, pp. 135-136, 138-139, 153, 157, 166, 183-185, 196-197, 202, 208].

62.      Ross explained it was common for PacifiCorp to earn a return less than the market required capitalization rate. [Transcript Vol. I, p. 144]. The Department’s own calculation of a three-year weighted net operating income is one indication of PacifiCorp’s continuing failure to achieve a market rate of return. [Transcript Vol. I, pp. 215-217]. In his experience in Wyoming, PacifiCorp has never earned a return greater than the market required capitalization rate. [Transcript Vol. I, p. 203].

63.      PacifiCorp’s decision to appeal was motivated in part by Ross’s awareness that it was improper to add a cost figure to a value figure. [Transcript Vol. I, p. 209]. In addition, PacifiCorp has begun a building cycle, which means CWIP will be rising with the coming year CWIP to be $670 million. [Transcript Vol. I, p. 219]. The issue has become more material to the company’s taxes, and is likely to have a perpetual impact. [Transcript Vol. I, p. 219].

64.      The Board finds PacifiCorp provided sufficient evidence to suggest the Department determination was incorrect, and thereby carried its burden of going forward. The burden shifted to the Department to defend its action.

C. The Department’s evidence

65.      In its case in chief, the Department called Ken Uhrich. Since 1988, Uhrich has been supervisor of the Departmental group responsible for state assessed property. [Transcript Vol. II, pp. 303-304]. Uhrich has an undergraduate degree in Social Studies, and has done unspecified additional graduate study. [Transcript Vol. II, p. 304]. He has taken classes from the American Institute of Real Estate Appraisers, the International Association of Assessing Officers, and the Society of Real Estate Appraisers. [Transcript Vol. II, p. 305]. He is a certified appraiser for Wyoming. [Transcript Vol. II, p. 305]. Uhrich presented the balance of the Department’s position.

66.      The methodology at issue has not changed since the early 1990's. [Transcript Vol. II, pp. 308, 326]. The Department’s methods were reviewed by Ad Valorem Services, Inc., for the State Board of Equalization in an audit completed in 1995 (“the 1995 audit”). [Transcript Vol. II, p. 308; Exhibit 503]. An excerpt from Phase I of the 1995 audit was admitted. [Exhibit 503].

67.      Among other things, the 1995 audit specifically recommended that income from expansion CWIP be added to the income to be capitalized in income models (like the Yield Capitalization indicator), rather than adding book amounts of CWIP to the income indicator. [Transcript Vol. II, p. 308; Exhibit 503, p. 0122]. The effect of that recommendation is reflected in the Department’s Yield Capitalization calculations. Supra, ¶¶ 30-42.

68.      The 1995 audit otherwise made no recommendations to change the treatment of CWIP. Uhrich stated he had expected the audit review to contain a comment if the Department’s treatment of CWIP had violated generally accepted appraisal principles. [Transcript Vol. II, pp. 331, 414-415]. The excerpt of the audit report introduced by the Department does not directly support Uhrich’s expectation. On the one hand, the audit report states, “[a]ll cost indicators are well designed, and, other than the exceptions noted below, follow the basic tenets of accepted appraisal principles.” [Exhibit 503, p. 102]. Yet the audit also recommends that the Adjusted HCLD indicator should not be used as an indicator of value until it has “been adjusted for all forms of depreciation” [Exhibit 503, p. 104], and economic obsolescence is a form of depreciation. Infra, ¶ 109. In the context of recommending use of a rate base indicator, the report states, “[f]or those companies under close regulatory scrutiny, rate base, adjusted for economic obsolescence and items such as construction work in progress and other assets capable of earning income, should be considered an indicator of value.” [Exhibit 503, p. 115]. The latter two statements are consistent with the opinions of PacifiCorp’s expert, yet offer no insight into whether the precise problem presented in this case was ever considered.

69.      The State Board finds insufficient evidence from which to draw the inference that absence of comment in the audit must now be taken as approval of the Department’s handling of CWIP in the cost models. The Department failed to carry its burden on this point.

70.      Uhrich next argued the Department’s practice was within the permissible scope of an appraiser’s determination. [Transcript Vol. II, pp. 309-310]. He reiterated Felton’s view that, in a cost model, a CWIP asset “is a single purpose property [with] no accrued physical or functional depreciation. It is deemed in appraiser judgment to be at its market value.” [Transcript Vol. II, pp. 309-310, 392]. Stated another way, the cost of the CWIP assets are the same as their fair market value because they have not suffered physical or functional depreciation as other assets have. [Transcript Vol. II, pp. 309-310]. Uhrich denies that the Department is adding a cost figure to a value figure, compare supra, ¶ 54, because if the appraiser does not deem an economic obsolescence adjustment necessary, the cost figure becomes a fair market value indicator. [TranscriptVol. II, p. 310].

71.      Uhrich nonetheless agreed that physical and functional obsolescence are not a precondition for economic obsolescence. [Transcript Vol. II, p. 417]. Further, while Uhrich argued that generally accepted appraisal principles authorized an appraiser not to apply economic obsolescence in this case, he could cite no authority for this opinion. [Transcript Vol. II, p. 421].

72.      While this Board generally declines to interfere with a valid exercise of the Department’s appraisal judgment, we agree with Teagarden that the Department’s use of an unadjusted CWIP cost figure is not a matter within the scope of appraisal judgment. [Transcript Vol. II, p. 438]. The Department failed to carry its burden on this point. However, we rest this finding and conclusion on more than Teagarden’s opinion. We will also rely on the shortcomings of the Department’s own evidence of alternative valuations as shown in Exhibits 505, 506, 507, and 508. Infra, ¶¶ 86-102.

