MidAmerican Energy Company - Page 12




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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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