Thursday, August 17, 2017

MidAmerican Wind Property Tax Update

As mentioned previously, last year, I sent quite lot of information compiled on the MEC wind property tax issue, and a list of questions to the Department of Management (DOM), and the Department of Revenue (IDR). I asked them to meet with a few interested parties about this issue, or at least, answer the questions. Instead, I received a non scheduled phone call from from the department of revenue that was hands down the rudest conversation I have ever had with a public employee. I was forced to become pretty assertive to even get my concerns heard. The conversation focused on two main areas.

1-the fact that MidAmerican reported lower wind valuations in Calhoun County than the utility. After quite a bit of discussion, the caller wanted to know who at the IUB had provided the information referenced. The Calhoun assessor has never mentioned the staff persons name.

2- the fact that MidAmerican is declaring wind assets under the Iowa Utility replacement excise tax. 
IDR insisted that was not happening. I typed notes of our conversation and sent them to both department contacts, in order to clarify my concerns. I received the following reply- The only on the record statement from IDR on this.


   

              Still disagreement that this was even happening , even though I mentioned I had an email from a MidAmerican employee verifying that it was.







I don't think this is fair for the utility to do this when an independent wind project probably can't. Also, I'm betting that state and local government are losing potential revenue because of this, though state and local government haven't been helpful to date determining what amount. I'm guessing MidAmerican wouldn't report taxes this way unless it was benefiting their bottom line.

In addition, much information included on the IDR website seems to support my opinion.



The states special valuation of wind property also suggests the items reported by MidAmerican in the replacement tax program should be taxed in the wind valuation instead.



and finally, IDR the following memo to me when I contacted them about this issue some time back.



Comments from from IDR are welcome , especially answers to the question list referenced in a previous post.





MidAmerican Wind Property Tax Update

The Iowa Utilities Board (IUB) is another potential source for verifying the accuracy of wind  property tax filings submitted by MidAmerican to Iowa counties for determining valuations. A wealth of information on the utility's wind projects and other generation assets are submitted by the utility in order to get approval by state regulators
.
Unfortunately, most of that information is confidential and not available to Iowans. Interested tax payers could jump through the hoops and forms necessary to access this information (see IUB letter below), but they would likely have to sign a non disclosure agreement. How then, do interested persons use that information to insure accuracy of the utility's property tax filings?

As an example, The Calhoun County assessor was able to receive an exact cost of the turbines located in that county when she called the IUB. She contacted the IUB when I filed a petition to review MidAmerican's turbine valuations. The information IUB provided supported my position, but the review board dismissed the petition anyway. So, having access to IUB records would useful if I were to pursue an appeal process. However, it appears unlikely I could access that information, or use it in a public appeal process, or share it with the media if I believe that I didn't receive fair treatment from public officials in this matter.

When a letter was sent to the IUB asking for this same information for several more of MidAmerican's wind projects. This was the response received from an IUB staff person.


      


Frankly, it would have been quicker the for the IUB staff person to just provide the same project cost information for these projects that was provided to the Calhoun county assessor. Instead he notes that much of this information is not available online invited the interested parties to drive to Des Moines and look for it ourselves. He also notes the one Docket available online,     RPU-2013-0003 . 
I had already downloaded a document from the six pages of filings listed for this docket, which included an actual cost listing for MidAmerican's wind VII project. The request for information letter sent to the IUB referenced that this information appeared to be available, and asked them to provide that same information for additional projects.  I also asked for the specific project cost items listed in this filing, but figured I would only get the basic information highlighted below. 


    








 It's understandable that IUB would maintain confidentiality while the utility is requesting project bids. Much of projects specifics of this heavily redacted 50 plus page document were blanked out.  But, IUB rightly saw no reason to redact the previous completed wind project cost, since no project specifics were listed. This will be useful information to verify the utility's property tax filings for the "wind vii" locations.

However, since this request letter was sent to the IUB,  the document above no longer appears to be listed when you search the IUB electronic filing system.  A Wikipedia page for MidAmerican's Highland wind project lists a now broken link to the same docket, probably the same document I downloaded.


       


 So now , anyone who travels to Des Moines for this information will probably find it a waste of their time. It also no longer appears to be available online . IUB has this information readily available, so why won't they provide it? Especially since MidAmerican provides information about their wind project costs to FERC. Why can't the public easily access this basic IUB info to see if those wind project costs match the Utility's county and federal filings, Unless the numbers don't match for some reason.   
Comment from the IUB is welcome.  