73.      Uhrich argues that the application of economic obsolescence to expansion CWIP in the Yield Capitalization model is not inconsistent with the absence of economic obsolescence in the Adjusted HCLD and Rate Base models because the income and cost models are based on two different sets of assumptions. [Transcript Vol. II, pp. 318-321]. In an income approach, the guiding principle is anticipation of future benefits, so one must assume that CWIP has been placed in service. [Transcript Vol. II, p. 318]. The appraiser is trying to measure the contribution of CWIP to earnings going forward. [Transcript Vol. II, p. 319]. In the historical cost models, Uhrich believed CWIP may or may not experience the same economic obsolescence forces the rest of the property has experienced. [Transcript Vol. II, p. 320].

74.      While we acknowledge the distinction drawn by Uhrich and Felton between forward looking and historical cost approaches, the claim that CWIP may or may not experience the same forces as the rest of the property is not self-evident. We find PacifiCorp’s expert to be more persuasive on this point. The Board finds it more logical to assume that CWIP will indeed be subject to the same economic forces as all other assets, and impaired or enhanced as all other assets. In doing so, we favor PacifiCorp’s explanation of why a rate-regulated utility must invest in assets which are immediately worth less than cost. Supra, ¶ 56.

75.      Having addressed the Department’s principal arguments, the Board would be in a position to rule, but for the Department’s decision to inject an additional issue into the case. This is the issue of the Department’s power on remand to reconsider prior appraisal judgments. [Transcript Vol. II, pp. 335-341, 389]. Given the complex nature of the Department’s appraisal in this case, with so many points at which appraisal judgment was in fact exercised, supra, ¶¶ 4-43, the Department’s pronouncement raised the possibility of an attempt by the Department to frustrate a ruling in favor of PacifiCorp. The Board chooses to assume that the Department intends no defiance of the Board’s authority, but finds it appropriate to explore the Department’s testimony on this subject in order to clarify (1) the grounds for the Board’s ruling; (2) the Board’s expectations on remand; and (3) the bounds of the Department’s discretion.

76.      The crux of the Department’s position is that, if the matter is remanded, it will insist on including CWIP among the assets used to compute the asset base which in turn is used to calculate the achieved rate of return in the Adjusted HCLD and Rate Base indicators. [Transcript Vol. II, p. 340]. See supra, ¶¶ 7-13, 22-24. A change in achieved rate of return affects the calculation of economic obsolescence, which in turn affects the final value for the each of the two cost indicators. Supra, ¶¶ 15-19, 25-29. As part of Uhrich’s testimony, he presented two different recalculations of the Adjusted HCLD indicator [Exhibits 505 and 507] and the Rate Base indicator. [Exhibits 506 and 508].

77.      The Department’s rationale for including CWIP in the asset base is elusive. Apparently, Uhrich reasons that if economic obsolescence must be applied to CWIP as PacifiCorp requests, then the logic for doing so rests on eliminating the distinction between rate-regulated companies and non-rate-regulated companies. The pertinent question asked by counsel for the Department was, “[s]o if the state board – if the state board rules you have to treat rate-regulated companies the same as nonrate-regulated companies, can you take us through how the Department would adjust their current methodology or basically how the Department would calculate it for purposes of PacifiCorp?” [Transcript Vol. II, p. 336]. Following an introduction to the first recalculation and a question by the Board, Uhrich stated:

Mr. Chairman, what you’re doing is that if you’re going to value all of the industries that are identified in the state assessed, regulated or nonregulated, what you’ve done is you have said we are valuing industries; it does not matter about the regulation, it does not matter about that, but everybody is going to have obsolescence.

So if for example, if a railroad is up here and we’re going to treat them the same as PacifiCorp, then they need to have the same placement. That obsolescence is going to be measured against the whole…

[Transcript Vol. II, pp. 340-341].

78.      Before this testimony, no other witness united two separate propositions: (1) economic obsolescence must be applied to CWIP in the calculation of PacifiCorp’s Adjusted HCLD and Rate Base indicators; and (2) the obsolescence calculations for rate-regulated and non-rate-regulated companies must be identical. To the contrary, the other witnesses consistently agreed that the calculation of economic obsolescence for a company like PacifiCorp, which may properly be described as a company subject to close regulatory scrutiny, should not include CWIP in the asset base. Supra, ¶¶ 10-11, 55-59. The principal reason for excluding CWIP from the asset base is that no income is associated with CWIP for a regulated company like PacifiCorp, although income may be associated with CWIP in a non-rate-regulated company. Supra, ¶¶ 57-59. Including CWIP in the asset base creates a mismatch between numerator and denominator in the calculation of achieved rate of return, and has the effect of overstating obsolescence. Supra, ¶ 58.

79.      In short, neither the other witnesses nor this Board proposed to join the two concepts as Uhrich did; his attribution is unsubstantiated. To the contrary, neither the other witnesses nor this Board found it necessary to modify the Department’s method of appraising railroads. Instead, other witnesses and this Board find it necessary only to apply to CWIP the obsolescence factor properly calculated for PacifiCorp in the Adjusted HCLD and Rate Base indicators.

80.      Perhaps in tacit recognition of his misplaced premise, Uhrich offered additional arguments to support use of a uniform methodology for non-rate-regulated companies and for rate-regulated companies. First, he argued that failure to include CWIP in the asset base results in a mismatch between CWIP and other assets, because the Department’s methodology requires use of an average of assets to determine the asset base used to determine the achieved rate of return. [Transcript Vol. II, pp. 345-346; see supra, ¶¶ 7-9, 12-13, 22, 24, and Exhibit 501, pp. 03, 04]. We do not find this point persuasive. It is certainly true that an average of assets is used to determine the asset base. However, it is also true that the economic obsolescence factor, once determined, was applied only to the value of assets at year-end 2004, not to an average. Supra, ¶¶ 16, 26. If the economic obsolescence factor has been properly calculated, a point not contested by any witness but Uhrich, the issue in this case only concerns the application of the factor. Uhrich attempted to create an issue where we find none, and we do not find his argument for doing so to be persuasive.

