# PacifiCorp v. Dept. of Rev.

> Oregon Tax Court · July 17, 2023

URL: https://www.frixlaw.com/law-library/cases/10607485

## Case

- **Court:** Oregon Tax Court
- **Decided:** July 17, 2023
- **Precedential status:** Unpublished
- **Opinion:** Opinion
- **Judges:** Manicke
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

IN THE OREGON TAX COURT
REGULAR DIVISION
Property Tax

PACIFICORP, )
)
Plaintiff, ) TC 5411
V. )
)
DEPARTMENT OF REVENUE, )
State of Oregon, )
)
Defendant. ) AMENDED OPINION (VALUATION)

This Amended Opinion reflects changes to the opinion issued May 24, 2023, as

determined in the court's Order on Cross-Motions for Reconsideration which the court issues

separately today.

I. INTRODUCTION

This case concerns the real market value of Plaintiff's Oregon property as of January I,

2020. Plaintiff is a rate-regulated electric utility with operating property in Oregon, as well as

California, Idaho, Utah, Washington, and Wyoming.1 (See Ptf's Pretrial Br at 1-2; Def' s EX A at

8.) Because Plaintiff is in the electricity business, its property is subject to central assessment by

Defendant. See ORS 308.515(I)(k)2; see generally DISH Network Corp. v. Dept. 0fRev., 364 Or

Plaintiff is, indirectly, wholly owned by Berkshire Hathaway Energy Company, which in turn is a
1

consolidated subsidiary of Berkshire Hathaway Inc., the stock 0f which is publicly traded. (See Ptf's Ex l at 15;
Defs Ex A at 9.) Plaintiffs financial results are not reported separately; they are combined with those of several
other energy-related affiliates. (See Ptf's Ex l at l6.)

2
Unless otherwise noted, the court's references to the Oregon Revised Statutes (ORS) are to the 2019
edition.

AMENDED OPINION (VALUATION) TC 541 1
Page 1 of 91
254, 257-58, 434 P3d 379 (2019) (explaining central assessment). One consequence of central

assessment is that Defendant may determine the value of Plaintiff's Oregon property by first

valuing all of Plaintiff's property used in the same business, within and without Oregon, as a unit

and then allocating a share of that "system" value to the Oregon property based on a formula.3

See ORS 308.555 (authorizing unit valuation); ORS 308.550(2) (authorizing allocation).

Another consequence is that intangible property (subject to exceptions not relevant here) is

included in the definition of Plaintiff's "property." See ORS 308.505(14).

On May 22, 2020, Defendant issued a Notice of Proposed Assessment asserting that the

real market value of Plaintiff's Oregon centrally assessed property was $3,180,000,000 on the

January l, 2020, assessment date. (Ptt's Ex 6.) On June 18, 2020, Plaintiff requested a

director's conference, as allowed by ORS 308.584; the conference was held July 23, 2020; and

on July 31, 2020, Defendant issued an opinion and order (0&0) sustaining the real market value

of $3,180,000,000. The 0&0 showed that the assessment was based on a value of

$19,500,000,000 for the entire system. (See Ptf's Compl, Ex 2.)

Plaintiff timely appealed to the Magistrate Division from the 0&0 under

ORS 308.584(5) and ORS 305.280(1), initially claiming only that Defendant had overvalued its

property, including by allocating excessive value to Oregon. (See Ptf's Compl at 2-5.) On the

motion of both parties, the court specially designated the case to be heard in the Regular

Division. Before trial, Plaintiff moved for leave to amend its complaint to add two claims based

on a legal issue already before the court in Delta Airlines, Inc. v. Dept. ofRev., TC 5409, namely,

3
As is customary, the court refers to "system" value to mean the value of all property, within and without
Oregon, used or held for future use in a business listed in ORS 308.51 5(1) and considered as a unit, as allowed by
ORS 308.555. See, e.g., Alaska Airlines, Inc. v. Dept. of Rev., 307 Or 406, 410, 769 P2d 193 (1989) (describing
formulary allocation of taxpayer's "total system value").

AMENDED OPINION (VALUATION) TC 541 l Page 2 of 91
that taxation of Plaintiff's intangible property violates the Oregon Uniformity Clauses. (See Ptt's

1st Amend Comp] at 4-7 (citing Or Const, Art l, § 32; Or Const Art 1X, § 1).) The court allowed

the amendment but stayed proceedings on the Uniformity Clause claims until after trial on the

valuation issues. (See PacifiCorp v. Dept. of Rev., TC 5411 (Nov 8, 2021).) The court then held

a trial (Nov. 15-19, 2021) and accepted extensive post-trial briefing on the valuation issues. This

opinion addresses only the valuation issues; the court will issue its order on the Uniformity

Clause claims separately.

At trial, both parties presented expert reports and testimony complying with the

requirement to "consider[ ] three different approaches to valuation: the cost approach, the

comparable sales approach, and the income approach." Powell Street I v. Multnomah Count)»

Assessor, 365 Or 245, 249, 445 P3d 297 (2019) ("The appraiser is not required to use all three

approaches, but the appraiser must consider them") (emphasis in original).

II. LEGAL ISSUES
Before determining the real market value of Plaintiff's property, the court must resolve

two issues of law. First, the parties have different views about the extent to which the court must

defer to two of Defendant's administrative rules relating to the determination of value. Second,

the parties differ as to which party bears the burden of proving in this court a value above or

below the value recorded on the central assessment roll.

A. Court's Deference to Defendant's Administrative Rules

The parties disagree over the level of deference the court should afford to OAR 150-308-

0690 and OAR 150-308-0590. The court addresses these two rules separately.

l. OAR 150-308-0690: WSA TA Handbook as Authority for Valuation Under
ORS 308.205

OAR 150-308-0690 states in its entirety:

AMENDED OPINION (VALUATION) TC 5411 Page 3 of 91
"The 2009 Western States Association of Tax Administrators Appraisal
Handbook: Unit Valuation of Centrally Assessed Properties is adopted as the

official valuation guide for property assessed by the Oregon Department of
Revenue under ORS 308.505 to 308.665 for ad valorem tax purposes."

The "WSATA Handbook" consists of approximately 350 pages of guidance, in varying degrees

of depth, about methods and tools for unit valuation and value allocation with respect to utility
* * * to train
property and other centrally assessed property. It "serves as the primary textbook

state government appraisers of centrally assessed properties." WSATA Handbook at vi. As such

it "incorporates WSATA's opinion of the current state of academic and appraisal theory" as

applicable to centrally assessed property. Id. at I-I. As will be seen, the authors of the WSATA

Handbook identify strengths and weaknesses in various valuation methods and theories; they

rarely mandate or entirely condemn the use of a particular method, but they express reasons to

prefer some techniques and to reject others. Cf, e.g., Minn R 8100.0300 (prescribing specific

procedures for determining and weighting cost, income and other indicators of value for "public

utility companies"); Minn Stat Ann § 270C.06 (stating rules "have the force of law."); Utah

Admin Code r R884-24p-62(4)(b)(iii) (setting forth "preferred valuation methods" as "rebuttable

presumptions"; requiring "any party challenging a preferred valuation method [to] demonstrate,

by a preponderance of evidence, that the proposed alternative establishes a more accurate

estimate of fair market value").

Plaintiff argues that the WSATA Handbook does not "restrict the discretion of this Court

or any other party (including the Department) in a de novo proceeding." (Ptf' s Post-Trial Br at

56.) Elsewhere, Plaintiff argues that "this Court is not bound by the WSATA Handbook." (Ptfs

Response at 5.) Defendant, on the other hand, argues that, because of the WSATA Handbook's

status as an administrative rule, "this court need not engage in debate over the theoretical

propriety of various of the issues raised in this case because the administrative rule answers the

AMENDED OPINION (VALUATION) TC 5411 Page 4 of 91
questions." (Def's Opening Post-Trial Br at 30.) Defendant argues further: "Contrary to

PacifiCorp's assertions, a de novo appeal to the Tax Court does not give the taxpayer license to

disregard the approaches called for by law. In this centrally assessed property matter, that means

following the WSATA Handbook." (Det's Response at 3.) Defendant concludes: "Thus, to

determine the real market value of PacifiCorp's centrally assessed property, the court must apply

the 'methods and procedures' found in the WSATA Handbook." (Def's Reply at 1-2.)

a. Analysis under published sources of statutory authority for OAR 150-308-0690:
ORS 305.100 and ORS 308.655.

Any analysis of the level of deference to afford an administrative rule must begin by

identifying the statute or statutes that are the source of the agency's authority to adopt the rule.

See Trebesch v. Employment Division, 300 Or 264, 267, 710 P2d I36 (I985) ("We seek to derive

the legislature's intent from an analysis of the statutes by which a particular agency operates.").

The Administrative Procedures Act generally requires agencies to specify that source when

adopting or amending a rule. See ORS I83.335(2)(b)(A), (B). Although neither party refers to

this requirement, it is clear that courts may look to the statute or statutes referred to in the

published rule when analyzing what level of deference to apply. See, eg, Clackamas Ciy

Assessor v. Village at Main Street Phase II, 349 Or 330, 336 n 8, 245 P3d 81 (2010) (referring to

published statutory authority (ORS 305.100) in determining degree of deference to afford to

Defendant's rule). 1n this case, a notation included with the officially published OAR 150-308-

0690 states: "Statutory/Other Authority: ORS 305. 100 & 308.655; Statutes/Other Implemented:

ORS 308.655." Therefore, the court begins its analysis with those two statutes.

The first statute referred to in the published rule states in relevant part: "The Department

of Revenue shall: (I) Make such rules and regulations it deems proper to regulate its own

procedure and to effectually carry out the purposes for which it is constituted." ORS 305. 100(1).

AMENDED OPINION (VALUATION) TC 5411 Page 5 0f 91
The second statute states in full: "The Department of Revenue may prescribe directions, rules

and regulations to be followed in answering any requirement of ORS 308.505 to 308.674."

ORS 308.655. Both provisions originate in the 1909 act that created Defendant's predecessor

(the Board of State Tax Commissioners) to supervise the statewide tax system and to centrally

assess the property of utilities and other listed businesses. See Or Laws 1909, ch 218, § 4(1)("It

shall be the duty of the said Board of State Tax Commissioners * * * [T]o make such rules and

regulations as the board shall deem proper, effectually to carry out the purposes for which the

board is constituted, and to regulate its own procedure"); id. § 7(14) ("The board is hereby given

the power to prescribe directions, rules and regulations to be followed in answering any of the

requirements of this act.").

(1) ORS 305.100 does not require court to defer to OAR 150-308-0690.

As to the first statute, the Oregon Supreme Court repeatedly has characterized

ORS 305.100 as "granting to department interpretative, but not substantive, rulemaking

authority," such that, "[t]o the extent that [a rule adopted under the authority of that statute] is

inconsistent with legislative intent, as determined by this court, the rule is invalid." Avis Rent A

Car System, Inc. v. Dept. of Rev., 330 Or 35, 41, 995 P2d 1163 (2000); see also Village at Main

Street, 349 Or at 336 n 8 (concluding that Defendant's rule 150-311.216 was "interpretative, not

substantive," and that court's role was to "interpret the [governing] statute independently" to

decide "whether the department's rule is consistent with [that] statute"). Based on that case law,

this court concludes that it need not defer to OAR 150-308-0690 to the extent that the source of

the rule's authority is ORS 305.100.

// /

///

AMENDED OPINION (VALUATION) TC 5411 Page 6 of 91
(2) ORS 308.655: Application of Springfield principles to determine level of
deference.

As to the second statute, this court has found no reported decisions analyzing the degree

of deference or weight that applies to rules adopted under ORS 308.655. The court turns to the

analytical framework that the Oregon Supreme Court has prescribed for judicial review of

administrative agency actions. Under that framework an administrative rule, or the agency's

application of the rule or of underlying law, is entitled to deference if the legislature has

delegated to the agency the task of completing the legislature's policymaking role, and the rule

or action is within the range of discretion that the delegation confers. See Springfield Education

Assn. v. School Dist., 290 Or 217, 223-230, 621 P2d 547 (1980) (outlining standard of review for

agency implementation of "exact," "inexact," and "delegative" statutory terms in both

adjudication and rulemaking). More recent decisions have made clear that judicial deference is

required only if the legislature's intention was "delegative." Schlez'ss v. SAIF, 354 Or 637, 642,

317 P3d 244 (2013) (no deference for agency interpretation of "inexact" terms). And to

determine whether the legislature's intention was delegative, the court must analyze the text and

context of the statute, and the court may consider any helpful legislative history, following the

steps laid out in State v. Gaines, 346 Or 160, 171-72, 206 P3d 1042 (2009). See OR-OSHA v.

CBI Services, Inc., 356 Or 577, 584-85, 588, 341 P3d 701 (2014). As an aid in deciding whether

a statutory term is delegative under the Gaines framework, the Supreme Court has identified the

following considerations:

"(1) whether the court has concluded that the term, or one like it, is delegative in
another context; (2) whether the term is defined by statute or, on the other hand,
susceptible to many different interpretations; (3) whether the term is one that
invites a value or policy judgment; and (4) whether other, related provisions
suggest a legislative intent that the term be considered a delegation."

///

AMENDED OPINION (VALUATION) TC 5411 Page 7 of 91
Penn v. Board of Parole, 365 Or 607, 628, 451 P3d 589 (2019) (summarizing OR-OSHA

discussion).

