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Public Service Company Valuations

Public Service Company Valuations. Greg Wood & Michael Connolly NC Department of Revenue. What was it worth back then?. 1999 Toyota Camry. The 1999 Toyota Camry MSRP was $23,263 (when purchased new).

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Public Service Company Valuations

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  1. Public Service Company Valuations Greg Wood & Michael Connolly NC Department of Revenue

  2. What was it worth back then? 1999 Toyota Camry

  3. The 1999 Toyota Camry MSRP was $23,263 (when purchased new).

  4. The Alliance of American Insurers estimated that the parts for a 1999 Toyota Camry would cost $101,335 if bought one part at a time (plus assembly cost). • Journal of Property Valuation and Taxation Volume 13 – Number 2

  5. Unit Approach • The appraisal of PSC utilizes the Unit Approach. This involves appraising the company as a unit, and not individual components. • So we are appraising the 1999 Camry and not the individual parts of the car.

  6. Who are the Public Service Companies? • Airline • Bus • Motor Freight • Communication • Gas • Pipeline • Power/EMC • Railroad Rolling Stock Unit

  7. Who is NOT a Public Service Company? • Wireless Companies • Cable Companies • Water Companies • Radio/Television Companies • Cell Tower Companies

  8. PSC Stats (From TY 2010) • NCDOR appraised over 25 Billion in PSC Value. • On average, counties get about 3% of their property tax base from PSC. • The amount of value certified to the counties from PSC range from 11 million (smallest county) to 3.2 billion (largest county). • There were only (8) counties that have a larger property tax base than the 25 Billion we appraise.

  9. Valuation Timeline • January 1st through March 31stis the annual listing period for PSC to file with the NCDOR (Extensions are granted – the larger companies don’t file till June). • April the Annual Sales Assessment Ratio Study is finalized (Equalization of PSC). • April – June working appraisals. • July – August all values are being finalized and are being double checked before certifications are sent.

  10. Valuation Timeline – cont. • August – September certifications are mailed out to all county and municipalities. • September is mostly spent answering calls regarding certifications. • October – November preparing the Tax Levying Jurisdiction Sheet. • December – Prepare new PSC forms.

  11. Two Types of PSC Only Airplanes, Buses, Tractors & Trailers

  12. Appraisal of Rolling Stock • We appraise the Rolling Stock of the Airline, Bus & Motor Freight Companies using trend factors similar to how you appraise your BPP.

  13. Unit Approach

  14. Cost Approach • By taking the Total Operating Plant less depreciation we obtain the Net Operating Plant. • Remove Items such as: Pollution Abatement & Non-Taxable Items • Add Back in items such as:CWIP, Fuel & Leased Property

  15. Income Approach • By dividing the Net Income of a PSC by an industry cap rate we can arrive at an appraised value for the company. • Things considered are Income Averages (3 Year, 5 Year) Performance History • When using the income approach as an indicator, the direct capitalization and yield capitalization are both acceptable methods.

  16. Stock & Debt Approach • The value of a Public Service Company may be obtained by summing up the value of it’s Stock & Debt.

  17. Correlation of Values • Upon reviewing all (3) methods, we have to determine which methods carry the most weight and come up with a final value for the PSC.

  18. Cost vs. Value • Cost does not equal Value!!!

  19. From the Richmond County Daily Journal (written in 2009) “…Progress Energy broke ground Friday on an addition to its Richmond County plant which will add $2 million a year to the county tax base and bring hundreds of construction jobs.When completed, the Richmond County Progress Energy Complex will produce twice as much electricity as Progress Energy’s Sharon Harris nuclear plant in New Hill with 1,800 megawatts and will be the second largest site in utilities’ network.The new $600 million addition to the present plant and a new transmission line will add 12 more jobs to the 34 already in place…”

  20. Cost vs. Value - Example 600 Million Project - 300 Million (Pollution Abatement) 300 Million of taxable cost (Original Cost) 300 Million (Original Cost) - 45 Million (Transmission Lines) 255 Million (OC-TL) 255 Million (OC – TL) x .45 (NC OC to NC Unit Value Ratio) 115 Million Value 115 Million Value x .(65/100) County Tax Rate $747,500 To Bill The .45 Factor comes from the NC Unit Value divided by the NC Original Cost

  21. NC Cost to NC Unit Value Ratio • NC Original Cost = 15,000,000,000 • NC Unit Value = 6,750,000,000 • Ratio/Factor = .45 • If your County has $800,000,000 of Original Cost this is going to equate to $360,000,000 of Value. • (800 Million X .45) = 360 Million

  22. Distribution – Piece of the Pie

  23. How is Distribution done? • Distribution is done by allocating and/or apportioning value to taxing districts based on the investment in that county/municipal/district. • This is done by using factors such as: Original Cost, Miles of Wire, Mile of Tract, etc.

  24. PSC with $1,000,000 Value The total cost (1,500,000) divided by the Value (1,000,000) gives us a factor of .667

  25. Distribution - Summary • NCDOR finalizes the value of a PSC before any distribution is considered. • The current market value of an individual piece of property is irrelevant as it will only be used for distribution purposes and not for appraisal purposes. • Remember – we are appraising the company as an unit – not its individual components!!