81.      Second, Uhrich argued that maintaining a distinction between rate-regulated and non-rate-regulated utilities would violate principles of uniform and equal taxation. [Transcript Vol. II, pp. 347, 353-355]. This is fundamentally a legal question, and we conclude that Uhrich is mistaken. Infra, ¶ 116. We find there to be a critical factual distinction to be made between rate-regulated and non-rate-regulated companies, namely, whether it is possible for the company to earn any return on CWIP. See supra, ¶¶ 49, 57.

82.      Third, Uhrich argued that the historical data on which the Department relied, because they incorporated a succession of years, in fact included CWIP: “So the numbers that you have in plant investment do have the historical perspective of CWIP in it. The income has the historical perspective of CWIP in it…. Then the income – as it came online, the income earned from that would also go into the next – the period of time in which it would be accounted for.” [Transcript Vol. II, pp. 351-352]. In making this statement, Uhrich referred to the historical data for net operating income and book investment summarized in connection with the Yield Capitalization model. [Transcript Vol. II, pp. 350-351].

83.      Uhrich’s argument overlooks the fact that for each specific year, the Book Investment summarized with respect to the Yield Capitalization model does not include CWIP. The Book Investment numbers for 2003 and 2004, supra, ¶ 32, tie precisely to the numbers for Operating Property and Equipment Subject to Economic Adjustment in the Adjusted HCLD model [Exhibit 501, p. 03, Operating Property and Equipment Line IV], and the numbers in the Adjusted HCLD model include only Plant in Service and Plant Not in Service. [Exhibit 501, p. 03]. CWIP is expressly excluded. [Exhibit 501, p. 03]. The same is true for net operating income, because none of the net operating income for any specific year includes income related to CWIP. Supra, ¶ 11.

84.      As a result, while CWIP in any specific year may eventually become part of PacifiCorp’s asset base for a subsequent year, that fact was irrelevant to the historical data on which the Department relied for its cost indicator calculations. Those historical data were instead a snapshot that portrayed the Book Investment and net operating income for the year, without the influence of CWIP. We accordingly find Uhrich’s argument unpersuasive.

85.      Despite the Board’s general disagreement with the premises of Uhrich’s position, the fact remains that he considers his recalculations of the Adjusted HCLD and Rate Base indicators to reflect his appraisal judgment. For this reason, and for the reasons stated supra, ¶ 75, we consider each of the recalculations in turn.

86.      Exhibit 505 is the Department’s first recalculation of the Adjusted HCLD indicator. The Department included CWIP as a substitute in line item H under the heading, “Plant Not in Service,” and therefore included CWIP in the averaged assets used to calculate an achieved rate of return. [Exhibit 505, line H; Transcript Vol. II, pp. 357-359]. Consistent with other listed assets, Exhibit 505 includes entries for CWIP at the year end of 2003 and 2004, and includes those entries in the averaged assets for the two years. [Exhibit 505, line H; Transcript Vol. II, pp. 357-359].

87.      As predicted by Teagarden, supra, ¶ 58, the result is a sharp drop in achieved rate of return for the Adjusted HCLD indicator because CWIP is being included in the asset base without any corresponding income. [Exhibit 505, Valuation Line III; Transcript Vol. II, p. 359]. The reduction in achieved rate of return results in a substantial increase in economic obsolescence. [Exhibit 505, Valuation Line V; Transcript Vol. II, p. 359]. The Department applied economic obsolescence to assets including CWIP, now combined into one figure. [Exhibit 505, Valuation Line VI]. Overall, the HCLD indicated value drops from the original calculation of $5,407,532,102 to a revised calculation of $4,993,015,013. [Compare Exhibit 501, p. 03, Valuation Line VIII and Exhibit 505, Valuation Line VIII].

88.      Uhrich does not contend that this calculation is correct. Instead, he reiterates the position that the Department’s initial calculation was correct, and once again attempts to tie the same two unrelated issues together, supra, ¶¶ 77-79:

Q. If the Board came back, though, and ruled you have to apply obsolescence, got to handle it consistently with your other taxpayers, including nonregulated, but doesn’t direct you to make any other adjustments, this is the end result?

A. Yes.

[Transcript Vol. II, p. 360]. The Board finds the calculations of Exhibit 505 to be contrary to generally accepted appraisal principles, for the reasons articulated by Teagarden. Supra, ¶¶ 58-59.

89.      Exhibit 506 is the Department’s first recalculation of the Rate Base indicator. In summary fashion, Uhrich confirmed that this recalculation (1) relied on the same assumptions and assertions as Exhibit 505; (2) included CWIP in the averaged assets used to calculate achieved rate of return; and (3) was an accurate representation of what happens. [Transcript Vol. II, p.356]. Consistent with these assertions, Construction Work in Progress now appears as an entry on a line after the summary item V, Total Rate Base, and after summary item VI, Non-Capitalized Leased Assets, Net of Depreciation. [Exhibit 506]. Construction Work in Progress is nonetheless included in summary item VII, Total Rate Base and Non-Capitalized Leased Assets. [Exhibit 506]. As we noted previously, there were no Non-Capitalized Leased Assets, supra, ¶ 22, so the only item the Department has included other than Rate Base assets is CWIP.