This analytical framework has developed primarily under Oregon’s Administrative

Procedures Act, portions of which do not apply to Defendant or to this court’s review of

Defendant’s actions. See, e.g., ORS 183.315(1). However, the court has found no provisions of

the Act that would make the Springfield framework inapplicable to Defendant’s rules.

Furthermore, the Supreme Court has applied Springfield principles in at least one appeal from

this court. See YMCA v. Dept. of Rev., 308 Or 644, 784 P2d 1086 (1989). There, citing

Springfield, the taxpayer argued that the term “charitable” in Oregon’s property tax exemption

statutes was a delegative term that required rulemaking to complete the legislature’s

policymaking role. Because Defendant had not promulgated such a rule before the taxpayer

applied for exemption, the taxpayer claimed that Defendant could not deny the claim. See id. at

649. The court rejected the taxpayer’s argument on the grounds that the term had been part of

the statute since before statehood and had been construed by the court numerous times. See id. at

649-52. The court also implied that, even if “charitable” was a delegative term, the statute

authorized Defendant to fulfill its obligation to complete the legislature’s general policy decision

by applying it adjudicatively to various individual fact situations, rather than by adopting a

definition by rule. The court stated: “Even if there were no history of construction and use, we

would not agree that the ORS 307.130(1)(a) is an example of delegative legislation requiring an

agency to adopt a ‘legislative’ rule to complete its meaning before it may be applied to an

individual case decision.” Id. at 652 (footnote omitted; citing Springfield, 290 Or at 228-30).

///

///

AMENDED OPINION (VALUATION) TC 5411 Page 8 of 91
This court has not found a decision where the Supreme Court has suggested that a framework

other than the principles of Springfield apply to tax cases. 4

Following the Penn considerations, and applying the Gaines framework, the court starts

by examining the single sentence comprising the text of ORS 308.655 for any “delegative”

terms. Specifically, the court focuses on whether the text indicates an intention to delegate to

Defendant the authority to adopt a set of processes that must be followed to determine the real

market value of property assessed under ORS 308.505 to 308.674. The court observes first that

the text says nothing specifically about determining real market value. The first part of the

sentence (“The Department of Revenue may prescribe directions, rules and regulations”) is a

simple declarative phrase that briefly authorizes Defendant to take a broad set of actions. The

second part is a passive phrase with an unidentified actor (“to be followed”). The last part is a

phrase specifying the circumstances in which the directions are to be followed (“in answering

any requirement” of the central assessment statutes). Overall, the court interprets the text to

mean that, to the extent the central assessment statutes impose any requirement, Defendant can

direct taxpayers (and its own employees) how to comply. The central assessment statutes say

relatively little about how real market value is to be determined, apart from authorizing

Defendant to inspect property, consider taxpayer’s annual reports and other evidence, and use

unit valuation and formulary allocation to determine the value of Oregon-situs property. See

4
As in Village at Main Street and Avis, the court in YMCA referred to “legislative” and “interpretive” rules.
Id. & n 2. Although those terms have specific meaning under federal administrative law, this court does not
understand the Oregon Supreme Court to have adopted the federal standard of deference to Treasury regulations as
the standard for review of an Oregon administrative rule. See generally Boris I. Bittker & Lawrence Lokken,
Federal Taxation of Income, Estates & Gifts ¶ 110.5 (explaining development of standards for deference to Treasury
regulations); Health Net Life Ins. Co. v. Dept. of Rev., 24 OTR 514, 520-21, 537-38 (2021) (applying federal
principles of deference to regulations of federal Department of Health and Human Services); see also West House,
Inc. v. State Tax Com., 228 Or 167, 172, 364 P2d 598 (1961) (rejecting Defendant’s argument that its regulations
adopted pursuant to 1953 version of ORS 308.205 “became a legislative rule which must be given judicial
recognition unless it can be said that the regulation is unreasonable”).

AMENDED OPINION (VALUATION) TC 5411 Page 9 of 91
ORS 308.545 to 308.555. Based on the text, the court finds it doubtful that the legislature

intended ORS 308.655 to delegate authority to Defendant to prescribe the specifics of valuation

procedures.

The statutory context, including other central assessment statutes, provides numerous

examples of “requirements” as to which guidance from Defendant is obviously helpful. Most

requirements are imposed on Defendant itself, such as the procedures for apportioning Oregon

value among the counties, and preparing, finalizing, and correcting the annual roll. See

ORS 308.560 to 308.636. But, in contrast to the laws governing most locally assessed property,

ORS 308.524 requires each company subject to central assessment to file an annual tax return,

and ORS 308.525 sets forth 16 items that must be disclosed, the last of which is “[a]ny other

facts or information the Department of Revenue requires in the form of return prescribed by it.”

ORS 308.525(16). This context tends to confirm the court’s impression that ORS 308.655 is not

delegative, but rather is an all-purpose authorization of guidance, serving a function for centrally

assessed property that is similar to the function of ORS 305.100 for all state taxes.

Finally, the court looks to the report commissioned by the Oregon legislature in 1905 and

delivered in 1906 (1906 Oregon Report), which examined Oregon’s property tax system and

proposed constitutional amendments and a statutory scheme. See Frederick W. Mulkey, E.B.

Seabrook, Wm. J. Lachner, Report of the Board of Commissioners Appointed Under the

Provisions of Chapter 90, Law of 1905, for the Purpose of Examining and Reporting on Matters

of Assessment and Taxation, Etc. (June 30, 1906) discussed in Jarvill v. City of Eugene, 289 Or

157, 175-78, 613 P2d 1 (1980); Level 3 Communications LLC III v. Dept. of Rev., 23 OTR 440,

469-71 (2019); aff’d 368 Or 303, 490 P3d 149 (2021). The 1906 Oregon Report includes a

proposed statutory provision that reads:

AMENDED OPINION (VALUATION) TC 5411 Page 10 of 91
“The board is hereby given the power to prescribe such directions, rules, and
regulations to be followed in answering any of the requirements of this section, or
as herein authorized, as in its judgment shall be best calculated to insure accuracy
and uniformity in reporting the facts.”

1906 Report at 121. The writers included this sentence in an unnumbered portion at the end of

section 8 of their proposed statute, which contains provisions materially similar to the tax return

requirements now found in ORS 308.524 and 308.525. Read in that context, the authorization

contained in the provision in the 1906 Oregon Report was limited to guidance regarding tax

returns (“this section”) and to the information to be reported by taxpayers. The 1909 act enacted

the first portion of the 1906 provision but broadened the scope from “this section” to “this act,”

which if read literally would have caused it to apply to all state tax laws, coextensively with what

is now ORS 305.100. See Or Laws, 1909, ch 218, § 7(14) (“The board is hereby given the

power to prescribe directions, rules and regulations to be followed in answering any of the

requirements of this act.”). However, in the 1953 codification that created the Oregon Revised

Statutes, the legislature narrowed the scope of the provision from all tax laws to the centrally

assessed property laws, enacting ORS 308.655 to read: “The State Tax Commission may

prescribe directions, rules and regulations to be followed in answering any requirement of

ORS 308 505 to 308 660.” Former ORS 308.655 (1953); cf. Or Laws 1951, ch 586, § 4(14)

(“The commission hereby is given the power to prescribe directions, rules and regulations to be

followed in answering any requirement of this Act.”). From this statutory development, the

court cannot discern an intention to delegate rulemaking authority regarding the application of

valuation methods. The court concludes that it need not defer to OAR 150-308-0690 to the

extent that the source of the rule’s authority is ORS 308.655.

///

AMENDED OPINION (VALUATION) TC 5411 Page 11 of 91
b. Analysis under ORS 308.205

Rather than look to the published sources of statutory authority, both parties frame their

arguments on the assumption that the statutory authority for OAR 150-308-0690 is

ORS 308.205, which provides:

“(1) Real market value of all property, real and personal, means the amount in
cash that could reasonably be expected to be paid by an informed buyer to an
informed seller, each acting without compulsion in an arm’s-length transaction
occurring as of the assessment date for the tax year.”

“(2) Real market value in all cases shall be determined by methods and
procedures in accordance with rules adopted by the Department of Revenue and
in accordance with the following:

“(a) The amount a typical seller would accept or the amount a typical buyer would
offer that could reasonably be expected by a seller of property.

“(b) An amount in cash shall be considered the equivalent of a financing method
that is typical for a property.

“(c) If the property has no immediate market value, its real market value is the
amount of money that would justly compensate the owner for loss of the property.

“(d) If the property is subject to governmental restriction as to use on the
assessment date under applicable law or regulation, real market value shall not be
based upon sales that reflect for the property a value that the property would have
if the use of the property were not subject to the restriction unless adjustments in
value are made reflecting the effect of the restrictions.”

(Emphasis added.) The court assumes, without deciding, that Defendant may rely on the

emphasized portion of ORS 308.205 as the source of authority for OAR 150-308-0690 even

though Defendant did not refer to ORS 308.205 when adopting the rule. Cf. OAR 150-308-

0240(2) (specifying “Methods and Procedures for Determining Real Market Value” and citing

///

///

///

AMENDED OPINION (VALUATION) TC 5411 Page 12 of 91
ORS 308.205 as statutory authority). 5 However, because the relevant case law spans many

decades of statutory change, the court briefly sets forth its understanding of how the parts of the

statute originated and operate together.

Subsection (1) of ORS 308.205 stems primarily from a 1991 act comprising 180 pages;

most provisions of the act were devoted to implementing constitutional changes pursuant to

Measure 5, a property tax limitations measure enacted by citizen initiative in the prior year. See

Or Laws, 1991, ch 459, § 88; Or Const, Art XI, § 11b. Among other things, Measure 5

introduced the term “real market value” in lieu of the prior term “true market value.” See Or

Const, Art XI, § 11b(2)(a) (“‘Real market value’ is the minimum amount in cash which could

reasonably be expected by an informed seller acting without compulsion, from an informed

buyer acting without compulsion, in an ‘arm’s-length’ transaction during the period for which

the property is taxed.”). The 1991 act essentially replicated the new constitutional term and its

definition in subsection (1) of ORS 308.205, replacing the former short definition that defined

“true market value” as “market value.” See Or Laws, 1991, ch 459, § 88. 6

Subsection (2) of ORS 308.205 contains a blend of text added in 1991 and older

provisions:

• The introductory flush language, relating to rulemaking by the Department of
Revenue, dates substantially to 1953 and 1955. See Or Laws 1953, ch 701, § 1
(“True cash value of all property, whether real or personal, shall be held and taken to

5
Plaintiff has not challenged the validity of OAR 150-308-0690 on procedural grounds, and the court
expresses no view as to whether any procedural error occurred.
6
The 1997 referendum known as Measure 50 revised the definition of real market value in ways not
relevant to this case, retaining the arm’s-length standard. See Or Const, Art XI, § 11(11)(a)(A) (“The real market
value of property shall be the amount in cash that could reasonably be expected to be paid by an informed buyer to
an informed seller, each acting without compulsion in an arm’s length transaction occurring as of the assessment
date for the tax year, as established by law.”). The 1997 legislature amended subsection (1) of ORS 308.205 to
conform to the Measure 50 definition, creating the text applicable to this case. See Or Laws 1997, ch 541, § 152
(“Real market value of all property, real and personal, means the amount in cash that could reasonably be expected
to be paid by an informed buyer to an informed seller, each acting without compulsion in an arm’s length transaction
occurring as of the assessment date for the tax year.”) (Omitting text deleted by amendment.)

AMENDED OPINION (VALUATION) TC 5411 Page 13 of 91
mean the amount such property would sell for at a voluntary sale made in the
ordinary course of business, under normal conditions, in accordance with rules and
regulations promulgated by the State Tax Commission.”) (Emphasis added.); Or Laws
1955, ch 691, § 1 (“True cash value of all property, real and personal, means market
value as of the assessment date. True cash value in all cases shall be determined by
methods and procedures in accordance with rules and regulations promulgated by the
State Tax Commission.”), § 2 (prescribing effective date of January 1, 1961)
(emphasis added). 7

• Paragraph (a) relates to a “typical” buyer and seller, and paragraph (b) refers to a
“financing method.” This text was first added by the 1991 act but does not appear to
correspond to or implement a specific provision in Measure 5. Paragraph (c) consists
substantially of text first added to ORS 308.205 in 1955. See Or Laws, 1955, ch 691,
§ 1 (adding: “With respect to property which has no immediate market value, its true
cash value shall be the amount of money that would justly compensate the owner for
loss of the property.”). Paragraph (d) consists substantially of text first added to ORS
308.205 in 1977. See Or Laws, 1977, ch 423, § 2 (adding: “With respect to property
that is subject to governmental restriction as to use on the assessment date under
applicable law or regulation, true cash value shall not be based upon sales that reflect
for the property a market value that the property would have if the use of the property
were not subject to the restriction unless adjustments in value are made reflecting the
effect of the restrictions.”).

(1) Portland Canning and Other Cases Addressing Rulemaking Under ORS 308.205

In 1965, four years after the text now substantially found in subsection (2) had become

effective, the court construed the statutory reference to rulemaking as follows:

“Clearly the dominant note of the legislation is that, if possible, value is to be
ascertained in accordance with market value. While the commission has been
given power to make regulations setting forth procedures as to how this may be
done, it cannot vary the mandate of the law under this guise.”

