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.  

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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.

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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

 https://tax.iowa.gov/historical-opinions-property-tax

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.  

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