90.      The Department has not carried its burden of explaining why the insertion of CWIP is reasonable. The same footnote to Plant in Service that appeared in Exhibit 501, supra, ¶ 23, still appears in Exhibit 506: Plant in Service does not include “Construction Work in Progress, Plant Held for Future Use, Acquisition Adjustments, Property Leased to Others, and Non-Capitalized Leased Property.” [Exhibit 501, p. 04]. That footnote is consistent with the description of the rate base indicator found in the 1995 audit. [Exhibit 503, pp. 115-116]. The Rate Base indicator rests on “the actual regulatory rate base, adjusted for earning assets and/or non-taxable property.” [Exhibit 503, p. 116]. There is no dispute that CWIP is not part of the actual regulatory rate base. Supra, ¶ 11. We find it unreasonable to include CWIP among the assets used to calculate an achieved rate of return in the Rate Base indicator.

91.      The effect of including CWIP in assets in the recalculated Rate Base indicator is to unreasonably reduce the achieved rate of return, increase economic obsolescence, and reduce indicated value. Overall, the Rate Base indicated value drops from the original calculation of $5,589,416,159 to a revised calculation of $5,168,923,063. [Compare Exhibit 501, p. 04, Valuation Line VIII and Exhibit 506, Valuation Line VIII].

92.      The Board finds the calculations of Exhibit 506 to be contrary to generally accepted appraisal principles, for the reason that CWIP is not part of PacifiCorp’s actual regulatory rate base, supra, ¶ 11, and for the same general reasons the Board finds the calculations of Exhibit 505 to be defective. Supra, ¶ 88.

93.      Exhibit 507 is the Department’s recalculation of the Adjusted HCLD indicator with the further adjustment of a projected income stream for CWIP. [Exhibit 507, Valuation Line II]. The adjustment corrects what the Department acknowledged to be a shortcoming of its initial Adjusted HCLD recalculation. [Transcript Vol. II, pp. 360-363]. Exhibit 507 represents what the Department would do on remand “if the Board were to remand the issue to the Department and instruct that construction work in progress should be granted obsolescence.” [Transcript Vol. II, pp. 393-394; but see Transcript Vol. II, pp. 368-369].

94.      The Exhibit 507 Adjusted HCLD indicator differs from the Exhibit 505 Adjusted HCLD indicator in two ways. First, the Department has modified Valuation Line II to read, “Working Net Operating Income + CWIP @ Earned rate (5.7803%).” [Exhibit 507, Valuation Line II]. Second, the Department has recalculated the achieved rate of return and rate of obsolescence to reach a new adjustment amount, and with it a new HCLD Value. [Exhibit 507, Valuation Lines II, V, VII, VIII HCLD Value]. This new value is $5,281,576,425, compared to the original calculation of original calculation of $5,407,532,102 and the first revised calculation of $4,993,015,013. [Exhibit 501, p. 03; Exhibits 505, 507].

95.      With Exhibit 507, the Department recognized that including CWIP in PacifiCorp’s asset base, without any revenue associated with CWIP, drove down PacifiCorp’s achieved rate of return and overstated economic obsolescence. Uhrich stated that the appraiser’s net operating income for the current year “may not have a projection to construction work in progress.” [Transcript Vol. II, p. 362]. Uhrich was correct. As we have already seen, the appraiser’s selected net operating income figures included no revenue for CWIP. Supra, ¶ 11, 32.

96.      The Department’s “projection” for CWIP revenue is the achieved rate of return which the Department originally calculated for its Adjusted HCLD model, a calculation which did not include CWIP in PacifiCorp’s asset base. [Transcript Vol. II, pp. 364, 368]; supra, ¶¶ 7-11. With this selection, the Department all but concedes PacifiCorp’s original point concerning the propriety of applying a rate of obsolescence to CWIP which is ultimately premised on an achieved rate of return for all other assets. Uhrich stated that the Department might select another revenue number if it were beginning all over again, but said nothing about what that number might be, and was vague about how it might be selected. [Transcript Vol. II, p. 369]. We find this to be nothing more than an insistence that the Department retains the right to modify the rate of economic obsolescence when confronted with defects in its application of economic obsolescence. The Department’s position is not persuasive.

97.      In support of Exhibit 507, the Department points to a sample calculation in text material prepared by Teagarden. [Transcript Vol. II, p. 367]. In the sample, CWIP is included in the asset base and, according to a note in the text, revenue includes “income projected to CWIP.” [Exhibit 504, p. 137]. While the sample calculation is consistent with Exhibit 507, we find the alternative to be more persuasive, i.e., eliminate CWIP from the asset base and make no effort to estimate, to project, or to impute CWIP revenue. [Exhibits 102, 103]. For reasons already stated above, supra, ¶¶ 77-78, we are similarly unmoved by the Department’s interest in relying on Exhibit 507 because it is used for unregulated utilities. [Transcript Vol. II, p. 399].

98.      Although the Department stated that Exhibit 507 showed what it would do on remand, the Department’s calculation of system value depends as heavily on the Rate Base indicator as the Adjusted HCLD indicator. Supra, ¶ 4. The Department’s adjustments to the Rate Base indicator are depicted in Exhibit 508. As with Exhibit 507, the Department modified Valuation Line II to read, “Working Net Operating Income + CWIP @ Earned rate (5.7803%).” [Exhibit 508, Valuation Line II]. The Department then recalculated the achieved rate of return and rate of obsolescence to reach a new adjustment amount, and with it a new Rate Base Value. [Exhibit 508, Valuation Lines II, V, VII, IX]. This new value is $5,467,744,553, compared to the original calculation of $5,589,416,159 and the first revised calculation of $5,168,923,063. [Exhibit 501, p. 04; Exhibits 506, 508].

99.      The projected revenue for CWIP in this final revised Rate Base model uses the same 5.7803% calculated in original Adjusted HCLD indicator. [Compare Exhibit 508 with Exhibit 501, p. 03]. The Department did not explain its decision to use this rate. We assume the selected rate was in some way representative of a return on all assets [Transcript Vol. II, p. 370], even though the Department originally calculated a different achieved rate of return using the Rate Base assets. The original achieved rate of return was 6.6709%. [Exhibit 501, p. 04]. The Department’s choice of a rate of return from the Adjusted HCLD indicator, rather than the Rate Base indicator, reflects unfavorably on the consistency of its approach to the calculations presented to this Board.