Portland Canning Co. v. Tax Com., 241 Or 109, 113, 404 P2d 236 (1965) (emphasis added).

Defendant’s rule in effect for the tax year at issue in Portland Canning allowed market value to

be determined by using “[a]ny one of” the three standard methods (the cost approach, the income

7
Before the 1953 act, the statute defining “true cash value” did not refer to rulemaking. See Or Laws 1941,
ch 440, § 4 (“True cash value of all property, whether real or personal, shall be held and taken to mean the amount
such property would sell for at a voluntary sale made in the ordinary course of business, taking into consideration its
earning power and usefulness under normal conditions.”).

AMENDED OPINION (VALUATION) TC 5411 Page 14 of 91
approach, or the market approach). Id. at 113 (quoting former Reg Art 8205.1). The court found

that a market existed for the majority of the component parts of the taxpayer’s food canning

plants. See id. at 113-14. Without expressly invalidating the rule’s allowance of a single

valuation approach, the court concluded that defendant erred by ignoring the existence of a

market for the canning equipment in favor of relying solely on the cost approach. See id. at 113

(“The commission has no power to permit the evaluation of the property by the exclusive means

of the cost approach to determine the value to the owner when a market in fact exists.”). 8

Some 20 years later, the Oregon Supreme Court reached a similar conclusion in Alsea

Veneer, Inc. v. Dept. of Rev., 297 Or 512, 516, 687 P2d 137 (1984). At that time, the rule

provided in part:

“‘A “unit of property” is the item, structure, plant or integrated complex as it
physically exists on the assessment date as real or personal property. The market
value of a unit of property is not ascertained from the market price of its
component materials, such as wood, glass, concrete, pipe, wire, furnaces,
elevators, etc., each priced separately as an item of personal property, without
regard to its being integrated into the total unit. Similarly, in the appraisal of
industrial properties the fixed machinery and equipment comprise an integral part
of a manufacturing plant and as such is usually real property. The market value
test of such a plant is predicated upon the sales of comparable plants. No market
test of unit property exists when there are no sales of comparable property at
times and places which are reasonably relevant to the appraisal date and subject
property under the existing circumstances.’”

Former OAR 150-308.205-(A) (emphases added). In Alsea Veneer, Defendant argued that the

“unit of property” provision in its rule precluded consideration of the market value of component

8
Defendant later added to the rule the requirement that “[r]eal property shall be valued through the market
data approach, cost approach and income approach,” retaining, however, the provision that “[a]ny one of the three
approaches to value, or all of them, or a combination of approaches, may finally be used by the appraiser in making
an estimate of market value, depending upon the circumstances.” R308.205-(B) Personal Property Former Rule
308.205-(A) (1969) (emphasis added); cf. OAR 150-308-0240(2)(a) (2018) (“For the valuation of real property all
three approaches, sales comparison approach, cost approach, and income approach, must be considered. For a
particular property, it may be that not all three approaches are applicable. However, each approach must be
investigated for its merit in each appraisal.”).

AMENDED OPINION (VALUATION) TC 5411 Page 15 of 91
parts of the taxpayer’s veneer plant. The court rejected that argument, pointing out that

Defendant had “used the component parts method” in its own valuation of the plant. Id. at 517.

The court implicitly criticized Defendant for incorrectly relying on the “unit of property”

provision in its rule to limit the field of comparable sales, concluding that the point of the rule

provision was instead to “assist in the determination of whether property is personal or real

* * *.” Id. As to the portion of the rule that required sales of “comparable plants” as a predicate

for using the market test, the court stated: “We cannot agree with the Department that this rule

prevents the Tax Court from considering plaintiff’s method of evaluating the machinery and

equipment * * * based on an appraisal of the component parts,” which included auction sales of

comparable equipment. Id. However, as in Portland Canning, the court stopped short of

expressly declaring portions of the rule invalid or explaining what level of deference, if any, the

court was required to apply to it.9

In 1999, the Oregon Supreme Court relied heavily on Defendant’s administrative rules

under ORS 308.205 in determining the real market value of centrally assessed airline property.

Delta Air Lines, Inc. v. Dept. of Rev., 328 Or 596, 984 P2d 836 (1999). By that time, Defendant

had promulgated a rule that adopted by reference an earlier version of the WSATA Handbook.

See id. at 609-10 (reprinting former OAR 150-308.205(B) (1999)). The same rule also contained

text specifically addressing one of the issues in the case--whether and how to adjust the value of

9
A Supreme Court opinion from 1986 commented in passing on Defendant’s rulemaking authority under
ORS 308.205, stating: “The department may prescribe a method of valuation by rules, ORS 306.120, ORS 308.205,
but in the absence of a single prescribed method, the proper method is itself a matter to be resolved by evidence, if it
is disputed.” Lewis v. Dept. of Rev., 302 Or 289, 292, 728 P2d 1378 (1986). This court does not read the quoted
passage as implying any required level of judicial deference to Defendant’s rules. Rather, this court reads the
Supreme Court as refuting the taxpayer’s assertion that “‘[a]ll three [methods] must be used’” to determine value.
Id. at 292. Read together with the rule in effect at that time, the court’s comment appears to summarize the rule’s
requirement that all three approaches be considered, while allowing for the possibility that only one or two
approaches may be applied, depending on the facts. See id. at 293 (“What the Department of Revenue’s rule states
is not that the ‘market data approach, cost approach, and income approach’ must all be employed, but that ‘[a]ny one
of the three approaches to value may finally be used * * *.’” (quoting former OAR 150-308.205-(A)(2) (1981)).

AMENDED OPINION (VALUATION) TC 5411 Page 16 of 91
airline property to account for the fact that taxpayer was merely the lessee of some of the aircraft

it used. See id. at 609-11. The Oregon Supreme Court applied both parts of the rule, stating first

that the rule “answer[ed] the question” whether to make a leased-equipment adjustment by

providing that “‘[t]he reconciled unit value estimate shall be adjusted to include taxable property

not included in the unit, i.e., full value of lessors’ interest in equipment leased from others or to

exclude nontaxable property included in the unit.’” Id. at 609-10 (quoting former OAR 150-

308.205-(B)(7)(b)). As to several other issues, the court described the WSATA Handbook as

“pivotal.” Id. at 611. Citing these references, Defendant in this case urges this court to simply

apply the WSATA Handbook. However, the court in Delta did not purport to articulate any

particular standard of deference with respect to the WSATA Handbook. The court did not need

to do so, because “Delta d[id] not challenge the validity of the administrative rule * * *.” Id. at

610 n 8 (emphasis added); 10 cf. Hewlett-Packard Co. v. Benton County Assessor, 357 Or 598,

600-03, 356 P3d 70 (2015) (taxpayer challenged application, but not validity, of rules under ORS

308.205(2); stating that an “appraiser must follow” “complex scheme of administrative rules

outlining the methods and procedures that the department requires”).

(2) Application of Springfield and Portland Canning assuming authority under
ORS 308.205

In summary, none of the decisions the court has found under ORS 308.205 declares a

standard of review of rules under that section. The court returns to the analytical framework

under Springfield Education Association. Neither party sought to apply the framework at trial or

as part of extensive post-trial briefing; it therefore falls to the court to decide which terms to

analyze. The court starts with the flush language in subsection (2), which implicitly directs

10
The court apparently did not interpret Delta’s challenge to the making of any leased-equipment
adjustment as a challenge to the validity of the rule that declared that such an adjustment was required.

AMENDED OPINION (VALUATION) TC 5411 Page 17 of 91
Defendant to adopt rules containing “methods and procedures” to “determine[ ]” “[r]eal market

value.” The court finds that these terms are not in dispute; rather, the parties disagree about the

requirement that real market value be determined “in accordance with” Defendant’s rules. If the

court were writing on a blank slate, its task under Springfield would be to determine whether the

phrase “in accordance with” is delegative, in the sense of conferring a “range of discretion” upon

Defendant, and if so, whether Defendant’s adoption of the WSATA Handbook, to the exclusion

of any other method of determining real market value, exceeded that range. As to this point,

however, the court views the decision in Portland Canning as binding. The court again reprints

the key language holding that Defendant’s procedures are subordinate to the concept of “market

value” (now real market value):

“Clearly the dominant note of the legislation is that, if possible, value is to be
ascertained in accordance with market value. While [Defendant] has been given
power to make regulations setting forth procedures as to how this may be done, it
cannot vary the mandate of the law under this guise.”

241 Or at 113. No subsequent Supreme Court opinion overturns the holding in Portland

Canning.

The court concludes that, whatever discretion might be delegated to Defendant to

prescribe valuation methods and procedures for centrally assessed property, under Portland

Canning that discretion does not include the authority to compel the use of methods and

procedures that fail to result in real market value in a particular case. Stated positively, a

taxpayer remains free to argue that a value determined in accordance with Defendant’s rules is

inconsistent with the definition of real market value in subsection (1) of ORS 308.205, and the

court is not bound to accept a value determined under Defendant’s rules if the court finds that

another value, determined under methods or procedures not in accordance with Defendant’s

rules, is correct. The court concludes that it need not defer to OAR 150-308-0690 with respect to

AMENDED OPINION (VALUATION) TC 5411 Page 18 of 91
methods and procedures of determining the real market value of Plaintiff’s system, to the extent

that the source of the rule’s authority is ORS 308.205(2). 11

2. OAR 150-308-0590: Defendant’s Allocation Formula for Electricity Companies

The parties also dispute the degree of deference the court should afford to Defendant’s

separate administrative rule that prescribes a formula to allocate the system value used in an

electricity business to Oregon. Defendant argues that this rule, OAR 150-308-0590, “has the full

force of law.” (Def’s Response at 23.) Plaintiff asks the court to apply a different formula,

arguing that the rule is inconsistent with the allocation statute, ORS 308.550. As with OAR 150-

308-0690, neither party has presented the court with an analysis under the Springfield/Penn

framework. And once again, three statutes are in contention as authority for the rule. The

published rule refers to ORS 305.100 and ORS 308.550. It also is conceivable that OAR 150-

308-0590 could be considered to prescribe “methods and procedures” for determining real

market value under ORS 308.205(2), and thus might be covered by the Portland Canning rule

discussed above. 12 Ultimately, the court finds it unnecessary to reach the level of deference to

11
This conclusion does not render the WSATA Handbook, or any other rules, meaningless. Importantly
for the property tax system as a whole, Defendant’s rules under ORS 308.205 bind not only Defendant, but also the
assessors in all counties, who are charged, under Defendant’s supervision, with determining value for all real and
personal property other than centrally assessed or large industrial property. See ORS 308.215(1)(a)(F), (b)(B)
(county assessor to record real market value on roll); ORS 306.115 (1) (Defendant to exercise “general supervision
and control” over property tax system); ORS 306.120 (1) (Defendant to issue regulations to assessors “as to the
methods best calculated to secure uniformity according to law”). Therefore, a significant result of the flush
language of subsection (2) is to enable Defendant to ensure compliance with the constitutional mandate that “[a]ll
taxes shall be levied and collected under general laws operating uniformly throughout the State.” Or Const, Art IX,
§ 1; see also Or Const, Art I, § 32; see generally C. W. Macy, Some Legal and Administrative Aspects of the
Property Tax in Oregon, 33 Or L Rev 179, 182 (1954) (discussing legislative development of Or Laws 1953, ch
701 and recounting “gross inequalities in the appraisal of property for taxation purposes” within and among
counties, caused by “lack of a clear-cut legal method of determining values for taxation purposes”).
12
The court also notes that the formula in OAR 150-308-0590 is materially identical to a formula for
electricity business property set forth in the WSATA Handbook at page XIV-23, but Defendant apparently does not
view the WSATA Handbook’s version as incorporated by reference under OAR 150-308-0690. This may be
because the formula is not part of the main text of the WSATA Handbook but is appended as part of a 1960
committee report in which the committee “recommend[s]” that WSATA member states adopt and use allocation
formulas that the committee developed for various businesses. See WSATA Handbook at XIV-6. The body of the
WSATA Handbook does not specifically endorse any of the formulas in the appendix, but instead states that

AMENDED OPINION (VALUATION) TC 5411 Page 19 of 91
this rule. As discussed near the end of this opinion, even if Plaintiff were to show that the rule is

entitled to no deference as a matter of administrative law, the court concludes that Plaintiff has

not shown that Defendant’s allocation results in a “gross distortion” as required under case law.

B. Burden of Proof

Each party argued at trial for an Oregon real market value different from the value shown

on the central assessment roll prepared under ORS 308.560 and certified under ORS 308.610.

Cf., e.g., Level 3 Communications LLC III v. Dept. of Rev, 23 OTR 440, 442-43 (2019)

(describing parties’ positions relative to roll values). The parties present differing views as to the

burden of proof, which is set forth in ORS 305.427 (2021):

“In all proceedings before the judge or a magistrate of the tax court and upon
appeal therefrom, a preponderance of the evidence shall suffice to sustain the
burden of proof. The burden of proof shall fall upon the party seeking affirmative
relief and the burden of going forward with the evidence shall shift as in other
civil litigation.”

Plaintiff acknowledges that it “seek[s] affirmative relief” in the form of a reduction of the

real market value shown on the roll, and that it bears the burden of proving any such reduction.

