                  IN THE SUPREME COURT OF THE STATE OF IDAHO
                                 Docket No. 38307

 PACIFICORP,                            )
                                        )               Boise, August 2012 Term
    Petitioner-Respondent,              )
                                        )               2012 Opinion No. 153
 v.                                     )
                                        )               Filed: December 24, 2012
 IDAHO STATE TAX COMMISSION,            )
                                        )               Stephen W. Kenyon, Clerk
    Respondent-Appellant.               )
                                        )
_________________________________________

      Appeal from the District Court of the Fourth Judicial District of the State of
      Idaho, Ada County. Hon. George D. Carey, Senior District Judge.

      The judgment of the district court is affirmed. Costs are awarded to PacifiCorp.

      Hon. Lawrence Wasden, Idaho Attorney General, Boise, for Appellant. Carl E.
      Olsson argued.

     Wood Jenkins LLC and Crapo Smith PLLC, Salt Lake City, Utah, for
     Respondents. David Crapo argued.
                    __________________________________
W. JONES, Justice
                                      I. NATURE OF THE CASE
       The Idaho State Tax Commission (“the Commission”) appeals the Judgment of the
district court, holding that PacifiCorp, an Oregon corporation, proved by a preponderance of the
evidence that the Commission’s valuation of its taxable operating property in Idaho was
erroneous pursuant to I.C. § 63-409(2). The Commission contends that the district court’s
decision is not supported by substantial and competent evidence because the appraisal
methodologies utilized by PacifiCorp’s appraiser are so unreliable as to amount to incompetent
evidence.
                          II. FACTUAL AND PROCEDURAL BACKGROUND
       PacifiCorp is a regulated electric utility that operates hydroelectric, wind, and thermal
generating plants in Arizona, California, Colorado, Idaho, Montana, Oregon, Utah, Washington,
and Wyoming. It provides electrical power to approximately 7.1 million customers. PacifiCorp
also owns, or has interests in, electric transmission and distribution assets.


                                                  1
       On March 21, 2006, a wholly owned subsidiary of MidAmerican Energy Holdings
Company (“MidAmerican”) acquired 100% of the common stock of PacifiCorp from a wholly
owned subsidiary of ScottishPower, plc, (“ScottishPower”), a public limited company in the
United Kingdom, for a reported value of $9,200,000,000—of which $5,100,000,000 was paid in
cash with $4,100,000,000 in net debt and preferred stock to remain outstanding. ScottishPower
primarily caused its subsidiary to sell PacifiCorp due to a forecasted $5,000,000,000 investment
needed over the next five years to update its infrastructure. As such, PacifiCorp’s current
business profile did not match well with its investors’ expectations for dividends and returns.
       As a result of the sale, MidAmerican through its subsidiary now controls all the voting
securities of PacifiCorp, including all of its common and preferred stock. MidAmerican is a
subsidiary and holding company of Berkshire Hathaway, Inc. (“Berkshire Hathaway”), and is
engaged in the energy business. Berkshire Hathaway primarily caused its subsidiary to purchase
PacifiCorp as part of its long term investment strategy in electric power.
       PacifiCorp is subject to comprehensive regulation by the Federal Energy Regulatory
Commission (“FERC”) and other local, state, and federal regulatory agencies. FERC requires
PacifiCorp to submit a FERC Financial Report. This report includes FERC Form No. 1, which
comprises an annual regulatory financial reporting requirement of major electric companies, and
FERC Form No. 3-Q, which is a quarterly regulatory requirement that supplements the financial
reporting requirement (hereinafter FERC Form No. 1 and FERC Form No. 3-Q shall be referred
to collectively as “the FERC Form”). 18 C.F.R. §§ 141.1, 141.400 (2007). Several provisions in
the FERC Form account for depreciation. The Code of Federal Regulations, in 2007, defined
“depreciation” as applied to a depreciable electric plant as follows:
       [T]he loss in service value not restored by current maintenance, incurred in connection
       with the consumption or prospective retirement of electric plant in the course of service
       from causes which are known to be in current operation and against which the utility is
       not protected by insurance. Among the causes to be given consideration are wear and
       tear, decay, action of the elements, inadequacy, obsolescence, changes in the art, changes
       in demand and requirements of public authorities.
18 C.F.R. § 101.12 (2007) (emphasis added). Both parties dispute whether “depreciation” in the
FERC Form accounts for (1) all forms of obsolescence, or (2) merely depreciation and functional
obsolescence, which is “[o]bsolescence that results either from inherent deficiencies in the
property . . . or from technological improvements available after the use began.” Black’s Law
Dictionary 1182 (9th ed. 2009).

                                                 2
         PacifiCorp’s rates are based on a revenue requirement that the Idaho Public Utilities
Commission (IPUC) determines should provide it with the opportunity to recover its operating
costs and earn a reasonable market return on its invested capital (“the rate base”). 1 The rates are
not subject to change unless a new rate case is filed with the IPUC and the IPUC orders a
modified rate base. Rate regulation also affects PacifiCorp’s earnings because the investments
allowed to be included in the rate base vary between jurisdictions. For example, the IPUC
excludes assets financed with deferred income taxes from the rate base. PacifiCorp has also
incurred increased operating costs and engaged in significant investments in property and
equipment that are not automatically included in the rate base due to the infrequencies of rate
cases and regulatory lag. PacifiCorp contends that primarily because of rate regulation, its
average net rate of return on its plant in service has been 7.2% over the five years immediately
preceding January 1, 2008, while the investor required rate of return for the regulated electric
utility industry has been 9.1%. As a result, PacifiCorp contends that its net rate of return or actual
rate of return as of January 1, 2008, was 20.88% less than the market rate of return.
         For ad valorem tax purposes, operating property in Idaho is annually assessed at market
value as of 12:01 a.m. of the first day in January in the year in which such property taxes are
levied. I.C. § 63-205(1). The tax involved in this appeal is the ad valorem property tax on
PacifiCorp’s operating property in Idaho as of the valuation date of January 1, 2008. With regard
to electric utilities, “operating property” includes
         [A]ll rights-of-way accompanied by title . . . and all immovable or movable
         property operated in connection with any public utility . . . wholly or partly within
         this state, and necessary to the maintenance and operation of such road or line, or
         in conducting its business, and shall include all title and interest in such property,
         as owner, lessee or otherwise . . . . 2
I.C. § 63-201(15) (2007). Market value is defined as follows:
         [T]he amount of United States dollars or equivalent for which, in all probability, a
         property would exchange hands between a willing seller, under no compulsion to




1
  It should be noted the IPUC, not the Idaho State Tax Commission, sets the rate base and enters orders regarding the
rate base. Further, the IPUC only determines rates within Idaho.
2
  Idaho Code section 63-201 was amended in 2008. With regard to electric utilities, it states, in relevant part, that
“operating property” consists of “real and personal property operated in connection with . . . [the] utility . . . wholly
or partly within this state, and which property is necessary to the maintenance and operation of the . . . utility . . . .”
I.C. § 63-201(16).

                                                            3
           sell, and an informed, capable buyer, with a reasonable time allowed to
           consummate the sale, substantiated by a reasonable down or full cash payment. 3
I.C. § 63-201(14) (2007). In determining market value, an assessor will consider the comparable
sales approach, the cost approach, and the income approach. IDAPA 35.01.03.217.02.
Furthermore, with regard to an electric utility’s operating property, the unit method of market
valuation is preferred. IDAPA 35.01.03.405.01. The unit method values operating properties by
measuring their contribution to the overall unit. Under the unit method, “the value of the tangible
and intangible property is equal to the value of the going concern . . . . For interstate property,
allocation factors shall be used to determine what part of the system value is in Idaho.” Id. “The
appraiser shall attempt to measure obsolescence, if any exists. If obsolescence is found to exist, it
may be considered in the cost approach.” IDAPA 35.01.03.405.05.c. Obsolescence is defined as
“[a] diminution in the value or usefulness of property . . . .” Black’s Law Dictionary 1182 (9th
ed. 2009). For tax purposes, obsolescence is usually distinguished from physical deterioration or
depreciation. Black’s Law Dictionary 1182 (9th ed. 2009). External obsolescence (also referred
to as economic obsolescence) “results from external economic factors, such as decreased demand
or changed governmental regulations.” Black’s Law Dictionary 1182 (9th ed. 2009).
           On June 16, 2008, the Commission completed an appraisal of PacifiCorp’s operating
property for the tax year beginning on January 1, 2008, which was prepared by Jerott Rudd,
Senior Appraiser with the Commission’s Central Assessment Bureau. With regard to the cost
approach, Rudd utilized the historic cost less depreciation methodology (“HCLD Method”),
which is a commonly employed cost approach. To arrive at his cost approach estimate, Rudd
primarily relied on PacifiCorp’s FERC Form for the period ending in December 31, 2007. Rudd
did not provide a separate deduction for external obsolescence. He elaborated that “[he]
believe[s] . . . [external obsolescence] was accounted for . . . in the depreciation [as reported in
the FERC Form]. Rudd testified that market to book value is a strong indicator of obsolescence.
Rudd also testified that he would have considered accounting for additional external
obsolescence if there was market evidence to support such a deduction, but he added “[that] . . .
the market evidence that [he] had for PacifiCorp . . . did not indicate obsolescence.”
           Rudd’s appraisal estimated a cost approach market value of $11,122,536,280. (With
regard to the income approach, Rudd utilized the yield capitalization of net operating income