100.    The Board has even greater concern about the integrity of the Exhibit 508 Rate Base indicator. The concern stems from this exchange between Uhrich and his counsel:

Q. Are [Exhibits 507 and 508] both done pursuant to Generally Accepted Appraisal Standards?

A. Rate base is not a model that is a generally accepted appraisal model. The only thing that makes it a generally accepted appraisal model is the valuation portion of it. A rate base is a ratemaking formula. The valuation portion makes it a valuation model only.

Q. However, it is generally accepted the way you’ve described doing it?

A. The end result, yes.

Q. Is considered in the field of appraisal – it is generally accepted that you can do that?

A. Best of my knowledge, yes.

[Transcript Vol. II, p. 422 (emphasis supplied)]. The only sense we can make of this is that the Rate Base Analysis which appears on the upper portion of Exhibit 501, p. 04, Exhibit 506, and Exhibit 508 is acceptable only by virtue of the Valuation statement which appears on the lower portion of each of those exhibits. However, the Valuation statement in each instance relies heavily on the statement of assets which appears in the Rate Base Analysis.

101.    Uhrich’s statement reinforces the Board’s concern about including CWIP in the statement of assets in Exhibits 506 and 508. Exhibit 508 continues to bear the footnote found in Exhibits 501, p. 04, and Exhibit 506: Plant in Service does not include “Construction Work in Progress, Plant Held for Future Use, Acquisition Adjustments, Property Leased to Others, and Non-Capitalized Leased Property.” [Exhibit 508]. Having affirmed that the Rate Base indicator looks to a “ratemaking formula” [Transcript Vol. II, p. 422], Uhrich fails to explain how CWIP can properly be included in that ratemaking formula. From the discussion in the 1995 audit report, the correct first step in the Rate Base model is to develop a listing of rate base assets which does not include CWIP. [Exhibit 503, pp. 115-116].

102.    All assets in Rate Base indicator must nonetheless be “adjusted for economic obsolescence and items such as construction work in progress and other assets capable of earning income….” [Exhibit 503, p. 115]. PacifiCorp’s proposed method for applying a calculated obsolescence rate fits this description. [Exhibit 103]. The Department’s original method for recalculating an obsolescence rate does not. The modifications reflected in Exhibit 508 do not bring it into compliance with generally accepted appraisal principles: CWIP should not be included in the assets used to determine an achieved rate of return; the exercise of imputing revenue to CWIP is generally unreasonable for a regulated utility such as PacifiCorp; and the particular imputed revenue selected by the Department is inconsistent with its original Rate Base indicator calculations.

103.    In its rebuttal case, Ross of PacifiCorp conceded that the Exhibit 507 Adjusted HCLD calculation was “something that is within the range of appraisal judgment” [Transcript Vol. II, p. 434], but the Board was not persuaded by this general concession. Ross did not speak directly to Exhibit 508, although he reiterated PacifiCorp’s view that the Department should not include CWIP in the asset base for calculating the obsolescence percentage. [Transcript Vol. II, p. 435].

104.    Any portion of the Conclusions of Law: Principles of Law or the Conclusions of Law: Application of Principles of law set forth below which includes a finding of fact may also be considered a Finding of Fact and, therefore, is incorporated herein by reference. In addition, since the proper application of appraisal methods to the facts is an issue of ultimate fact, infra, ¶ 114, some of the preceding Findings are a mixture of fact and legal precept, and in that regard should be treated as Conclusions of Law where appropriate.

CONCLUSIONS OF LAW: PRINCIPLES OF LAW

105.    “Basis of tax. The following shall apply:

* * *

(ii) All taxable property shall be annually valued at its fair market value. Except as otherwise provided by law for specific property, the department shall prescribe by rule and regulation the appraisal methods and systems for determining fair market value using generally accepted appraisal standards;”

Wyo. Stat. Ann. § 39-13-103 (b)(ii).

106.    “The department shall annually value and assess the following property at its fair market value for taxation:

* * *

                      (iii) Property of electric utilities;”

Wyo. Stat. Ann. § 39-13-102 (m).

107.    “Following determination of the fair market value of property the department shall notify the taxpayer by mail of the assessed value. The person assessed may file written objections to the assessment with the board within thirty (30) days of the date of postmark and appear before the board at a time specified by the board….” Wyo. Stat. Ann. § 39-13-102 (n).

108.    The Department’s Rules provide:

Section 2. Purpose of Rules. These rules are intended to describe the valuation methodology to be used to determine the taxable value of state-assessed public utility and railroad property for ad valorem tax purposes. The formulae, methods, systems, standards, and criteria to be used by the Department of Revenue, State Assessment Section, to determine fair market value are set forth herein. Unless otherwise provided by law, these rules also prescribe the level of assessment to be applied to all state-assessed property to determine assessed value.

Rules, Wyoming Department of Revenue, Chapter 7, § 2.

109.    The Department’s Rules provide the following pertinent definitions:

Section 4. Definitions. For the purpose of ad valorem taxation under these rules, the definitions set forth in Title 39, as amended, are incorporated herein by reference. In addition, the following definitions shall apply:

* * *

(b) “Capitalization rate” means a ratio between anticipated future income, either accounting income or cash flow and present value. Capitalization ratios can be derived from any income level, but once they have been so derived they can only be applied to a comparable income level.

* * *

(d) “Depreciation” means a loss of utility and hence value from any cause. Depreciation may take the form of physical depreciation, functional obsolescence, or economic obsolescence.

