Transcript Public Service Company Valuations

Public Service Company
Valuations
Greg Wood & Michael Connolly
NC Department of Revenue
1
What was it worth back then?
1999 Toyota Camry
2
The 1999 Toyota Camry MSRP
was $23,263
(when purchased new).
3

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
4
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.
5
Who are the Public Service
Companies?
Airline
 Bus
 Motor Freight






Communication
Gas
Pipeline
Power/EMC
Railroad
Rolling Stock
Unit
6
Who is NOT a Public Service
Company?
Wireless Companies
 Cable Companies
 Water Companies
 Radio/Television Companies
 Cell Tower Companies

7
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.
8
Valuation Timeline

January 1st through March 31st is 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.
9
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.
10
Two Types of PSC
Rolling
Stock
Unit
• Airline
• Bus
• Motor Freight
•
•
•
•
•
Only
Airplanes,
Buses,
Tractors &
Trailers
Communication
Gas
Pipeline
Power/EMC
Railroad
11
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.
12
Unit Approach
Cost
Income
Stock
& Debt
13
Cost Approach

By taking the Total Operating Plant less
depreciation we obtain the Net
Operating Plant.
◦ Remove Items such as: Pollution Abatement & NonTaxable Items
◦ Add Back in items such as:CWIP, Fuel & Leased
Property
14
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.
15
Stock & Debt Approach

The value of a Public Service Company
may be obtained by summing up the value
of it’s Stock & Debt.
16
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.
17
Cost vs. Value

Cost does not equal Value!!!
18
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…”
19
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
20
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
21
Distribution – Piece of the Pie
County
A
County
C
County B
22
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.
23
PSC with $1,000,000 Value
District
Original Cost
Value
Wake County
800,000
533,333
Raleigh
450,000
300,000
Garner
200,000
133,333
Cary
150,000
100,000
Durham County
500,000
333,333
Durham
200,000
133,333
Bahama FD
150,000
100,000
Redwood FD
150,000
100,000
Johnston County
200,000
133,333
Smithfield
150,000
100,000
County Total’s
1,500,000
$1,000,000
The total cost (1,500,000) divided by the Value (1,000,000)
gives us a factor of .667
24
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!!
25
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.
26
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 …
27
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.
28
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.
29
Certification Sample
100% System
Value
Equalized
System Value
American Airlines
1,000,000
1,000,000
1,000,000
BellSouth
10,000,000
8,000,000
8,000,000
CSX
12,000,000
9,600,000
300,000,000
240,000,000
Progress Energy
20,000,000
16,000,000
500,000
16,500,000
County Totals
343,000,000
274,600,000
700,000
275,300,000
System Value
System Value –
Equalized
(80%)
Non-System
Value
Taxpayer
Duke Energy
Taxpayer
Nonsystem
Value
200,000
Total Value
(Bill this Amount)
9,800,000
240,000,000
Total Value
30
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.
31
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
32
Sales Ratio – Equalization Example
Year
Tax Year
Ratio
Equalized
Ratio Used
Reappraisal
2003
98.7%
No
100%
1
2004
96.8%
No
100%
2
2005
94.5%
No
100%
3
2006
91.8%
No
100%
4
2007
89.5%
Yes
89.5%
5
2008
88.7%
Yes
89.5%
6
2009
84.2%
Yes
89.5%
7
2010
81.5%
Yes
81.5%
Reappraisal
2011
98.3%
No
100%
33
Equalization – Cont.
105
100
95
County
PSC
90
85
80
2003
2004
2005
2006
2007
2008
2009
2010
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%.
34
Individual Years (All Counties) by Month to
Month Comparison
1.0500
1.0000
2002
0.9500
2003
2004
2005
0.9000
2006
2007
2008
0.8500
2009
2010
0.8000
0.7500
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
35
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.
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.
37
Macon County
MACON
Last Updated:
Contact Person:
Delena Raby
12/23/2010
Contact Phone Number:
828-349-2144
Municipalities:
Covered By:
Town of Franklin
* Franklin FD
Town of Highlands
* Highlands FD
Districts:
* Burlingtown FD
* Clarks Chapel FD
* Cowee FD
* Culla FD
Notice the “*” This means the
county must total, thus when adding
all “*” value together, you should get
the total county value.
* Franklin FD
* Highlands FD
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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.
39
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.
40
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.
41
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.
42
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.
43
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.
44
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.
45
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.
46
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 **
47
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
48
Progress Energy + Duke Energy
49
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
50
Macon County GIS Shape File
Franklin FD
Town of Franklin
Town of Highlands
Highlands FD
51
County GIS Shape Files
52
PSC Mailing Information

The NCDOR keeps a list of all PSC and their
contact information.

We mail this out to the assessors each year
with the Certifications.

Our website also keeps this list on it and it can
be found at:
www.dornc.com/downloads/property.html
The username and password are supplied at the
bottom of the Certifications.
53
Questions
You may contact our office at 919-733-7711
Or via email
[email protected]
[email protected]
[email protected]
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