THREE FACTORS (em RESTRUCTURING, TECHNOLOGY AND environmental controls (em now create both reason and opportunity for electric utilities to lower their property taxes, which often make up a substantial cost of doing business.
Property tax valuation is fairly straightforward. Most states compute property taxes on fair market value, or what a hypothetical buyer and seller would agree the property is worth, with both parties having knowledge of the relevant facts and neither compelled to buy or sell. Three common approaches are used to estimate fair market value: (1) the income approach, (2) replacement cost less depreciation and obsolescence and (3) the sales comparison approach.
However, changes anticipated in the electric industry will disrupt the traditional connection between property valuation and the utility rate base, the benchmark by which utilities and local governments have calculated property taxes in the past. First, deregulation affects earnings, breaking the traditional ties between rate base and value. Second, advances in gas turbine technology (and greater reliance thereon) will force a re-evaluation of the cost, efficiency and capability of existing plants. Lastly, the prospect of new environmental legislation and regulation, coupled with deregulation, means the end of the captive market (ratepayers) through which to recover any required compliance or abatement costs.