Tuesday, June 27, 2017

MidAmerican Wind Property tax Update


What kind of changes would simplify county assessors ability to verify that all wind farm costs are accounted for when performing assessments. Memos to the assessors from the department of revenue instruct them to do just that, but it doesn't appear that is being done, MidAmerican, and probably other wind projects as well, seem to self reporting their wind farm costs.

Proper formatting of cost reporting filings by wind projects would be a great help to assessors comply with the DOR's recommendation. In my opinion, MidAmerican's county filings leave much room for improvement. But, before we get to that, let's review a filing by an independent wind project in Pocahontas county that,I think, did a very good job of reporting the installed cost of their wind project.


Cover page lists total cost, and a per turbine cost.These are 2 megawatt turbines, I believe, and the installed cost per kilowatt in relatively close to the Iowa Wind energy Association's cost estimates of constructing wind turbines    



 


Nicely organized.
As you can see, project costs are organized so the assessor can see the cost of individual items, such as turbines, foundations, labor, construction, substation equipment, and it is possible for the assessor or a 3rd party consultant  knowledgeable with wind project costs, to contact suppliers of this type of equipment to verify costs, and visually inspect the wind property verify that all equipment and costs have been listed.

Note that this project includes substation grid interconnection costs as wind property, when I noted in previous posts that MidAmerican is claiming these costs in the Iowa utility replacement tax. This is very unfair to this Minneapolis company, as I don't believe they could utilize the replacement excise tax to lower property tax costs. 

Now let's review examples of MidAmerican's wind filings in the same county.  While the MEC filings I've reviewed have cover pages with cost summary's, their breakdown of substation and turbine costs don't list as many individual items. The assessor must navigate 50 some pages of the invoice spreadsheet list that frankly, seem hard to verify they were used on this project. 






Also, the MEC reported this project to cost less on a cost per kilowatt basis, than the independent project  in the same county listed above. It's installed cost is also lower than the cost the utility reported to FERC and the utilities board. Also lower than the Iowa Wind Energy Association's cost of wind estimate for that time period. This should concern a county assessor IMO.   


It also concerns me that I can't verify that MEC always includes supporting documentation of costs when adding turbines at a site, or in this case, when costs were lowered one phase of this project  a few years later with no apparent explanation or documentation as to why they were lowered. 

      



That's all for now. 






  

Sunday, June 25, 2017

MidAmerican Property Tax Update


If the utility's wind  property tax are in fact, too low, how much is the state short?

That's a good question that state and local officials could help sort out, but since  they haven't yet, let's estimate it.

The last few posts list several of the discrepancies I've identified while trying to if MidAmerican is paying the correct amount of property taxes on their wind projects in Iowa. So how much revenue is the state possibly leaving on the table? I haven't found a formula yet describing the amount of property tax dollars stay with local schools and government, and how much goes to the state budget. I suspect some of the blog visitors are public employees, and are most welcome to provide that information. However, I can can give a estimate of property tax dollars that government might be leaving on the table. Let's start with the difference between the utility's press release concerning their Wind 8 project  and the actual property filings for the Lundgren project, part of Wind 8
.
Even though this project is listed at the federal level at about $5 million more it is assessed for, let's assume the utility knew what it was talking about in the press release.The utility press release seems to claim the 107 wind turbines at the Lundgren location cost about $80 million more than they are assessed in Webster county. Some of the cost of this wind project will be substation and interconnection costs, but since they are valued in Webster county at about $12 million, there's still a lot money not accounted for here.











So let's use $80,000,000... a nice round figure.  When wind project property assessment reaches its maximum level of 30% of the projects value, $24 million of the $80 million is taxed. Using an estimate of $24 of tax per $1000 of property, is the state leaving $576,000 per year on the table with just one wind project? There are another 341 turbines in wind 8, so, subtracting some money for substation and interconnection costs,, maybe another $1.5 million is missing annually on wind 8? Seems like  a discrepancy that's more than $2 million annually is worth tracking down!

Though I'm not sure if the FERC cost numbers are accurate, given the large difference between those numbers and the press release figures above, let's use them for another example, the Pomeroy project. The utility said  this project cost about $15 million more in their FERC filings than assessed locally. The utility also told the state utilities board the project cost about $13.5 million more than assessed. Let's use $15 million.   $15 million x .30 percent = $4,500.000. That number x $24 per thousand =$108,000 annually. There's still the rest of the utility's 20 some wind projects to check as well.

The potential mistakes identified in the utility's replacement tax filings are even more concerning to me, because if I have found even a few, I'll bet there's more. Since the state hasn't replied to my question asking how the state makes sure the replacement tax reporting is accurate, we can't be sure. But it can't be ruled out that the utility self reports its replacement tax, just as it seems to be doing with its wind property taxes. The state should go on record as to how this task is performed, since MidAmerican is one of the state's largest tax payers.

