Tuesday, January 28, 2014

MidAmerican Wind Property tax update January 2014



Since my last post on this issue, I presented my concern, that the utilities wind assets might be undervalued; to the Calhoun county supervisors (8 turbines from this project are located in Calhoun County). No action was taken, but a couple of the supervisors suggested the matter should be looked into further. The assessor suggested that I contact the Department of Revenue (D.O.R.) regarding this issue. The staff at D.O.R. was nice enough to meet and spend quite a bit of time discussing my concerns. They explained that since the property taxes were assessed at the county level, contesting the valuations would be done at the county assessor’s board. There is also a state property tax review board with subpoena power. After that, citizens who still are contesting the rulings in these venues would have to proceed to district court.   
  
The D.O.R. explained that since the property taxes were assessed locally, their job was to provide information and assistance to the county assessors. The D.O.R. sent a Feb. 2010 memo – “Cost Reporting for Wind Towers” - to county assessors.
Here is the memo, along with comments inserted by me. 

Property Tax Division
1305 E Walnut
Des Moines, IA 50319
515-281-4040
February 10, 2010
TO: Iowa Assessors & Deputy Assessors
FROM: Dale Hyman, Administrator
Property Tax Division
RE: Cost Reporting for Wind Towers
Iowa Code §427B.26 provides for a special valuation of wind energy conversion property based on “net acquisition cost.” Some assessors asked for clarification on what is to be included in “net acquisition cost.”

Should soft costs be included in net acquisition cost?

Yes. Soft costs are typically included in determining the value of improved property under the cost approach. The 2008 Iowa Real Property Appraisal Manual (page 3-2) specifically includes soft costs in valuing improved property. In addition, the 1990 “Property Appraisal and Assessment Administration” book by the IAAO, page 207, states: “In appraisal, costs consist of all expenditures necessary to complete construction of an improvement and place it in the hands of the buyer. Costs are either direct or indirect. Direct costs include materials, labor, supervision, equipment rentals, and utilities. Indirect costs include architectural and engineering fees, insurance, interest on construction loans, taxes incurred during construction, advertising and sales expenses, and reasonable overhead and profit.
“Accurate cost estimates will include all direct and indirect costs. Accordingly, when developing cost schedules, appraisers should be sure that all costs are accounted for.” Nothing in the definition of “net acquisition cost” excludes soft or indirect costs from being part of the valuation of the wind tower conversion property.   

My Comment – In my opinion, the reason the information MEC provided me does not match their filings to the county might be explained by this section. It’s possible that not all the soft costs are accounted for by utility and assessor. The utility filings only list turbine, met tower, substation and land. There are 50 plus pages of invoice copies, but I can’t determine if they have been included in the “net acquisition cost”.  The easiest way for assessors to obtain this information for MEC projects would be to access records at the Iowa Utilities Board.  It also appears that some of the costs above were instead included under the Iowa Utility Replacement excise tax, which is taxed at a rate per KWH formula.   

Part of the definition of net acquisition cost is an exclusion for “any excess cost adjustment.” An example would be if cost are accrued at the end of the year and the actual cost comes in lower, then there would be excess cost adjustment to report. 

 Is land part of the entire wind energy plant to be valued and subject to the special valuation?

No. The definitions of net acquisition cost and wind energy conversion property in
427B.26(4) are relative to improvements and not land or real property. Therefore, the intent is to value the land separately and give the special valuation only to the improvements on the land.

My comment- Since land is listed in the county valuations; I’m going to contact the assessor for an explanation.

Would a general ledger summary be helpful? 

Yes. A summary of the general ledger for the wind tower project would be helpful if it shows a breakdown of the cost of the project. Items that are in the general ledger but not in the net acquisition cost should be itemized and reviewed by the assessor.  

My comment - The invoice copies provided to the county would seem to cover this, but again, I can’t determine if they are in the net acquisition cost.  

It’s also interesting to note that the Iowa utility replacement excise tax was adopted  in 1998 because “The Legislature found that with the advent of restructuring of the electric and natural gas utility industry, a competitive environment would most likely replace the regulated monopoly environment.
Previously, utility companies were subject to property taxes levied on their production and transmission facilities. If those property tax levies would have continued in a restructured environment, the property tax costs would have put Iowa-based utility companies at a competitive disadvantage because out-of-state suppliers of energy would not have paid the Iowa property tax.” 

My understanding is that Iowa did deregulate the wholesale side of the utility business in 2003, but not the retail side, leaving the utility monopolies in place, perhaps legislators should revisit the excise tax. At any rate, it looks like we might have to go a little further down the rabbit hole to sort this out.     