3
    That section was amended in 2008. It is now found in subsection (15) in I.C. § 63-201.

                                                           4
methodology (“Yield Capitalization Method”) to arrive at his estimate of $6,761,521,809. Rudd
did not employ the comparable sales approach because he contended that there were no
comparable sales of similar operating properties. Rudd did not utilize the comparable sales
approach’s counterpart, the stock and debt approach, which is often used by appraisers when the
comparable sales approach is inapplicable, because PacifiCorp’s stock is not outstanding and
because of the significant premium which MidAmerican paid for the investment value of
PacifiCorp.
       Rudd placed a 45% weight on his cost approach estimate and a 55% weight on his
income approach estimate, resulting in a unit value of $9,273,982,721. He explained why he
applied those weights to the cost and income approaches:
       Historically, for many years, the Tax Commission applied a 50/50 weighting to the cost
       and income for electric utility properties. That 50/50 weighing I believe was upheld by
       the Board of Equalization decisions in the past. In 2007, I . . . changed the weighting
       slightly to a 45/55 weighting. I felt that I could still do that.
Rudd reduced the market value by $240,761,350 for the value of PacifiCorp’s non-taxable
intangible property. He multiplied that figure by the Idaho allocation factor of 3.745822% (“the
allocation factor”) to obtain an Idaho allocated value of $338,368,433. Additional adjustments
for various deductions and exemptions resulted in a final estimated Idaho taxable valuation of
$263,667,243.
       PacifiCorp appealed Rudd’s appraisal to the Commission, pursuant to I.C. § 63-407,
asserting that it was entitled to an adjustment for functional and external obsolescence in the cost
approach, and that the capitalization rate applied in Rudd’s appraisal incorrectly estimated the
cost of equity. The Commission held that the market value of PacifiCorp’s operating property
was to be set at $8,877,075,014 for ad valorem tax purposes. It further ordered that the Idaho
taxable value for that property was to be set at $252,382,819. In reaching its valuation, the
Commission determined that 7.93% should be deducted from the cost approach valuation for
additional obsolescence, resulting in a cost approach value of $10,241,519,153. No adjustments
were made to Rudd’s income approach estimate. After weighing the Commission’s adjusted cost
approach valuation and Rudd’s unadjusted income approach valuation by 45% and 55%,
respectively, the Commission concluded that for the 2008 tax year, the market value of
PacifiCorp’s operating property was $8,877,075,014, which was reduced by $230,457,249 for
the value of non-taxable intangible property. The result was then multiplied by the allocation


                                                 5
factor and additional adjustments for various deductions and exemptions were made, resulting in
a final Idaho taxable value of PacifiCorp’s operating property of $252,382,819. 4
           Thereafter, PacifiCorp timely filed a Petition for Judicial Review, pursuant to I.C. § 63-
409, with the district court on September 24, 2008, contending that the Commission’s valuation
was erroneous. At trial, PacifiCorp relied primarily on the appraisal of Thomas K. Tegarden of
Tegarden & Associates, Inc., an MAI appraiser and expert in utility valuation. Norman Ross, 5 a
Tax Director with PacifiCorp, who is accredited in business valuation and a certified public
accountant, and Steven McDougal, 6 Director of Revenue Requirements with PacifiCorp, also
provided their expert opinions as to the validity of Tegarden’s appraisal and the value of
PacifiCorp’s operating property at trial.
           In his appraisal, Tegarden estimated that the fair market value of PacifiCorp’s operating
property was $8,350,000,000. Tegarden utilized the same valuation methodologies for the cost
and income approaches that were employed by Rudd: the HCLD Method and Yield
Capitalization Method, respectively. 7 Tegarden did not utilize the comparable sales approach or
the stock and debt approach. Concerning his decision not to employ the comparable sales
approach, Tegarden stated that there is very limited actual sales data for valuing public utilities in
general and that the 2006 sale of PacifiCorp represented a significant investment value premium.
When PacifiCorp was sold in 2006, ScottishPower wanted to unload PacifiCorp, which it
acquired in 1999, because it would have had to invest $5,000,000,000 in infrastructure over the
next half decade, which would take away cash dividends from its investors. ScottishPower was


4
  The district court incorrectly stated that the Commission’s final Idaho taxable value of PacifiCorp’s operating
property was $252,382,129. (Attach. F, at 61.) The actual Idaho taxable value determined by the Commission was
$252,382,819.
5
  Norman Ross, Tax Director with PacifiCorp, is accredited in business valuation and a certified public accountant.
He testified that PacifiCorp’s goal is to achieve a market rate of return on its investments, which he contended had
been difficult, if not impossible, to achieve due to allocation issues, the economy, and rate regulation. He further
testified that Rudd’s and Eyre’s cost approach is deficient because it relies too heavily on book depreciation.
6
  Steven McDougal, Director of Revenue Requirements with PacifiCorp, testified that PacifiCorp has not been
earning its allowed rate of return for a number of years due to many external factors. He opined that as of December
of 2007, PacifiCorp was experiencing a return on rate base of 7.467%, while the allowed rate of return was near
10.2% to 10.6%. With regard to the depreciation reported in the FERC Form, he stated that the obsolescence
referred to in that filing is really functional obsolescence, meaning it has to do with the functional characteristics of
the asset. He also testified that Eyre’s and Rudd’s appraisals rely too heavily on book value with regard to their cost
approach to valuation. McDougal is not a certified appraiser and never expressed any opinion of value.
7
    Tegarden testified that his unit appraisal complied with the Uniform Standards of Professional Appraisal Practice.

                                                            6
also concerned about the movement in the United States away from deregulation and
PacifiCorp’s inability to achieve a market required rate of return. Tegarden recognized that
Berkshire Hathaway caused its subsidiaries to purchase PacifiCorp to further its long term
investment strategy in electric utilities, and that the price paid for PacifiCorp represented more of
an investment value price rather than the market value price of PacifiCorp. With regard to the
stock and debt approach, Tegarden stated that this approach was inapplicable for many of the
same reasons the comparable sales approach was inapplicable and because PacifiCorp had no
securities outstanding.
           With regard to Tegarden’s cost approach, he estimated that the value of PacifiCorp’s
operating assets was $8,811,000,000. Tegarden used the figures supplied in the FERC Form to
determine the historical cost of the operating assets and the physical depreciation and functional
obsolescence of those assets, resulting in a figure of $11,135,919,587. He thereafter made
adjustments for external obsolescence, which he contends amounted to an additional 20.88%
deduction, or $2,325,180,010. Tegarden arrived at his external obsolescence estimate by using
the capitalization of income loss method, which is a generally accepted methodology. Tegarden
characterized external obsolescence as the loss in value due to causes outside of the property,
including the effect of supply and demand, government regulation, changes in operating costs,
changes in interest rates, changes in employment, effect of zoning, the political climate, credit
markets, and environmental concerns, among others. Tegarden testified that historically the most
important factor for a utility, though, was government regulation. The theory behind Tegarden’s
method of measuring external obsolescence is that “a willing, informed buyer of a regulated
utility will expect a market rate of return of net operating income.” If the net operating income of
the utility is more than the market rate of return, this will be reflected in external appreciation of
the value of the operating property. On the other hand, if the net operating income is less than the
market rate of return, this will be reflected in external depreciation of the value of the operating
property. Tegarden contends that PacifiCorp’s net operating income over the immediately
preceding five-year period was 7.2%, while the net operating income for PacifiCorp’s peer
group, the expected market rate of return on net operating income, was 9.1%, resulting in a
20.88% negative difference between PacifiCorp’s rate of return and the market rate of return. 8


8
    In explaining his method of calculating external obsolescence, Tegarden stated:

                                                           7
This figure was rounded from 20.879%. Treating the 20.88% negative difference as economic
obsolescence, Tegarden made an additional deduction of $2,325,180,010 in addition to the FERC
Form’s depreciation ($11,135,919,587 x 20.88%=$2,325,180,010 (which was presumably
rounded from $2,325,180,009.7656), resulting in a cost approach estimate of $8,810,739,577
($11,135,919,587 − $2,325,180,010=$8,810,739,577). 9 Tegarden then rounded his cost
approach estimate to $8,811,000,000.
         With regard to Tegarden’s income approach, he used the Yield Capitalization Method.
The Yield Capitalization Method involves a determination of value based on cash flow divided
by a capitalization rate of growth. Tegarden estimated cash flow, or net operating income, to be
around $750,000,000, which included income for the existing plant, construction work in
progress, and rate changes. He further estimated that the capitalization rate 10 was 9.10%,
resulting in a valuation estimate of $8,242,000,000. 11 Tegarden applied a 19% weight to the cost
approach and a 81% weight to the income approach, resulting in a valuation of PacifiCorp’s
operating property as of January 1, 2008, of $8,350,000,000 (19% x $8,811,000,000 (cost
approach) + 81% x $8,242,000,000=$8,350,110,000, which was rounded to $8,350,000,000). 12
         When asked why he afforded an 81% weight to his income approach estimate and only a
19% weight to his cost approach estimate, Tegarden stated that “investors in these types of

         A prospective purchaser of the operating electric property of PacifiCorp would require a market
         rate of return. If the net operating income for each of the last five years is divided by the average
         net plant which earned that income, the rate of return on assets can be calculated. The latest years,
         the latest five-year average, the latest three-year average, and five-year trend rates of return were
         7.12%, 6.30%, 6.61%, and 7.23%, respectively. We selected 7.20% as representative of the rate of
         return level which can be reasonably expected for the Company. This rate of return is based on net
         operating income intended by the regulatory commissions to cover the cost of capital. If this
         7.20% selected rate of return is compared with the investor required return of 9.10%, the achieved
         rate of return is 1.90% below the investor required return (9.10%-−7.20%=1.90%). This 1.90%
         deficiency in rate of return equates to a 20.88% obsolescence factor (1.90% / 9.10%= 20.88%).
9
  In his appraisal, Tegarden stated that his estimate of external obsolescence recognizes that PacifiCorp has earned,
on average, less than the market required rate of return on its total net investment in plant and equipment. He further
elaborated that part of his external obsolescence estimate is attributable to the exclusion of properties purchased with
deferred income taxes from the rate base and the effects of competition.
10
  Tegarden based his capitalization rate estimate on the band of investment technique.
11
   Rudd estimated cash flow to be around $690,000,000 and the capitalization rate to be 8.89%, resulting in a
valuation estimate of $7,761,529,809. Tegarden’s cash flow estimate was larger than Rudd’s because he attempted
to account for future earnings anticipated as a result of the construction in progress and because his estimate
included floatation adjustments, which are the expenses involved in issuing debt and equity.
12
  With regard to the weight afforded each approach in his appraisal, Tegarden mistakenly testified that he applied a
80% weight to his income approach and a 20% weight to his cost approach.


