public service company valuations greg wood & michael connolly nc department of revenue 1

Public Service Company Public Service Company ValuationsValuations

Greg Wood & Michael ConnollyNC Department of Revenue

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What was it worth back What was it worth back then?then?

1999 Toyota Camry

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The 1999 Toyota Camry MSRP was $23,263

(when purchased new).

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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

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Unit ApproachUnit ApproachThe 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.

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Who are the Public Service Who are the Public Service Companies?Companies?

AirlineBusMotor Freight

CommunicationGasPipelinePower/EMCRailroad

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Rolling Stock

Unit

Who is Who is NOTNOT a Public Service a Public Service Company?Company?

Wireless CompaniesCable CompaniesWater CompaniesRadio/Television CompaniesCell Tower Companies

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PSC Stats (From TY 2010)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.

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Valuation TimelineValuation TimelineJanuary 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.

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Valuation Timeline – cont.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.

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Two Types of PSCTwo Types of PSC

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Only Airplanes,

Buses, Tractors &

Trailers

Appraisal of Rolling StockAppraisal 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.

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Unit ApproachUnit Approach

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Cost ApproachCost ApproachBy 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

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Income ApproachIncome ApproachBy 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.

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Stock & Debt ApproachStock & Debt ApproachThe value of a Public Service

Company may be obtained by summing up the value of it’s Stock & Debt.

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Correlation of ValuesCorrelation of ValuesUpon reviewing all (3) methods,

we have to determine which methods carry the most weight and come up with a final value for the PSC.

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Cost vs. ValueCost vs. Value

Cost does not equal Value!!!

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From the Richmond County Daily From the Richmond County Daily Journal (written in 2009)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…”

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Cost vs. ValueCost vs. Value - Example- 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

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NC Cost to NC Unit Value NC Cost to NC Unit Value RatioRatioNC Original Cost =

15,000,000,000NC Unit Value = 6,750,000,000Ratio/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

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Distribution – Piece of the Distribution – Piece of the PiePie

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How is Distribution done?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.

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PSC with $1,000,000 PSC with $1,000,000 ValueValue

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

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

Distribution - SummaryDistribution - SummaryNCDOR 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!!

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System Property – System Property – (Unit (Unit PSC)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.

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Leased EquipmentLeased Equipment105-334 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 …

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Nonsystem Property - Nonsystem Property - (Unit (Unit PSC)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.

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CertificationsCertificationsCertifications 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.

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Certification SampleCertification Sample

Taxpayer100%

System Value

Equalized System Value

Nonsystem Value

Total Value (Bill this Amount)

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 9,600,000 200,000 9,800,000

Duke Energy300,000,000 240,000,000 240,000,000

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

TaxpayerSystem Value

System Value – Equalized

(80%)

Non-System Value

Total Value

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Sales Assessment Ratio Sales Assessment Ratio StudyStudyUsed 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.

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Equalization of a PSCEqualization of a PSCEqualization 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

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Sales Ratio – Equalization Sales Ratio – Equalization ExampleExample

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%

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Equalization – Cont.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%. 34

Individual Years (All Counties) by Month to Month Comparison

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Tax Levying Jurisdiction Tax Levying Jurisdiction SheetsSheets

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 JurisdictionsTax 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.

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Macon CountyMacon CountyMACON 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

* Franklin FD

* Highlands FD

Notice the “*” This means the county must total, thus when adding all “*” value

together, you should get the total county value.

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Counties that TotalCounties 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.

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Commonly Asked Commonly Asked QuestionsQuestionsWhat 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.

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Commonly Asked Commonly Asked QuestionsQuestionsAre we assessing a car that Duke

Energy leases?

Answer – Yes, we are assessing everything in the Unit Approach that the PSC owns and leases.

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Commonly Asked Commonly Asked QuestionsQuestionsYou (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.

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Commonly Asked Commonly Asked QuestionsQuestionsWhat 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.

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Commonly Asked Commonly Asked QuestionsQuestionsDoes 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.

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Commonly Asked Commonly Asked QuestionsQuestionsWhat 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.

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Solar, Wind FarmsSolar, Wind FarmsIf 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.

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Solar Power - ExemptionSolar Power - ExemptionNCGS 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 **

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PSC ExemptionsPSC ExemptionsGS 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

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Progress Energy + Duke Progress Energy + Duke EnergyEnergy

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Shape Files from GISShape Files from GISDetermines taxable boundaries for the

county, municipalities and special districtsMaintained majority of time by the countyImperative that Public Service Companies

use most current versionSept/Oct/Nov time frame critical for Public

Service Companies updating their recordsFiles are emailed to us to check then

uploaded to our webpage

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Macon County GIS Shape Macon County GIS Shape FileFile

Highlands FD

Franklin FDTown of FranklinTown of Franklin

Town of HighlandsTown of Highlands

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County GIS Shape FilesCounty GIS Shape Files

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PSC Mailing InformationPSC Mailing InformationThe 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.htmlThe username and password are supplied at the bottom of the Certifications.

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QuestionsQuestions

You may contact our office at 919-733-7711

Or via email

greg.wood@dornc.commichael.connolly@dornc.comsonya.morgan@dornc.com

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