6. How should Surcharge Funds
be Administered?
Pursuant to Section 4.2.2 of the KHSA, PacifiCorp requests that the Commission create the interest bearing California Klamath Trust Accounts and appoint a trustee. PacifiCorp would remit the funds to the trustee, who would hold and manage the funds in the California Klamath Trust Accounts, and disburse funds from the California Klamath Trust Accounts to the Dam Removal Entity (DRE) as required by the trustee instructions and the KHSA, for dam removal. The Commission would establish the trust accounts and be the trustor. Interest earned on the surcharge collected in the California Klamath Trust Accounts would go towards funding the California customer portion of the removal cost pursuant to the KHSA.37 Pursuant to Section 4.2.2.A of the KHSA, the California Klamath Trust Accounts should be set up so that the surcharge funds are not considered taxable revenues to PacifiCorp. In regards to the creation of the trusts, PacifiCorp also requested that the Commission direct its Executive Director to take the steps necessary to create the California Klamath Trust Accounts as provided for in the KHSA. Witness Andrea L. Kelly for PacifiCorp stated that the Commission's Legal Division had indicated that it would assist in this process if the Commission ordered the trusts to be set up.38
Conservation Groups support PacifiCorp's request, stating that the trusts are necessary to assure that the surcharge funds collected are held in trust pending accomplishment of the conditions required by the KHSA.
Since the surcharge will be collected over a number of years, are being collected for a specific purpose, and will not begin to be needed for nine years, these funds need to be held separately from other PacifiCorp funds, in order to ensure these funds are available for their authorized purpose.
Therefore, pursuant to our authority under Pub. Util. Code 170139 and consistent with the KHSA, the Commission will direct its Executive Director to create the California Klamath Trust Accounts as discussed herein, and appoint a trustee to manage and administer the California Klamath Trust Accounts, in which the surcharge ordered herein will be deposited. The Executive Director may select the California State Treasurer as the trustee.
Once the Energy Division determines that the filed tariff changes are in compliance with this decision and Commission staff informs the assigned ALJ and service list of the current proceeding that the California Klamath Trust Accounts have been established, PacifiCorp will start collecting the surcharge ordered herein. Thereafter, PacifiCorp must remit surcharge funds that it collects on a monthly basis to the trustee no later than the 15th day of the following calendar month. Consistent with the KHSA, 75% of the surcharge funds collected should be deposited to the California Copco I and II/Iron Gate Dams Trust Account and 25% of the surcharge funds collected should be deposited to the California J.C. Boyle Dam Trust Account.
In its Reply Comments, PacifiCorp cited opinions in several court cases in support of its contention that the surcharge funds would not constitute taxable gross income to PacifiCorp.40 For example, in Illinois Power Co. v. Commissioner,41 the United States Court of Appeals for the Seventh Circuit (Seventh Circuit) states that if the taxpayer had been ordered to place the revenues at issue in a trust account for the benefit of its ratepayers, then such revenues would not be considered income to the taxpayer. The Seventh Circuit went on to state that "The underlying principle is that the taxpayer is allowed to exclude from his income money received under an unequivocal contractual, statutory, or regulatory duty to repay it, so that he really is just the custodian of the money."42 The Seventh Circuit relied, in part, on the opinion of the United States Court of Appeals for the Ninth Circuit in Mutual Tel. Co. v. United States,43 which found that if the funds were not received "under a claim of right and without restriction as to its disposition" the funds were not taxable income.44 In the current case, pursuant to the KHSA and our opinion herein, PacifiCorp is only the custodian of the funds from the date of collection to deposit with the trustee, and cannot, by its regulatory and contractual duty, dispose of it in any other way than deposit with the trustee.
In any event, there will be no net tax effect on PacifiCorp, because if the receipt of the surcharge funds is considered taxable income, the payment to the trustee would be an equal and offsetting business expense. We are therefore satisfied that the surcharge funds will not be taxable income to PacifiCorp.
37 A.10-03-015 at 2.
38 RT 20-21.
39 http://www.leginfo.ca.gov/cgi-bin/waisgate?WAISdocID=9979219881+0+0+0&WAISaction=retrieve.
40 PacifiCorp Reply Comments at 3-4.
41 792 F.2d 683 (7th Cir. 1986).
42 792 F.2d at 689.
43 204 F.2d 160, 161 (9th Cir. 1953).
44 204 F.2d at161.