(See Ptf’s Post-Trial Br at 4.) Defendant agrees with that point but disagrees with Plaintiff’s next

assertion, that Defendant bears the burden of proving any “‘increase compared to the roll

RMVs.’” (Id. n 3 (quoting Level 3, 23 OTR at 443 (2019).) Defendant relies on the following

passage from a 1989 central assessment opinion by the Oregon Supreme Court:

“Pacific next argues that the Tax Court erred in not requiring the Department to
carry the burden of proving that its appraisal, which suggested a value
significantly greater than that found by the Director of the Department of Revenue
at an earlier, administrative step in this case, should be adopted. Pacific cites no

///

“[r]ecommended formulas will be contained in a separate publication.” WSATA Handbook at VIII-1. The parties
have not referred the court to any such separate publication, assuming it exists.

AMENDED OPINION (VALUATION) TC 5411 Page 20 of 91
binding authority for this proposition, which contradicts the basic idea that the
burden in an appeal by a taxpayer to the Tax Court is on the taxpayer.
ORS 305.427.”

PP&L v. Dept. of Rev., 308 Or 49, 54-55, 775 P2d 303 (1989). (See Def’s Opening Post-Trial Br

at 1-2.) In quoting this passage, Defendant omitted the remaining sentences in the paragraph:

“The Tax Court did not err. To the extent that Pacific is also asking that this court
impose such a burden on the Department in this court, the request is denied. The
burden is the same ‘upon appeal’ from the Tax Court. ORS 305.427.”

PP&L, 308 Or at 55. On the other hand, Plaintiff cites the following passage from another

central assessment opinion decided three years later:

“With respect to the case as it is presented in this court, we note only that, as to
the claims that UP makes that would require a modification of the decision of the
Tax Court, UP has the burden of proof by a preponderance of the evidence. We
have required UP to meet that burden throughout our review of its evidence. As
to the matters concerning which the Department asks this court to change the
decision of the Tax Court or as to which it cross-assigns error, it is the
Department that shoulders the burden of proof. See PP&L v. Dept. of Rev., supra,
308 Or at 54-55, (discussing burden of proof).”

Union Pacific Railroad v. Dept. of Rev., 315 Or 11, 17, 843 P2d 864 (1992) (referring also to the

same passage quoted above in PP&L).

This court seeks to reconcile the above statements in PP&L and Union Pacific. Under

PP&L, the Supreme Court concluded that Defendant did not bear the burden of proof before this

court as to an increase above the value Defendant’s own director had set and from which the

taxpayer appealed. But under Union Pacific, Defendant did bear the burden of proof, on appeal

to the Supreme Court, as to any value higher than the value determined by this court. 13 Yet, as

the omitted sentence in PP&L declares, the same law assigning the burden applied in both

13
Prior to 1995 the standard of review before the Supreme Court was de novo; the Supreme Court’s task
was to sit as a trier of fact and apply all relevant law, including ORS 305.427, to the facts based on the record before
this court. See Delta Air Lines, Inc. v. Dept. of Rev., 328 Or 596, 600-03, 984 P2d 836 (1999) (discussing former
standard); Or Laws 1995, ch 650, § 25 (limiting supreme court’s scope of review to “errors or questions of law or
lack of substantial evidence in the record to support the tax court’s decision or order”).

AMENDED OPINION (VALUATION) TC 5411 Page 21 of 91
courts, as it does today. See ORS 305.427 (1989) (referring to “all proceedings before the tax

court and on appeal therefrom”) (emphasis added); cf. ORS 305.427 (2021) (referring to “all

proceedings before the judge or a magistrate of the tax court and on appeal therefrom) (emphasis

added).

Because both PP&L and Union Pacific predate the Supreme Court’s announcement of

the current statutory interpretation framework in State v. Gaines, the court now applies that

framework to ORS 305.427 in an effort to discern principles that would harmonize the two

opinions for purposes of this case. The statute, enacted in 1965, places the burden on the “party

seeking affirmative relief.” Or Laws 1965, ch 6, § 5 (SB 4). Because the statute relates to legal

proceedings, the court turns initially to a contemporaneous edition of Black’s Law Dictionary for

the following technical legal definition of Affirmative Relief:

“Relief, benefit, or compensation which may be due and granted to defendant.
Garner v. Hannah, 6 Duer (N. Y.) 262. Relief for which defendant might maintain
an action independently of plaintiff’s claim and on which he might proceed to
recovery, although plaintiff abandoned his cause of action or failed to establish it.
Southwestern Surety Ins. Co. v. Walser, 77 Okl 240, 188 P 335, 336.” 14

Black’s Law Dictionary 75 (4th ed 1951). Comcast Corp. v. Dept. of Rev., 356 Or 282, 296, 337

P3d 768 (2014) (“[W]hen a term is a legal one, we look to its ‘established legal meaning’ as

revealed by * * * legal dictionaries.”). This definition indicates that a party proceeding as a

defendant could be in a position of seeking affirmative relief, at least if that party made a

counterclaim.

///

Although the definition describes the party seeking affirmative relief as the “defendant,” the cases cited
14

do not indicate that affirmative relief is unavailable to a plaintiff. Garner v. Hannah, 13 NY Super Ct 262, 273, 6
Duer 262 (1857) (defining “affirmative relief” in terms of the defendant due to statute case was brought under);
Southwestern Surety Ins. Co. v. Board of Com’rs of Coal County, 77 Okla 137, 187 P 467 (1920) (discussing
whether defendant’s reply constituted “affirmative relief”).

AMENDED OPINION (VALUATION) TC 5411 Page 22 of 91
The court proceeds to consider statutory context, starting with other procedural statutes in

place in 1965. The only contemporaneous use of the full phrase “affirmative relief” in the

Oregon Revised Statutes provided:

“If a counterclaim established at the trial exceeds the plaintiff’s demand so
established, judgment for the defendant shall be given for the excess; or if it
appears that the defendant is entitled to any other affirmative relief, judgment
shall be given accordingly.”

Former ORS 18.100 (1963) (emphasis added), repealed by Or Laws 1981, ch 48, § 1. This

statute can be read to mean that affirmative relief included “relief, benefit or compensation”

available to a defendant regardless whether the defendant made a counterclaim.

Indeed, case law at the time indicated that, depending on the circumstances, plaintiffs and

defendants could seek affirmative relief, and whichever party did so had the burden of proof.

See, e.g., Chance v. Carter, 81 Or 229, 240, 158 P 947 (1916) (concluding that statute enabled

“the Defendant, upon proving his claim, not only to defeat the action of the plaintiff, but also to

secure affirmative relief”) (emphasis added); Hanna v. Hope, 86 Or 303, 310, 168 P 618 (1917)

(“The counterclaim upon which a defendant may have affirmative relief in an equity suit must

contain matters of equitable cognizance.”); Comegys v. Hendricks, 55 Or 533, 535, 106 P 1016

(1910) (“The plaintiff did not offer any evidence in support of the controverted question, and

thereby failed to substantiate her right to any affirmative relief.”).

A statute perhaps more closely on point was ORS 41.210 (1963), 15 which provided:

“The party having the affirmative of the issue shall produce the evidence to prove
it. Therefore, the burden of proof lies on the party who would be defeated if no
evidence were given on either side.”

15
The legislature repealed ORS 41.210 (1963) in 1981, essentially moving the phrase to ORS 40.115 (OEC
307). See Or Laws 1981, ch 892, § 98 (repealing ORS 41.210); ORS 40.115 (“The burden of producing evidence as
to a particular issue is on the party against whom a finding on the issue would be required in the absence of further
evidence.”).

AMENDED OPINION (VALUATION) TC 5411 Page 23 of 91
Some three months before ORS 305.427 was enacted, this court applied ORS 41.210 (1963) in

its first suit filed by a county assessor, who sought to increase the value of locally assessed

property. Strawn v. Commission, 1 OTR 98, 120, 149-50 (1963). Following the procedure in

place at that time, the taxpayer initially contested the assessor’s valuation in an administrative

appeal before Defendant’s predecessor, the State Tax Commission. The Commission reduced

the valuation “very substantially.” Id. at 121. The assessor appealed to this court. The taxpayer

counterclaimed for even lower values than determined by the Commission. The court devoted

some six pages to discussing the burden of proof, concluding that the assessor had “the

affirmative” as to whether the assessed value should be raised, and the taxpayer had the

affirmative as to any lowering of the assessment. Id. at 155 (“The burden of proof remains fixed

with the party, or in this case, parties, seeking affirmative relief * * *.”).

With this context in mind, the court returns to the text of ORS 305.427. Notably, the text

does not say that the burden of proof shall fall upon the “plaintiff,” much less upon the

“taxpayer.” By using instead the less specific phrase “party seeking affirmative relief,” the

statute seems to contemplate the possibility that either party might seek affirmative relief, in line

with the discussion in Strawn and the longstanding non-tax cases cited above.

The court has found nothing in the legislative history of SB 4 that sheds light on the

burden of proof under ORS 305.427. SB 4 was requested by the Interim Committee on Taxation

and by Senator Ben Musa, a proponent of the Oregon Tax Court Act enacted four years earlier.

See House and Senate Journal, Regular Session, 1965, S-4 (listing Interim Committee on

Taxation and Senator Musa as requesting bill); Or Laws 1961, ch 533 (creating Oregon Tax

Court). SB 4 amended a half-dozen provisions of the Oregon Tax Court Act and made

conforming amendments referring to this court in other tax and procedural statutes. At several

AMENDED OPINION (VALUATION) TC 5411 Page 24 of 91
points, legislators or witnesses referred to the text that became ORS 305.427 as assigning the

burden of proof to “the taxpayer.” For example, the minutes of a Senate Revenue Committee

hearing state that Senator Anthony Yturri supported the bill’s placement of the “burden on the

taxpayer,” consistent with “civil cases[, in which] it is the plaintiff, the one who asserts the

claim, who has the burden.” Minutes, Senate Committee on Taxation, Jan 20, 1965 at 2. Carlisle

Roberts, then-counsel to the Commission, “discussed the importance of the word

‘preponderance’ * * *, which he said puts more of the burden of proof on the taxpayer.”

Minutes, Senate Committee on Taxation, Jan 18, 1965 at 2; see also id. (“[Eugene Feltz, of the

Oregon State Bar,] thought the burden of proof is already with the taxpayer in case of an

appeal.”); Minutes, Senate Committee on Taxation, Jan 20, 1965 at 1 (“[Judge Edward Howell,

Oregon Tax Court,] agreed ‘100 percent’ that the burden of proof should be on the taxpayer, as

he is seeking affirmative relief.”). This court considers these statements as shorthand, reflecting

the fact that taxpayers are plaintiffs in nearly all cases, and that a taxing authority’s assertion of a

value higher than shown on the roll is a nuance that does not commonly arise or at least is not

commonly discussed in reported cases. The minutes indicate that the burden of proof provision

was not controversial, and that the discussion quickly moved to the next passage in the bill, a

contested provision that would have imposed a presumption in favor of the initially assessed

value; the Senate Revenue Committee ultimately voted to reject the statutory presumption. 16

16
Subsection (2) of Section 4 of SB 4 as introduced provided:

“The tax court shall recognize a rebuttable presumption of validity and correctness to
have attached to the final determination of tax or assessed value from which and appeal or other
proceeding may be taken to an authority independent of the authority making such first
determination. The presumption shall remain with such first determination until the tax liability at
issue is finally determined.”

This court continued to apply a judicial presumption of assessment validity until the Oregon Supreme Court
abolished it in 1972. See J. R. Widmer, Inc. v. Dept. of Rev., 261 Or 371, 378, 494 P2d 854 (1972) (“The Tax Court
(ORS 305.425(1)) and this court (ORS 305.445) review de novo without any presumption as to the correctness of

AMENDED OPINION (VALUATION) TC 5411 Page 25 of 91
Against this backdrop of the text and context of ORS 305.427, this court now returns to

the apparently conflicting passages in PP&L and Union Pacific. The passage in PP&L describes

the value from which the taxpayer appealed to this court as a value “found by the Director of the

Department of Revenue at an earlier, administrative step in this case.” 308 Or at 54-55. As of

the 1989 PP&L opinion, the setting of the central assessment roll did not have the finality that

exists under current law. This court recently concluded that, before 2007, Defendant had

discretionary authority to correct a valuation error on a central assessment roll for up to three

years. See ORS 306.115 (2005); D.E. Shaw Renewable Investments, LLC v. Dept. of Rev.,

___OTR___ (Apr 25, 2022) (slip op at 14-15, 30) (appeal pending) (concluding that

ORS 306.115 grants discretionary authority for department to correct valuation errors, but is

limited by ORS 308.624, enacted in 2007). 17 The 2007 legislature curtailed that authority with

respect to centrally assessed property by enacting what is now ORS 308.624(4): “For purposes

of this section, the director may not correct an error in valuation judgment [on the central

assessment roll] that is an error in the department’s opinion of the value of property.” Consistent

with the breadth of Defendant’s authority in 1989 to change roll values unilaterally, this court

reads the statement in PP&L to mean that Defendant was not seeking affirmative relief in this

court, even when Defendant sought an increase above the roll value. From there, it follows that

the plaintiff taxpayer in PP&L was the only party bearing the burden of proof in this court.

Under post-2007 law, however, Defendant may correct a valuation error on the central

assessment roll only if ordered by this court or by the Supreme Court on appeal. See

the assessor’s valuation.”).
17
By contrast, even before 1989, a local county assessor generally was prohibited from correcting a
valuation error on a prior roll. See ORS 311.205 (1) (1987) (“The officer may not correct an error in valuation
judgment. Such errors are those where the assessor would arrive at a different opinion of value after the roll has
been returned to the assessor by the board.”).

