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HomeMy WebLinkAbout01-24-17 Worksession Handouts i`-4/-1)c1J-7 ® 14 Becker•Cohasset•Granite Falls•Hoyt Lakes•Monticello•Oak Park Heights-Red Wing The Coalition of Utility Cities: Representing the Unique Interests of Host Utility Cities Becker (15B), Cohasset (5B), Granite Falls (17A and 16A), Hoyt Lakes (6B), Monticello (29B), Oak Park Heights (39B) Red Wing (21A) Who we are. The Coalition of Utility Cities consists of seven cities that host Investor Owned Utility electric generation plants. The Coalition lobbies to represent the unique issues cities face in hosting large electric generation plants. Many people benefit from the generation of electricity, but host cities bear the burden of providing unique services for hosting electric generation plants such as increased public safety and transportation burdens. Therefore, Investor Owned Utilities pay host communities a personal property tax on electric generating equipment. This tax compensates host cities for this burden. State law guarantees electric utilities a rate of return on their business because they are regulated monopolies. This way the cost gets distributed to those who benefit from the generation of electricity. Our focus Over time, property tax burdens in host communities have shifted away from utilities and onto local residents and businesses. The Coalition of Utility Cities lobbies on behalf of the interest of residents and local businesses. Looking to the future. The nature of electric generation is changing away from fossil fuels and towards renewable energy. The Coalition of Utility Cities seeks to ensure our communities have the resources they need to deal with these changes. 1 In COAL-1110 OF "I I L_I I Y C:- I I I t�_1_.) I 1E 117L.Am M11 Becker•Cohasset•Granite Falls-Hoyt Lakes•Monticello•Oak Park Heights•Red Wing Member Cities Beckerhosts Xcel Energy's three Sherburne County (Sherco) generating stations: 680 mW Sherco I, 682 mW Sherco II, and 860 mW Sherco III. ,�J{ Cohassethosts Minnesota Power/Allete's Clay Boswell 1,073 mW coal fired t r rPine Island generating stations. FOr14` � IOI - Na ri Faest Cry+d Gaan l41°.K Granite Falls hosts Xcel Energy's Bem,dl m Minnesota Valley 46 mW coal fired . ugo generating plant which is idled. "mla"" Dul& Q Biainerd Hoyt Lakes hosts Minnesota ""' MILAN F q 0 e.., Power/Allete's Syl Laskin 55 mW natural s,CI u gas fired peaking plant. o a Minneapolis Monticello hosts Xcel Energy's Monticello Orrelonkau o ost Pa� 0 Bloomington 671 mW nuclear generating station. s.,l Mankato Oak Park Heights hosts Xcel Energy's Roc0i5 wad o_ v ta4 Austin , Allen S. King 511 mW coal-fired generating station. Red Wing hosts Xcel Energy's Prairie Island 1100 mW Nuclear Generating Station. 2 JA "d �- oil Becker Cohasset-Granite Palls•Hoyt Lakes•Monticello•Oak Park Heights•Red Wing The current system for taxing electric generation in Minnesota: It's complicated.... Personal Property Tax. Coal, natural gas and nuclear electricity generating plants are subject to a personal property tax on equipment (Mn Stat. 272.02 subd. 9(a)). Unitary Valuation. The process of determining the taxable value of each plant involves the MN Department of Revenue applying a multi-state evaluation of utility property and establishment of unit value for generation, transmission and distribution equipment. The process of determining this value is called "apportionment." The total value in Minnesota is distributed across types of property located within each taxing entity. The apportioned value is the basis for setting the "taxable tax capacity," to which a local taxing entity then applies its tax rate to set its levy. Pollution Control Exemption. The pollution control equipment on these plants is exempt from taxation. (Mn Stat. 272.02 subd. 10). Exclusions • Some specific facilities are excluded from the personal property tax by statutue. (Mn Stat. 272.02). This exemption is not uniform across the State. • Furthermore, a sliding scale exclusion for the value of electric generation equipment is applied to upgrades and efficiencies added to existing plants. (Mn Stat. 272.0211). New facilities must be under 75mW to qualify. 