  26. System Property – (Unit PSC) • All Property that is used by a PSC in its Public Service Activities. (This includes leased property). • Examples - Office Buildings, ROW, Transmission Lines, RR Lines, (Land deemed needed by the FERC) • System property is part of the Unit Value.

  27. Leased Equipment • 105-334 Duty to file report… • (a) Every Public Service Company shall report … to the Department of Revenue … property it owns and the system property it leases. • 105-335 Appraisal of property of PSC • b) … Property leased shall be included in the appraising the value of its system property …

  28. Nonsystem Property - (Unit PSC) • All Property owned by a PSC but not used in Public Service activities. (This includes leased property). • Examples - Old depot being used as mixed commercial shops, abandoned ROW, house on a lake being rented. • Nonsystem is appraised using the county schedule of values – thus real property is reappraised every reappraisal.

  29. Certifications • Certifications are typically mailed out around the end of August to early September. • Certifications tell the county or municipality whom to bill and what value to bill.

  30. Certification Sample Taxpayer System Value System Value – Equalized (80%) Non-System Value Total Value

  31. Sales Assessment Ratio Study • Used primarily for equalization of PSC. • Shows the county its Level of Assessment • Key years are – Reappraisal, 4th & 7th. • If ratio falls below 90% on a key year, then equalization occurs.

  32. Equalization of a PSC • Equalization only applies to the: Communication, Gas, Pipeline, Power and Railroad Companies. • Only the companies we appraise using the Unit Approach that includes Real Property. • We do NOT equalize Airline, Bus and Motor Freight Companies. • We are only appraising the rolling stock

  33. Sales Ratio – Equalization Example

  34. Equalization – Cont. This chart is based on the numbers from the previous slide. Without equalization (in this example) Non PSC taxpayers would be assessed at close to 82% of what their real property is actually worth in year 7, whereas the PSC would be assessed at 100%.

  35. Individual Years (All Counties) by Month to Month Comparison

  36. Tax Levying Jurisdiction Sheets • Our office maintains a list of all taxing districts (by county) for the PSC to use for their annual filings. • The list explains which districts cover areas within a county.

  37. Tax Levying Jurisdictions • The PSC use this list along with their records, to know which districts they need to be reporting to. • On January 1, based on the Tax Levying Jurisdiction Sheets, the PSC are going to take a snapshot of what they own within each Jurisdiction. • It is very important that your county checks this list, and updates as needed.

  38. Macon County Notice the “*” This means the county must total, thus when adding all “*” value together, you should get the total county value.

  39. Counties that Total • If all your parcels within your county have a county tax + a fire or municipality tax, then your county “Totals”. • If your county totals – the value of all districts should total back to the county total.

  40. Commonly Asked Questions • What is the appraised value of a building located at parcel X owned by Progress Energy? • Answer – There is technically no appraised value assigned to that parcel. • There is value assigned to the district where this parcel is located, based on allocation factors.

  41. Commonly Asked Questions • Are we assessing a car that Duke Energy leases? • Answer – Yes, we are assessing everything in the Unit Approach that the PSC owns and leases.

  42. Commonly Asked Questions • You (The Local Taxing Jurisdiction) did not receive a value for a PSC that you believe you should have? • Answer – Are the Taxing Jurisdiction Sheets correct? If not – these need to be updated ASAP. Ultimately we will contact the company for you.

  43. Commonly Asked Questions • What if your distribution is off a few dollars, when trying to total for billing? • Answer – This is normal, as the numbers are being rounded. A company with a value in the millions can easily be off a couple of dollars when distributing to numerous jurisdictions.

  44. Commonly Asked Questions • Does the NCDOR perform audits on the PSC? • Answer – Yes, we conduct audits on the PSC. The regulated PSC also are audited by various Regulatory Commissions.

  45. Commonly Asked Questions • What if through an audit the DOR discovers that the PSC was in (4) counties instead of the previously reported (3)? • Answer – The DOR would conduct a discover using NCGS 105-312. Keep in mind, the pie (unit value) wont get any bigger because of a discovery, and at least one county would have to give a refund.

  46. Solar, Wind Farms • If a Solar or Wind Company sells electricity to anyone other than the public – they are not a PSC and should be locally assessed. • Ex. SunEdison located in Davidson County sells electricity generated from a solar plant directly to Duke Energy. This property should be locally assessed.

  47. Solar Power - Exemption • NCGS 105-275(45) 80% of the appraised value of the Solar Energy Electric System shall be exempt. (One time application is required) • SEES is defined as only the equipment used directly for the conversion of solar energy to electricity. ** Currently no exemption for Wind **

  48. PSC Exemptions • GS 69-25.16 • Exempts all property for a Power Generating Plant, as long as the Fire Protection District was created prior to May 1, 1971 • 160A-544 • Exempts all personal property for any PSC as long as the Municipal Service District was created prior to January 1, 1977 • 117-3 • Exempts all property owned by a Telephone Membership Corporation

  49. Progress Energy + Duke Energy

  50. Shape Files from GIS • Determines taxable boundaries for the county, municipalities and special districts • Maintained majority of time by the county • Imperative that Public Service Companies use most current version • Sept/Oct/Nov time frame critical for Public Service Companies updating their records • Files are emailed to us to check then uploaded to our webpage

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