AMENDED OPINION (VALUATION) TC 5411 Page 26 of 91
ORS 308.624(3)(b). Reading PP&L in light of changes in the procedural law, this court

concludes that the rule articulated in Union Pacific applies today in valuation disputes before this

court: As to changes to the roll that a taxpayer requests for its benefit, including a valuation

lower than that shown on the roll, the taxpayer seeks affirmative relief and therefore bears the

burden of proof. As to a valuation higher than that shown on the roll, Defendant seeks

affirmative relief and bears the burden of proof.

III. REAL MARKET VALUE ANALYSIS

The court now seeks to apply the foregoing understanding of applicable law to determine

the real market value of Plaintiff’s property, based on the evidence presented at trial. As

discussed above, the court first determines the real market value of the “system” comprising all

of Plaintiff’s property used in its electricity business, without regard to location, before

determining the percentage of that value to allocate to Oregon. To a great extent, the issue is fact

intensive and involves “competing testimony of appraisal experts, including the credibility and

persuasiveness of those experts.” Hewlett-Packard, 357 Or at 609.

A. Cost Approach

Each party’s appraiser gave approximately 20 percent weight to his value indicator

derived from a cost approach. (Ptf’s Pretrial Br at 4.) Plaintiff’s appraiser, Thomas K. Tegarden,

determined a cost indicator of $15,838,880,747. Defendant’s appraiser, Brent Eyre, determined

a cost indicator of $20,735,886,213. (See Ptf’s Ex 1 at 29; Def’s Ex A at 23.) Tegarden and

Eyre each started with the “net book value” Plaintiff reported on its annual “FERC 1,” a form

Plaintiff filed with the Federal Energy Regulatory Commission (FERC). (E.g., Ptf’s Ex 2 at

1983 (FERC 1 for Q4 2019).) Net book value for FERC purposes is not identical with the

locally determined “rate base” on which Plaintiff is allowed to earn a reasonable return, but local

AMENDED OPINION (VALUATION) TC 5411 Page 27 of 91
regulators refer to net book value when setting the rate base. See WSATA Handbook at II-8 to

II-9. Net book value for FERC purposes is based on a variation of the cost approach to valuation

known as “historical cost less depreciation” (HCLD), which Defendant uses only for centrally

assessed property. See OAR 150-308-0240(2)(f) (stating, for other property, cost approach must

use “reproduction, replacement or used equipment technique”); WSATA Handbook at I-4

(stating HCLD may be a “meaningful” indicator if company is rate base regulated). The parties

agree that net book value is not likely to be equal to real market value, but they disagree about

the extent of any adjustments that must be made in order to make the HCLD approach useful as

an indicator of real market value. Each party started with the historical cost of $28,843,430,112

taken from Plaintiff’s FERC 1 form for 2019, and each deducted $10,870,776,722 in

depreciation, an entry also taken from the same FERC 1 form. 18 (See Ptf’s Ex 1 at 29; Def’s Ex

A at 23; cf. Ptf’s Ex 2 at 2065 (FERC 1).)

1. Plaintiff’s Method: Additional Deduction for Economic Obsolescence

Nearly all of the difference between the parties’ cost method indicators arises because

Tegarden took an additional deduction for “obsolescence” in the amount of $4,428,401,079,

while Eyre did not. (Ptf’s Ex 1 at 23; see Ptf’s’s Post-Trial Br at 59.) Plaintiff argues that an

approach that starts with historical cost is valid only if it allows deduction of all three of the

widely recognized forms of depreciation: physical depreciation, functional obsolescence, and

economic obsolescence. (See Ptf’s’s Post-Trial Br at 52; Ptf’s Ex 8 at 1 (citing WSATA

Handbook at II-6.).) Tegarden testified that the deduction for depreciation on Plaintiff’s FERC

filings 19 is too low because it does not adequately account for a type of economic obsolescence

18
Plaintiff started with a net book value of $28,661,071,569, citing a different page and line number of the
same FERC 1 cited by Defendant. (Compare Ptf’s Ex 1 at 29 and Ptf’s Ex 2 at 2065 & 4807 with Def’s Ex A at 23.)
The court considers the difference immaterial for purposes of this decision.
19
The parties refer to depreciation allowed for FERC filing purposes as “accounting” or “regulatory”

AMENDED OPINION (VALUATION) TC 5411 Page 28 of 91
peculiar to regulated utilities, namely, the utility’s inability to earn a return on property acquired

or paid for with the following:

(1) Deferred Income Taxes (DIT).

Broadly speaking, DIT is the difference between (1) the amount that ratemaking
authorities consider Plaintiff to owe in income taxes for a particular year and (2)
the amount Plaintiff actually owes for that year. The amount Plaintiff actually
owes typically is less because Congress has repeatedly increased the annual
amount otherwise allowed as a deduction from gross income to depreciate or
amortize the cost of acquired property over the property’s useful life. See
generally Bittker & Lokken, ¶¶ 23.1-9 (discussing “accelerated” depreciation,
“bonus” depreciation, and “expensing” of purchases). By allowing higher
depreciation deductions right away, Congress reduces taxable income, and thus
income tax liability, with the goal of encouraging businesses to use the additional
cash to buy machinery, equipment, and other property, thereby stimulating the
economy. Accelerated depreciation provides additional cash flow in the early
years after property is acquired, but the tax liability is, in theory, merely
“deferred” and is recouped in later years when the property is fully depreciated
and the taxpayer must cease to claim deductions sooner than it otherwise would
have. Regulatory authorities do not allow Plaintiff to earn a return on property
purchased with the cash saved through DIT, but the acquired property used in
Plaintiff’s electricity business contributes to the system value, an apportioned
share of which is deemed to be the real market value of Plaintiff’s property in
Oregon.

///

///

///

depreciation.

AMENDED OPINION (VALUATION) TC 5411 Page 29 of 91
(2) Income Tax Credits (ITC).

As with DIT, property attributable to certain income tax credits is excluded from
the rate base but contributes to real market value for property tax purposes to the
extent used in Plaintiff’s electricity business.

(3) Contributions in Aid of Construction (CIAC).

Money or property contributed by particular utility customers (such as large
industrial plants) to fund extensions of electricity infrastructure that primarily
benefit those customers is likewise outside the rate base. However, the value of
the property contributes to the real market value of Plaintiff’s system to the extent
that Plaintiff uses the property.

(See Transcript at 1293-94; Ptf’s Ex 21 at 32; Ptf’s Post-Trial Br at 58-59.) See generally PP&L

v. Dept. of Rev., 308 Or 49, 52-53, 775 P2d 303 (1989) (describing above categories of

property). Tegarden’s sources included an email exchange with an economist employed by

FERC, who stated that “accounting depreciation is a cost allocation process, not a valuation

process. Consequently, the net book value of a plant asset may differ significantly from its

market value.” (Ptf’s Ex 10 at 1.)

2. Does Plaintiff’s method fail as a matter of law?

Defendant acknowledges the general point that net book value equals real market value

“‘only by coincidence.’” (Def’s Opening Post-Trial Br at 4 (quoting WSATA Handbook at II-

10).) However, Defendant argues that an additional deduction is unavailable both as a matter of

law and as a factual matter. As to the first point, Defendant argues that a deduction for economic

obsolescence would “violat[e] the WSATA Handbook guidelines * * *.” (Def’s Opening Post-

Trial Br at 7.) 20 However, based on the court’s reasoning above, violation of the WSATA

20
The WSATA Handbook states:

AMENDED OPINION (VALUATION) TC 5411 Page 30 of 91
Handbook guidelines is not a basis to reject an additional deduction under the cost approach if

the taxpayer can persuade the court that a value determined pursuant to the WSATA Handbook

is not the real market value of the property. Plaintiff’s proffered method does not fail as a matter

of law.

3. Does Plaintiff’s “income shortfall” method have adequate factual support?

The court thus turns to the parties’ factual arguments. Notwithstanding Defendant’s

arguments that regulatory depreciation adequately accounts for all obsolescence, the court finds

it clear that the historical cost of property included on the FERC 1 form, less the FERC

subtraction for accounting depreciation, may not accurately reflect the real market value used in

a centrally assessed business. 21 The question, then, is whether Tegarden’s proposed adjustment

accurately translates net book value into real market value. Tegarden offered an “income

shortfall” computation that is based on capitalizing the “income * * * loss attributable to the

negative influence,” in this case, “governmental regulation * * * [that] affects what you can do

with the property, how much you can earn on it * * *.” (Transcript at 240-43.) 22 Tegarden

“HCLD cost indicators are generally not adjusted further to account for appreciation or
depreciation. A deduction from HCLD for obsolescence is just as inconsistent as adding value to HCLD
because some of the utility’s property has increased in value since it was acquired, or because the utility’s
earnings are extraordinarily high for some reason (e.g., lax regulatory oversight). The practice of not
adjusting HCLD for perceived obsolescence does not mean that obsolescence has not been considered and
measured, since as noted previously, regulatory depreciation should, in theory, reflect all forms of
obsolescence. The degree to which regulatory depreciation reflects an accurate estimate of market
depreciation for a particular property is taken into account when reconciling the value indicators.”

WSATA Handbook at II-12.
21
As an example of the potential mismatch between historical cost less regulatory depreciation, on the one
hand, and the real market value of property (whether or not paid for with cash savings from DIT, ITC and CIAC) on
the other hand, Plaintiff’s tax director Norman Ross testified that regulatory depreciation of a coal-fired power plant
in Utah continued into the tax year at issue (2020-21) even though the plant was decommissioned, dismantled, and
reclaimed in 2017. (See Ptf’s Ex 9; Transcript at 47.)
22
By “governmental regulation,” Tegarden primarily meant DIT and ITC. (See Ptf’s Ex 1 at 33 (“The
primary cause for the lower-than-adequate rate of return on all property is the regulatory commissions’ specific
exclusion of certain properties from the rate base, i.e. those properties financed by funds provided by the deferral of
federal income taxes. Simply stated, the regulatory agencies will not allow PacifiCorp to earn a return on those
properties which it has purchased using funds provided by deferring the payment of federal and state income

AMENDED OPINION (VALUATION) TC 5411 Page 31 of 91
computed the shortfall by comparing Plaintiff to similarly situated companies that are not

restricted from earning income on DIT, ITC, and CIAC, concluding that Plaintiff earned a rate of

return 1.65 percent below the return investors required as of the assessment date. (See Ptf’s Ex 1

at 31.) 23

By Tegarden’s own description, an income shortfall computation requires (1) proof of the

existence of a “negative influence” and (2) proof of a causal relationship between that influence

and diminution of Plaintiff’s income. In this case, Defendant does not contest that Plaintiff had

some amount of DIT, ITC, and CIAC, and some of Plaintiff’s financial documents admitted into

evidence refer to various items of DIT, ITC, or CIAC. (See, e.g., Ptf’s Ex 2 (Rocky Mountain

Power report to Wyoming Public Service Commission) at 3, 15, 26-28).) However, none of

Plaintiff’s witnesses attempted to identify or quantify the relevant amount of any of those items

as of a relevant time; nor did the computation establish the amount of DIT, ITC, or CIAC of the

comparator companies. (But see Transcript at 666 (Ptf’s cross-examination of Brian Conway)

(noting “accumulated deferred income taxes 4 billion”); (Ptf’s Ex 5 at 11 (excerpt from Ptf’s

Annual Report to Def, entitled “Results of Operations Summary * * * December 2018 2017

Protocol”).) It is true, as the Oregon Supreme Court has found, that a mere statement of these

amounts, without more, would not likely suffice to support an adjustment to net book value. 24

taxes.”).)
23
At one point in briefing, Plaintiff seems to ask the court to simply subtract the CIAC amount shown on
Eyre’s cost approach calculations ($366,356,390, shown on Def’s Ex A at 23) from the cost indicator. (See Ptf’s
Response at 41 (“CIAC amounts should be valued at zero.”) Yet Plaintiff also purports to account for CIAC in its
income shortfall calculation. (See Ptf’s’s Post-Trial Br at 63.) To do both would amount to “double dipping” for
Plaintiff. The court assumes for purposes of analyzing the cost approach that Plaintiff advocates for accounting for
CIAC solely in its income shortfall calculation.
24
Although not precedential for its valuation methodology (see Delta Air Lines, Inc. v. Dept. of Rev., 328
Or 596, 615 n 11, 984 P2d 836 (1999)), the Oregon Supreme Court’s rejection in PP&L of Plaintiff’s attempt to
simply subtract DIT and ITC amounts from its cost indicator of value is persuasive, at least on the ground that
simply subtracting those amounts would amount to “a portion of the tangible assets of Pacific inappropriately being
exempted from taxation.” PP&L, 308 Or at 57. (To the extent that the court in PP&L may have determined that a

AMENDED OPINION (VALUATION) TC 5411 Page 32 of 91
On the other hand, without an understanding of those amounts, in relation to Plaintiff’s assets

and in comparison with the data of the comparator companies, the court finds that Plaintiff’s

income shortfall computation has inadequate evidentiary foundation and becomes an abstract

exercise that lacks important context. 25 The court finds that the preponderance of the evidence

does not support Plaintiff’s proffered economic obsolescence adjustment to net book value.

