                                                                                                            11/06/2017
                   IN THE COURT OF APPEALS OF TENNESSEE
                               AT NASHVILLE
                                      August 24, 2017 Session

                          B&W PIPELINE, LLC v.
                 TENNESSEE REGULATORY AUTHORITY ET AL.

                      Appeal from the Tennessee Regulatory Authority
                                       No. 15-00042


                                 No. M2016-02013-COA-R12-CV



B&W Pipeline, LLC (“B&W”), a public utility that owns a gas pipeline in three
Tennessee counties, filed a petition with the Tennessee Regulatory Authority1 (“the
Authority”) seeking a rate increase. As part of the rate increase request, B&W sought to
include in the rate base $2.6 million in acquisition costs that it had incurred when it
purchased the pipeline and several oil and gas wells in 2010. A contested case hearing
took place on September 14, 2015. Following deliberation, the Authority denied B&W’s
proposed acquisition adjustment and instead utilized a 2008 federal income tax return
filed by the pipeline’s previous owner to establish the pipeline’s value for the purpose of
determining the rate base. The Authority issued its final order on March 10, 2016. B&W
timely filed a motion for reconsideration. The Authority denied the motion for
reconsideration with respect to the value of the pipeline while granting the motion for
reconsideration with respect to certain due diligence and other costs B&W incurred in the
acquisition. After the submission of briefs, the Authority affirmed its decision to exclude
the additional acquisition costs. The Authority issued a final order concerning
reconsideration on August 4, 2016. B&W filed a timely petition for review with this
Court on October 3, 2016. Discerning no error, we affirm the Authority’s decision.

    Tenn. R. App. P. 12 Direct Review of Administrative Proceeding; Judgment of the
              Tennessee Regulatory Authority Affirmed; Case Remanded

THOMAS R. FRIERSON, II, J., delivered the opinion of the court, in which D. MICHAEL
SWINEY, C.J., and W. NEAL MCBRAYER, J., joined.


1
 Effective April 4, 2017, the Tennessee Regulatory Authority was renamed the Tennessee Public Service
Commission. See 2017 Tenn. Pub. Acts Ch. 94 (S.B. 747). Because this name change occurred during
the pendency of this appeal and after submission of the appellant’s initial brief, we will continue to utilize
the moniker, Tennessee Regulatory Authority, for purposes of this appeal.
Patricia Head Moskal and Henry M. Walker, Nashville, Tennessee, for the appellant,
B&W Pipeline, LLC.

Kelly Cashman-Grams and Ryan McGehee, Nashville, Tennessee, for the appellee,
Tennessee Regulatory Authority.

Herbert H. Slatery, III, Attorney General and Reporter; Andrée Blumstein, Solicitor
General; Vance L. Broemel, Senior Counsel; and Daniel P. Whitaker, III, Assistant
Attorney General, for the appellee, the Consumer Protection and Advocate Division
Office of the Tennessee Attorney General.

                                                  OPINION

                                 I.    Factual and Procedural Background

      B&W is a public utility that owns a natural gas pipeline located in parts of Pickett,
Morgan, and Fentress counties in Tennessee. The pipeline was originally built in the
1980s. The pipeline has one primary customer for regulated service, Navitas TN NG
LLC (“Navitas”). B&W delivers natural gas to Navitas, which, in turn, distributes gas to
a number of residential and commercial customers in Tennessee and Kentucky.

       Prior to 2010, the pipeline and the distribution system were both owned and
operated by Gasco Distribution Systems, Inc. (“Gasco”). As part of Gasco, the pipeline
operated pursuant to Gasco’s certificate of convenience and necessity (“CCN”), granted
by the Authority. In 2010, Gasco, while in bankruptcy, sold the local distribution system
to Navitas, and Gasco’s CCN was transferred to Navitas. Gasco subsequently sold the
pipeline and ninety-six oil and gas wells to Highland Rim Energy, B&W’s parent
company, for $2,633,085.00. The pipeline and wells were later assigned to B&W. B&W
presented testimony that the pipeline and wells, many of which were inactive, were a
“package deal,” such that B&W was “stuck with the wells.”

       Following its purchase of the pipeline, B&W continued providing gas to Navitas
at the rate of $.60 per Mcf,2 according to a pre-existing contract. A representative for
B&W testified that two to three years following the purchase of the pipeline, the
Authority informed B&W that the pipeline had to be regulated. The Authority granted
B&W a CCN on January 8, 2015. B&W filed a petition to increase rates with the
Authority on April 2, 2015, following expiration of the aforementioned contract. B&W
sought to increase its rates from $.60 per Mcf to $3.69 per Mcf, representing a significant
rate increase. Both Navitas and the Consumer Protection and Advocate Division of the
Office of the Tennessee Attorney General (“Consumer Advocate”) were allowed to
2
    This is the abbreviation for one thousand cubic feet of natural gas.
                                                        2
intervene and oppose the rate increase, and the Authority opened a contested case
proceeding.