                                                           8
properties are more concerned about the future and what can be earned, the cash flow they can
expect. They’re not as concerned about historical cost, what was paid for the property. That’s
water over the dam.” 13 To determine the market value of PacifiCorp’s operating property in
Idaho as of January 1, 2008, Tegarden accounted for the allocation factor and made various
adjustments similar to those employed by Rudd to arrive at an estimate of $230,680,003.
         Thereafter, the Commission presented its case and relied primarily on the appraisal and
testimony of Rudd; the appraisal and testimony of D. Brent Eyre, a certified appraiser licensed in
Utah and Washington; and the testimony of Dr. Ben Johnson, a consulting economist with Ben
Johnson Associates, Inc. 14 In his appraisal, Eyre utilized the stock and debt approach. He also
employed the HCDL Method with regard to his cost approach and the discounted cash flow
methodology (“Discounted Cash Flow Method”) with regard to his income approach. At trial,
Eyre disagreed with both Rudd’s and Tegarden’s appraisals because they did not utilize the
comparable sales approach or the stock and debt approach to valuation, contending that they
could have factored in the sale of PacifiCorp to MidAmerican in March of 2006. Eyre also
disagreed with Tegarden’s deduction for external obsolescence, contending that the depreciation
reported in the FERC Form accounts for all forms of obsolescence and that Tegarden’s cost and
income approaches should have factored in deferred income taxes as a form of additional
income.
         Eyre testified that the market to book value ratio, which the FERC Form presents a strong
indication of, generally accounts for all forms of obsolescence. Under cross-examination, Eyre
admitted that depreciation studies, from which the depreciation figures in the FERC Form are
calculated, generally occur every four or five years. Regarding the main differences between
Tegarden’s and Eyre’s income approaches, Tegarden factored in float costs with regard to the

13
   With regard to weighing the indicators of value, Tegarden stated that “throughout the appraisal process, the
appraiser is making decisions, judgments, and evaluating the relevance, importance, and reliability of the data used
in each approach.” “[R]econciliation[, which is the process by which an appraiser subjectively weighs the various
approaches to valuation,] is not a mathematical exercise but rather a serious judgmental exercise by the professional
appraiser to reach a logical conclusion of value.” In this regard, the appraiser must place the most emphasis and
weight on the approach with the strongest and most supportable market evidence.
14
  Dr. Ben Johnson, who is the president of Ben Johnson, Associates, Inc., is a consulting economist. He is not a
certified appraiser and holds no accounting degrees. Johnson contended that “[a]s an economist and an observer of
market values through [his] work, [he has] . . . some understanding of market values.” as to whether it, in fact,
precisely picks up every possible form of obsolescence, I don’t think you can assert that.” Johnson also admitted that
depreciation studies generally occur every 4 or 5 years. He further testified that Tegarden should have accounted for
PacifiCorp’s deferred income taxes in his net operating income estimate.


                                                          9
Yield Capitalization Method while Eyre accounted for around a 2% rate of growth in perpetuity
in his net operating income calculation with regard to the Discounted Cash Flow Method. After
weighing his estimates accordingly, Eyre arrived at a cost approach estimate of 11,135,900,000,
which was afforded a 20% weight; an income approach estimate of $11,372,200,000, which was
afforded a 50% weight; and a stock and debt approach estimate of $11,393,700,000, which was
afforded a 30% weight, resulting in an estimated unit value for all of PacifiCorp’s 2008 operating
property of $11,007,000,000 and an Idaho taxable value, after the allocation factor and the
adjustments were made, of $412,300,000.
         The district court entered its Memorandum of Findings of Fact and Conclusions of Law
on September 16, 2010, holding that PacifiCorp established by a preponderance of the evidence
that the Commission’s valuation was erroneous. 15 The district court then entered its Judgment on
October 19, 2010. The Commission thereafter timely filed its Notice of Appeal on November 24,
2010, and Amended Notice of Appeal on December 13, 2010.
                                               III. ISSUE ON APPEAL
         The issue on appeal is whether the district court’s Judgment is clearly erroneous when it
rejected the Commission’s valuation approach and adopted PacifiCorp’s valuation approach.
                                           IV. STANDARD OF REVIEW
         PacifiCorp filed its Petition for Judicial Review of the Commission’s appraisal of its
operating property in the district court pursuant to I.C. § 63-409. Subsection (1) of that statute
provides that “[t]he appeal may be based upon any issue presented by the taxpayer to the state
tax commission and shall be heard by the district court in a trial de novo without a jury in the
same manner as though it were an original proceeding in that court.” In any appeal taken
pursuant to I.C. § 63-409, the burden of proof to establish by a preponderance of evidence that
the valuation is erroneous falls on the party seeking affirmative relief. I.C. § 63-409(2).
         The district court held that PacifiCorp established by a preponderance of the evidence
that the Commission’s valuation was erroneous. “Findings of fact will not be set aside on appeal
15
   Specifically, the district court held that “in many respects[, this action] was a battle of the experts.” It recognized
that “[e]ach of the witnesses has considerable experience in his particular field. Nevertheless, having had the special
opportunity of listening to each witness as he gave live testimony and was subjected to rigorous cross examination,
the court was especially impressed by Mr. Tegarden and found his testimony and opinions to be more credible, more
reliable, more persuasive, and entitled to greater weight than the testimony and opinions of the witnesses for the Tax
Commission.” The district court stated that it “reviewed the criticisms of Mr. Tegarden’s valuations but [found]
them to be unpersuasive.” After evaluating all the evidence, the district court held that the Commission’s valuation
was erroneous and that based on a preponderance of the evidence, “Tegarden’s estimate of the value of PacifiCorp’s
operating property as of January 1, 2008, is the most accurate estimate of value in the record.”

                                                           10
unless they are clearly erroneous.” Kennedy v. Schneider, 151 Idaho 440, 442, 259 P.3d 586, 588
(2011). This Court recognizes that “[a] trial court’s findings of fact will be upheld on appeal[,
and, therefore, are not clearly erroneous,] if the findings are supported by substantial and
competent evidence. It is the province of the trial judge to weigh the conflicting evidence and
testimony and to judge the credibility of witnesses.” The Senator, Inc. v. Ada Cnty. Bd. of
Equalization, 138 Idaho 566, 569, 67 P.3d 45, 48 (2003). “This Court exercises free review over
the district court’s conclusions of law to determine whether the court correctly stated the
applicable law and whether the legal conclusions are sustained by the facts found.” Kennedy, 151
Idaho at 442, 259 P.3d at 588.
                                           V. ANALYSIS
A.     The District Court’s Judgment was not clearly erroneous.
       In its opening brief, the Commission provides a list of reasons why it believes that
Tegarden’s cost approach to valuation is unreliable and therefore incompetent. As the district
court recognized, this appeal represents, in many respects, “a battle of the experts.” The district
court was faced with the difficult task of evaluating competing theories of valuation that, for the
most part, utilized generally accepted valuation theories. All the experts testified that their
subjective appraiser judgments were utilized within the bounds of their respective professional
standards. The experts for PacifiCorp and the Commission each have considerable experience in
their particular fields. As such, the district court correctly understood that its only task was to
“listen[] to each witness as he gave live testimony and was subjected to rigorous cross
examination,” and then render its decision after weighing the credibility of the experts, their
appraisals, and their theories. The district court noted that it “was especially impressed by Mr.
Tegarden and found his testimony and opinions to be more credible, more reliable, more
persuasive, and entitled to greater weight than the testimony and opinions of the witnesses for the
Tax Commission.” Furthermore, the court determined that the criticisms of Tegarden’s
valuations were unconvincing.
       On appeal the Commission argues that the Tegarden approach is so unreliable it is not
competent evidence. But the Commission did not challenge the competency of Tegarden’s
testimony in the district court. Each of the arguments presented by the Commission relate solely
to the credibility of expert witnesses, the probative value of their appraisals, and the utilization
by the experts of their appraiser judgments in applying those theories. The Commission has


