3.4. SR 04-09-2001 - Laserfiche WebLink

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"Based on the analysis, the amount of taxes paid in Minnesota and other states in the region and the competitive consequences of such taxes in light of the possibility of future deregulation, policymakers may want to consider changes to the current tax policy on the taxation of utilities." Id. at page 23. It also identifies that due to the personal property tax, Minnesota businesses have the largest tax burden in the region, thus imposing a competitive disadvantage on utility systems and new generation assets. Id. In the same report, it references what's known as the Koch Refinery legislation. The Minnesota Legislature exempted personal property tax and machinery tax so L.S. Power could build a 250-megawatt co-generation facility in Cottage Grove. What the report fails to mention is that the co-generation facility had to reach certain efficiencies in order to obtain this waiver of the taxes. This exemption is available to all utilities that attain these same efficiencies. This legislative report was instituted because of the Koch Refinery bill. In 1996, at the same time that the Department of Revenue was involved with the study referred to above, it had also proposed a rule change governing the valuation of assessment of personal property of electric, gas distribution and pipeline companies under Minnesota Rule Chapter 8100. In an order issued on July 10, 1996, (attached as Exhibit B) Administrative Law Judge Richard C. Lewis identified that the rules as proposed by the Minnesota Department of Revenue be adopted. The rules subsequently were. It should be noted that the underlying genesis for the rule change was based on a letter from Bob Dolan, an NSP tax lobbyist, requesting change. The rule change was implemented in 1997. Historically speaking, the Department of Revenue had weighed balance between the cost approach for valuation of property and the income approach. Historically, these two approaches generally provided a consistent outcome. The cost approach was traditionally weighted at 85% and the income approach was weighted at 15%. The "mere threat of deregulation" led to the rule change. The Department of Revenue requested a shift in the weighting of the factors so that the cost approach would be reduced to 75% of the weight and the income approach would be increased to 25%. It also modified how the income factor was calculated for the utilities. In the past, they had simply averaged the rate of growth over the past three years of the utility. The rule change, however, identified that there needed to be an extrapolation into the future and thereby changed the formula. It was suggested as testimony by Alan Whipple from the Minnesota Department of Revenue that the rule change would result in a 3% decrease in the value of the personal property for the electric and gas distribution throughout the State of Minnesota. This has been true. For example, in Sherburne County, they have experienced anywhere between 3% to 6% decrease in the personal property value on a yearly basis since the implementation of the rule.