       In its petition, B&W combined the purchase price of the pipeline and gas and oil
wells, as well as certain acquisition costs, such as due diligence costs, into the proposed
rate base. B&W argued that it should be allowed to charge a rate that covered its
expenses, including depreciation, and that allowed B&W to earn a reasonable rate of
return on its investment in physical assets. The parties engaged in discovery prior to the
hearing, which was scheduled for September 2015. During discovery, B&W stated that it
had no records from the prior owner disclosing the original cost of the pipeline.

       On August 11, 2015, the Consumer Advocate and Navitas submitted pre-filed
testimony in opposition to the proposed rate increase, including the proposed value of the
pipeline for rate-making purposes. The Consumer Advocate’s witness, Ralph Smith,
asserted that the rate base should not include the acquisition costs of the pipeline in 2010
but that it should include only the original pipeline cost minus depreciation pursuant to
the Uniform System of Accounts, which the Authority required B&W to utilize. B&W
submitted pre-filed rebuttal testimony, wherein B&W’s witness, William Novak,
contended that the investment made in purchasing the pipeline and wells, totaling over
$2.6 million, should be included in the rate base as a reasonable “estimate” of the original
cost of the pipeline.3 In response to a request from the Authority seeking additional
information concerning the value of the pipeline, on September 8, 2015, Navitas
submitted a 2008 federal income tax return filed by Gasco.

        The contested case hearing took place before the Authority on September 14,
2015. During the hearing, the Consumer Advocate submitted the 2008 Gasco tax return
as evidence with no objection from B&W. Mr. Smith, on behalf of the Consumer
Advocate, testified that the 2008 Gasco tax return was the most reliable information
regarding the pipeline’s depreciated original cost. This tax return listed depreciable
assets of $854,826.00 and reported depreciation for that year in the amount of
$22,564.00. Mr. Smith opined that the pipeline had thus been almost fully depreciated by
the time of the hearing. Mr. Novak opined that tax return information relied upon by Mr.
Smith was actually referring to the oil and gas wells rather than the pipeline. At the
conclusion of the hearing, B&W’s counsel acknowledged that “no clear evidence of what
the rate base ought to be” existed and that the issue was one of “policy and fairness.”

       On November 16, 2015, the hearing officer issued an order indicating that the
parties had informed him that they “d[id] not seek additional argument, evidence, or new
cross-examination of any evidence.” No new evidence was thereafter filed by either
party. On December 14, 2015, the Authority deliberated and set rates. As part of its
3
    Both Mr. Smith and Mr. Novak are certified public accountants.
                                                     3
ruling, the Authority rejected B&W’s position that the 2010 purchase price of $2.6
million for the pipeline and wells should be included in the rate base. Instead, the
Authority utilized the 2008 Gasco tax return, determining it to be the “most sound
support for the prior owner’s original cost and the value of the pipeline at the time of
acquisition.” Based on the information contained in the tax return, the Authority
concluded that the original cost of the pipeline had been almost fully depreciated by the
time of the 2015 rate hearing.

       Following issuance of the Authority’s order setting rates, B&W filed a timely
motion for reconsideration. In this motion, B&W claimed that assigning a value of $1.2
million to $1.6 million to the pipeline would equitably balance the interests of the parties.
B&W attached new documents, including a non-notarized affidavit of a prior president of
Gasco and additional Gasco tax documentation, for the Authority to consider as
additional evidence with respect to the value of the pipeline. B&W also argued in the
motion that the Authority had erred by failing to include related acquisition costs of
$225,585.31 in the rate base calculation.

        In an order dated May 16, 2016, the Authority declined to grant reconsideration
with respect to the value of the pipeline, determining that the issue had been fully
litigated during the hearing on the merits and that no good cause was presented to justify
B&W’s failure to introduce the additional evidence during the original proceeding. The
Authority did, however, grant reconsideration regarding the issue of acquisition costs,
directing the hearing officer to schedule arguments addressing this issue. Subsequently,
on August 4, 2016, the Authority denied the inclusion of such acquisition costs in the rate
base, determining that such costs had been included in the $2.6 million dollar purchase
price previously rejected by the Authority. B&W filed a timely petition for review with
this Court.