Tuesday, January 21, 2014

Another Iowa Renewable Energy Policy Update - January 2014



Here’s an update to the last post. More Iowa energy news:

The Iowa Utilities Board has opened a docket  (pdf) to gather information on distributed generation, “both for utilities and their ratepayers, on policies that should be examined with respect to distributed generation, and to identify the technical, financial, regulatory, and safety aspects of distributed generation that should be examined in this docket. While the questions are broad, the Board also invites participants to comment on other issues that they believe are relevant to the discussion regarding distributed generation. Those issues could include, but are not limited to, the potential rate ramifications of distributed generation to participating and non-participating ratepayers, the impacts of distributed generation on the reliability of the electric transmission and distribution systems and the need for future transmission expansion (including any issues that may impact regional transmission system operations), the economic impacts of widespread distributed generation, and whether the existing consumer protection laws are adequate with respect to the sale and installation of distributed generation equipment.” That’s pretty wide open. You might consider filing comments if you’re an Iowa DG fan, the utilities will be commenting… Things haven’t been too friendly for small scale wind and solar fans at the IUB lately. During a recent docket on energy efficiency, the board allowed Alliant Energy to end its customer rebate program for solar PV. Before that it ruled against solar leasing proponents on 3rd party power purchase agreements (see previous post). A few years before that, the board adopted standard interconnection procedures for distributed generation, but only for investor owned utilities, not RECs or Municipals. It looks like they might revisit the interconnection standards. This will be a pretty important docket.

     “Bill Hansen, a retired 83-year-old former Iowa lawmaker and lifelong Republican”, is advocating for small scale - customer owned solar in the Arizona solar debate. I wish he would come back to Iowa and spend some time with the Iowa Utility Board, and also Iowa Republicans, as there doesn’t seem to be many Iowa “R” legislators supportive of distributed generation. Before you Democrats start high-fiving each other, don’t forget it was the “Ds” who stopped distributed generation in Iowa last year.

U.S. sailors say radiation leaking from the Fukushima nuclear plant made them sick. I added this link because Iowan’s live close to some Fukushima style reactors .

According to the Union of Concerned Scientists, Iowa imported $590 million of coal in 2012. “Money that could be used to invest in local economies”, like more distributed generation for instance.

In national energy news, a Florida legislator “wants to end the public utility monopoly on selling power to consumers, as well as open competition for development of renewable energy in Florida” saying "When it comes to energy policy, Florida is in the Stone Age." This brings us to the latest post from NRG’s David Crane – “Keep Digging”. He has advice for the nations utilities- he finds “the prevailing strategic consensus of American electric utilities — B2R (back to regulated) — amusingly ill-advised. In the new technology-driven, sustainability-focused energy industry of the 21st century, you can run from competition and free market capitalism, but you can’t hide. I guess, when it comes to utility strategy, what we are seeing is just a twist on the old adage: When you are in a hole, keep digging!”
I’ve said previously, that a lot of utilities haven’t figured out that the customer is always right. A lot of Iowa utility customers are going to want to own renewable energy facilities.  Picking a fight with your customer probably isn’t the best strategy. Utilities who try to corner the market on renewables and transmission lines might end up with un-needed facilities and debt on stranded assets.  

  The time is coming where a lot of us will not only generate our own electricity, but also be able to keep our lights on when the grid gives out. Crane has a plan, using the large existing underground natural gas infrastructure to compliment solar PV, noting that super storm Sandy showed the advantages to that idea.   A Canadian man even used his electric car as a generator during a recent ice storm. “Kids” don’t try this at home. You need proper safety equipment before using any kind of back up power equipment.      

My next post will be an update on the MidAmerican wind property tax issue.   

Friday, January 17, 2014

Iowa Renewable Energy Policy Update January 2014




Happy New Year readers. As the Iowa legislative session starts, we small scale – local owned wind and solar fans once again hope for Iowa legislators to advance last years feed in tariff proposal. At last Wednesdays Senate agriculture committee meeting, Chairman Joe Seng announced his wish to do just that. Utility lobbyists are now attending Agriculture committee meetings, so it looks as though those committee members can look forward to lots of lobbying by utility interests. 

It looks like there will be an eminent domain bill in response to Clean Line Energy’s wish to build a privately owned transmission line across Iowa. 

I’m also working on an update to the MidAmerican wind property tax issue. I’ve attended my local county supervisors meeting and met with the Iowa Department of Revenue on this issue. I’ve posted about this item here ad nauseam. I think energy wonks will enjoy the next update though. 

The Iowa Supreme Court will hear a dispute between utilities and advocates for the leasing of solar PV systems. Thanks for this link IRENEW. John Farrell clearly favors policy encouraging ownership of solar. In the interest of full disclosure, I also favor ownership over leasing. I’d encourage readers to try and convince me otherwise. My interweb searching also found this post- Why Treasury Is Investigating SolarCity and Solar Third-Party Funds while looking for additional information on this issue.  Solar leasing proponents will also be advocating at the Iowa legislature this session. 