4. Defendant’s Cost Analysis

The court turns to Defendant’s analysis applying a cost approach. Eyre essentially

applied the HCLD method described in the WSATA Handbook, which applies depreciation and

other data from the FERC 1 form and resulted in a value indicator very close to Plaintiff’s FERC

net book value. (See WSATA Handbook at II-8; Def’s Ex A at 22-24; Ptf’s Ex 2 at 2065.) He

was satisfied that the result was not too low because, under a “market-to-book ratio” study

summarized in his appraisal report, the historical sales prices of other regulated companies

always exceeded the company’s net book value. (See Def’s Ex A at 25; see also Def’s Ex D at

35-78 (Ben Johnson Associates, Inc.’s report examining 50 transactions occurring from 2001

through 2020).) The court finds Defendant’s HCLD analysis unhelpful in determining real

market value. The WSATA Handbook describes the HCLD method in equivocal terms, on the

subtraction for DIT and ITC is unwarranted because the regulatory restrictions on earning disappear in the hands of
a new buyer, this court notes that the authors of Defendant’s study, Ben Johnson Associates, Inc., appear to disagree.
See id. (“[I]t seems clear to us that a willing buyer of the plant and equipment would be agreeable to paying a figure
close to HCLD, because the buyer could then earn off all that expenditure.”) (emphasis added). (See Def’s Ex D at
14.))
25
Defendant criticizes Plaintiff’s income shortfall approach for other reasons: the WSATA Handbook
discourages its use, and the Oregon Supreme Court rejected it as duplicative of an income approach in Delta Air
Lines, Inc. v. Dept. of Rev., 328 Or 596, 618-619, 984 P2d 836 (1999), and United Telephone Co., Inc. v. Dept. of
Rev., 307 Or 428, 433, 770 P2d 43 (1989). (See, e.g., Def’s Opening Post-Trial Br at 7.) Plaintiff argues that its
income shortfall computation is distinguishable and does not suffer from the infirmities identified in prior cases.
This court declines to reject all variations of an income shortfall approach per se. The court reiterates that the
Supreme Court in Delta and United Telephone took pains to emphasize that the opinions are not precedential as to
value methodology. The court concludes only that it cannot evaluate the viability of Plaintiff’s income shortfall
approach without the foundation described above.

AMENDED OPINION (VALUATION) TC 5411 Page 33 of 91
one hand characterizing the method as “a valid indicator of value” for a rate base-regulated

utility such as Plaintiff, but also stating that “the market’s perception of value is likely to be at

odds with rate base at any given time.” WSATA Handbook at II-9 to II-10. A significant reason

for the acknowledged mismatch between net book value and real market value is that mandatory

depreciation methods for regulatory purposes may result in a net book value that is “vastly

different” from the market’s perception of the value of property. Id. at II-10. 26

As for DIT specifically, the WSATA Handbook states that “[a] utility’s inability to earn

an accounting ‘return on’ investment acquired with DIT is offset by its ability to collect revenue

for a tax it does not yet owe.” Id. at II-11. While a conceptual “offset” may justify the

regulatory policy of including DIT, ITC, and CIAC in net book value, the WSATA handbook

does not state that the included amount accurately corresponds to the value of property a utility

may acquire with the extra cash from its tax savings, or from CIAC. Just as Plaintiff has been

unable to show that its income shortfall calculation accurately matches the effect of DIT, ITC, or

CIAC on net book value, Defendant’s ignoring of those items is a flaw that renders Defendant’s

HCLD approach unreliable as an indicator of real market value.

Defendant’s market-to-book ratio studies do not persuade the court that a willing buyer

and seller would be likely to give any particular weight to the result of an HCLD analysis as of

any particular date, nor do they overcome the loose and tenuous connection that the WSATA

Handbook declares between an HCLD result and fair market value. First, in post-trial briefing

Plaintiff raised evidentiary issues regarding the comparability of the historical transactions,

26
The WSATA Handbook states further that “HCLD cannot be considered either a lower or upper limit of
value,” but “rate regulation provides a vague limit on how far market value will stray from HCLD” because
regulators, if attentive, are supposed to allow utilities an opportunity to earn a “fair return” on “prudently invested”
funds and to recover “prudent costs.” Id. at II-10. These terms stop far short of assuring the court that the result of
HCLD, by itself, is a meaningful indicator of real market value.

AMENDED OPINION (VALUATION) TC 5411 Page 34 of 91
which Defendant dismissed as “attempts to pick nits.” (Ptf’s Post-Trial Br at 60-62; Def’s Post-

Trial Response Br at 18.) But assuming that the parties were to engage in an exhaustive analysis

of the historical transactions that would allow the court to lay those issues to rest, a larger issue

would remain. Defendant argues that Eyre’s HCLD result, which he “tested” against the “actual

market evidence” of his market-to-book ratio study, “would certainly constitute the lowest price

a knowledgeable seller would be willing to accept for the property.” (Def’s Mot for Recons at 8;

Ex A at 23.) Yet Defendant’s position is directly contrary to the discussion of HCLD in the

WSATA Handbook, which states that “HCLD cannot be considered either a lower or upper limit

of value * * *.” WSATA Handbook at II-10 (emphases added). Rather, according to the

WSATA Handbook, HCLD is at most an “anchor” that “provides a vague limit.” Id. In other

words, Defendant’s own rule states that as of any given valuation date real market value is likely

to have drifted above or below HCLD. Id. (“[T]he market’s perception of value is likely to be at

odds with rate base at any given time * * *.”). Defendant’s evidence, and the disclamatory

statements in the WSATA Handbook, leave the court without a basis to assign any weight to a

cost approach based on HCLD, with or without Defendant’s market-to-book ratio studies.

5. Conclusion Under Cost Approach

The WSATA Handbook’s solution to the tenuous connection between net book value and

real market value is to assign less weight to the HCLD cost indicator than to other indicators in

the reconciliation process. See, e.g., WSATA Handbook at II-12 (“The degree to which

regulatory depreciation reflects an accurate estimate of market depreciation for a particular

property is taken into account when reconciling the value indicators.”). In this case, however,

the court finds no factual basis to assign any weight to either party’s cost indicator of value. 27

27
In light of the court’s conclusions as to each party’s analysis, the court finds it unnecessary to decide cost
approach issues other than those specified. (E.g., Ptf’s Post-Trial Br at 65 (arguing Defendant erred by not

AMENDED OPINION (VALUATION) TC 5411 Page 35 of 91
B. Income Approach

The parties agree that the income approach to valuation (1) determines the future

expected cash flow from the property, and (2) divides that cash flow by a rate. The result is the

present value of the future expected cash flow, which is an indicator of the value of the property.

(See Ptf’s Post-Trial Br at 7, 10-11; WSATA Handbook at III-3 (cash flow as proper measure of

future “income”); id. at III-17 to III-20 (rates).) The simple formula can be expressed as:

Value = Cash Flow ÷ Rate

The two main methods under the income approach are direct capitalization (which uses a single

year’s projected cash flow) and yield capitalization (which uses a projection of cash flow over

future years). See WSATA Handbook at III-8; Appraisal Institute, Appraisal of Real Estate at 36

(15th ed 2020). The court begins by examining the parties’ analysis under the yield

capitalization method. 28

1. Yield Capitalization: Constant Growth Model

Both parties applied a variation of yield capitalization known as the constant growth yield

capitalization model. The constant growth model assumes that the company’s future cash flows

will grow at a constant rate into perpetuity and determines value by applying the following

formula:

Value = Next year’s cash flow ÷ (weighted average cost of capital – growth rate)

(See Def’s Ex A at 28; Ptf’s Ex 1 at 45.) The court now determines each component of the

formula based on the parties’ evidence.

deducting “Asset Retirement Obligations” from HCLD but acknowledging amount at issue is de minimis).)
28
Only Defendant also used the direct capitalization method, which the court discusses at the end of this
section.

AMENDED OPINION (VALUATION) TC 5411 Page 36 of 91
2. Yield Capitalization: Cash Flow and Growth Rate for Constant Growth Model

Each party determined an estimated cash flow amount for purposes of its yield

capitalization method, with markedly different results. Tegarden determined an estimated cash

flow of $1.1 billion, Eyre $800 million. (Ptf’s Ex 1 at 47; Def’s Ex A at 30.) Consistent with the

WSATA Handbook, each appraiser used as his starting point the net operating income that

Plaintiff reported on its FERC 1 form for 2019 ($1,038,196,981). (See Ptf’s Ex 2 at 2022.) See

WSATA Handbook at III-3 (“accounting income, such as net operating income * * * should be

transformed into cash flow prior to its use”). The parties agree that, to determine cash flow,

depreciation must be added back to net operating income because the amount that was deducted

for depreciation is an accounting construct rather than an actual cash expenditure. The parties

also agree that capital expenditures must be subtracted in determining cash flow. (See Ptf’s Ex 1

at 44 (Tegarden estimate is “net of CAPX & Depr.”); Def’s Ex A at 30 (Eyre estimate adds

depreciation, subtracts capital expenditures); WSATA Handbook at III-4.)

Tegarden’s estimated cash flow of $1,100,000,000 is only slightly greater than Plaintiff’s

actual 2019 net operating income, reflecting his “assum[ption] that the amount of capital

reinvestment is equal to the depreciation expense.” (Ptf’s Ex 1 at 41.) Tegarden took into

account net operating income in the prior three to five years and various statistical measures of

those amounts, including a comparison against net plant investment. (See Ptf’s Ex 1 at 44; Ptf’s

Ex 2 at 2022; Transcript at 255-60 (Tegarden).) As for assumptions about the future relevant to

growth, Tegarden considered the effect of anticipated positive and negative rate changes in

different service territories, which he estimated would result in a modest net reduction

($1,957,538), as well as construction work in progress expected to be placed in service, which he

estimated would cause a slight immediate increase. (See Ptf’s Ex 1 at 45-46.)

///

AMENDED OPINION (VALUATION) TC 5411 Page 37 of 91
Eyre determined an estimated cash flow of $800 million. (See Def’s Ex A at 28-31.)

Eyre first increased 2019 net operating income slightly, from $1,038,196,981 to $1,059,000,000

by applying a two percent growth factor. He created a substantial net decrease ($270,000,000)

when he added back estimated depreciation and amortization of $1,030,000,000 while

subtracting estimated capital expenditures of $1,300,000,000. Eyre also subtracted $43,000,000

to account for estimated changes in regulatory assets and liabilities, and made other, smaller

adjustments, resulting in his rounded amount of $800,000,000. 29 (See id. at 30.)

The $300 million difference separating the parties derives almost entirely from Eyre’s

large net subtraction ($270 million) that resulted when Eyre added $1,030,000,000 for

depreciation and amortization while deducting $1,300,000,000 for capital expenditures, as

opposed to Tegarden’s assumption that capital expenditures will equal depreciation expense.

The $300 million difference does not cut the way one might expect. Counterintuitively, under

the simple formula for value shown above, if one assumes the same rate, Eyre’s lower cash flow

amount in the numerator would result in a lower value, and Tegarden’s higher cash flow amount

would result in a higher value.

In arguing for their respective cash flow estimates, the parties refer frequently to their

differing expectations of future growth. For that reason, the court will consider the issues of cash

flow and the growth factor together.

3. Plaintiff’s Method

Tegarden’s method generally fits within what the WSATA Handbook describes, in

critical terms, as a “No Growth Model.” See WSATA Handbook at III-15 to III-16. According

29
The smaller adjustments were to subtract $25,000,000 in DIT and $8,600,000 in working capital. (See
id.)

AMENDED OPINION (VALUATION) TC 5411 Page 38 of 91
to the WSATA Handbook, this model “assume[s] that the company has no ‘effective’ future

growth potential which would contribute to value.” WSATA Handbook at III-15. At this point,

the court pauses to consider the meaning of “growth” as the parties (and the WSATA Handbook)

use that term. Both parties distinguish between “real growth, i.e., earning more than the cost of

capital” and “nominal growth, meaning that the overall size of the plant increased, and the

nominal cash flows increased due to the new size, but the company was still earning its cost of

capital.” (Ptf’s Response at 13; see Def’s Ex A at 48 (“Real growth occurs when a company’s

rate of return is greater than its cost of capital.”).) See also WSATA Handbook at III-16 (stating

that an assumption of no future growth in cash flow means that “future capital expenditures are

only expected to earn their cost of capital.”). 30

Tegarden’s approach to cash flow ignores any additional capital expenditures in excess of

depreciation, while Defendant points to such excess expenditures in 2018 and 2019, as well as

future projections, as a source of “real” growth in the value of Plaintiff’s property. Plaintiff

presented evidence that, while its investment in its plant has grown over time, its growth in net

operating income has not kept pace. Plaintiff points to a graph showing that, at least since 2001,

the rate of annual increases (or losses) in net operating income corresponds closely to the rate of

annual increases in net plant. (See Ptf’s Ex 11 at 1.) A more detailed table shows that, over the

years leading up to and including 2019, the historical rate of change in net plant generally has

exceeded the rate of change in net operating income by, on average, 0.9 percent. (See Ptf’s Ex

11 at 2.) 31 The court finds that this historical evidence supports, at least by correlation,

30
Without implying any precedential effect, the court notes that the Oregon Supreme Court has similarly
explained: “Growth in net cash flows will arise either because the present asset base generates additional income or
because additions to the asset base produce income beyond the cost of the additions themselves, including the costs
of operating them.” Union Pacific Railroad v. Dept. of Rev., 315 Or 11, 22, 843 P2d 864 (1992) (analyzing parties’
arguments for and against growth factor in case involving centrally assessed railroad).
31
The table shows all date ranges that start with 2019 and end in a prior year, through 1989. For 24 ranges

AMENDED OPINION (VALUATION) TC 5411 Page 39 of 91
Plaintiff’s position that increases in net operating income require increases in capital

expenditure, rather than happening as a result of increased usage of existing property or other

efficiencies, as Defendant argues.