                                   II.   Issues Presented
        B&W presents the following issues for our review, which we have restated
slightly:

       1.     Whether the Authority acted in an arbitrary and capricious fashion
              when it refused to include in the rate base the acquisition price paid
              for the pipeline by B&W in 2010.

       2.     Whether the Authority abused its discretion by denying B&W’s
              petition for reconsideration with respect to the value of the pipeline.

       3.     Whether the Authority’s final order fails to comply with the
              requirements of Tennessee Code Annotated § 4-5-314(c) because it
                                             4
             contains no findings of fact or conclusions of law with regard to the
             acquisition costs.

                               III.   Standard of Review

      This Court’s review of the Authority’s decision is governed by Tennessee Code
Annotated § 4-5-322(h) (Supp. 2017). See Consumer Advocate Div. ex rel. Tenn.
Consumers v. Tenn. Regulatory Auth., No. M1999-01170-COA-R12-CV, 2001 WL
575570, at *3 (Tenn. Ct. App. May 30, 2001). Tennessee Code Annotated § 4-5-322(h)
provides:

      The court may affirm the decision of the agency or remand the case for
      further proceedings. The court may reverse or modify the decision if the
      rights of the petitioner have been prejudiced because the administrative
      findings, inferences, conclusions or decisions are:

             (1) In violation of constitutional or statutory provisions;

             (2) In excess of the statutory authority of the agency;

             (3) Made upon unlawful procedure;

             (4) Arbitrary or capricious or characterized by abuse of
                 discretion or clearly unwarranted exercise of discretion;
                 or

             (5)(A)    Unsupported by evidence that is both substantial
                       and material in the light of the entire record.

                (B)    In determining the substantiality of evidence, the
                       court shall take into account whatever in the record
                       fairly detracts from its weight, but the court shall
                       not substitute its judgment for that of the agency as
                       to the weight of the evidence on questions of fact.

      The review by this Court is for the “very limited purpose of determining whether
the [Authority] has acted arbitrarily, or in excess of its jurisdiction, or otherwise
unlawfully.” Consumer Advocate & Prot. Div. of Office of Atty. Gen. v. Tenn.
Regulatory Auth., No. M2011-00028-COA-R12-CV, 2012 WL 1964593, at *13 (Tenn.
Ct. App. May 30, 2012) (quoting CF Indus. v. Tenn. Pub. Serv. Comm’n, 599 S.W.2d
536, 540 (Tenn. 1980)) (in turn quoting City of Whitwell v. Fowler, 343 S.W.2d 897, 899
                                             5
(Tenn. 1961)). Such issues are reviewed de novo based upon the Authority’s record. See
Consumer Advocate & Prot. Div. of Office of Atty. Gen., 2012 WL 1964593, at *13. As
this Court has further explained:

       [I]n reviewing an administrative decision, a court “shall not substitute its
       judgment for that of the agency as to the weight of the evidence on
       questions of fact.” T.C.A. § 4-5-322(h)(5); Humana of Tennessee v.
       Tennessee Health Facilities Comm’n, 551 S.W.2d 664 (Tenn. 1977).
       Factual issues are reviewed upon a standard of substantial and material
       evidence, and not upon a broad, de novo review. Southern Ry. Co. v. State
       Bd. of Equalization, 682 S.W.2d 196, 199 (Tenn. 1984) (citing CF Indus. v.
       Tennessee Pub. Serv. Comm’n, 599 S.W.2d 536, 540 (Tenn. 1980)).
       Substantial and material evidence is “‘such relevant evidence as a
       reasonable mind might accept to support a rational conclusion and such as
       to furnish a reasonably sound basis for the action under consideration.’”
        Sweet v. State Tech. Inst. at Memphis, 617 S.W.2d 158, 161 (Tenn. App.
       1981) (quoting Pace v. Garbage Disposal Dist. of Washington County, 54
       Tenn. App. 263, 390 S.W.2d 461, 463 (1965)). It is “something less than a
       preponderance of the evidence, but more than a scintilla or glimmer.”
       Wayne County v. Tennessee Solid Waste Disposal Control Bd., 756 S.W.2d
       274, 280 (Tenn. App. 1988). A court will not disturb a reasonable decision
       of an agency with expertise, experience, and knowledge in the appropriate
       field. Southern Ry. Co., 682 S.W.2d at 199.

In re All Assessments, No. 01A01-9812-BC-00642, 1999 WL 632824, at *4 (Tenn. Ct.
App. Aug. 20, 1999).

