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fees. None of petitioner’s customers who paid pre-1987 utility
rates and subsequently left petitioner’s service asserted claims
against petitioner for repayment or refund of the excess deferred
Federal income tax. Petitioner was not required to nor did it
issue refund checks or billing credits to its customers, and the
regulatory agencies also did not require petitioner to pay
interest on amounts returned through rate reductions.
Petitioner’s 1987, 1988, 1989, and 1990 Federal income tax
returns used the method of accruing unbilled revenue, as set
forth above, in calculating taxable income. Also for those
years, petitioner claimed section 1341 relief for the amount in
which it reduced utility rates to compensate for excess deferred
Federal income tax. Respondent audited petitioner’s 1987, 1988,
1989, and 1990 Federal income tax returns. Upon review,
respondent rejected petitioner’s method of accruing unbilled
revenue (unbilled revenue issue) and denied petitioner’s claims
for relief under section 1341 for rate reductions associated with
excess deferred tax (section 1341 issue).
OPINION
Unbilled Revenue Issues
The unbilled revenue issue is essentially an accounting
dispute. Petitioner maintains that its regular method of
accounting, which uses the PGA and EAC mechanisms to recover gas
costs, already includes December gas costs in the taxable year
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