Plaintiff also presented officer testimony and an exhibit showing that, for the assessment

year ended December 31, 2019, Plaintiff earned a regulatory rate of return of 7.373 percent,

which was less than the allowed regulatory rate of return (7.60%). (See Ptf’s Ex 5 at 11, line 63

(7.373% for 2018); Transcript at 129.) In addition, Plaintiff’s managing director of revenue

requirement, Steven McDougal, testified that Plaintiff earned less than its allowed return on

equity for each of the approximately ten years preceding 2020. (See Transcript at 130.) The

WSATA Handbook recognizes this evidence as a potential predictor of future increases in net

operating income. See WSATA Handbook at III-5 (“Another technique for predicting net

operating income is to evaluate a utility’s historical performance as compared to the regulatory

body’s allowed rate of return. An analysis of performance ratios can be used to predict where

current earnings on net plant will fall in relationship to allowed earnings. For example, if it can

be shown statistically that a centrally assessed company’s historical earnings have been, for

example, 95 percent of its allowed rate of return on rate base, it may be reasonable to assume a

similar relationship in the future.”). The court finds that this evidence further supports

Plaintiff’s “no growth” position and enhances the reliability of net operating income as a proxy

for cash flow for yield capitalization purposes.

4. Defendant’s Method

Rather than use a proxy, Eyre attempted to build an actual cash flow estimate based on

over those 30 years, the rate of change in net operating income was less than the rate of change in net plant. For six
ranges, the rate of change in net operating income was greater than the rate of change in net plant; however, the
excess was modest, ranging from 0.2% to 0.9%. (See Ptf’s Ex 11 at 2.)

AMENDED OPINION (VALUATION) TC 5411 Page 40 of 91
prior-year and projected data. The quality of his estimate depends, therefore, on the reliability of

the data and the logic behind his assumptions, which the court now explores.

As to prior-year data, Eyre testified that he “normalized” depreciation and capital

expenditure data from 2016 through 2019 in arriving at his projections for 2020. (See Def’s Ex

A at 28-30.) Eyre’s normalization seems to have consisted mainly of simple arithmetic

processes applied without investigation, as opposed to adjustments designed to account for

identified anomalies, transactions, or other events. Eyre treated the four-year increase in

Plaintiff’s depreciation in 2016 through 2018 as a “trend” and determined his 2020 depreciation

amount of $1,030,000,000 by multiplying the 2019 amount by the four-year average percentage

increase. (See Def’s Ex A at 30; Transcript at 561-62.) On cross-examination, however, he

acknowledged that some of the increase in the two latter years may have been caused by changes

in federal tax law, rather than by the addition of new property, and that he did not know whether

those law changes had an effect beyond 2020. 32 (See id. at 562.) Also during 2018 and 2019,

capital expenditures increased dramatically, jumping more than 60 percent in 2018 and more

than 70 percent in 2019. 33 There is no evidence that Eyre investigated the business reasons for

these increases or the likelihood that they would continue to affect future cash flow. The court

finds this troubling, particularly since capital expenditures declined approximately 14 percent

from 2016 to 2017. Eyre simply averaged the amounts for all four years without explanation.

32
Specifically, the 2017 federal Tax Cuts and Jobs Act (TCJA), Pub L 115-97, 131 Stat 2054 (2017).
33
Eyre derived his estimates from the following prior-year data:

2020 Eyre Est. 2019 2018 2017 2016
Depreciation (Eyre uses $1,030,000,000 $953,983,000 $979,350,000 $796,220,000 $770,251,000
8% growth rate)
Capital Expenditures $1,300,000,000 $2,247,610,000 $1,291,567,000 $797,524,000 $930,851,000
(Eyre uses four-year
average of these amounts)

AMENDED OPINION (VALUATION) TC 5411 Page 41 of 91
In briefing, Defendant argues that the fact that capital expenditures in 2018 and 2019

exceeded the sum of depreciation and DIT is evidence of “real growth.” (See Def’s Opening

Post-Trial Br at 15.) 34 However, Defendant presents no evidence linking Plaintiff’s capital

expenditures to growth in Plaintiff’s potential for generating new, additional cash flow, as

opposed to, for example, expenditures needed to replace existing property that can be expected to

generate the same cash flow. Documents in the record, such as Plaintiff’s 2019 FERC-1 forms

and the discussions of Plaintiff’s activities in the 2019 10-Ks filed by Plaintiff’s ultimate parent

company, do not aid the court on this point. The filings contain brief discussions of a wide range

of anticipated capital expenditures, but the court has found no narrative or quantitative summary

that would allow the court to conclude that Plaintiff expected “real” growth as opposed to

“nominal” growth. (See, e.g., Ptf’s Ex 2 at 2010 (2019 FERC-1) (discussing Plaintiff’s 2019

“integrated resource plan” filed with state regulators that calls for investment in additional

“renewable capacity,” energy storage capacity and a new transmission line); id. at 4335 (2019 K-

1) (discussing “repowering” of all of Plaintiff’s wind-powered generating facilities “by the end

of 2020” to requalify them for income tax credits, “extend the lives” of the facilities, and

“increase[e] the anticipated electrical generation * * * by approximately 26%”).) Without

testimony or other evidence tying together the data, the court cannot accept evidence of

increased capital expenditures as proof of real growth.

///

34
The following table is drawn from Eyre’s appraisal report. (See Def’s Ex A at 30.)

2019 2018 2017 2016
Depreciation $953,983,000 $979,350,000 $796,220,000 $770,251,000
Deferred Income Tax - $125,091,000 -$202,299,000 $75,165,000 $145,070,000
Total $828,892,000 $777,051,000 $871,385,000 $915,321,000
Capital Expenditures $2,247,610,000 $1,291,567,000 $797,524,000 $930,851,000

AMENDED OPINION (VALUATION) TC 5411 Page 42 of 91
As to other prior-year data, for the item “net changes in regulatory assets and liabilities,”

Eyre selected $43 million as his estimate for 2020, even though the amount for 2019 was below

zero (negative $55,014,000), the amount declined for the two prior years, and there was an

overall decline from 2016. 35 (See Def’s Ex A at 30.) He acknowledged on cross-examination

that he “ha[d]n’t looked into” why the 2019 amount declined below zero. (Transcript at 553.)

This computation further undermines the court’s confidence in Eyre’s estimate of cash flow.

Turning to Eyre’s data of future projections, Eyre relied heavily on a “2020 Plan”

generated by Plaintiff. (See Def’s Ex A at 50; Def’s Ex F.) The 2020 Plan is a 19-page

document, consisting of tables and narrative, that bears the heading “Version 2 – 11/08/2019.”

(Def’s Ex F at 2.) The tables are labeled “2020 Plan Summary,” “Income Statement,” “Balance

Sheet,” and “Cash Flow”; each table contains columns for the years 2020 through 2029, and

some tables also show one or two prior years. Eyre determined that the 2020 Plan forecasts a

compound annual growth rate in net income of 8.6 percent for the first three years and 5.6

percent over the entire ten-year period. (See Def’s Ex A at 48 (finding 8.6% rate for “the first

five years”); Transcript at 597 (correcting to “just the first three years” based on an

acknowledged typographical error).) Eyre compared these rates to a forecasted compound

annual growth rate in property, plant and equipment of only 2.63 percent and concluded that

Plaintiff was itself predicting “real growth.” (Def’s Ex A at 48.) Based on this information, and

on his observation that inflation for 2009 through 2019 had an annual average rate of 1.61

percent, Eyre selected a rate of growth of two percent, which affected two components of the

35
Eyre’s estimate of the net change in regulatory assets and liabilities for 2020 was $43 million. He
determined this amount by averaging the following:

2020 Eyre Est. 2019 2018 2017 2016
$43,000,000 -$55,014,000 $87,483,000 $18,492,000 $122,115,000

AMENDED OPINION (VALUATION) TC 5411 Page 43 of 91
constant growth model formula set forth above: increasing the 2019 cash flow by two percent

and, separately, setting the growth rate to subtract from WACC. (See id. at 48-49.)

The court finds little basis to rely on the 2020 Plan. Eyre understood the 2020 Plan to be

Plaintiff’s “business plan closest to the end of the year.” (Transcript at 581.) Eyre did not speak

to anyone who had prepared it; he surmised, without evidence, that Plaintiff has “a large group of

people that do this on an annual basis.” (Id. at 579.) He did not ask the purpose for which the

2020 Plan was prepared. He acknowledged that the forecasted amounts become “more

speculative * * * the farther you get out from the present days.” (See id. at 582.) Eyre was

unaware whether the 2020 Plan contained any mathematical errors or other errors. (See id.)

Defendant presented no evidence correlating amounts shown in prior such plans with actual

historical results. Nothing informs the court whether the 2020 Plan represented a loose corporate

aspiration, as opposed to, for example, a thoroughly developed metric that might be used to set

officer compensation. Plaintiff’s tax director Norman Ross testified that the 2020 Plan was not

released to the public and that Plaintiff did not intend that it be relied on by people outside the

company. (See Transcript at 1411.) Overall, the court finds little basis to treat the 2020 Plan as a

reliable forecast of future data. 36

///

36
Unexplained differences compared to the amounts used in the parties’ appraisal computations also
undermine the persuasive value of the 2020 Plan. First, the “income statement” to which Eyre refers in the 2020
Plan does not show amounts of “net operating income” (the starting point for Eyre’s cash flow computation);
instead, the 2020 Plan refers to “net income” and to “operating income.” Using 2018 (the only completed year
shown on the 2020 Plan) as a reference, the court finds that the amount for “operating income” ($1,050,700,000) is
similar to, but not identical with, “net operating income” ($1,041,866,000), but the manner of computing the two
amounts is sufficiently different that the court is not confident that “net operating income” is comparable to “net
income.” (Compare Def’s Ex F at 6 with Def’s Ex A at 30 and Ptf’s Ex 2 at 1499-1982 (FERC 1).) The court also
notes that the heading of the relevant page of the 2020 Plan is “Income Statement (PPW Holdings).” Plaintiff’s
Form 10-K for 2019 describes PPW Holdings LLC as Plaintiff’s parent company. (See Ptf’s Ex 2 at 4415.) The
court finds no evidence in the record indicating whether PPW Holdings LLC has income or operations, apart from
its ownership of Plaintiff’s stock, that might have been combined with projections for Plaintiff.

AMENDED OPINION (VALUATION) TC 5411 Page 44 of 91
Eyre concluded that the 2020 Plan was a forecast of “real growth” because the plan

predicts net income to grow at a compound annual growth rate of 5.6 percent (averaged over the

ten years), while the plan predicts that property, plant, and equipment (PP&E) will grow at a

compound annual growth rate of only 2.63 percent over the same period. (See Def’s Ex A at 48.)

However, Ross testified that Eyre’s computations contain a mismatch that overstates the

difference between the two rates. In determining the compound annual growth rate in PP&E,

Eyre included assets in each year that constituted “construction work in progress” (CWIP).

Although Ross agreed that PP&E together with CWIP grew at 2.63 percent, Ross determined

that PP&E without CWIP grew at 4.8 percent. (See Transcript at 1373-75; Ptf’s Ex 38.) Ross

concluded that CWIP must be subtracted from PP&E because Plaintiff’s regulators do not allow

Plaintiff to earn a return on CWIP, so CWIP does not contribute to net income. The court finds

no argument from Defendant in response to this point. The court agrees with Plaintiff: Where

the goal is to test for “real growth” by comparing the rate of growth in Plaintiff’s net income to

the rate of growth in PP&E, the dollar amount of PP&E must be limited to property capable of

generating net income. Ross’s calculations show that the effect of this correction is that the ten-

year compound annual growth rate in PP&E rises from the rate Eyre derived (2.63%) to 4.8

percent, which is much closer to the 2020 Plan’s projection of 5.6 percent growth in net income.

(See Ptf’s Ex 38.) 37

///

37
Ross also testified that the 2020 Plan contained an error in the projection of income amounts for 2028
and 2029; for each of those years, income was overstated by $100 million. (See Transcript at 1373-74.) According
to Ross, correcting that error reduced the compound rate of growth in net income from 5.6% to 4.8%, which matches
the post-CWIP compound rate of growth in PP&E. (See Ptf’s Ex 38.) Defendant objects to Ross’s attempted
correction as untimely and unsubstantiated; Plaintiff argues that the error is sufficiently obvious that Eyre should
have spotted it. (See Def’s Opening Post-Trial Br at 49; Ptf’s Response at 30.) The court need not resolve this point
because the court finds the 2020 Plan unreliable for the reasons stated, especially as to the later years.

AMENDED OPINION (VALUATION) TC 5411 Page 45 of 91
The narrative in the 2020 Plan does not, by itself, support or refute Eyre’s conclusion of

real growth. Like Plaintiff’s public filings on Forms FERC-1 and 10-K, the narrative in the 2020

Plan mentions many future projects and prospects, including new renewable energy and storage

projects as well as coal plant retirements. (See, e.g., Def’s Ex F at 2.) However, the 2020 Plan

does not appear to have the purpose of distinguishing between real growth and nominal growth,

and its data are not organized in a way that informs the court on that point. The court finds no

basis in the 2020 Plan to conclude that Plaintiff expected real growth.