       IV. Fixing Just and Reasonable Rates: Original Cost versus Acquisition Cost

        The Authority “has the power . . . to fix just and reasonable individual rates, joint
rates, tolls, fares, charges or schedules thereof . . . .” Tenn. Code Ann. § 65-5-101(a)
(2015). Additionally, Tennessee Code Annotated § 65-5-103 (2015) states in pertinent
part:

       (a) When any public utility shall increase any existing individual rates, joint
       rates, tolls, fares, charges, or schedules thereof, or change or alter any
       existing classification, the authority shall have power either upon written
       complaint, or upon its own initiative, to hear and determine whether the
       increase, change or alteration is just and reasonable. The burden of proof to
       show that the increase, change, or alteration is just and reasonable shall be
       upon the public utility making the same. In determining whether such
                                             6
      increase, change or alteration is just and reasonable, the authority shall take
      into account the safety, adequacy and efficiency or lack thereof of the
      service or services furnished by the public utility.

      With regard to utility rates, this Court has previously explained:

      The utility is permitted to set base rates that allow it to recover its operating
      expenses and earn a profit from the consumer from the operation of its
      business; in overseeing these base rates, the TRA is required to balance the
      interests of the utility with the interests of Tennessee consumers. See Tenn.
      Am. Water Co. v. Tenn. Reg. Auth., No. M2009-00553-COA-R12-CV, 2011
      WL 334678, at *15 (Tenn. Ct. App. Jan. 28, 2011). On one hand, the rate
      approved by the TRA must provide the utility the opportunity to earn a just
      and reasonable return on its investment; on the other hand the rate must not
      be exorbitant, so as to avoid the exploitation of consumers. See Bluefield
      Water Works & Improvement Co. v. Public Serv. Comm’n of the State of
      West Va., 262 U.S. 679, 690, 43 S. Ct. 675, 67 L. Ed. 1176 (1923). “A rate
      need only fall within the ‘zone of reasonableness’ . . . that takes into
      consideration the interests of both the consumer and the utility.” Tenn.
      Cable Television Ass’n. v. Tenn. Pub. Serv. Comm’n, 844 S.W.2d 151, 159
      (Tenn. Ct. App. 1992).

Consumer Advocate & Prot. Div. of Office of Atty. Gen., 2012 WL 1964593, at *1.

        In the instant action, the Authority in its order similarly explained the criteria
utilized to set “just and reasonable rates” as follows:

             In setting rates for public utilities, the Authority balances the
      interests of the utilities subject to its jurisdiction with the interests of
      Tennessee consumers, i.e., it is obligated to fix just and reasonable rates.
      The Authority must also approve rates that provide regulated utilities the
      opportunity to earn a just and reasonable return on their investments. The
      Authority considers petitions for a rate increase, filed pursuant to Tenn.
      Code Ann. § 65-5-[1]03, in light of the following criteria:

      1.     The investment or rate base upon which the utility should be
             permitted to earn a fair rate of return;

      2.     The proper level of revenues for the utility;

      3.     The proper level of expenses for the utility; and
                                             7
      4.     The rate of return the utility should earn.

        As the Authority also explained in its order, “[t]he primary contested issue
concerning rate base centered on whether to allow the inclusion of B&W’s acquisition
cost of $2,633,085 in rate base calculations, as proposed by [B&W].” With regard to this
issue, the Authority made the following extensive findings:

      B&W acquired the pipeline and ninety-six (96) oil and natural gas wells for
      $2,633,085 from Gasco’s bankruptcy proceeding in 2010. [B&W] had no
      records for the net book value of the pipeline, but rather recorded the
      acquisition price as plant in service. According to [B&W], because the
      seller would not sever the pipeline from the wells, B&W had to take the
      wells in order to get the pipeline; therefore B&W assigned none of the
      acquisition cost to the wells. B&W estimated the value of the producing
      wells to be $60,943 and the net liability of capping the inactive wells to be
      $29,845.

      ***

      B&W believes it made a good business decision in purchasing the pipeline
      for $2.6 million because it is less than the cost to build one. Mr. Ramon
      further testified that [B&W] became aware after the purchase that
      approximately 40 to 50 of the wells had already been plugged or handed
      over to the landowners. Further, only thirteen (13) of the wells are
      currently producing oil or gas.

             In addition, [B&W] supported its acquisition cost with an
      independent analysis performed by Bell Engineering. The Bell analysis
      estimates the 2013 replacement cost of the pipeline to be $12,885,858 and
      the undepreciated costs are $6,559,308, which far exceeds the acquisition
      cost included in rate base. Even if this amount is depreciated back to the
      pipeline’s construction date, its replacement value still exceeds the amount
      included in rate base. . . .

