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in Indianapolis Power & Light Co. with regard to deposits.
Respondent argues that the overrecoveries should be included in
income under section 61 because the overrecoveries are property
of Florida Power under a claim of right and subject to a
conditional obligation to repay. The conditional obligation to
repay vests only if an offsetting underrecovery does not occur
before the end of the 6-month recovery period. However, the true
economic substance of Florida Power’s obligation is that, at the
end of the month, Florida Power is not entitled to keep the
amount held as an overrecovery, and it must return that amount
according to regulatory law either by setoff during the remainder
of the recovery period or by the true-up adjustment.
Our decision is consistent with Houston Indus. v. United
States, 125 F.3d 1442, 1444 (Fed. Cir. 1997). In Houston Indus.,
the Court of Appeals held that overrecoveries of fuel costs are
not required to be included in income when the overrecoveries are
part of a plan to create level pricing over a 12-month recovery
period. A taxpayer-utility collected funds from its customers
equal to the fuel costs it expected to incur. The collections
were based on estimates and were followed by a reconciliation
procedure to account for any over or underrecoveries. The
governing regulatory agencies required the taxpayer to pay
interest on any overrecoveries. The taxpayer argued that it was
not required to report in gross income overrecoveries for fuel
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