The court finds no other evidence of future real growth. In post-trial briefing, Defendant

argues that “PacifiCorp’s customer base has been increasing and is expected to continue to

increase.” (Def’s Response at 11.) Defendant cites no evidence for this assertion. Eyre testified,

without reference to any documentary or other evidence: “A growing company like PacifiCorp,

they’re growing. They’re adding new customers every day. So they’re required to add new

plant as they--as they continue to grow, they’ll probably on a normalized basis have more capital

expenditure and depreciation because they’re growing.” (Transcript at 1016.) Even if these

circular assertions had a basis in evidence, they do not help the court because they fail to

distinguish between real growth and nominal growth.

5. Conclusion as to Cash Flow and Growth Rate

The court is compelled to choose between two imperfect measures of cash flow. Plaintiff

offers net operating income as a proxy based on its firmly held view that the fact that it is a

regulated utility means, per se, that it will never experience real growth because regulators will

prevent it from earning more than its cost of capital. To some extent, Plaintiff relies on this

theoretical position instead of addressing Defendant’s points, notably the fact that capital

expenditures grew substantially in excess of depreciation and DIT in 2018 and 2019. On the

other hand, Defendant insists just as strongly that all regulated utilities experience real growth

AMENDED OPINION (VALUATION) TC 5411 Page 46 of 91
that is not reflected in net operating income, building up a store of property value ignored by

regulators, with the result that utilities always sell for more than their net book value. The court

need not, and does not, resolve the parties’ competing theories to determine cash flow in this

case. The court finds too many logical leaps and unsupported assumptions in Defendant’s build-

up determination of cash flow. Plaintiff’s use of net operating income as a proxy, despite flaws,

is superior because it is better supported by historical data. On balance, the court finds that the

preponderance of the evidence supports Plaintiff’s estimated cash flow of $1,100,000,000. 38 For

the same reasons, the court finds that the growth rate in the yield capitalization formula is zero. 39

In adopting this cash flow and the growth rate of zero in this case, the court neither validates nor

rejects a generalized theory that the net operating income of a regulated utility is necessarily an

appropriate proxy for cash flow consisting of net operating income plus depreciation and DIT,

less capital expenditures.

6. Yield Capitalization: Rate (Weighted Average Cost of Capital)

In a yield capitalization method, the rate by which cash flow is divided often is referred

to as the “weighted average cost of capital” (WACC). See, e.g., WSATA Handbook at III-19 to

III-20. The rate is composed of two components: the cost of debt, and the cost of equity. The

WACC is the average of the two, weighted according to the company’s capital structure, i.e., its

38
Consistent with the use of net operating income as a proxy, in lieu of a computed cash flow, the court
also accepts Plaintiff’s position that no adjustment for inflation is appropriate. While the court agrees with
Defendant that regulators may provide for inflation, either in a rate case under ORS 757.259 or through an automatic
adjustment clause under ORS 757.210, the adjustment would affect the numerator and the denominator of the
constant growth formula; inflation would not represent real growth. (See Ptf’s Post-Trial Br at 46; Ptf’s Response at
24; Def’s Opening Post-Trial Br at 39; Def’s Response at 10-12.)
39
Defendant also criticizes Tegarden’s no-growth assumption as inconsistent with his assumptions of
positive growth in computing the weighted average cost of capital. (See Def’s Opening Post-Trial Br at 9.)
However, only the parties’ Dividend Growth Model (DGM) estimates relied on an assumed rate of future growth.
Because of flaws unrelated to the projection of Plaintiff’s future cash flow stream, the court gives no weight to either
party’s DGM analysis, and the court therefore finds any such inconsistency irrelevant.

AMENDED OPINION (VALUATION) TC 5411 Page 47 of 91
relative proportions of equity and debt. See id. at III-26 to III-30. The court reviews each

party’s proffered capital structure, cost of debt, and cost of equity.

7. Capital Structure

In this case, the parties’ determinations of Plaintiff’s capital structure are very similar,

and each is supported by substantial evidence. Tegarden determined a capital structure of 35

percent debt and 65 percent equity. (See Ptf’s Ex 1 at 51.) Eyre determined a capital structure of

37 percent debt and 63 percent equity. (See Def’s Ex A at 34.) The court determines a capital

structure of 36 percent debt and 64 percent equity.

8. Capitalization Rate: Cost of Debt

Tegarden determined a cost of debt of 4.25 percent; Eyre determined a cost of debt of

3.73 percent. (Ptf’s Post-Trial Br at 18; Def’s Response at 13.) Both Tegarden and Eyre based

their cost of debt on the actual yield to maturity of bonds issued by utilities they considered

comparable. They agreed on one point: they each looked to bonds that were assigned the bond

rating of BBB+. 40 As discussed below, the parties disagree about whether to use effective rates

for newly issued debt, as opposed to the yield to maturity for existing debt. They also disagree

about the selection of comparator companies. Finally, Defendant argues that Plaintiff failed to

select yields as of the relevant date.

Tegarden started with “the yields to maturity for all rated electric utility bonds traded at

year end 2019,” as reported in Mergent Bond Record in January 2020. (Ptf’s Ex 1 at 53

(narrative), 172-76 (list), 176 (publication date).) From this list of approximately 300 bonds

40
BBB+ is the Standard & Poor’s rating. The parties sometimes referred to the equivalent Moody’s rating
of Baa. (See, e.g., Transcript at 444.) Tegarden arrived at the BBB+ rating because it was the median bond rating
“for the entire electric industry no matter how it is divided.” (Ptf’s Ex 1 at 53.) Eyre reached the same rating by
selecting 10 guideline companies that he considered “reasonably similar” members of the “Electric Utility segment.”
(Def’s Ex A at 31-33; Transcript at 444.) The average rating of those 10 companies was Baa (Mergent). (Def’s Ex
A at 46.)

AMENDED OPINION (VALUATION) TC 5411 Page 48 of 91
(which the court refers to as Tegarden’s Master List), Tegarden selected those rated at BBB+.

There were 37 such bonds; the court refers to this subset as Tegarden’s BBB+ List. (See id. at

172-76.) The average yield to maturity of the bonds on Tegarden’s BBB+ List as of January 1,

2020, was 4.40 percent. (See id.) Tegarden also considered the average yield of all utility bonds

with the same BBB+ rating (3.73%), as reported by Mergent’s Bond Record, as well as other

data points. (Ptf’s Ex 1 at 54-55.) He concluded that 4.25 percent was appropriate as his cost of

debt.

Eyre reviewed one of the data sources Tegarden considered, namely, the Mergent data for

all utility bonds. Eyre described this source as “the Mergent Bond Record for January 2020,”

showing “the average yield to maturity for a public utility bond of [the BBB+] rating issued on

1/1/20 * * *.” Eyre selected that percentage as his cost of debt: 3.73 percent. (Def’s Ex A at

46.)

a. Use of Effective Rates for Newly Issued Debt vs. Yield to Maturity For Existing Debt

Defendant criticizes Tegarden’s approach on the grounds that it does not rely on the yield

to maturity for debt issued on or around the assessment date, January 1, 2020. Defendant asserts:

“Mr. Eyre’s 3.73% cost of debt was as of year-end 2019 but Mr. Tegarden’s 4.25% debt rate was

not.” (Def’s Response at 13.) Defendant then qualifies this statement somewhat, stating that

“certain of” Tegarden’s yields “are not year-end rates.” (Id. at 13 n 3.) Eyre distinguished

between (1) the effective rates for bonds actually issued on or about the assessment date, and

(2) the effective rates for bonds issued months or years before the assessment date but traded on

or about the assessment date. (See Def’s Ex E at 24; see also Def’s Ex A at 46.) 41 At trial, he

41
The court makes no finding as to whether Eyre relied solely on yields on bonds issued at or around
January 1, 2020. Eyre’s exhibits include no source document that identifies whether the subject bonds are newly
issued or pre-existing. On cross-examination, Eyre was asked whether Mergent’s, the source of his data, was
“looking at all sorts of seasoned bonds and * * * determining what that yield is based on the current interest rate that

AMENDED OPINION (VALUATION) TC 5411 Page 49 of 91
criticized Tegarden because “Mr. Tegarden went and used the yields of bonds that have already

been issued. Some of them had been issued years before the [assessment] date.” (Transcript at

444.) In briefing, Defendant takes the position that “[t]his practice of using existing, or

embedded debt, is inconsistent with the determination of real market value on the appraisal date

* * *.” 42 (Def’s Opening Post-Trial Br at 16.) The apparent premise of this position is that only

the effective rates for actual issuances on or about a particular date are reliable data for the yield

to maturity of comparable bonds as of that date. The court finds Defendant’s premise unreliable

and its position overstated.

The WSATA Handbook’s discussion of debt rates includes the following statement:

“An excellent source of debt money costs is the effective rate at which new debt
issues are sold. The effective rate may vary from the coupon rate depending upon
the market at the time. Wide publicity is given to the sale of new debt issues and
these issues are very frequently put out to competitive bidding.”

WSATA Handbook at III-28. Thus, the WSATA Handbook implies that there is an evidentiary

reason to prefer rates for newly issued debt, i.e., that those rates are more likely to be reliable

because they are more likely to be based on bids from a larger number of potential buyers. The

court questions whether this rationale, first stated more than thirty years ago, has a basis in fact

in today’s bond market. 43 Even if it does, the court finds Defendant’s reliance on the quoted

passage misplaced because the WSATA Handbook elsewhere emphasizes that debt rates are

is being provided.” (Transcript at 622-23 (emphasis added).) Eyre responded: “I don’t know what procedure they
go through to determine that yield. But it is * * * reported as a yield to maturity for this rated bond.” (Id. at 623.)
42
The court discusses Defendant’s use of the term “embedded debt” below.
43
The quoted sentences originally appeared in the 1989 edition of the WSATA Handbook and were
reprinted verbatim in the most recent edition, which was published in 2009. Western States Association of Tax
Administrators, Appraisal Handbook: Valuation of Utility & Railroad Property at 50-51 (1989). In particular, the
court is uncertain whether the reference to “[w]ide publicity” for new debt issues remains valid in light of substantial
changes in the delivery of information since the development of the internet. The WSATA Handbook offers no
further detail, nor does anything in the record in this case substantiate the sentences.

AMENDED OPINION (VALUATION) TC 5411 Page 50 of 91
“relatively easy to determine” and are “usually obtainable from current loan rates and current

ratios of yield to price of bonds.” WSATA Handbook at III-28 (emphasis added). At another

point, the WSATA Handbook states that “debt with a low nominal interest rate will be

discounted in the marketplace at an effective rate equivalent to the current cost of debt.” Id. at

III-29. Reading the WSATA Handbook’s discussion of debt rate as a whole, the court is left

with the impression that the marketplace can efficiently and accurately determine the yield to

maturity of debt as of an assessment date, even if the debt was issued earlier. 44 The court has

found nothing in the Department’s other exhibits that discusses the relative reliability of effective

rates of current vs. prior issuances. The court finds no evidence that Tegarden’s debt rate is

flawed for failure to rely solely on debt issuances on or around the January 1, 2020, assessment

date. Nor does the court find any evidence that Eyre’s debt rate is rendered more reliable

///

44
This impression is confirmed by another of Defendant’s administrative rules, entitled: “Derivation of
Capital Structure and Discount Rates for Valuing Industrial Properties and Department-Assessed Properties.”
OAR 150-308-0250(2)(b). That rule states in relevant part:

“The cost of debt is the current market rate for new securities. The embedded rate on securities
previously issued is not a proper measure. In order to determine the cost of debt the appraiser
should:

“(A) Refer to the rates for seasoned bond issues from Moody’s Utility, Industrial, and
Transportation weekly news reports or other rating services for at least two months immediately
prior to the appraisal date. This should be done by bond rating (Aa, A, Baa, etc.) and industry
type.

“(B) Obtain information on new bond issues by industry type and bond rating from Moody’s Bond
Survey or other publications for at least two months immediately prior to the appraisal date.

“(C) Consider recommendations on debt rates submitted by industry.

“(D) Select rates for each industry group by bond rating after analyzing the data in the steps
above.”

In other words, the rule directs appraisers to both refer to “rates for seasoned bond issues” (paragraph (A)) and to
“[o]btain information on new bond issues” (paragraph (B)). Nothing directs an appraiser to prefer, or to rely solely
on, rates for new issuances.

AMENDED OPINION (VALUATION) TC 5411 Page 51 of 91
because it purports to be based solely on debt issuances on or around the January 1, 2020,

assessment date. 45

b. Use of Trades Occurring Near January 1, 2020; Appraisal Date vs. Earlier Dates

Defendant’s second significant criticism is that, even though the Tegarden BBB+ List

may have relied on yields to maturity for all rated electric utility bonds “traded at year-end

2019,” those data nevertheless were inaccurate because they were not yields to maturity “as of”

December 31, 2019. (Def’s Reply at 15.) Defendant’s expert Dr. Bradford Cornell testified that

Tegarden may well have assembled a list of bonds that were traded at the end of 2019, but rather

than use the yields attributable to trades o

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10607485. Public record. Not legal advice.