             Navitas noted that 100% of the purchase price is attributed in
      B&W’s rate case to the pipeline although other assets, including wells,
      were included in the transaction. Mr. Hartline asserts that there is no sound
      economic basis for spending $2 million on a pipeline that earns $20,000
      annually. Therefore, a substantial portion of the purchase price is and
      should be attributed to the other assets purchased in the transaction. Mr.
                                             8
Hartline testified that the Bell Engineering report was an inappropriate
basis to support inclusion of the acquisition costs as replacing the pipeline
today would be uneconomic in the rural area the pipeline services.

       In the pre-filed testimony of Mr. Smith, the Consumer Advocate
proposed to exclude from Plant in Service the pipeline purchase costs and,
instead, treat it as an Acquisition Adjustment because B&W failed to
provide reliable information on the original cost of the pipeline. Mr. Smith
explains that any amount paid for utility plant in excess of the utility’s
original costs are referred to as “Goodwill” or Acquisition Premium, and
not allowed recovery in rates because it is not used or useful in the
provision of utility service. Disallowance of Goodwill or Acquisition
Premium discourages companies from marking up the cost of assets used to
provide utility service through the transfer or selling to different owners.
Mr. Smith states that B&W was unable to provide the original cost, and the
pipeline cost was not available from the books of Gasco (the seller) or the
property tax information on file for Gasco. He determined from the
responses to data requests that B&W did acquire 96 oil and gas wells along
with the pipeline and that B&W determined the net value of these wells to
be a negative $29,845 due to the cost of capping inactive wells. Therefore,
none of [the] purchase price was assigned by B&W to the wells.

        From B&W’s 2012 trial balance, Mr. Smith ascertained that there
was a gross profit of $182,582, which included $19,729 for gas
transportation and $162,853 from oil and gas sales and royalties. Thus,
according to Mr. Smith, of the revenues generated by the pipeline, 11%
were from transportation service and 89% from oil and gas sales and
royalties. The wells in question have since been transferred to a B&W
affiliate, Rugby Energy, LLC, and are operated by another affiliate,
Enrema, which is the same affiliate charging B&W an annual operator fee.
Because of the gross profit in 2012 and the transfer taking place between
two affiliates with the same ownership, Mr. Smith questions the lack of
compensation for the wells. For these reasons, the Consumer Advocate
removed the acquisition amount of $2,597,285 from Plant in Service and
left only the $437,715 as the cost of the pipeline. This represents the
amount spent by B&W for safety improvements after B&W acquired the
pipeline. Removing this amount from Plant in Service results in a
reduction of the attrition year mid-point accumulated depreciation by
$568,367 for a total rate base reduction of $2,028,918 related to the cost of
the pipeline.


                                     9
       In response to data requests from Authority Staff, Navitas provided
records from the previous owner of the pipeline, including a 2008 tax
return. During the hearing, Mr. Smith addressed the 2008 federal income
tax return, stating that the reported pipeline assets at the end of 2008 were
$854,926 as plant-depreciable assets. The tax return reported accumulated
depreciation of $703,017 as of December 31st, 2008 and a land asset
reported in the amount of $68,538. The reported tax year depreciation was
$22,564, which is representative of a depreciable life of approximately 38
to 40 years; reasonable for a gas pipeline. Mr. Smith points out the return
was prepared by a CPA and signed by an officer of the Company and as
such, appeared to be the most reasonable and reliable information available
on the value of the pipeline.

       With respect to Gasco’s 2008 tax return, Mr. Novak responded that
the affiliate IRS PBA code listed is for mineral extraction. Therefore the
return is not really applicable in this case because it does not represent a
value for the pipeline. Rather it represents a value for the oil and gas wells.
Mr. Smith was cross-examined regarding the IRS PBA codes noted by Mr.
Novak. Mr. Smith noted that Schedule L of the return lists these as
depletable assets, and a pipeline or building should be classified as
depreciable assets. Therefore, the tax return is applicable and if one carries
the amount out through the midpoint of the attrition year, it would be
almost zero ($17,182) as the Consumer Advocate proposed. Mr. Smith
agrees that either zero or $17,182 would be an acceptable cost of the
pipeline at the midpoint of the 2016 attrition year.

