Tuesday, September 10, 2013

MidAmerican property tax update

I’ve been trying to discover if MEC is paying the correct amount of property taxes at their wind farm located near me.  The quick answer is- I don’t think they are- due to information (mostly a lack of information) provided by MEC employee Dean Crist.  
This is the latest of several blog posts on this subject. Interested folks are invited to examine the earlier ones here.

 To recap:  I became curious about how Pocahontas County determined the rates for the MidAmerican (MEC) wind project in the county. The assessor’s office provided me with a property tax appraisal for the wind farm (constructed in three phases) for the first 131 turbines - $2,580,000 ($1720 per kW), the next 39 at $2,850,000 ($1,900 per kW) and $3,660,000 ($1591 per kW) for the final 13. The assessor’s office reluctantly provided basic filings (after an attorney requested them in writing) submitted to the county by MEC that roughly match the assessments, listing met tower, land, turbines, and substation. 

The following numbers were provided by Mr. Crist -   
1.         The first phase of Pomeroy (123 MW in 2007) was constructed under a Board-approved cost cap of $1,811 per kW.
2.      The second and third phase of the Pomeroy project (75 MW in 2007and 51 MW in 2008, respectively) was constructed under an economic test approved by the Board which resulted in cap caps ranging from $2,230 per kW to $2,480 per kW.
3.      The fourth phase of the Pomeroy project (7.5 MW in 2008) was added with a Board-approved cost cap of $2,300 per kW.
The fifth phase was an addition of 30 MW in the last ratemaking proceeding. At this moment I cannot find what year it was added as projects were added in 2009 – 2012. Cost caps for these projects were $2,050 per kW in 2009, $2,200 per kW for 2010 and $2,300 per kW for 2011-2012. 

 So, these are cost caps determined by the Iowa Utilities Board. MEC has been unwilling to date to provide actual project costs, only assuring me that the projects were completed under these cost caps. 

To me, the most interesting thing about these figures is that MEC’s cost caps were adjusted 5 different times, but the project has only three property tax assessments.  
The assessment of the first phase looks to be on low side to similar projects completed by Nextera (one of the largest wind developers in the country) in IUB DOCKET NO. RPU-09-0003. But, more noticeably, the cost cap for part of phase 1 and all of phase 2 is $300 to $400 higher per kW than the property tax assessments. The phase 3 cost cap is $400 higher per kW than the property tax assessments.  

There is no assessment for underground cable between the turbines. The assessor suggested I contact MEC when I questioned why. MEC did not supply itemized costs to verify that cable costs were in the turbine assessments. A wind consultant friend estimated costs of “Lighter cable 4/0 34.5 kV,  $115,000 / mile  (good for 4 turbines or so)”.  MEC has 183 turbines in the county, which would mean that potentially $5,175,000 in cable costs are missing from the tax rolls.  

The difference in the cost caps vs. property tax assessments concerns me. If the assessments for the first 2 phases (170 turbines, are off by $300 per installed KW, that figure is $76,500,000.  If the 3rd phase assessment is off by $400 per installed KW, that amount is $11,900,000. 

These figures total $92,575,000.  
 I was also unable to verify that construction and soft costs that were capitalized , depreciated, ( and therefore taxable), were included in the assessments. MEC declined to provide the confidential Utilities board filings that I requested that would have helped determine this.  

Finally, Mr. Crist noted in an email that the wind project costs beyond the Pomeroy substation were assessed under the Iowa utility property replacement tax system, rather than under 427B.26 -- Special valuation of wind energy conversion property. Since he did not respond to my phone call request for more information on the differences on tax rates between these 2 programs, I can only deduce that it produced favorable tax advantages for MEC.  427b.26 states that “Wind energy conversion property” means the entire windplant including, but not limited to, a wind charger, windmill, wind turbine, tower and electrical equipment, pad mount transformers, power lines, and substation.   

Possibly, the county is missing some additional revenue here as well.
My interest in this issue started when Pocahontas County considered creating a tax increment finance district to divert wind project property tax into special projects, potentially affecting 3 school districts and surrounding counties. It looks like residents of those school districts should demand a careful review of how the county determined tax rates for this project, as those school districts might be due more revenue than they are receiving now.  

There was little public information available at the Iowa Utilities Board to assist me on this quest. The documents describing the MEC wind builds have a lot of confidential information not available to Iowans, but I did find a U.S. Securities and Exchange Commission document that shed some additional information on wind project rate making principles for investor owned utilities. 

Other counties where MEC has wind assets or is planning to build assets might want to take note.  Next, a few interested parties and I plan to ask for a meeting with the assessor to revue this information. I’ll update when additional information on this issue becomes known. Perhaps MEC will even honor Mr. Crist's offer to schedule  a meeting with their tax department to discuss this issue.

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