New air quality regulations, including the Cross-State Air Pollution Rule, have prompted substantial investments in emission control upgrades. But a series of additional standards—for mercury,...
Evaluating Power Plant Property Taxes Under Deregulation
overall value for the unit will be a combination of the values of the assets that will remain regulated combined with the value of soon-to-be deregulated assets. The value of those deregulated assets will be a combination of their value in a regulated market for several years and their remaining value in a competitive market.
Steven P. Schneider is a tax and regulatory law litigator with the law firm of Honigman, Miller, Schwartz and Cohn in Detroit. The author thanks John C. Goodman, senior vice president in the Valuation Group of AUS Consultants for his contributions to this article.
1 See Lori M. Rodgers, "Kilowatts by Choice, Ready or Not," Public Utilities Fortnightly, Nov. 1, 1997, p. 42, for a list of Internet sites of groups providing state-by-state updates on retail open access plans.
2 Gas turbine cost and performance characteristics are improving rapidly. Some of the data in the current sources listed below could be obsolete: GRI, Gas IRP Review, June 1996; Michael Brower and Brian Parsons, "Can Renewable Energy Reduce Fuel Risk?" Public Utilities Fortnightly, May 1, 1997, p. 32; GRI, Successful Use of Natural Gas in Electric Generation, GRI-96/0272, October 1996; J. Alan Beamon and Steven H. Wade, "Energy Equipment Choices: Fuel Costs and Other Determinants," Energy Information Administration's Monthly Energy Review, April 1996; Paul Bautista, "Rise in Gas-Fired Power Generation Tracks Gains in Turbine Efficiency, Oil & Gas Journal, Aug. 12, 1996; GRI, Scenarios of Restructuring in The U. S. Power Industry: Implications for Natural Gas, gri-96/0003, November 1995; GRI and Electric Power Research Institute, Pipelines to Power Lines: Gas Transportation for Electricity Generation, GRI 5093-810-2575, January 1995; R. Utter, H. Termuehlen, H.-O. Rohwer, H. Brücker, Combined Cycle Power Plant Genelba in Argentina, paper presented at Power-Gen '96 International Conference, Orlando, Fla., Dec. 4-6, 1996.
3 See the summary of this legislation in Inside FERC, Nov. 10, 1997.
4 See "NOx Joke: EPA Proposal Has IOUs Fuming," Public Utilities Fortnightly, Nov. 15, 1997, p. 62.
5 "Kyoto Aftermath: Big Battles Still Ahead as U.S. Holds Treaty Key," Oil & Gas Journal, Dec. 22, 1997.
6 One of the states essentially recognizing an exception to the fair market value standard is New York. In a landmark case the state's highest court reasoned, in part, that because there was no "market" for the locally assessed portion of a gas system (i.e. the sales comparison or market approach was inapplicable), it would value property solely by looking at its reproduction cost with some very limited obsolescence deductions. It refused to apply an income approach or recognize earnings limitations from regulation in the cost approach. See Brooklyn Union Gas Co. v. State Bd. of Equalization, 492 N.Y.S.2d 598 (1985). The decision has been extended to electric utility property. However, as there is more evidence of power plants selling in competitive markets the rationale of this decision is weakened and it may be subject to challenge.
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