       Mr. Novak asserts that the Consumer Advocate has ignored the data
provided by [B&W] and the State of Tennessee’s tax assessment of the
pipeline when he disallows the acquisition cost of the pipeline in his
analysis. The tax assessment relied upon by the Company reported to the
State of Tennessee as the cost of the pipeline in exact and equal amounts in
each county the pipeline operates within, which Mr. Smith questions. Mr.
Smith points out that the previous owner had a total assessment of
$756,000, with $976 assessed in Fentress County, $227,660 in Pickett
County and the remainder in Campbell County, including Jellico. Mr.
Smith notes that the tax assessment is prepared by the Company and
requires information regarding B&W’s last rate case. In sum, the
Consumer Advocate contends that the tax assessment relied upon by the
Company is an unreasonable basis to support the inclusion of the
acquisition price in rate base.


                                      10
       ***

       There is no persuasive evidence that suggests that including the entire
       purchase price is in the public interest. Under the circumstances of this
       case, the most reasonable determination is based upon information that is
       related to the actual cost of the plant when it was constructed. Based on the
       evidence in the proceeding, the panel finds that including the pipeline at the
       original cost, rather than the acquisition cost, is the solution that is most fair
       to both customers and B&W.

              The panel further finds that the 2008 tax return of Gasco Distribution
       Systems, Inc. and Subsidiaries provides the most sound support for the
       prior owner’s original cost and the value of the pipeline at the time of
       acquisition. Therefore, the panel concludes that B&W’s Plant in Service
       include $923,364 as the original cost of the pipeline, which includes the
       prior owner’s original cost of plant of $854,826 and land of $68,538.
       Further, including $923,364 as the original cost of the pipeline, along with
       $437,715 of uncontested additions since B&W’s acquisition, as well as
       uncontested land, structures and intangible property of $119,842, results in
       total Plant in Service of $1,480,921. Finally, the panel further adopts
       Accumulated Depreciation of $919,975 which includes accumulated
       depreciation of $854,826 related to the original pipeline acquired by B&W
       and $65,149 of accumulated depreciation related to the new additions.
(Footnotes omitted).

       B&W argues that the rate base set by the Authority was unjust, due to the
Authority’s reliance upon “a document that was misinterpreted, which led the Authority
to understate the value of the pipeline.” B&W contends that the Authority abused its
discretion by accepting the depreciated “tax value” of the pipeline rather than its “book”
value. B&W further contends that the Authority’s decision was not supported by
substantial and material evidence. We disagree.

       This Court “shall not substitute its judgment for that of the agency as to the weight
of the evidence on questions of fact.” See In re All Assessments, 1999 WL 632824, at *4
(quoting Tenn. Code Ann. § 4-5-322(h)(5)). Factual issues are reviewed upon a standard
of substantial and material evidence, which this Court has defined as “‘such relevant
evidence as a reasonable mind might accept to support a rational conclusion and such as
to furnish a reasonably sound basis for the action under consideration.’” See In re All
Assessments, 1999 WL 632824, at *4 (quoting Sweet v. State Tech. Inst. at Memphis, 617
S.W.2d 158, 161 (Tenn. App. 1981)) (in turn quoting Pace v. Garbage Disposal Dist. of
Washington Cty., 54 Tenn. App. 263, 390 S.W.2d 461, 463 (1965)). This Court will not
                                              11
disturb a reasonable decision of an agency with “expertise, experience, and knowledge in
the appropriate field.” See In re All Assessments, 1999 WL 632824, at *4.

       The Authority’s decision to exclude the $2.6 million purchase price of the pipeline
and wells from the rate base was supported by substantial and material evidence. Mr.
Smith testified at length regarding his interpretation of the 2008 Gasco tax return, which
was the only evidence presented regarding the prior owner’s cost or valuation. Mr. Smith
explained that the tax return showed $854,926.00 as plant/depreciable assets, which he
opined could only refer to the pipeline because oil and gas wells constituted depletable
rather than depreciable assets. Mr. Smith further explained that the amount of
depreciation shown on the return, $22,564.00, was in accordance with a thirty-eight to
forty-year depreciation schedule, which would be reasonable for a pipeline. Mr. Smith
opined that the 2008 tax return was the most reliable information concerning the prior
owner’s assessment of value and that its reliability was further supported by its
preparation by a certified public accountant and submission to the IRS. Based on this
proof, we determine that the Authority’s decision was based on evidence that is “both
substantial and material in the light of the entire record.” See Tenn. Code Ann. § 4-5-
322(h).

       Moreover, the Authority’s determination to rely upon original cost information
aligns with other rate base decisions. For example, in a factually similar case, the
Authority held:

      [T]he commission finds that the book value of the Franklin system at the
      time of the United Cities acquisition should be based on the original cost
      figures developed by Mr. Crenshaw and approved by the comptroller in
      1973 rather than on the much higher estimate arrived at by the company’s
      witness more than ten years later. The customers of the Franklin system
      have paid once for the system’s assets; to accept the company’s argument
      that the cost of those assets has now doubled would force ratepayers to pay
      once again for these same assets.

