With the end of monopoly in electric generation, utilities can assure savings by taking a creative approach to state and local taxation.
Deregulation of electric generation will force electric utilities to examine closely their state and local tax burden. Under deregulation, most state and local taxes will not be part of a reimbursable rate structure. Rather, such costs will directly influence bottom-line profitability.
Local property taxes take a big bite out of electric generation profits. Coal suppliers of utilities pay significant local taxes. Electric generation units also are taxed heavily. Frequently, both electric generators and their fuel suppliers are taxed by local officials using subjective criteria for assessment. Accordingly, electric generating taxpayers have much to gain by developing the capability to lower their tax assessments.
In anticipation of electric generation deregulation, utilities can secure considerable savings by taking a knowledgeable and creative approach to state and local taxes.
What follows are examples that highlight three such techniques for mitigating exposure to property taxes: 1) reducing the portion of utility income attributable to real property; 2) recognizing economic and functional obsolescence; and 3) developing a sophisticated method to discount the role of capital investment and real property (em one that fully recognizes the quantum leap in electric generating risk. Such tax savings will rapidly sweep up important parts of a once regulated and stable industry.
When Income Becomes Unpredictable
In Arizona, for example, mining properties (primarily copper and coal) typically are valued by application of the income approach. In such an approach, mine valuation depends upon the