At the Select Board Meeting of December 18, 2007, Don McCauley, President, Minuteman Wind LLC gave a presentation on the estimate of property taxes that would be paid to the Town. Mr. McCauley cautioned the Board and those in attendance in presentation was a concept and would need a bylaw to know total costs.
Below is the letter Mr. McCauley provided to those in attendance.
"You have asked Minuteman Wind LLC to provide you with an estimate of the property taxes that would be paid by Minuteman once it begins operation of its proposed wind powered electric generating plant on West Hill off of Harwood Road.
This letter and the accompanying model will, we hope, provide information for the Board of Selectmen regarding the complex issues concerning property taxation for electric generating plants. We stress that this letter is only a discussion of the issues. The actual determination of valuation will depend on multiple factors, many of which Minuteman Wind will only be able to determine as it proceeds with detailed project design and implementation.
Property Taxes
Under the Electric Restructuring Act adopted by Massachusetts in 1997, electric generating plants are to be valued for property tax purposes based on market valuation, the same process used for other commercial and residential properties. This valuation is difficult for electric plants, however, because there is a limited history of comparable projects on which to develop the market valuation. In the absence of such a market, we are advised that assessors look primarily to the cash flow of the project to develop an estimate of value.
The accompanying model gives an overview of the cash flow of the project. It is a very simplified overview, but because of its simplicity perhaps it will provide a better view of the drivers of valuation. The project will have two principal sources of revenues: electricity sales and renewable energy certificate sales. The project will not have fuel costs, but will have various other operating expenses, including rent, insurance, planned maintenance, reserves for unscheduled maintenance, and administrative costs.
These revenues less operating expenses result in the net operating revenues (also referred to as cash available for debt service) for the project. This is the cash flow that will be used by assessors in valuing the project for property tax purposes. Critical issues in determining value will be the determination of the appropriate discount rate.
The model assumes prices of $.06/kwh for electric energy and $.04/kwh for RECs. It also assumes a discount rate of 12.5%. Based on these numbers, the project’s value will be approximately $22,000,000. This value will stay relatively constant until the last years of the project when the value will decline. At a tax rate of $10 per $1000, this would result in property taxes of approximately $220,000 per year. While these are ball park figures for planning, actual numbers will not be determined until Minuteman is able to proceed with the detailed planning of the project, assuming of course that the Town’s zoning bylaw is amended to allow Minuteman to proceed with a special permit application.
The projected value of approximately $22,000,000 is comparable to the expected cost of construction, so that a cost based approach will yield a comparable valuation. Again, these numbers are rough estimates and are based on estimates developed earlier in the project process. The cost of turbines is escalating significantly, and there are many costs, such as road improvements, which need much more definition.
Since the project represents new growth in property value for Savoy, it would increase the tax base of the town and increase permitted revenues under Proposition 2 1/2. The increased revenues could also be able to be used by the town to reduce the overall tax rate.
PILOT Agreements
As an alternative to property tax assessment and collection, towns are permitted to enter into long term PILOT (payment in lieu of taxes) agreements with electric generating plants. A PILOT agreement would specify the amount payable to the Town each year, which would be comparable to the property tax amount and could include an agreed escalator. It would avoid potential disputes as to valuation and save the town the additional periodic cost of engaging an expert to complete a property valuation of the electric generating plant. It would also avoid volatility in tax revenue as market prices for electricity and RECs change over time. Minuteman strongly believes that a PILOT agreement is the appropriate way to proceed and would want to enter into a PILOT agreement with the Town.
Additional Issues
You should note that the cash available for debt services which will be used as the basis for valuation does not represent the value of the project to Minuteman. Minuteman will use these funds to pay back loans and other financing necessary to pay for the cost of constructing the project.
Another issue that will need to be addressed is the proper treatment of the decommissioning fund and its impact on the value of the project. In the model, we have assumed that the decommissioning fund will be an expense in the first year. This is a placeholder, until we negotiate the nature of the decommissioning fund and determine its proper accounting treatment. It is just included here as a reminder that, while it is a necessary obligation of Minuteman, it is a true cost of the project that will impact the project’s value.
We hope that this information is helpful to you in understanding the project, but, again, we must caution the Board that these are estimates and subject to change as Minuteman proceeds into more detailed project analysis.
We look forward to discussing the matter further with you, and hope for your support of the citizens’ petition submitted by Mr. Malloy." end of letter
Mr. Tom Marshall asked the Select Board members where they stood on the issue.
Mr. Bettis stated he is personally for it. "I am a very green person, wind is free, sustainable, this project is doable. It’s not my call, it’s the town’s call."
Mr. Tynan stated he would like to see it happen, "but, we have to listen to everyone in town. My personal opinion, I don’t really care about windmills."
Mr. Koczela said he liked the idea, but he was also thinking about the people who live in the area and how it would impact them. "We are facing a huge debt right now, our override didn’t pass, we are cleaning out all of our reserves, taxes are going to keep going up. Are we going to wait for the State to keep handing out money to us and we keep going in the hole." He stated the monies may help to stabilize the town and provide money for new highway equipment, fire equipment, and possibly drop taxes in the future. "It is very, very tempting."
Mr. Bettis stated it is part of the Select Board’s job to try and get new revenue, and there is not much of a way to do that in this town.
By Brenda Smith
(Editor’s note: The Select Board meeting was tape recorded. If anyone in Savoy would like to hear the hour long discussion with Mr. McCauley and the Select Board, the recording will be available until Wednesday, January 2, 2008. The Special Town Meeting to vote on the bylaw is Thursday, January 3 at 7PM at the Fire Station.)