3 "UIILIIY U71 — ® m Becker•Cohasset•Granite Palls•Hoyt Lakes•Monticello•Oak Park Heights•Ked Wing Electric Generation Taxation Reform Department of Revenue Report. In 2014, the Minnesota Legislature asked the Department of Revenue to summarize the way the State taxes electric generation. The Minnesota Department of Revenue released its "Study of Energy Producing Systems" in February, 20151. This study did not make any recommendations, concluding that "Minnesota's value-based property tax system—with exemptions, exclusions, and production tax elements—provides various levels of compensation to host communities." Reform introduced. In response, the MN Senate introduced a comprehensive reform of the way to tax electric generation, based on objective measures. This reform exempted wind and solar generation which are currently subject to production taxes. How the new system would work. The new system of taxation sets the tax capacity on capacity, production, distribution and transmission. There are three basic formulas: 1. For the electric generation equipment calculation, the tax capacity would be calculated based on a combination of equipment nameplate capacity, average annual production and nuclear waste storage. 1 www.revenue.state.mn.us/propertytax/reports/Energy-Producing-Systems-Studypdf 4 is COALITION OF Becker•Cohasset•Granite Falls•Hoyt Lakes•Monticello•Oak Park Heights•Red Wing 2. Tax capacity for transmission is based on the line miles within the taxing jurisdiction. The tax capacity for substations is based on the sum of the substation capacity. 3. For distribution lines, the tax capacity comes from the number of customers in the taxing jurisdiction. The law applies a rate to each of these objective factors based on power source, and that rate increases over time according to an objective measure (the percent change in the gross domestic product for nonresidential investment as reported by the US Bureau of Economic Analysis.) The new proposal included "replacement aid" for communities that would lose revenue, either due to a change in the law or a material loss of electricity-related tax base. Finally, the reform would repeal the personal property tax on electric generating equipment, transmission and distribution, as well as all of the exemptions and exclusions related to that tax. Prospects for reform. In 2016, this reform was not included in the final omnibus tax bill. However, the host utility cities and the investor owned utilities have both signaled that they are interested in continuing to pursue passage of this reform. 5 COALITION OF "U11LIly Cilihb- ® 9 Becker-Cohasset•Granite Falls•Hoyt Lakes•Monticello•Oak Park Heights-RedWing Changing Environmental Regulation and Utility Response Background. The federal Clean Air Act regulates electric generation plants as point sources. In 2015, the Environmental Protection Agency issued a new regulation under the Clean Air Act, known as the Clean Power Plan. The Clean Power Plan seeks to regulate carbon dioxide emissions from existing power plants by setting state goals on emissions. The EPA will set goals for individual states. The states in turn can choose to regulate either the rate of CO2 emissions or the mass of carbon emitted by power plants. While this rule is currently stayed pending litigation at the federal district court level, the State of Minnesota and its investor owned utilities have continued to proceed with plans to implement the rule. While the new federal administration may oppose the Clean Power Plan, it is unclear what steps it can or will take to stop the rule. The EPA must go through the same long process to repeal a rule as it undergoes to create a new rule. Also, the litigation involves parties in addition to the Federal Government, so it will proceed regardless of a change of administrations. Investor Owned Utility Reaction: Shift to renewables and natural gas Regardless of the fate of the Clean Power Plan, Minnesota's Investor Owned Utilities plan to decrease the use of coal and rely more heavily on natural gas and renewable energy sources. Xcel Energy. In October, 2015, Xcel Energy amended its long term Preferred Resource Plan with the MN Public Utilities Commission. This Plan shifted electricity 6 4 16-Mm mgm Becker•Cohasset•Granite Falls•Hoyt Ickes•Monticello•Oak Park Heights-Red W ing production sources away from coal and towards renewables and natural gas. As a result, Xcel plans to close Sherco II in 2023 and Sherco I in 2026 prior to their license expiration dates. Minnesota Power. The 2015 Integrated Resource Plan approved for Minnesota Power orders Minnesota Power to close two small units, Boswell Energy Center Units 1 and 2 no later than 2022. Minnesota Power announced in October, 2016, that it would close those units by the end of 2018. They have