SALEM (AP) - The Oregon Public Utility Commission reaffirmed its decision to apply a new law when it cut PacifiCorp's request for a 12.5 percent rate increase to 3.2 percent last fall.

PacifiCorp had challenged the commission's application of Senate Bill 408, which deals with how much utilities can charge ratepayers for estimated income tax expenses. The challenge led to further PUC review and Tuesday's decision to uphold the smaller rate increase.

“I believe we have taken a fair and reasonable approach to implement the intent of the new utility-tax law that weighs the interests of both the utility and its customers,” Commission Chairman Lee Beyer said in a statement. “This is extremely complex, but in the end we are confident it results in a balanced approach.”

Though the commission backed its decision, it reduced the tax adjustment slightly, concluding that PacifiCorp should cut its income tax expense by $12.7 million, not the $16.1 million outlined in the initial order.

The adjustment will result in an additional overall rate increase of 0.74 percent, roughly 50 cents a month for an average residential customer who uses 1,000 kilowatt hours.

Oregon lawmakers enacted the utility income-tax law to address growing concerns that energy companies were collecting income tax expenses in rates that are not ultimately paid to taxing authorities.

The law's advocates include customer groups such as the Citizen's Utility Board and the Industrial Customers of Northwest Utilities.

In the request for reconsideration, PacifiCorp argued the commission's application of the Senate bill in the rate order was overly broad, premature and unlawful.

Bekki Witt, a PacifiCorp spokeswoman, said the utility would review Tuesday's decision before deciding whether to take the case to the Oregon Court of Appeals.