When I find errors like the utility forgetting how many turbines they have installed in Pocahontas County, they shouldn't be allowed to self report.  It's hard for me to have much faith in the turbine costs with mistakes like this.


 Pocahontas Assessor notes  that 5 turbines were installed in this phase of the project. the utility thinks it was 11.






   
 Or was it 8?





 So, What needs to be done about this? 
 MidAmerican's wind projects and replacement tax filings need an audit in my opinion... several years worth. The results need to be transparent for the state's tax payers to review. If current state law doesn't allow for that, legislation should be passed that does allow for that. We need to see that local assessments were correctly performed and reviewed by the state to insure accuracy.

Comments from public officials are welcome, and I'm willing to update these property tax posts if provided with additional accurate information. 

 
                  

Thursday, April 6, 2017

MidAmerican Wind Property Tax Update


In the previous post, one item on the list sent to the state department of revenue and department management asked for help identifying MEC's wind assets listed under the Iowa Utility Replacement Tax, and comparing the assessed replacement tax of the asset to what the assessed tax would be if the asset was classified as wind property under Iowa Code 427.B.

At an informal meeting with Webster county officials last September, I was directed to the state department of revenue and the department of management for this information, even though wind property is assessed locally in the state. Since neither state agency has responded to that list of questions and concerns on record yet, let's take a look anyway, as some of this information is available online. We won't be able to completely resolve this issue without confirmation from state, local government,or utility, as you'll see shortly.

MidAmerican declared the following substation built for its Webster County Lundgren wind project as wind property in 3013.

    
 In 2015 the utility then changed its mind and declared the substation was to be moved to the state utility replacement tax instead, even though it was built to connect the wind farm to the grid.



 
 The utility explained the reason for the switch, was that a small transmission line separated the grid connection point from the wind project collection facilities.

 As the staff person at department of management (DOM) noted, the department of revenue(DOR) prepares these reports for  DOM . The department of management website lists replacement tax assets, gas or electric, by county and township. The electric assets are classified as trans or elec. The only MidAmerican electric assets listed that are close to the substation location, are 1 transmission asset and 1 electric asset in Burnside township. The transmission line is assessed at approximately $76,000 and the electric asset at $1500, so is the $1500 asset the substation removed from local wind assessment? Even if it's not THE substation, it is likely a substation, so it serves as a reasonable comparison of replacement tax and wind property tax rates. This is why I contacted state officials to take the guess work out.  




  If this electric asset was classified as wind property, using a estimated township tax rate of $24 per thousand dollars of valuation, it would be assessed at $21,952 when the 427.B.tax reached year 7.





So did the utility declare this asset as wind property because it tax rate in the first year would be zero? Then move it to replacement tax later because it would generate a lower assessment there? When I review 427.B, it seems this asset should assessed locally as wind property.


 
 Unfortunately, there is a bigger problem here. These same two Burnside township assets appear on the replacement tax reports back to 2011, and up to 2017, though the substation was declared wind property in 2013 . So it appears this substation was removed from local assessment and is still not listed in the replacement tax reports. So has a $3 million dollar wind asset been taxed little or nothing since it was built about 4 years ago? It also appears that utility, county officials, and state agencies have not noticed. This is why I contacted state officials at year end for more information. MidAmerican has more than 20 wind projects in the state now, so has this happened elsewhere? It seems reasonable that Iowan's would expect more scrutiny and transparency when it comes to the utility's taxes.     

   











Thursday, March 30, 2017

MidAmerican Wind Property Tax Update





 I did send a lot of the  MEC Wind information posted on this blog to the state department of revenue - property tax department (DOR) late last summer. After hearing no response. I then reached out to the Department of Management (DOM) for information in December.  The staff person that replied asked for a list of questions. I sent the admittedly long list of questions below. I then received a reply that most of these questions dealt with items that DOR was responsible for, and that the DOM staff person would reach out to DOR to coordinate a response or schedule a meeting.

A few days later, I received a unscheduled, less than civil phone call ( this is an extremely generous description on my part) from the DOR property tax department.  There were several points of disagreement between the caller and myself, so once again, I asked for them to respond to my question list below in writing.  I then emailed them a summary of the phone conversation. I'm still waiting for an on the record response. 

Pretty much from the start of my research here, I've found several state and county officials contacted about this issue less than cooperative, and reluctant to go on the record regarding it. That said,  I'm certainly willing to discuss with them in in more detail in order to shed further light on this. Who knows, if these folks would simply meet and be more forth coming with information, it might clear up a lot of the discrepancies that I've listed here in previous posts. 