                                                11
generally not provided this Court with any arguments relating to the district court’s conclusions
of law, which this Court can review de novo. Instead, the Commission’s qualms with Tegarden’s
approach are factual in nature and go towards rebutting the credibility of Tegarden’s testimony
and his appraisal.
       It is widely recognized that “evidence in order to be admissible must be competent,
relevant, and material.” E.g., 53 C.J.S. Libel and Slander; Injurious Falsehood §335 (2012)
(emphasis added); 53 C.J.S. Licenses §114 (2012); 29A C.J.S. Eminent Domain §600 (2012); see
also Black’s Law Dictionary 635 (9th ed. 2009) (“admissible evidence . . . Also termed
competent evidence . . .”); Black’s Law Dictionary 639 (9th ed. 2009) (“relevant evidence . . .
also termed competent evidence.”). The Idaho Rules of Evidence provide that “[e]rror may not
be predicated upon a ruling which admits or excludes evidence unless . . . a timely objection or
motion to strike appears of record, stating the specific ground of objection. . . .” Idaho R. Evid.
103.
       On appeal, it is asserted that competency of evidence and credibility of witnesses are one
and the same—that is incorrect. Competency is an evidentiary prerequisite to admission. If
evidence is incompetent, it is the opponent’s obligation to object to that evidence when offered
for admission. Idaho R. Evid. 103. This Court will not consider objections to the admission of
evidence that are not preserved in the record and that are raised for the first time on appeal. E.g,
State v. Perry, 150 Idaho 209, 224, 245 P.3d 961, 976 (2010) (“Generally Idaho’s appellate
courts will not consider error not preserved for appeal through an objection at trial.”). If the
methods employed by Tegarden were so unreliable as to render them incompetent, then an
objection to that effect should have been lodged with the district court when offered. But because
the Commission failed to object and challenge the competency of Tegarden’s approach below,
this Court will not evaluate whether Tegarden’s approach is competent. Instead this Court will
assume that the evidence and testimony admitted in the trial court and not challenged as
incompetent by the Commission is competent. Therefore, this Court’s inquiry is limited to
whether the district court’s decision, based on the testimony and evidence received and not
objected to, was clearly erroneous.
       This Court, when it reviews a district court’s decisions will uphold the trial court’s
factual findings unless clearly erroneous. Idaho R. Civ. P. 52(a). We recognize that “[i]t is the
province of the trial judge to weigh the conflicting evidence and testimony and to judge the

                                                12
credibility of witnesses.” The Senator, Inc., 138 Idaho at 569, 67 P.3d at 48. Evidence is
substantial if “a reasonable trier of fact would accept it and rely upon it in determining whether a
disputed point of fact has been proven.” Id. This Court will not reweigh the evidence on appeal.
Gooby v. Lake Shore Mgmt. Co.,136 Idaho 79, 82, 29 P.3d 390, 393 (2001).
       The Commission asserts that Tegarden’s appraisal is unreliable because his external
obsolescence deduction was duplicative because the FERC Form properly accounted for all
forms of obsolescence. The Commission also contends that Tegarden’s appraisal is unreliable
because it assumes that PacifiCorp will always lose money and does not sufficiently account for
PacifiCorp’s deferred income taxes. Furthermore, the Commission claims that Tegarden’s
appraisal is unreliable because it failed to employ either the comparable sales approach or the
stock and debt approach to valuation and because it never specified the respective weights it
employed when it reconciled the cost and income approaches, unlike the district court. Finally,
the Commission argues that Tegarden’s appraisal is unreliable because it is too subjective. As
mentioned, the reliability of Tegarden’s approach was an issue for the trial court to decide after
weighing evidence and considering the testimony and credibility of the witnesses. For the
reasons discussed below, the district court’s decision finding Tegarden’s approach more reliable
than the approached proposed by the Commission was not clearly erroneous.
       1. It Was Not Clearly Erroneous For the District Court to Conclude That External
          Obsolescence Is Not Sufficiently Accounted for in the FERC Form.
       The Commission argues that because PacifiCorp’s self-reported depreciation in the FERC
Form already includes “obsolescence,” it is improper for PacifiCorp to provide another
deduction. With marginal elaboration, the Commission, as support for its proposition that
depreciation in the FERC Form accounts for external obsolescence, cites to Title 18, Part 101 of
the Code of Federal Regulations, which includes the term “obsolescence” within the definition of
“depreciation.”
       Indeed, that statute does include “obsolescence” in its definition of depreciation.
Evidence was presented at trial suggesting that “obsolescence,” as applied in that statute, does
not provide for all forms of obsolescence, including external obsolescence. All of the appraisers
asserted that “obsolescence” in the FERC Form generally accounts for book depreciation of the
operating assets and functional obsolescence, not external obsolescence. The Commission never
rebutted these assertions. The Commission’s expert appraisers both admitted that they would
have accounted for external obsolescence had they found market evidence to support those
                                                13
deductions, suggesting that they understood that the FERC Form did not incorporate all forms of
obsolescence. On this point Dr. Johnson testified as follows:
        We know that in principle the intent of the regulatory process is to pick up all
        significant forms of obsolescence. There is no intent to exclude economic
        obsolescence [from the FERC Form]. But as to whether it, in fact, precisely picks
        up every possible form of obsolescence, I don’t think you can assert that. I think it
        would be very fact specific as to the extent to which an independent judgment of
        obsolescence would or would not match the accounting rules.
In addition, the Commission’s experts admitted that depreciation studies, which provide the basis
for the depreciation figures in the FERC Form, generally occur every four or five years. Based
on this testimony and the Commission’s inability to provide adequate authority rebutting these
assertions, we conclude that it was not clearly erroneous for the trial court to determine that
“obsolescence,” as it is defined in the FERC Form, does not account for economic obsolescence.
        2. It Was Not Clearly Erroneous for the District Court to Accept Tegarden’s Approach
           Despite the Commission’s Arguments that Tegarden’s Appraisal Assumes that
           PacifiCorp Will Always Lose Money and That Tegarden Should Have Considered
           PacifiCorp’s Deferred Income Taxes In His Cost of Capital Projection.
        The Commission contends that because Tegarden and McDougal testified that PacifiCorp
will never recover its cost of capital from the rate base, Tegarden’s appraisal is unreliable. 16 The
Commission also asserts that Tegarden’s appraisal is unreliable because it assigns no value to
PacifiCorp’s deferred income taxes. As support for its assertion, the Commission cites broadly to
a confidential memorandum expressing PacifiCorp’s confidence in its future financial prospects.
It also points out that Dr. Johnson testified that by taking deferred income taxes into account,
PacifiCorp’s “real cost of capital is approximately. . . 7%, not 9.1%.”
        At trial, the Commission did not challenge the methods of Tegarden as incompetent—it
now seeks to do so. Because the Commission failed to challenge the competency of the Tegarden
approach below, we will not decide whether it was competent; only whether it was clearly
erroneous for the trial court to conclude that it was more reliable than the approaches advanced
by the Commission. The reliability and credibility of the methods employed are questions of fact
that the district court was required to weigh and evaluate—to which we grant deference. In this


16
  The Commission stated, on several occasions, that it was confining this appeal to a discussion of Tegarden’s cost
approach. In fact, the Commission only provided this Court with one issue on appeal, “May PacifiCorp deduct
obsolescence from the cost approach to value without offering evidence of the cause of the obsolescence, the
quantity of the obsolescence, and that the asserted obsolescence actually affects the property?” Therefore, this
opinion will only address cost of capital in relation to Tegarden’s external obsolescence estimate.

                                                        14
“battle of the experts” the district court weighed the testimony and methods of each expert. After
doing so, it found the Tegarden approach more reliable.
       The Commission proposes that Tegarden’s appraisal is unreliable because it assumes that
PacifiCorp will never recover its cost of capital from the rate base. The Commission points to a
few statements in the transcripts made by Tegarden. Those statements do not describe
PacifiCorp’s failure to recover its cost of capital in perpetuity. Tegarden’s appraisal provided a
cost of capital estimate of 9.1%, as of January 1, 2008. He utilized the band of investment
technique to reach his cost of capital estimate. Furthermore, the record asserts that PacifiCorp
has not been recovering its cost of capital from the rate base for a number of years. Tegarden’s
appraisal reflects those deficiencies. The Commission asserts that his projections suggest that
PacifiCorp will never recover its cost of capital. As mentioned before, Tegarden’s appraisal
reflects that PacifiCorp has been unable to recover its cost of capital from its base rate as of
January 1, 2008. The district court’s finding that Tegarden’s appraisal does not assert that
PacifiCorp will never recover its cost of capital from its base rate is not clearly erroneous.
       The Commission also bases its argument on appeal on Dr. Johnson’s assertion that by
classifying PacifiCorp’s deferred income taxes as net operating income, it would necessarily
change Tegarden’s cost of capital calculation to 7%, as opposed to 9.1%. Dr. Johnson is an
economist, not an appraiser or an accountant. Dr. Johnson testified that he was not rendering any
opinion of value. He testified that “[a]s an economist and an observer of market values through
my work, I have some understanding of market values. And I believe based on that
understanding of market values that some of the discussion that’s taking place, allegations of
external obsolescence because of regulation, are mistaken.” He further testified that he never
provided a cost of capital study and that his projections only represent his opinions. Even though
the Commission assured the district court that Dr. Johnson’s testimony was not intended to
establish valuation, the Commission seems intent on using it for that purpose on appeal. Despite
the continued invitations to reweigh the evidence on appeal, this Court will not do so. It was not
improper for the trial court to determine that Johnson’s testimony had very little, if any,
probative value in establishing the reliability of Tegarden’s approach.
       Finally, concerning the confidential memorandum, the Commission does not provide any
argument as to the substantive value of that document with regard to Tegarden’s appraisal.
Instead, the Commission merely states that if this Court were to read that document, the