There’s a lot of good reading available for distributed generation fans these days. An Indiana legislator has introduced a feed in tariff bill (are you paying attention Iowa legislators?). Paul Gipe has a post at National Geographic “Time to Break Free of Net-Metering; We Need a “FIT” Policy for Renewable Energy to Soar”. I’ve posted before about the difference between feed in tariffs and net metering. I’ve seen the two policies as complimentary in the past. But, as Paul notes, feed in tariffs are responsible for 70% of renewable installations worldwide. Net metering accounts for 2%. Look for an in-depth post about this here soon. The utilities have been vocal about how unfair net metering is to them lately. Barry Goldwater Jr. in AZ. Isn’t buying it.  A quote from the Paul Gipe post. “Maybe the electric utilities are right, for a change.”  Quickly followed by “If they are right about net-metering, it’s for all the wrong reasons. They want to stop solar photovoltaics (solar PV) now. They want to put it in the grave before it takes even more market share from their comfy business. Climate change and future generations be damned. Maybe we should let them. I can hear the howls of derision from the usual suspects: the solar PV industry, the solar leasing companies, and their sycophants in the advocacy community.” 

I also found a post about the history of solar policy in the U.S. -  “How Ronald Reagan Turned Out the Lights on Solar Power”. After reading, it seems clear that Presidents Nixon and Carter weren’t very helpful to solar Research and Development either. As discussed in the post, The U.S. passed on leading in solar technology. Germany, with their feed in tariff policy, and Japan, with tech advancements, can largely claim credit for the 70% reduction in solar installation costs worldwide. How much longer will the U.S. continue to pass on good renewable energy policy?  
  
These posts should keep you busy for now. Thanks for stopping by!           
        

Tuesday, December 24, 2013

An Iowa Utility Death Spiral?? (And Other Items)



Could it happen in Iowa? For those of you unfamiliar with the “utility death spiral” concept, The Interweb has been full of discussion lately about big changes coming for utilities. Here’s how it goes: Many people start generating their own electricity by installing their own solar panels, small wind turbines, micro gas turbines, and fuel cells. This lowers the amount of customer’s captive to monopoly utilities. Those utilities have to raise electric rates among remaining customers to maintain services. This causes even more customers to install solar panels, etc. Rates go up even more. Soon… down the drain another utility goes.  The telecom industry, once highly regulated, has changed radically in the last 2 decades, so it seems possible that similar things could happen with electricity generation. I’ve linked to articles discussing this before. The first post I saw on this topic was in 2008. According to the author, almost half of U.S. electric customers could be generating their own electricity by 2028. If that happens, you can be sure the industry will look much different than it does today.  Here’s some of the latest buzz: 

Bloomberg Businessweek posted “Why the U.S. Power Grid's Days Are Numbered”. Stephen Lacey just posted “UBS Analysis: Efficiency and Solar Create ‘Difficult Road’ for Global Utility Sector in 2014” . William Pentland @ Forbes.com isn’t buying it , making the case that companies will adjust before the “death spiral” occurs.  John Farrell doesn’t agree in “Utility Shocked to Find It’s Already Dead”, making the case that decisions made by utilities in the 90’s, may have already sealed their fate.  A quote - “we can toss out the antiquated notion that a utility grid must be centrally planned and centrally owned in an era when cost-effective energy generation is neither”. A lot of generation and transmission assets planned or in construction may not be needed, but someone (That’s you dear ratepayer) will have to pay for them. Some utilities have aggressively moved to control renewables themselves, yet a lot of their customers will still want their own wind turbines and solar panels. Our utility friends seem to have forgotten that the customer is always right. Their only plan seems to be “pick a fight with customers while trying to retain them”, as noted in the 2008 post above.  
    
The investment folks have also noticed. Seekingalpha just posted Are utilities headed for a death-spiral? The Economist ran “European utilities - How to lose half a trillion euros” in October. The “death spiral” doesn’t seem to be a myth in Europe. I plan to crawl further down the rabbit hole on this issue in the New Year.
   
Shifting gears, it’s the holidays, and here’s a link to some solar powered Christmas gifts, along with a photo of some coal fired Christmas decorations spotted on a recent trip. 


Here’s hoping that customer’s utility has a great distributed generation program. Most likely though, the Santa’s are powered by a lump of coal judging by the link to MISO Midwest fuel sources found on John Farrell’s twitter account.  The link shows the grid powered by 71.8% coal today. 




  So it looks like we need to add much more distributed generation in Iowa to change the look of that graph. You can send a new year’s wish to the Iowa legislature to do just that!   

Happy Holidays, and thanks for checking the blog out this year!