 I know the state and county employees responsible for these items are busy folks, but given the amount of inconsistencies here, i think it's important to address this.
So let's break down the question list while waiting for a response.       

1 - Utility replacement tax -  Local government and emails from a MidAmerican employee  confirm that the utility is reporting wind energy assets under the utility replacement tax instead of 427.B - SPECIAL VALUATION OF WIND ENERGY CONVERSION PROPERTY.
DOR was adamant during the recent phone call that this was not happening, despite the fact that an MEC employee has stated otherwise. and information was sent to them detailing this.  

A-    We already are familiar with calculating tax valuations using 427.B.  We would like to get the formula used to calculate the replacement tax for electric generation, transmission, and distribution. 
During the phone call, DOR declined to provide this information, citing Iowa code 437.A.  
Since the kilowatt hour generation totals of the utilitys wind projects were listed on their federal filings, I'm guessing all their assets kWH information are available federally, but it is confidential at DOR.  So, the public can't see if the information provided by the utility to DOR for tax purposes matches the federal numbers? This is ridiculous.  

B-    County government was unable to help us identify utility wind assets  in the replacement tax records available online. 
I was directed at an informal meeting with Webster county officials to contact DOR and DOM to get this information. So far, state officials haven't helped. 

C-    We would like assistance from the appropriate state agency to identify wind assets in the replacement tax records, and compare difference in valuations  if the assets were classified under 427.B.
See above.

D-    Who made the determination that Wind assets could be classified under the utility replacement tax? 
As noted above,  the DOR was unaware this was happening, so it seems the utility probably made this determination.    

E-     How does the utility report replacement tax to DOR, and what methods does DOR use to verify those reports? 

  Is the utility self reporting it's replacement tax filings to DOR as it seems to be doing with its county wind property filings , and what, if any, methods are in place for DOR to to verify those submittals? 

2 -  Clear description of state level and  county level responsibilities  in determining wind property valuations.

                A - County officials have told us that Department of Revenue does not allow wind valuations to be contested, while DOR explained to me previously that wind valuations are determined at the county level, and DOR only offers guidance. Please clarify state and county responsibilities for wind valuations 
Still waiting for the response.

                B -  What are the discovery methods for schools , interested tax payers, etc. to determine if wind energy valuations are properly calculated?  
Given the difficulties I have encountered, I'd say there's room for improvement here.   

                C -  transparency – I had to hire an attorney to access property tax filings by the wind farm owner in Pocahontas county. Please verify that these are public records. 
No response yet.  



Monday, March 27, 2017

MidAmerican Highland Wind Project tax valuations



I've been seeing a pattern with MidAmerican's  county wind property tax filings. The utility seems to be consistently reporting lower valuations to county assessors, than than the wind project costs that MEC reports to FERC. North American Wind Power featured the utility's Highland wind project in April 2016. The article interviewed the O'Brien county assessor Lowell Dykstra, who reported a valuation of $820,195,459.00 for the wind project.






And, once again, the utility reported a higher valuation to FERC. $822,632,795, or $2,437,337 higher than the county.









 
So, where exactly is the missing $2.4 Million?  Has it been omitted, or reported under the Iowa Utility Replacement Tax at a more favorable rate? Or some other scenario?  $2.4 million missing or possibly incorrectly included in a different tax structure over the 20 plus year lifespan of the project will add up to significant missing revenue for state and local government. Additional information from from state and local property tax officials, and the utility are welcome here.

 

Tuesday, March 7, 2017

MidAmerican Wind property tax




Anyone living in Iowa is probably aware that the states budget is in dismal shape, forcing legislators to make some very unpopular funding cuts. Maybe state officials should look into MidAmerican's wind property tax filings to see if they have missed some additional revenue.    

There are numerous posts on this blog that cover my concern that the utility's wind project assets may be undervalued. This update lists a few exanples where the utility's county wind property tax filings simply don't match their press releases, their Federal filings at FERC, or their Iowa Utilities board filings. Every one of their county filings I've reviewed so far, lists lower project values than the utility reported for the same project elsewhere. This story plays out in three parts:

1 - Reported project costs.    

First, let's look at the MEC Lundgren project in Webster County. This press release  found online provides the cost of wind VIII, which Lundgren is a part of .This cost , divided by the number of wind turbines in wind VIII, results  in almost $80,000,000 higher costs than the Utility filed for property valuations in Webster county
Some of the $1.9 billion will be substation and grid upgrades, but since those are valued in Webster county at about $12 million, the numbers clearly are a long way from balancing.
These wind projects will  on the tax roles for years , and if several million dollars are missing each year…   

It is interesting to note that the $80,000,000 higher number actually is closer to what the Iowa Wind Energy Association estimates the cost ofinstalling wind energy to be.