                                                 15
“Holmesian mystery” of PacifiCorp’s market value will be solved. Yet, it was not clearly
erroneous for the trial court to decide that future earnings envisioned in a ten year plan does not
indicate value in any of the aforementioned approaches to valuation.
       3. It Was Not Clearly Erroneous for the District Court to Find Tegarden’s Appraisal
          Reliable Even Though it Does Not Utilize the Comparable Sales or Stock and Debt
          Approaches to Valuation.
       The Commission contends that Tegarden’s appraisal is unreliable because he did not
employ either the comparable sales approach or stock and debt approach to valuation. The
Commission claims that, pursuant to I.C. § 63-201(15) and IDAPA 35.01.03.217.02 (2007),
Tegarden should have considered the $9,200,000,000 sale of PacifiCorp to MidAmerican’s
subsidiary in March of 2006 in its valuation.
       Tegarden determined that the comparable sales approach and the stock and debt approach
to valuation had limited usefulness with regard to determining the market value of PacifiCorp’s
operating property. With regard to the comparable sales approach, he asserted, “[t]here is a very
limited amount of actual sales data to be used as an evidence of value for the valuation of major
going-concern business enterprises such as public utilities.” He further recognized that the
comparable sales approach generally provides the primary indicator of market value in appraisals
of properties that are not purchased for their income producing characteristics, that frequently
sell in the market place, and that are the result of arm’s length transactions between reasonably
informed buyers and sellers. None of the experts refute that PacifiCorp was purchased by a
subsidiary of MidAmerican as a long term investment, and that the sale price of PacifiCorp more
accurately represented long-term investment value as opposed to market value. In fact, the
parties don’t dispute that around $1,074,000,000 of PacifiCorp’s sale price represents intangible
goodwill.
       Tegarden did consider the comparable sales approach in his assessment of valuation and
determined that it was not useful. Although the Commission’s expert, Eyre, employed the stock
and debt approach, the district court, Rudd, and Tegarden recognized that it had limited
usefulness, primarily because PacifiCorp has no outstanding shares of stock and because of the
large premium paid for PacifiCorp’s shares of common stock. The Idaho Administrative Code
does not require the use of the comparable sales approach. IDAPA 35.01.03.217.02 (2007). It
requires only that an appraiser “will consider” that approach when making his or her appraisal.
The district court, Rudd, and Eyre all choose not to use the comparable sales approach for the

                                                16
same reason that Tegarden did not utilize that approach. Therefore, it was not clearly erroneous
for the district court to find Tegarden’s appraisal reliable; despite not utilizing the comparable
sales or stock and debt approaches.
        4. The Commission’s Argument that the Weight Tegarden Applied to His Cost Approach
           and Income Approach Estimates Varies from the Weights Employed by the District
           Court is Without Merit.
        The Commission next contends that Tegarden’s appraisal is not reliable because the
weights he afforded the cost and income approaches differ from the weights that the district court
afforded those approaches in its Judgment. The district court recognized that Tegarden assigned
the income approach an 81% weight and the cost approach a 19% weight. At trial, Tegarden
testified that he assigned his income approach estimate an 80% weight and his cost approach
estimate a 20% weight; he likely misspoke. With regard to the cost approach and income
approach to valuation, Tegarden estimated that the market value of PacifiCorp’s operating
property was $8,811,000,000 and $8,242,000,000, respectively. After weighing these approaches
and rounding his estimate, he arrived at a market value of $8,350,000,000. The only way
Tegarden could have arrived at this rounded valuation was by utilizing a 19% weight for the cost
approach and an 81% weight for the income approach (19% x $8,811,000,000 (cost approach) +
81% x $8,242,000,000 (income approach) = $8,350,110,000 as opposed to 20% x
$8,811,000,000 (cost approach) + 80% x $8,242,000,000 = $8,355,800,000). 17


17
  With regard to his rationale for utilizing or not utilizing the various approaches to valuation and affording them
the weights that he did, Tegarden stated:
                  The cost approach was analyzed in detail and given careful consideration. The cost of
        reproduction and cost of replacement were considered. Because the earnings base is limited to
        original cost less depreciation these costs should be given very little credence. The original cost
        less depreciation is considered the best starting point in the cost approach. However, due to the
        inability of the Company to consistently earn a market rate of return, it was necessary to estimate
        the amount of obsolescence present in the property. With the deduction of all forms of
        depreciation, the cost approach is an important indicator in determining the value of an electric
        company, and was given due consideration in the final estimate of value.
                  The income approach was also given careful consideration. The potential income stream
        of the company has been analyzed. It was necessary to consider Company projections, rate case
        decisions, and other historical data in predicting future income. These estimates were correlated
        with our own estimates, based on our analysis of the expected earnings. The money market has
        been analyzed and much study given to the estimation of a reasonable rate of capitalization. A
        prospective purchaser of electric property would very carefully consider the earning capability of
        the property. The income approach is a strong indication of value, and it was given considerable
        weight in the final estimate of value.
                  The sales comparison approach could not be used in the ordinary manner as there are no
        arm’s length market value sales of truly comparable properties. The stock and debt approach was
        considered as a substitute for the sales comparison approach. The common stock is owned entirely

                                                        17
       The Commission’s witness, Rudd, testified that the weight afforded each approach is
based primarily on appraiser judgment:
       [F]or many years, the Tax Commission applied a 50/50 weighting to the cost and
       income approach for electric utility properties. That 50/50 weighting I believe was
       upheld by the Board of Equalization decisions in the past. In 2007, I . . . changed
       the weighting slightly to a 45/55 weighting. I felt I could still do that.
The Commission concurred with Rudd and left the weights he applied to the cost and income
approaches unchanged. Likewise, Tegarden corroborated Rudd’s testimony:
       [T]hroughout the appraisal process, the appraiser is making decisions, judgments,
       and evaluating the relevan[ce], importance, and reliability of the data used in each
       approach . . . [R]econciliation[, which is another term for weighing,] is not a
       mathematical exercise but rather a serious judgmental exercise by the professional
       appraiser to reach a logical legal conclusion of value. Therefore the appraiser
       must place the most emphasis and weight of consideration with the strongest and
       most supportable market evidence.
Based on Tegarden’s and Rudd’s testimony, it is evident that an appraiser largely relies on his or
her own judgments when he or she reconciles these approaches. The Commission’s contention
that there is some sort of discrepancy between Tegarden’s appraisal and the district court’s
Judgment is without merit.
       5. The Fact that Tegarden Utilized His Appraiser Judgment when He Made His
          Appraisal Does Not Render the District Court’s Reliance on Said Judgment
          Erroneous.
       The Commission asserts that Tegarden’s external obsolescence estimate is too dependent
on the expected rate of return and the required rate of return, which the Commission suggests
Tegarden could easily manipulate, and that Tegarden’s required rate of return of 9.10% differed
significantly in terms of monetary value when it is compared with either Rudd’s 8.89% required
rate of return estimate or Eyre’s 8.72% required rate of return estimate.
       At trial, the Commission’s expert Eyre testified: “[Appraisal practice is not an exact
science,] it’s fraught with numerous judgments [and] assumptions. And obviously, the reliability
of an appraisal is based upon the validity and the ability of the appraiser to defend those


       by MidAmerican Energy and is not traded in the securities markets. For this appraisal report, sale
       of PacifiCorp’s common stock to MEHC was analyzed even though it is clear that the purchase
       was an investment value decision rather than a market value decision. Also, the stock and debt
       approach was considered but not believed to be a sound indicator in the final estimate of market
       value for this report. Therefore, we have not included the stock and debt approach as an indicator
       of market value for this appraisal report.


                                                      18
judgments and assumptions.” This sentiment was repeated throughout the trial. In fact, Rudd
testified that he would have accounted for external obsolescence, if he was satisfied that there
was sufficient market evidence. In this vein, he stated as follows:
        If the market supported such a suggestion by the company that there was
        economic or external obsolescence and the market supported it, I mean, yeah, I
        would be happy as an appraiser to provide economic obsolescence adjustment if I
        felt as an appraiser that it was warranted and that there was market evidence that
        told me that it needed to be made. I have no problem with that.
Likewise, although Eyre testified that he believed that the FERC Form’s depreciation accounts
for all forms of obsolescence, he testified that the cost indicator has a large amount of
subjectivity, which sometimes creates controversy. In describing the HCLD Method, he stated
that “it’s objective insofar as . . . if you use HCLD, you’ve got a very objective source to drive
the numbers. It’s subjective in the fact as to your analysis of those numbers and the relative
nature of them as they relate to your observations of the market as a whole.” Like Rudd, Eyre
testified that he could find no market evidence indicating external obsolescence outside what was
reported in the FERC Form. Based on these assertions, it was not erroneous for the district court
to find that the decision to provide a deduction for external obsolescence is a product of appraiser
judgment.
        At no point was it suggested by the Commission that Tegarden is a “trailblazer” when it
comes to appraising the operating assets of an electric company. He utilized many of the same
methods and theories that Rudd and Eyre employed. Throughout, Rudd and Eyre testified that
they believed that Tegarden’s use of his appraiser judgment was misplaced or farfetched. But
PacifiCorp countered these assertions by providing experts who testified as to the misuse of
Rudd’s and Eyre’s appraiser judgments in their appraisals. The district court was faced with
three equally compelling, yet generally subjective, appraisals. It rendered its decision based
primarily on the soundness of Tegarden’s theories and his ability to defend those theories and
judgments during cross-examination.
        Furthermore, the Commission’s argument that Tegarden utilizes “obsolescence in the
air” 18 to arrive at his estimate of external obsolescence is also unconvincing for the same
reasons. The Commission is essentially reasserting that Tegarden’s approach is too subjective.


18
  It is unclear whether “obsolescence in the air” is a term that the Commission made up for the purpose of this
appeal. That term is generally used with regard to military defense systems.