        (i) “Physical Depreciation” means the physical deterioration as evidenced by wear and tear, decay or depletion of the property.

       (ii) “Functional obsolescence” means the impairment of functional capacity or efficiency, which reflects a loss in value brought about by such factors as defects, deficiencies, or super adequacies, which affect the property item itself or its relation with other items comprising a larger property.

     (iii) “Economic obsolescence” means impairment of desirability or useful life arising from factors external to the property, such as    economic forces or environmental changes which affect supply-demand relationships in the market. The methods to measure economic obsolescence may include, but are not limited to:

             (A) Capitalization of the income or rent loss attributable to the negative influence;

             (B) Comparison of sales of similar properties which are subject to the negative influence with others which are not.

           (C) Identification of factors specifically analogous to the property, i.e. investments, capacities, and/or industry relationships.

* * *

(g) “Fair market value” is defined as the amount in cash, or terms reasonably equivalent to cash, that a well informed buyer is justified in paying for a property and a well informed seller is justified in accepting, assuming that neither of the parties thereto are acting under undue compulsion and assuming further that the property has been offered in the market place for a reasonable length of time.

(h) “Nonoperating Property” means all property owned or leased by the utility or railroad not used in operations.

        (i) “Operating Property” means all property which is owned, leased, or otherwise used exclusively in the public utility or railroad operations as specified in W.S. 39-13-102(m)(ii)-(viii).

* * *

        (k) “Unitary valuation” is the process of determining the value of a company as a whole without reference to individual parts. The unitary approach is used in the valuation of properties which derive their value from interdependent assets working together. The market value is not a summation of fractional appraisals, but the value of a company as an operating unit.

Rules, Wyoming Department of Revenue, Chapter 7, § 4 (b), (d), (g), (h), (I), (k).

110.    The Department’s Rules provide:

Section 6. Appraisal Methods. The appraisal techniques which may be used by the Department of Revenue, State Assessment Section include the approaches described in this section. Each approach used shall be an appropriate method for the type of property being valued; that is, the property shall fit the assumptions inherent in the appraisal method in order to calculate or estimate the fair market value of the property. Each approach used shall also consider the nature of the property or industry, and the regulatory and economic environment within which the property operates.

(a) All taxable property shall be annually valued at its fair market value, using generally accepted appraisal standards as prescribed in W.S. 39-13-103(b)(ii) and by this Chapter.

(b) State assessment appraisers shall estimate the fair market value utilizing specific appraisal standards which represent three distinct methods of data analysis: i.e. sales comparison or market; cost; and income capitalization. One or more of these approaches shall be used in all determinations of value, except when utilizing the “best information available method.”

* * *

(ii) Cost Approaches to Value

* * *

                            (C) Historical Cost. The historical cost approach is a method of estimating the value of property based upon the actual or first cost of the property at the time it was originally constructed and placed in service. In an assembled property, the historical cost as of any date means, the first cost as defined, plus all subsequent additions and replacements less deduction or removals. The historical cost shall consider all forms of depreciation and appreciation. Items such as construction work in progress, plant held for future use, acquisition adjustments, non-capitalized lease property, materials, supplies and other items shall also be included to the extent they are taxable and not otherwise valued.

(iii) Income Capitalization to Value

* * *

        (B) The Income or Capitalized Earnings Approach. The income or capitalized earnings approach is a method of estimating the value of property by converting anticipated benefits to be derived form the ownership of the property into a value estimate as is reflected or accomplished by yield capitalization. These benefits can be reflected through the net operating income . . .of a company. …Both direct and yield capitalization methodologies are considered to be the income or capitalized earnings approach as discussed in this subsection.

* * *

(II) Net operating income . . . is discounted to fair cash market value using a capitalization rate developed by the methods described in Section 7 of this chapter.

Rules, Wyoming Department of Revenue, Chapter 7, § 6, 6(a), 6(b)(ii), (iii).

111.    The Department’s Rules provide:

Section 7. Capitalization Rate Development

    (a) The capitalization rate is any rate used to convert an income stream into a present worth of future benefits. The rate reflects the relationship between one year’s income or an annual average of several years’ income and the corresponding value. The Department of Revenue, State Assessment Section, shall annually calculate capitalization rates based upon the band of investment method as defined by these rules for all state-assessed industries. The primary components of the rate shall include capital structure (book, market and/or regulatory) as determined for the industry and/or company being appraised (if industry data is not available or applicable) and cost of capital (debt, preferred, and equity) as developed in appropriate money markets.

* * *

     (b) Not later than the 15^th day of March each year the Department of Revenue, State Assessment Section, shall conduct a public meeting for presentation of the capitalization rates to be used for the current year in valuation of state-assess property…. A final determination of the capitalization rates shall be made available to industry representatives, County Assessors, and other interested parties annually by the State Assessment Section on or before March 31^st or as soon thereafter as possible….

Rules, Wyoming Department of Revenue, Chapter 7, § 7 (a), (b).

112.    The Department’s Rules provide:

Section 8. Reconciliation. The appraiser shall consider the relative significance, applicability and appropriateness of the indications of value derived from the approaches to value or methods outlines above, and will place the most consideration and reliance on the value of the indicator which, in his professional judgment, best approximates the value of the subject property. The appraiser shall evaluate all alternative conclusions and correlate the value indicators to arrive at a final estimate of fair market value.

Rules, Wyoming Department of Revenue, Chapter 7, § 8.

113.    The Department’s Rules provide:

Section 13. Appraisal Basis Explanations to Taxpayer. Any taxpayer whose property is appraised pursuant to W. S. 39-13-102(m)(ii)-(viii) will be notified of a preliminary estimate of fair market value of the subject property. The taxpayer, with the final assessment, shall receive:

    (a) A statement indication those methods set forth in Section 6 of this Chapter which were used in arriving at the value; and, upon request,

    (b) The identification and values of all elements and data used in each method, as well as any simplifying assumptions which have been made or deviations from the method as set forth in these Rules. This includes identification of any industry-wide or other data not specific to the taxpayer’s property and the utilization of such data.