              Company witness Fleming recognized the danger to ratepayers of
      permitting a gas utility to write up the value of its assets above their book
      value, and readily acknowledged that “as everyone is well aware, this
      commission generally allows the original costs of utility facilities in rate
      base.” He noted that the reason why regulatory commissions insist on
      using original cost “is to keep people from double paying, in effect,
      artificially inflating the rate base” as the result of purchasing assets at a
      price higher than book value.


                                            12
See Re: United Cities Gas Co., No. U-84-7333, 1985 WL 1213311 (Tenn. P.S.C. June
10, 1985) (footnote omitted). See also In Re: Petition of Chattanooga Gas Co. to Place
into Effect A Revised Natural Gas Tariff, No. 97-00982, 1998 WL 35628746 (Tenn.
P.S.C. Oct. 7, 1998) (rejecting the utility’s request to include acquisition costs in rate
base upon determining that additional benefit to customers came from subsequent
investments in plant system that were already incorporated into rate base).

       As the Authority also noted in this action, B&W’s acquisition cost included oil
and gas wells. Testimony demonstrated that a significant portion of the income generated
by B&W in the past came from oil and gas sales rather than pipeline operations.
Testimony further demonstrated that rather than purchasing the pipeline and wells to
maintain the status quo with regard to operations, B&W administrators hoped to utilize
the pipeline for other uses in the future that may or may not involve providing utility
service. For the foregoing reasons, we conclude that the Authority’s determination
regarding rate base should be affirmed.

                 IV.    Denial of Petition to Reconsider Pipeline Value

       B&W alleges that the Authority abused its discretion by denying B&W’s petition
to reconsider the valuation of the pipeline and thus refusing to consider the new evidence
presented by B&W with its petition. With regard to a petition for reconsideration, the
Uniform Administrative Procedures Act states:

      (a) Any party, within fifteen (15) days after entry of an initial or final order,
      may file a petition for reconsideration, stating the specific grounds upon
      which relief is requested. However, the filing of the petition shall not be a
      prerequisite for seeking administrative or judicial review.

      ***

      (d) An order granting the petition and setting the matter for further
      proceedings shall state the extent and scope of the proceedings, which shall
      be limited to argument upon the existing record, and no new evidence shall
      be introduced unless the party proposing such evidence shows good cause
      for such party’s failure to introduce the evidence in the original proceeding.

Tenn. Code Ann. § 4-5-317 (2015) (emphasis added).

       In its petition, B&W argued that the 2008 Gasco tax return had been
misinterpreted by the Authority. B&W stated that it had located the former president of
Gasco, Fred Steele, who had in turn located and provided the depreciation schedules and
                                             13
other tax information for Titan Energy, a subsidiary of Gasco that owned the pipeline
prior to B&W’s purchase. Mr. Steele’s unsworn affidavit and the additional tax
information were attached to B&W’s petition. B&W asserted that this additional tax
information demonstrated that the pipeline had been depreciated at an accelerated rate for
tax purposes over a period of seven years. According to B&W, this tax information also
demonstrated that the sale of the pipeline was recorded in 2010 at a value of
$1,212,892.80. Importantly, however, B&W’s petition failed to contain any information
concerning good cause for B&W’s failure to present this evidence at the original hearing,
as required by Tennessee Code Annotated § 4-5-317(d).

        As the Authority points out, B&W had ample opportunity during the contested
case hearing and for approximately sixty days thereafter to present any necessary
evidence to meet its burden of proof, but B&W chose not to present additional evidence
until after the Authority ruled. Because B&W failed to demonstrate good cause why this
evidence could not have been presented earlier, we conclude that the Authority did not
abuse its discretion by declining to consider the additional evidence. See Tenn. Code
Ann. § 4-5-317(d). See, e.g., Pavement Restorations Inc. v. Ralls, No. W2016-01179-
COA-R3-CV, 2017 WL 657775, at *8 (Tenn. Ct. App. Feb. 17, 2017) (“The refusal [by
an administrative agency] . . . to grant a rehearing will not be found to be arbitrary or
capricious unless the appellant can ‘show specifically why [the appellant] was unable to
procure the “newly discovered” evidence and that [the appellant] exercised due diligence
in attempting to obtain the evidence prior to’ the hearing.”) (quoting Bridges v.
Culpepper, No. 02A01-9704-CH-00074, 1997 WL 589242, at *4 (Tenn. Ct. App. Sept.
24, 1997)) (in turn quoting Brown v. Weik, 725 S.W.2d 938, 947 (Tenn. App. Oct. 3,
1983)). See also Tenn. Code Ann. § 65-2-116 (providing that a petition for rehearing
before the Authority can be maintained where new evidence is discovered “which could
not have been previously discovered by due diligence.”).