                                                      19
The fact that Tegarden, Rudd, and Eyre arrived at different required rate of return estimates is
irrelevant and only highlights the subjective nature of these estimates in general.
       6. The Commission’s Suggestions to Make Tegarden’s Appraisal More Reliable Are Not
          at Issue.
       The Commission suggests that Tegarden’s appraisal can be made more reliable, if this
Court would require PacifiCorp to provide evidence to show the causes of obsolescence, the
quantity of obsolescence, and that obsolescence really affects the properties in question. The
Commission claims that PacifiCorp only provided the district court with three causes of external
obsolescence: regulatory law; the fact that the Commission does not allow for the inclusion of
assets financed with deferred income taxes in the rate base; and economic lag. Again, this Court
is not going to reweigh the evidence as to how Tegarden’s approach could be made more
reliable. This is a question of fact for the trial court to weigh and consider. After doing so, the
district court determined that Tegarden, his methodologies, and his use of his appraiser judgment
were more credible and reliable than the Commission’s experts and their methodologies. The
Commission has not provided any convincing argument or authority suggesting the district
court’s reliance on the aforementioned facts—which were not challenged as incompetent and
therefore presumed to be competent for purposes of this appeal—amounted to a clearly
erroneous judgment.
                                         VI. CONCLUSION
       Because the district court’s Judgment was not clearly erroneous and was supported by
substantial and competent evidence, the Judgment of the district court is affirmed. Attorney’s
fees were not requested. Costs are awarded to PacifiCorp.
       HORTON, J., concurring.
       I join in the Court’s opinion. I write separately in response to the dissent and because the
majority opinion is much longer than it needs to be. Although the dissent had advanced powerful
arguments as to why Tegarden’s testimony ought not have been admitted, the Commission does
not assert that the district court erred by admitting the testimony. Rather, the Commission argues
that the district court erred by relying on that testimony. This argument fails to acknowledge the
limited role of an appellate court.
       Following trial, the district court found that Tegarden’s testimony was more persuasive
than that offered by the Commission. When this Court reviews a district court’s determination of
the value of a utility’s operating property following a trial de novo, this Court must “defer to the
                                                 20
district court’s findings of fact that are supported by substantial evidence.” Idaho Power Co. v.
Idaho State Tax Comm'n, 141 Idaho 316, 321, 109 P.3d 170, 175 (2005). Stated differently, this
Court will set aside the district court’s factual findings only if they are clearly erroneous.
McCormick Int’l USA, Inc. v. Shore, 152 Idaho 920, 923, 277 P.3d 367, 370 (2012); I.R.C.P.
52(a).
         I find it noteworthy that the Commission did not acknowledge the standard of review
applicable to this appeal until oral argument. The phrases “substantial evidence” and “clearly
erroneous” are nowhere to be found in its briefing. This glaring omission undoubtedly reflects
the Commission’s recognition that application of the governing standard of review dictates that
PacifiCorp must prevail in this appeal. This inevitable result reflects two fundamental
propositions: The valuation of PacifiCorp’s operating property is a matter of expert opinion; and
this Court is not free to second-guess the district court’s determination that PacifiCorp’s expert
was more credible than those of the Commission. The balance of this concurrence merely
explains the legal basis for these two propositions.
         All pertinent sources of Idaho law – statutory, administrative rules and our previous
decisions – recognize that placing a value on property is an exercise in professional judgment.
The Idaho Code states that “‘Appraisal’ or ‘real estate appraisal’ means an analysis, opinion or
conclusion relating to the value, nature, quality, or utility of specified interests in, or aspects of,
identified real estate.” I.C. § 54-4104(1). The administrative rules governing assessment of
operating property expressly recognize that the appraisal report will reflect the appraiser’s
opinions. IDAPA 35.01.03.405.08 (2007) explains: “Reconciliation, also called correlation, is an
opinion regarding the weight that should be placed on each approach. The appropriate weight to
be given each indicator is based on the appraiser’s opinion of the inherent strengths and
weaknesses of each approach and the data utilized.” (emphasis added). These rules also
expressly confer discretion upon the appraiser to exercise judgment when arriving at a valuation.
IDAPA 35.01.03.405.05 (2007), addressing the cost approach, provides “the appraiser may
consider replacement, reproduction, original or historical cost.” (emphasis added). IDAPA
35.01.03.405.05.b (2007), provides that “[c]onstruction work in progress may be considered in
the cost approach” and IDAPA 35.01.03.405.05.c (2007) states that “[i]f obsolescence is found
to exist, it may be considered in the cost approach.” (emphasis added).



                                                  21
       In Idaho State Tax Comm’n v. Staker, 104 Idaho 734, 737-38, 663 P.2d 270, 273-74
(1982), this Court quoted the Arizona Court of Appeals’ summation in State v. Rella Verde Apts.
Inc., 544 P.2d 675, 681 (Ariz. Ct. App.1976): “Appraising is not an exact science, it is merely an
estimate of value.” Thus, evidence of valuation of property is the province of experts.
As previously noted, the Commission does not assert that the district court erred by admitting
Tegarden’s testimony. Rather, the Commission invites this Court to conclude that the district
court erred by relying on that testimony. This Court is not free to do so. “Once an expert’s
opinion is admitted, it is up to the trier of fact to weigh the opinion against any conflicting
testimony. City of McCall v. Seubert, 142 Idaho 580, 585, 130 P.3d 1118, 1123 (2006).” Coombs
v. Curnow, 148 Idaho 129, 137, 219 P.3d 453, 461 (2009). The citation in Coombs to City of
McCall is significant, because there, the City made virtually the same argument as the
Commission has advanced and we rejected the argument.

       The City argues that this Court should grant a new trial to determine the value of
       the Seubert property because the jury improperly relied on the flawed
       methodology of Seubert’s appraisal expert, Mark Richey, in awarding her
       damages. Richey’s methodology, however, was not flawed, just different.
       “[W]eighing the testimony of expert witnesses is uniquely within the competence
       of the trier of fact.” Rueth v. State, 103 Idaho 74, 78, 644 P.2d 1333, 1337 (1982).

City of McCall, 142 Idaho at 585, 130 P.3d at 1123. This Court rejected the City’s position,
stating: “In essence, the City merely argues that its expert’s appraisal of the Seubert’s property is
more reliable than Seubert’s and, therefore, the jury erred in relying on Seubert’s expert’s
valuation of the land.” Id. at 586, 130 P.3d at 1124 (emphasis original). This Court could simply
substitute party names in this appeal to arrive at the same conclusion.
       Further, our decision in City of McCall is notable for its reliance on the earlier decision in
Rueth, because that opinion is instructive as to the conclusion that this Court must reach. In
Rueth, this Court noted that factual findings of a trial court will only be overturned if clearly
erroneous, adding: “This standard of appellate review is salutory in effect, and reflects the view
that deference must be afforded to the special opportunity to assess and weigh the credibility of
the witnesses who appear before it personally.” Rueth, 103 Idaho at 77, 644 P.2d at 1336 (citing
Jensen v. Bledsoe, 100 Idaho 84, 593 P.2d 988 (1979)). After discussing the differing opinions
advanced by the parties’ respective expert witnesses, this Court concluded:



                                                 22
        The Department’s argument overlooks the fact that weighing the testimony of
        expert witnesses is uniquely within the competence of the trier of fact. … In this
        case, the district court’s decision not to follow [the Department’s expert
        witness’s] testimony completely, although disappointing to the Department, does
        not render its findings of fact clearly erroneous. Simply stated, each side’s expert
        presented differing opinions to the district court based on differing
        methodologies, and it was within the sound discretion of the district court to
        accept or reject each expert’s opinions.

Id. at 78, 644 P.2d at 1337.
        The Commission could only prevail in this appeal if this Court abandoned our
constitutional role as an appellate court and became a trial court. Today’s decision reflects this
Court’s unwillingness to do so.
        Justice EISMANN, CONCURS.
        J. JONES, Justice, dissenting.
        While I agree with much of what the Court says in its opinion regarding the
Commission’s handling of evidentiary issues in the district court, 19 I disagree with the ultimate
conclusion reached in the opinion. The Commission presented only one issue on appeal:
        May PacifiCorp deduct obsolescence from the cost approach to value without
        offering evidence of the cause of the obsolescence, the quantity of the
        obsolescence, and that the asserted obsolescence actually affects the property?

I would hold that PacifiCorp failed to establish entitlement to a 20.88% reduction in the taxable
value of its property under the cost approach, based on “external obsolescence.” PacifiCorp’s




19
   It may be that the Commission remembers when an assessor’s appraisal of property was presumed correct and
would only be overturned where the taxpayer was able to show by clear and convincing evidence that the assessor’s
evaluation “was manifestly excessive, fraudulent or oppressive; or arbitrary, capricious and erroneous resulting in
discrimination against the taxpayer.” Merris v. Ada County, 100 Idaho 59, 64, 593 P.2d 394, 399 (1979). That
changed on April 8, 2003, when the Governor signed into law House Bill 302, emergency legislation that
established a “preponderance of the evidence” standard for tax appeals. 2003 Idaho Sess. Laws, 703; I.C. § 63-
409(2). As the statement of purpose accompanying the legislation said:

        This legislation changes the legal standard from one that requires proof that an assessment is
        manifestly excessive, arbitrary and capricious, or fraudulent and oppressive, to one that requires
        simply that the assessment is erroneous. It changes the burden of proof to satisfy that standard
        from a “clear and convincing” burden to the normal “preponderance of the evidence” standard
        applicable to most civil cases.

With this less favorable evidentiary standard, the Commission must step up its game by competently challenging
questionable evidence submitted on behalf of a taxpayer.