Rules, Wyoming Department of Revenue, Chapter 7, § 13.

114.    “The proper application of appraisal methods to the facts is an issue of ultimate fact requiring de novo review [on appeal from the Board]…. An ultimate fact is a mixture of fact and legal precept.” PacifiCorp, Inc., v. Department of Revenue, 31 P.3d 64, 65, 2001 WY 84, ¶6 (Wyo. 2001).

115.    “As a public utility, the fair market value of PacifiCorp property for tax purposes is determined by the unitary method, which means the value of its entire system is measured by various appraisal methods not at issue here. Those methods establish the value of PacifiCorp’s integrated, multi-state system, and that value is then reduced for depreciation and obsolescence to reach the fair market value; i.e., what a willing buyer would pay a willing seller for the entire system. Wyo. Stat. Ann. § 39-13-103 (b)(ii)(LexisNexis 2001).” PacifiCorp, Inc., v. Department of Revenue, 31 P.3d 64, 66, 2001 WY 84, ¶7 (Wyo. 2001).

116.    “The Department also claimed uniformity required by the constitution and statutes was a reason for using the system ratio for all utility taxpayers…. The constitution simply demands that all property be ‘uniformly valued at its full value as defined by the legislature.’ Wyo. Const. art. 15, § 11. In fact, the Department’s failure to consider a situation unique to one taxpayer risks overvaluing or undervaluing its property, which would violate the uniformity requirement. J. Ray McDermott & Co. v. Hudson, 370 P.2d 364, 368-369 (Wyo. 1962)…” PacifiCorp, Inc., v. Department of Revenue, 31 P.3d 64, 68, 2001 WY 84, ¶16 (Wyo. 2001).

117.    “It is only by either approving the determination of the Department, or by disapproving the determination and remanding the matter to the Department, that the issues brought before the Board for review can be resolved successfully without invading the statutory prerogatives of the Department. The statutory mandate to the Board is not to maximize revenue or to punish nettlesome taxpayers, but to assure the equality of taxation and fairly adjudicate disputes brought before it…. [The Board] must refrain from usurping the valuation function assigned to the Department, even if the Department should acquiesce. Amoco Production Company v. State Board of Equalization, 12 P.3d 668, 674 (Wyo. 2000).

118.    “…[T]he Petitioner shall have the burden of going forward and the ultimate burden of persuasion, which burden shall be met by a preponderance of the evidence. If Petitioner provides sufficient evidence to suggest the Department determination is incorrect, the burden shifts to the Department to defend its action….” Rules, Wyoming State Board of Equalization, Chapter 2, § 20. “The petitioner, however, by challenging the valuation, bears the ultimate burden of persuasion to prove by a preponderance of the evidence that the valuation was not derived in accordance with the required constitutional and statutory requirements for valuing state-assessed property…” Colorado Interstate Gas Company v. Wyoming Department of Revenue, 2001 WY 34, ¶ 10, 20 P.3d 528, 531 (Wyo. 2001).

CONCLUSIONS OF LAW: APPLICATION OF PRINCIPLES

119.    PacifiCorp brought this appeal pursuant to Wyo. Stat. Ann.§ 39-13-102(n). Since the statute does not include any specific standards to guide our decision, we judge the Department’s valuation by the general standard that the valuation must be in accordance with constitutional and statutory requirements for valuing state-assessed property, as well as the requirements of the Department’s own rules. See generally Amoco Production Company v. Department of Revenue et al, 2004 WY 89, ¶¶ 7-8, 94 P.3d 430, 435-436; State ex rel. Department of Revenue v. Buggy Bath Unlimited, Inc., 2001 WY 27, ¶ 19, 18 P.3d 1182, 1188 (Wyo. 2001).

120.    PacifiCorp carried its burden of providing sufficient evidence to suggest the Department determination was incorrect, so the burden shifted to the Department to defend its action. Findings, ¶ 64, Conclusions, ¶ 118.

121.    Both parties proceed on the assumption that the exclusive test of concern is whether the Department applied generally acceptable appraisal principles. Strictly speaking, this is not correct. In the first instance, the statute directs our attention to the Department’s Rules:

Except as otherwise provided by law for specific property, the department shall prescribe by rule and regulation the appraisal methods and systems for determining fair market value using generally accepted appraisal standards.

Conclusions, ¶ 105. We accordingly consider what appraisal methods and systems the Department has prescribed.

122.    We conclude that most of what the Department did is consistent with the main points of its regulations. The Department relied on two cost approaches to value and one income approach to value. Rules, Wyoming Department of Revenue, Chapter 7, § 6 (b). The Department’s appraiser relied on a properly developed capitalization rate. Id., § 7. He reconciled the selected indicators. Id., § 8. The Department disclosed the basis for its appraisal to the taxpayer. Id., § 13. (The pertinent Rules are quoted in Conclusions, ¶¶ 110, 111, 112, 113).

123.    More specifically, we note that each approach considered “the nature of the property or industry, and the regulatory and economic environment within which the property operates.” Id., § 6. Broadly speaking, the Department made an effort to account for the reduction in PacifiCorp’s system value caused by operating in a rate-regulated environment. Findings, ¶¶ 3-43.

124.    If the Department’s Rules speak directly to the issue in this case, they do so through explanation of the Historical Cost approach to value, and by definition of unitary valuation. The first sentence of the Historical Cost provision states, “The historical cost approach is a method of estimating the value of property based upon the actual or first cost of the property at the time it was originally constructed and placed in service.” Conclusions, ¶ 110. At first blush, this sentence cannot apply to CWIP, because CWIP is not in service at the close of the calendar year for which a utility like PacifiCorp prepares its accounts. Findings, ¶¶ 11, 47.

