Coal news and updates

More coal plant litigation expected after $662.7 million appraisal cut rebuffed

A five-member panel Thursday rejected a request to reduce the Riesel coal-fired power plant’s tax appraisal by nearly two-thirds but voted to roll back the McLennan County Appraisal District’s value.

But in the end, it will likely take a judge to decide who’s right.

Sandy Creek Energy Associates protested MCAD’s appraisal of $1.05 billion, asking the independent Appraisal Review Board to shave off $662.7 million. The board instead chose to set the appraisal at $850 million, slightly lower than its current appraised value, which itself is in legal dispute.

Sandy Creek has a lawsuit pending against the appraisal district for refusing its request to slash its appraisal last year, and Chief Appraiser Drew Hahn expects the company will broaden that lawsuit to contest this year’s valuation.

At stake in the two-year dispute are millions of dollars in tax revenue for local entities, such as the Riesel Independent School District and McLennan Community College. McLennan County also gets some revenue from the plant, though it granted the plant a partial tax abatement.

Representatives of MCC and the county attended the 2.5-hour hearing Thursday. Attorneys for the company argued that the 2-year-old plant was worth only a fraction of its construction price because an era of cheap natural gas has made coal energy uncompetitive.

“Like anything else, you can build something that costs $1 billion, but down the line it’s not going to be worth $1 billion if the economics don’t support it,” said Ed Kliewer, an attorney from Norton Rose Fulbright who represented Sandy Creek.

“They committed a lot of money in 2007 on the thought that gas prices were going to go up and coal was going to be the way to go, but it didn’t happen that way,” he said. “Gas went down, and now they have a plant that is not marketable. … If they knew then what they know now, the plant never would have been built.”

Kliewer said that an argument could be made for an appraisal of zero or below based on the improbability of finding a willing buyer for the facility, but he said the company would agree to a $385.3 million value.

He said that valuation reflects “the steel,” or physical construction, at the site, rather than the value of its business.

Kliewer said what has saved the power plant is long-term contracts with Waco-based Brazos Electric Co-op and the Lower Colorado River Authority, contracts that are now well above market prices for electricity. But he said those contracts are “intangible” assets that by law can’t be considered in determining the business value of the plant.

In an interview, Hahn of MCAD disputed that assertion and said he expects a ruling in court that the value of the contracted electricity is relevant to market value.

“We are going to argue that the contracts are not intangible,” he said. “These contracts are what hold it together.”

Hahn said the Sandy Creek lawsuit, filed in September, could go on for months or even a couple of years. In the meantime, the taxing entities do not get revenue from the disputed part of the value.

MCC President Johnette McKown, who attended the hearing, said the lawsuit created a challenge for her board, which had already adopted a tax rate and budget. The community college had to make do without $500,000 it had anticipated from Sandy Creek. As a result, MCC delayed until this summer the implementation of a “completion center” aimed at reducing its dropout rate, McKown said.

“We’re just kind of waiting to see what the outcome is,” she said of the dispute between Sandy Creek and MCAD. “Just listening today, I’m concerned about the outcome. I didn’t hear anything that leads me to believe this will be settled quickly. Both sides are so far apart.”

Kliewer said after the meeting Thursday that he will consult with Sandy Creek officials about whether to litigate the 2015 values.

At the hearing Thursday, a Capitol Appraisal Group hired by MCAD made the case for a $1.05 billion value based on two different formulas, using both cash flow and cost of construction.

Appraisal Review Board members didn’t like the hybrid formula, saying that it was inconclusive.

“The evidence of the district is not conclusive,” said ARB member Chuck Scott. “It may be the best evidence, but it’s not conclusive. I have concerns about not knowing the actual value of the plant.”

Scott and board member Marvin Steakley proposed the $850 million value based on cash flow numbers presented during the meeting.

Afterward, Hahn said he wished the ARB had gone with the values of professional appraisers with the understanding that the courts would ultimately decide the matter, but he said the panel’s action shouldn’t create a problem.

The Appraisal Review Board is appointed by local district judges and is independent of the appraisal district.

source: http://www.wacotrib.com