                                                       23
claim for an external obsolescence deduction in the amount of approximately $2,325,180,010
cannot be sustained on either legal or factual grounds, in my estimation.
       PacifiCorp’s expert, Tegarden, utilized the income shortfall method to determine external
obsolescence and to set a cost value for the company’s taxable property. According to Tegarden,
“generally external obsolescence is caused by governmental regulations, governmental
restrictions, zoning, rent control, competition, changes in supply and demand, changes in the
economy, and changes in interest rates or costs of capital,” but “probably the main cause, is the
regulatory aspects that affect PacifiCorp.” This includes “the regulatory commission’s specific
exclusion of certain properties from the rate base, i.e. those properties financed by the funds
provided by the deferral of federal income taxes.” External obsolescence also includes regulatory
lag―delay in getting new plant and equipment into the company’s rate base. Tegarden projected
that PacifiCorp could expect a 7.2% rate of return on its plant in service in 2008. He asserted that
a PacifiCorp investor would expect a 9.1% rate of return. He then calculated external
obsolescence as follows:
       Expected Rate of Return on Plant in Service                           7.20%
       Rate of Return Required by Investors =                                9.10%
       Percent Actual Rate of Return
        of Investor Required Rate of Return =                               79.12%

       Percent Obsolescence in Existing Plant:
                     100.00%        [minus]                  79.12% =       20.88%

Tegarden testified that it is not necessary to identify each individual factor contributing to
external obsolescence and the amount attributable to each. Rather, he merely performs a
“complete-unit-concept appraisal” that attributes any deficiency between the 7.2% and 9.1%
return rates to external obsolescence, thereby reducing the taxable value of PacifiCorp’s property
by 20.88%, resulting in a reduction of $2,325,180,010.
       This income shortfall method of determining cost certainly simplifies matters for the
taxpayer. There is no need to go into the excruciating accounting detail necessary to establish
and document the depreciation of plant and equipment for income tax and regulatory purposes.
The method relieves the taxpayer of the bother of specifically identifying the assets alleged to be
affected by external obsolescence and quantifying the amount of obsolescence affecting any
particular asset. You need only identify a projected rate of return and a rate of return that will

                                                 24
make investors happy and multiply the assets by the difference between the two in order to
reduce your taxes―a sort of proof by smoke and mirrors approach. According to Tegarden,
“[T]he higher [the projected rate of return], the lower the obsolescence.” Conversely, the higher
the rate of return that will keep investors satisfied, the more external obsolescence a company
can claim and the less property tax it will be required to pay.
       The district court concluded that Tegarden’s cost approach was reasonable from an
evidentiary standpoint and more persuasive than the approach advocated by the Commission.
Therefore, PacifiCorp’s cost analysis was adopted by the court. However, I find the approach
lacking on both factual and legal grounds.
       This Court has not previously dealt with the income shortfall method and, therefore, it is
worth examining how other courts in PacifiCorp’s service area have dealt with the issue. The
decisions of those courts are not in any way binding on this Court but it certainly seems
appropriate to consider how our sister states have ruled on similar claims made by this multi-
state corporation.
       The Commission cites Pacific Power & Light Co. v. Dept. of Revenue, State of Oregon,
775 P.2d 303 (Or. 1989). Pacific Power & Light Co. (Pacific) is a predecessor of PacifiCorp. In
that case, PacifiCorp’s predecessor did not specifically identify the income shortfall method.
However, as here, both parties started with the depreciation reported on the company’s annual
FERC Form 1 filing. Id. at 307. In addition to the depreciation reflected on the FERC filing,
Pacific claimed obsolescence for “property purchased with funds held for ‘deferred income
taxes’ (DIT)” and for property purchases entitled to investment tax credits (ITC), which were
treated the same way as DIT for regulatory purposes. Id. at 305, 307. Oregon’s Tax Court
considered the “obsolescence” label “to be misleading” but allowed the deductions for both DIT
and ITC because Pacific was not able to earn on them. Id. at 307. The Oregon Supreme Court
reversed, saying:
       The Department argues that this analysis results in a portion of the tangible assets
       of Pacific inappropriately being exempted from taxation. We agree. Accepting (as
       the Tax Court and the parties apparently did) the idea that what we are searching
       for is what a hypothetical willing buyer of this property would pay to a
       hypothetical willing seller, it seems clear to use that a willing buyer of the plant
       and equipment would be agreeable to paying a figure close to [historic cost less
       depreciation], because the buyer could then earn off all that expenditure.



                                                 25
       We say “close,” because there is much evidence in this record to the effect that
       regulation to some extent diminishes the earning potential of regulated property
       and, therefore, a willing buyer would wish to discount the property to some
       degree. Thus, Pacific’s property may be affected by a measure of obsolescence.
       But−as the Tax Court recognized−DIT and ITC are no measure of (or surrogate
       for) that obsolescence. Both are property purchased through tax allowances for
       certain capital investments.

       Both DIT and ITC are property and have intrinsic value. . . . Absent any
       satisfactory evidence establishing an appropriate measure of obsolescence, it is
       inappropriate to make any deduction for it by subtracting in toto the values for
       DIT and ITC−the only deduction for which Pacific argues. We agree with the
       Department that the Tax Court erred in making the deduction.

Id. at 57−58. In the present case, Tegarden speculates that DIT is “one of the primary causes” of
external obsolescence. However, there is no evidence in the record to establish an appropriate
measure of external obsolescence of PacifiCorp’s DIT assets, nor of the other assets claimed to
be externally obsolescent, including the identity and value of those assets.
       In a subsequent case not involving PacifiCorp or its predecessor, the Oregon Supreme
Court declined to adopt the income shortfall method or “income-deficiency method” urged by
the taxpayer. Delta Air Lines, Inc. v. Dept. of Revenue, State of Oregon, 984 P.2d 836, 849 (Or.
1999). The Court stated it was “unable to conclude from the evidence before us what type of
obsolescence adjustment−if any−is required,” based on that method. Id. The Court continued:
       [W]e find it significant that, as Delta’s appraiser testified, by using the income-
       deficiency method, his cost indicator always would have equaled his income
       indicator, because his cost indicator measured obsolescence by examining the
       projected income stream. At best, therefore, Delta’s income deficiency method is
       illogical, because it incorporates income figures that account for only owned
       assets, while it uses cost figures that account for both owned and leased assets. At
       worst, Delta’s income-deficiency method strips the cost approach of its use as an
       independent determiner of value, because it always will track the result under the
       income approach.

Id. (emphasis added) Likewise, in this case, Tegarden’s cost indictor measured obsolescence by
examining the projected income stream.
       Another PacifiCorp state, Montana, was no more enamored with the income shortfall
method. In PacifiCorp v. State of Montana, Dept. of Revenue, 253 P.3d 847 (Mont. 2011), the
Montana Supreme Court had before it several of the participants involved in the present case.
Attorney David J. Crapo, who ably represented PacifiCorp in the present case, was counsel for

                                                26
PacifiCorp, the appellant in the Montana case. Tegarden acted as PacifiCorp’s expert and Eyre as
Montana’s. The Montana Tax Appeal Board rejected “the income shortfall method―the method
advanced by PacifiCorp to demonstrate that about $2.6 billion worth of additional obsolescence
existed.” Of some interest is the fact that PacifiCorp did not appeal that decision. Id. at 853.
Nevertheless, PacifiCorp contended that it was entitled to the additional deduction for external
obsolescence, even though it was not disclosed on its FERC Form 1. Id. at 854.
       The Montana Court accepted the Revenue Department’s position that the FERC Form 1
reflected all forms of obsolescence since, as the Court pointed out, the FERC definition of
depreciation included “wear and tear, decay, action of the elements, inadequacy, obsolescence,
changes in the art, changes in demand and requirements of public authorities.” Id. at 854
(emphasis in original). The Montana Court apparently read “requirements of public authorities,”
to equate to governmental regulations and restrictions. This certainly is a common sense reading.
The Court went on to say, however, that additional reductions or adjustments might be made “if
a taxpayer could show that additional depreciable value existed,” but that PacifiCorp had failed
to provide “a figure for how much obsolescence had not been captured.” Id. The Court noted that
the Tax Appeal Board had “rejected Tegarden’s income shortfall approach because, among other
reasons, it failed to account for income from properties that PacifiCorp had purchased with
deferred income taxes.” Id. According to the Court, “[a]bsent the evidence based on the rejected
income shortfall method, [the Tax Appeal Board] had no evidence before it that suggested that
unaccounted-for obsolescence existed.” Id. at 855. The Court concluded, “PacifiCorp bore the
burden of proving the Department’s method inadequate. PacifiCorp came forward with no
evidence of additional obsolescence that the Department had failed to analyze.” Id. In this case,
also, PacifiCorp made no accounting of income it may have received from properties that it had
purchased with deferred income taxes and, more importantly, failed to identify and value DIT
properties, or any other assets claimed to be externally obsolescent.
       The Utah Supreme Court has similarly taken a skeptical view of claims asserting an
entitlement to economic obsolescence deductions under the cost approach. In a case where a
taxpayer claimed an economic obsolescence rate of 31%, the Court first cited a case involving a
predecessor of PacifiCorp―Utah Power & Light Co. v. Utah State Tax Comm’n., 590 P.2d 332
(Ut. 1979)―in which it had held that a taxpayer must not only show error in an assessment, but
must also “provide a sound evidentiary basis upon which the Commission could adopt a lower

                                                27
valuation.” Alta Pac. Assoc., Ltd. v. Utah State Tax Comm’n., 931 P.2d 103, 112 (Ut. 1997). The
Court rejected the economic obsolescence claim stating:
         Nowhere in [Alta’s] appraisals’ explanation for its 31% economic obsolescence
         rate were the specific federal restraints mentioned. During their testimony, the
         owners’ appraisal experts also failed to explain how each of the federal burdens
         impacted the appraisal. Thus, even if Sevier County’s assessments were flawed
         for failing to account for each and every regulatory burden, reversal of the
         Commission’s approval would be inappropriate because the owners failed to
         suggest a sound alternative method to correct the flaws.