125.    However, the general first sentence of the Historical Cost provision is followed by two more specific statements of interest to this case: “The historical cost shall consider all forms of depreciation and appreciation. Items such as construction work in progress, plant held for future use, acquisition adjustments, non-capitalized lease property, materials, supplies and other items shall also be included to the extent they are taxable and not otherwise valued.” Conclusions, ¶ 110. In other words, the Historical Cost provision contemplates that CWIP is to be included when calculating the value of a property. The plain language of the Rule also requires the historical cost calculation (which includes CWIP) to consider all forms of depreciation. Depreciation includes economic obsolescence. Conclusions, ¶ 109.

126.    Our conclusion that CWIP is to be included among the assets to be valued is supported both by the Department’s definition of unitary valuation, and by the Wyoming Supreme Court’s discussion of the subject. The Department’s definition of unitary valuation states the market value of the company “is not a summation of fractional appraisals, but the value of a company as an operating unit.” Conclusions, ¶ 109. Similarly, the Wyoming Supreme Court has observed, in a previous case involving PacifiCorp, that the “value of its entire system is measured by various methods of appraisal…and that value is then reduced for depreciation and obsolescence to reach the fair market value.” Conclusions, ¶ 115.

127.    This is not the end of the matter, however, because the Department argues that it did indeed consider all forms of depreciation. However, in the exercise of its appraisal judgment, the Department refused to apply economic obsolescence to CWIP in either the Adjusted HCLD model or the Rate Base model. Supra, ¶ 70. It is this argument that takes us beyond the letter of the Rules, and obliges us to determine whether that appraisal judgment was properly exercised. In doing so, we turn to the only available standard, which is generally accepted appraisal principles. Rules, Wyoming Department of Revenue, Chapter 7, §6(a).

128.    We have found that PacifiCorp carried its burden of going forward with respect to the application of generally accepted appraisal principles in the specific circumstances of this case. Findings, ¶ 64. We have likewise found that the Department failed to carry its burden to come forward with a persuasive defense of its valuation in its own case. Findings, ¶¶ 69, 72, 74. We conclude PacifiCorp met its burdens of proof and persuasion and has prevailed. The Department must apply economic obsolescence to CWIP as it does to all other assets considered in its Adjusted HCLD and Rate Base models. We accordingly answer in affirmative the issue originally posed by the Department, “[w]hether the Department’s treatment of Construction Work in Progress was contrary to the Wyoming Statutes, the Department’s Rules and Regulations or generally accepted appraisal standards (this is a mixed question of fact and law).”

129.    In presenting its case, the Department has gone beyond the issues originally framed by the parties, and stated its intention to recompute the rate of obsolescence by including CWIP in the asset base used to determine achieved rate of return. Findings, ¶¶ 75-76. We have examined the Department’s reasons for doing so at length, and do not find them persuasive. Findings, ¶¶ 77-103. In particular, we disagree with the premise of law the Department has invoked to justify its refusal to honor its prior distinction between those utilities which cannot earn on CWIP, and those utilities which can. Findings, ¶ 81. As the Supreme Court has observed, “the Department’s failure to consider a situation unique to one taxpayer risks overvaluing or undervaluing its property, which would violate the uniformity requirement.” Conclusions, ¶ 116. We have found that including CWIP in the asset base of a rate regulated utility when computing an achieved rate of return causes an improperly distorted result. Findings, ¶¶ 87, 91. This is ample basis for distinguishing between utilities which are subject to rate regulation from those which are not.

130.    The Board is mindful of its obligation to either approve or disapprove the determination of the Department, and to refrain from usurping the valuation function of the Department. Conclusions, ¶ 117. At the same time, the application of this principle is uncertain in this particular context, where a few modest retroactive adjustments to the Department’s complex calculation of system value could readily recoup the 2% difference in system value urged by PacifiCorp, and frustrate the practical result of the entire appeal. The Wyoming Supreme Court has expressly held this Board to have no statutory mandate “to maximize revenue or to punish nettlesome taxpayers,” Conclusions, ¶ 117, and the Department presumably is bound by the same constraint.

131.    The Board accordingly refuses to approve the recalculations proposed in Exhibits 507 and 508. Instead, the Board believes that “fairness, logic, and evidentiary record in this case,” PacifiCorp, Inc., v. Department of Revenue, 31 P.3d 64, 69, 2001 WY 84, ¶18 (Wyo. 2001), are best served by the application of obsolescence in the manner proposed in PacifiCorp’s Exhibits 102 and 103. In so ruling, we express no opinion as to what the Department may or may not do in subsequent years when PacifiCorp has the opportunity to consider its obsolescence calculations in the context of the Department’s complete annual appraisal.

ORDER

           IT IS THEREFORE HEREBY ORDERED the Department of Revenue’s determination of value for Pacificorp is reversed and remanded for proceedings not inconsistent with this opinion.

Pursuant to Wyo. Stat. Ann. § 16-3-114 and Rule 12, Wyoming Rules of Appellate Procedure, any person aggrieved or adversely affected in fact by this decision may seek judicial review in the appropriate district court by filing a petition for review within 30 days of the date of this decision.

           DATED this _____ day of October, 2006.

                                                                         STATE BOARD OF EQUALIZATION

                                                                          _____________________________________

                                                                          Alan B. Minier, Chairman

 _____________________________________

                                                                         Thomas R. Satterfield, Vice-Chairman

_____________________________________

                                                                        Thomas D. Roberts, Member                   

ATTEST:

________________________________

Wendy J. Soto, Executive Secretary