 






$1.9 billion divided by 448 total turbines = a value of $4,241,071 per turbine. The utility reported a value of $3,493,871 for each turbine to Webster County.






MidAmerican also reported a higher cost to the Federal Energy Regulatory Commission than they listed on their Webster County valuations, though the values are about $5 million higher here.





The other MEC wind project example is the Pomeroy project , located in Pocahontas and Calhoun counties . I went to the Calhoun county property tax review board  with this concern, and was rejected, but in the rejection letter  , the Assessor actually provided information that showed I was correct.






The board dismissed my "protest"  "due to lack of standing". Interestingly, In her letter announcing the review boards decision, The assessor mentions she contacted the Iowa Utilities Board (IUB), and that the final installed cost of MidAmerican's wind project in the county was  $1611 per kw.

The wind industry frequently refers to cost figures in $ per kw . In this
case, the turbines are 2.3 megawatt turbines, or 2300 kilowatts.   $1611 x
2300 = $ 3,705,300. MidAmerican's property tax filing to the county was
$3,631,990 total acquisition cost per turbine, a difference, of $73,310 per turbine. So the assessor is basically telling me I was right, but dismissing my claim anyway.

$73,310 x the 184 total number of wind turbines in this project comes to $13,489,040 , and actually the utility Reported about a $15,000,000 higher project cost at the federal agency than  they reported to the county. Definitely closer the utility's federal filing than its county valuation.    





Here are the county values.  (email with county assessors for Pocahontas and Calhoun counties). This project has been in operation almost 10 years, so we have the possibility that about $150,000,000 hasn’t been taxed.
Plus, MidAmerican has 20 plus wind projects, and I’m seeing these same discrepancies in every one  I’ve looked at so far.





2- The Utility is listing some wind assets in the Iowa Utility replacement tax instead of reporting them as wind assets under Iowa Code 427B.

In a call with the Iowa Department of Revenue, the staff I discussed this with maintained that this was not happening, even after after I emailed them the following information, which leads me to the conclusion that MidAmerican likely made this decision on their own.

More than likely , this lowers the tax rates on those assets, affecting local government and schools. Neither DOR or local government has assisted identifying these assets in the utility replacement tax filings yet, I can compare the assets current tax rate ,  to what the assets would be taxed as if classified as 427.B wind assets.

Also, it seems unfair , as I don’t think a non-utility owned wind project could use the replacement tax. Below, is an example of this from the Lundgren wind project in Webster county.  
I also have an archived email from a MidAmerican employee stating this was done at the Pomeroy project location, so most likely at all their 20 plus wind project locations.

After visiting with DOR about this, I couldn’t help but wonder if MidAmerican is self-reporting  all their replacement tax filings as well , and what , if any , methods DOR uses to verify those filings.

 
MidAmerican filed this document in Webster county:
  





The utility later filed this document, stating the above substation was being transferred to replacement tax area.











Here is an aerial view of the 2 wind energy substations. The lower substation is the item discussed in the filings.  The filings above indicate  that both were constructed to connect the wind farm to the grid.
Certainly wind related assets appear to be included in the lower station.  This is one instance of wind property in the replacement tax system.










3 - Iowa Department of Revenue's Property tax division gives clear instructions to county assessors for valuing wind project assets. County assessors don't appear to be following those instructions on the MidAmerican projects I've reviewed. 


This  2010 Department of Revenue mail to county assessors, directs them to be sure all wind plant costs are accounted for.






I met with the Department Of Revenue in 2014, after which , their legal department sent me the memo below which pretty well confirms the 2010 directive above . There are several answers to questions from county assessors here that also support these documents












Yet, Assessors don’t seem to be doing this. The email below from the Pocahontas County assessor to a wind developer states that usually she receives a simple cost per turbine  letter form the wind project. The developer below did provide very detailed cost information that supported their property tax filing .  The MidAmerican filings I’ve reviewed often have no supporting documentation, definitely not as well documented as the Gamaesa  project below.  The Gamesa project also appeared to have a higher cost per installed kilowatt (again closer in line to IWEA's estimates)  than the Midamerican project in the same county .







The below email from the Calhoun County assessor states that every county with wind property is assessing the same way.  
So, the Department of Revenue gives clear directives how wind property should be assessed, but county assessors aren’t doing it in my opinion. 












I’ve sent quite a bit of info to the Iowa Department of Revenue and Department of Management, in addition to county assessors in Webster, Calhoun, and Pocahontas counties, so it will be interesting to see what develops.