Id. at 113.
         The State of Arizona, which is also in PacifiCorp’s service area, likewise takes a dim
view of allowing a claim for external obsolescence where it is unsupported by actual proof. In
Eurofresh, Inc. v. Graham County, 187 P.3d 530, 537 (Ariz. App. 2008), after citing a number of
cases from other states, including Utah’s Alta Pacific decision, the court said, “These authorities
together teach that a taxpayer claiming external obsolescence must prove both the cause of the
asserted obsolescence and that the subject property is actually affected by that cause.” The court
held that, “as a matter of law, a taxpayer claiming external obsolescence must offer probative
evidence of the cause of the claimed obsolescence, the quantity of such obsolescence, and that
the asserted cause of the obsolescence actually affects the subject property.” Id. at 538.
         The Commission proffered another decision from the same court, Southwest Airlines Co.
v. Arizona Dept. of Revenue, 2012 WL 3041179 (Ariz. App. 2012), wherein Tegarden acted as
expert for the taxpayer and Eyre acted as expert for the state. 20 The court noted that, “[i]n
applying the cost method, Tegarden determined that additional deductions from the statutory
formula were needed to account for obsolescence.” Id. at 4. The court continued:
         In its specific criticisms of Tegarden’s opinions, the Department argues his
         reliance upon the income-shortfall approach to perform a cost valuation was
         erroneous. It argues Tegarden’s analysis was flawed because, inter alia, rather
         than compare Southwest’s income to the income of other airlines, Tegarden
         “created a comparison market by hypothesizing an entirely subjective figure for
         what he thought that [Southwest’s] earnings should be and compared the
         hypothetical earnings to its actual earnings.” The tax court accepted Eyre’s
         criticism of this method as circular.


20
  It should be noted that the Southwest decision contains a notice that “This decision does not create legal precedent
and may not be cited except as authorized by applicable rules.” With that cautionary note and with the understanding
that, even without it, the decision is no way binding on this Court, it is interesting to get the Arizona court’s take on
the income shortfall method.

                                                          28
        Moreover, the Department argues that the income-shortfall approach that
        Tegarden used has been rejected by the Western States Association of Tax
        Administrators. See PacifiCorp, 253 P.3d at 854−55 (rejecting use of income-
        shortfall approach); Transcon. Gas Pipe Line Corp. v. Bernards Twp., 545 A.2d
        746, 754 (N.J. 1988) (noting “circularity” of the approach).

Id. Thus, the court thought it inappropriate for Tegarden to hypothesize a subjective figure for
what he thought the taxpayer’s earnings should be and then compare the hypothetical earnings to
its actual earnings in order to derive an external obsolescence deduction.
        I agree with the skepticism expressed by these courts for allowing a large deduction of
taxable value for external obsolescence, where there is no competent evidence to establish that
the obsolescence actually exists. PacifiCorp postulates that it is entitled to a one-fifth reduction
in the assessed value of its property under the cost approach because it is not achieving the rate
of return its investors would prefer. The Commission characterizes PacifiCorp’s position as
using the “assumption of obsolescence to reduce the cost approach to the income approach.” The
Commission argues:
        It does this by using the same “investor required rate of return” it used to develop
        the income approach. Stripped of its gloss, the basic argument is: (1) the cost
        approach yields a value significantly higher than the income approach, (2) the
        reason for the discrepancy must be obsolescence, therefore (3) use the percentage
        difference between the assumed actual rate of return and assumed “investor
        required rate of return” to determine the assumed obsolescence. Now the income
        approach and cost approach agree. The reasoning is circular and has the result of
        gutting the cost approach to value by relying on a critical income approach factor
        to calculate the cost approach.

In my estimation, the income deficiency or shortfall method of establishing cost is unreliable, as
a matter of law, where the taxpayer fails to establish the claimed obsolescence assumed by that
method by offering competent evidence: to establish the factors comprising the claimed
obsolescence, to identify the assets affected thereby, and to quantify the amount of obsolescence
for each asset. The record here contains no such evidence. Thus, I would hold, as have our
sisters states in similar circumstances, that PacifiCorp has failed to carry its burden of
establishing entitlement to an additional deduction for external obsolescence. 21



21
  While I do not have a bone to pick with the district court’s decisions in admitting or considering PacifiCorp’s
evidence, that evidence is simply insufficient, as a matter of law, to establish its entitlement to an external
obsolescence deduction.

                                                       29
         In this case, PacifiCorp merely speculates, through use of the income shortfall method,
that some sort of external obsolescence is keeping it from making the amount of money it wants
to make. It could be “competition, changes in supply and demand, changes in the economy, and
changes in interest rates or costs of capital,” but “probably” the main cause is the “regulatory
aspects that affect PacifiCorp.” The company contends that the depreciation it disclosed on its
FERC Form 1 did not include external obsolescence but offers no explanation as to why it
apparently ignored the FERC definition of depreciation―which includes “obsolescence, changes
in the art, changes in demand and requirements of public authorities”―and failed to report those
items. All of these elements appear to be included in Tegarden’s description of external
obsolescence, particularly the last element, which would seem to equate to governmental
regulation. I am inclined to agree with the Montana Supreme Court that the amount a utility
designates as depreciation on its FERC Form 1 includes all obsolescence unless the utility can
establish through competent evidence that additional depreciable value actually exists.
PacifiCorp v. State of Montana, 253 P.3d at 854. If PacifiCorp contends that a primary cause of
its “lower-than-adequate rate of return on all property is the regulatory commission’s specific
exclusion of certain properties from the rate base, i.e., those properties financed by the funds
provided by the deferral of federal income taxes,” it would seem that such properties would
easily be identifiable, that the amount expended upon them out of deferred income taxes could be
quantified, and that the effects on earnings, both positive and negative, could be shown. 22
Instead, PacifiCorp urges a blue sky approach where none of this proof need be proffered. 23
         PacifiCorp contends that part of the external obsolescence results from regulatory
lag―delay by regulators in getting property placed into the rate base. However, PacifiCorp fails
to establish a value for this factor. PacifiCorp is perfectly capable of calculating a value for
regulatory lag. In Utah Power & Light Co. v. Idaho Public Utilities Comm’n., 102 Idaho 282,
284−85, 629 P.2d 678, 680−81 (1981), this Court overruled the Idaho Public Utilities
Commission’s decision denying PacifiCorp’s predecessor a 1% factor in its allowed rate of
return for regulatory lag or “attrition.” 24 The Court further allowed a regulatory lag or attrition

22
   Such a showing would have the added benefit of establishing whether and to what extent such assets were located
in Idaho.
23
    It isn’t entirely clear how inclusion of DIT properties in the rate base would improve PacifiCorp’s earnings when
it is apparently earning less than its allowed rate of return. Some explanation and evidence in this regard would also
be helpful and appropriate.
24
   Of interest is the Court’s observation that:

                                                         30
allowance in a subsequent rate of return requested by Utah Power in Utah Power & Light Co. v.
Idaho Public Utilities Comm’n., 105 Idaho 822, 826−27, 673 P.2d 422, 427−28 (1983). If
PacifiCorp’s predecessor could document and quantify a regulatory lag factor in proceedings
where it sought to increase its allowed rate of return, it certainly could do the same in a case
where it seeks to decrease the amount of its property taxes by claiming regulatory lag.
         Before concluding, an observation regarding Tegarden’s use of the income deficiency
method is appropriate. In support of his calculation of external obsolescence, Tegarden cites The
Valuation of Real Estate, 3rd, by Ralph A. Ring and James H. Boykin. In his appraisal, Tegarden
includes an example from page 424 of the Ring and Boykin publication, demonstrating the
calculation of external obsolescence. The example shows a 2% loss in earnings resulting in a
17.4% deduction for external obsolescence, calculated “by the difference in the rate of return
allowed by regulatory agencies and the rate of the return that the investment market indicates as
competitive to attract a willing, able, and informed purchaser (investor).” Yet, instead of using
PacifiCorp’s allowed rate of return as of January 1, 2008, the Commission’s valuation date of the
property, which the Commission points out was 8.27%, Tegarden used a projected rate of return
based on PacifiCorp’s five previous years of actual earning experience. Tegarden provided no
explanation as to the departure from the methodology utilized by Ring and Boykin. We are left
to speculate.
         The Commission’s regulations for assessment of utility company operating property
certainly contemplate the possibility of a deduction for obsolescence. Rule 405.05.c provides:
         The appraiser shall attempt to measure obsolescence, if any exists. If
         obsolescence is found to exist, it may be considered in the cost approach.

IDAPA 35.01.03.405.05.c. Here, the Commission’s appraiser did not find obsolescence to exist,
other than as may have been claimed by PacifiCorp in its FERC Form 1. To obtain the benefit of
any additional obsolescence that PacifiCorp may have neglected to include in the FERC Form 1,
despite the FERC definition of depreciation, it was incumbent upon PacifiCorp to establish
through competent evidence the factors comprising the claimed obsolescence, the amount
attributable to each factor, and the effect on earnings, both positive and negative, of each factor.

          A rate of return authorized by a Commission is not a guarantee of any level of revenues. . . .
          Conflicting views exist as to whether a utility’s failure to earn an authorized rate is, in and of
          itself, the final test of [regulatory lag].
Id. at 285, 629 P.2d at 681.


                                                        31
PacifiCorp has failed to do so and, therefore, I would reverse the district court’s holding adopting
PacifiCorp’s cost valuation.
       Chief Justice BURDICK CONCURS.




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