             V.    Requirements of Tennessee Code Annotated § 4-5-314(c)

       Finally, B&W argues that the Authority failed to make sufficient findings of fact
and conclusions of law regarding its exclusion of B&W’s related acquisition costs in the
amount of $225,585.31 from the rate base. As B&W points out, the Uniform
Administrative Procedures Act requires the following, in relevant part, with regard to a
decision of the Authority:

      (c) A final order, initial order or decision . . . shall include conclusions of
      law, the policy reasons therefor, and findings of fact for all aspects of the
      order, including the remedy prescribed . . . . Findings of fact, if set forth in
      language that is no more than mere repetition or paraphrase of the relevant
      provision of law, shall be accompanied by a concise and explicit statement
                                            14
      of the underlying facts of record to support the findings. The final order . . .
      must also include a statement of the available procedures and time limits
      for seeking reconsideration or other administrative relief and the time limits
      for seeking judicial review of the final order.

Tenn. Code Ann. § 4-5-314 (2015). Additionally, Tennessee’s statutory scheme
specifically applicable to proceedings before the Authority provides:

      Every final decision or order rendered by the authority in a contested case
      shall be in writing, or stated in the record, and shall contain a statement of
      the findings of fact and conclusions of law upon which the decision of the
      authority is based. Copies of such decisions or orders shall be delivered or
      mailed to each party or to the party’s attorney of record.

Tenn. Code Ann. § 65-2-112 (2015).

       In the case at bar, B&W alleges that the Authority failed to make specific findings
of fact regarding the related acquisition costs. We disagree. The Authority specifically
held in its order upon reconsideration:

             B&W included the acquisition costs of $225,585.31 as part of the
      purchase price of $2.6 million as part of [B&W’s] proposed rate base. The
      Authority previously set rates in a decision which rejected the purchase
      price of the system put forth by [B&W] and included the acquisition costs
      of $225,585.31 at issue upon reconsideration. By rejecting [B&W’s]
      proposal to establish rates based on the purchase price, the Authority also
      tacitly rejected the acquisition costs related to the purchase. After
      reviewing and reconsidering the record, the panel found that the Authority
      made its decision based on the best evidence it had before it and voted
      unanimously to affirm its decision.

      As this Court has previously explained:

      An agency, when issuing a final order, must provide a concise and explicit
      statement of the underlying facts supporting the agency’s findings. Tenn.
      Code Ann. § 4-5-314(c). Findings of fact made by the agency should be
      based exclusively on the evidence of the record and on matters noted in the
      proceeding. Tenn. Code Ann. § 4-5-314(d). Exactness in form and
      procedure is not required; rather, the findings based on the evidence need
      only be specific and definite enough so that a reviewing court may
      determine the pertinent questions of law and whether the agency’s general
                                            15
       findings should stand, particularly when the findings are material facts at
       issue. See Levy v. State of Tennessee Bd. Of Exam’rs for Speech Pathology
       and Audiology, 553 S.W.2d 909, 911-12 (Tenn. 1977) (quoting State Bd. of
       Med. Exam’rs v. Grandy, 149 S.E.2d 644, 646 (S.C. 1966)). “The
       sufficiency of an agency’s findings of fact must be measured against the
       nature of the controversy and the intensity of the factual dispute.” CF
       Industries v. Tennessee Pub. Serv. Comm’n, 599 S.W.2d 536, 541 (Tenn.
       1980).

Consumer Advocate Div. ex rel. Tenn. Consumers, 2001 WL 575570, at *4 (emphasis
added).

        In this matter, the Authority clarified that its rejection of the related costs stemmed
from its decision to exclude the overall acquisition costs of $2.6 million, and the reasons
for such exclusion were explained in great detail in the Authority’s earlier order setting
rates, as set forth above. We conclude that the Authority made sufficient factual findings
to facilitate this Court’s review. We therefore determine this issue to be without merit.

                                       VI. Conclusion

       For the foregoing reasons, we affirm the Authority’s decision in all respects.
Costs on appeal are taxed to the appellant, B&W Pipeline, LLC. This case is remanded
to the Authority for enforcement of the judgment below.




                                                   _________________________________
                                                   THOMAS R. FRIERSON, II, JUDGE




                                              16
