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year. See Southwestern Energy Co. v. Commissioner, supra at 505.
In holding that the refund by the taxpayer was a reduction in
income and did not qualify as a deduction, this Court pointed to
several determining factors. First, no interest component was
included with the refund on customers’ bills. Second, the
overrecoveries were not amounts that exceeded the rates approved
by the regulatory agencies and thus were collected as part of an
authorized rate scheme. Third, the identity of the customers who
received the refunds was not identical to the customers who had
overpaid funds in the earlier year of overcollection. Finally,
there was no current outlay of funds involved but, instead, a
setoff that reduced income that would otherwise have been
received in a later year. These factors, when combined, made the
refunds more resemble a reduction in future income than a
deductible expense.
In these cases, a reduction in future rates occurred to take
into account overrecoveries in earlier tax years. Petitioner
reduced utility rates based on each customer class’ contribution
to excess deferred Federal income tax but did not match
reductions to customers who actually contributed to the excess.
Rather, petitioner returned the excess deferred Federal income
tax to customer classes based upon current energy consumption,
not upon amounts each individual customer actually overpaid
during the years of overrecovery; rate reductions also applied to
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