a combined capacity of 130 mW. Minnesota Power will replace this capacity in the short term with contracts with Manitoba Hydro and in the long term with some combination of natural gas and/or renewable generation. Coalition of Utility Cities Reaction. In response, the Coalition of Utility Cities has been monitoring the process of the integrated resource plans before the Public Utilities Commission. We are exploring ways to support the tax base of our cities in reaction to these changes, both through State action as well as cooperation with the Publicly Owned Utilities. State of Minnesota and the Clean Power Plan. The Minnesota Pollution Control Agency is continuing to develop its plan to implement the national standards under the Clean Power Plan, in the event that the courts affirm the validity of the rule. One of the decisions the State will need to make regards emissions credits. An emissions credit system can work in a number of ways; however, the basis is this: Any entity which emits fewer tons of carbon than allowed by regulation gets credit C "u I IEJ I Y Becker-Cohasset-Granite Falls-Hoyt Ickes-Monticello-Oak Park Heights-Red Wing for those savings. Those credits then can be traded or sold to entities which emit more tons of carbon than is allowed by regulation. The Clean Power Plan envisions allotting some of those credits to poor communities to pay for energy reduction investments, such as new lightbulbs or more efficient air conditioners. In 2016, Rep. Jim Newberger (R-Becker) raised the issue of allotting emission credits to host communities that would lose jobs and tax base as a result of the Clean Power Plan. The Coalition of Utility Cities holds a position that regulatory and legislative responses to the Clean Power Plan must include consideration of the socio- economic impact of reducing the use of fossil fuels for electric generation in host communities. Non-tax Issues for the Coalition of Utility Cities The Coalition of Utility Cities monitors other issues at the Legislature which impact our residents and taxpayers as a result of hosting Investor Owned Utilities. These issues include land use issues connected with solar energy siting and railroad capacity and safety issues. 8 1/24/2017 Q+—-G—kPoIb•H.A L.I.•SfmaticclW•Oak Pak lid l.•2d WM Coalition of Utility Cities January, 2017 The Coalition of Utility Cities Seven Member Cities: — Becker (Sherco I, II, III) — Cohasset (Boswell) — Granite Falls (Minnesota Valley) — Hoyt Lakes (Laskin Energy Center) — Monticello (Monticello Nuclear) — Oak Park Heights (Allen S. King) — Red Wing (Prairie Island) 1 1/24/2017 Why we lobby • Host Communities should not subsidize utilities. • The primary issue: Changes in state tax law have shifted the tax burden away from electric utility plants and onto other city taxpayers— local business and residents. • The Coalition analyzes, testifies and lobbies on to protect the tax base of our member cities. Current Issues at the Legislature • Lots of new legislators. Changes in representation from Becker, Red Wing, Granite Falls and Cohasset • CUC objective #1: educate legislators • CUC objective #2: Continue to work on tax reform 2 1/24/2017 Educating Legislators The Coalition of Utility Cities works to protect the tax base of its member cities. CUC was formed in 1997 in response to utility deregulation. • Current changes to federal electric utility regulation will affect communities. • State analysis and change to electric generation taxes will also affect CUC cities. Current Electric Generation Tax • Currently, investor owned utilities are taxed using a "unitary valuation" system, where the Department of Revenue works with utilities to determine the proportionate value of each facility. • Communities apply an ad valorem tax to the overall value of each facility. • This includes electric generating equipment, which is subject to a personal property tax. 3 1/24/2017 Tax Reform The tax on electric generation equipment is subject to various exemptions, exclusions and sliding scales. • In 2015, the MN Senate introduced a major change to this system. • Tax capacity would be determined based on generation capacity, average annual production and nuclear waste storage, not market valuation. 2016 additions to reform In response to input from the publicly owned utilities, the following items were added to the reform: • Distribution • Transmission and substations. • This eliminates the need to calculate the "unitary valuation:' 4 1/24/2017 2017 Plans The utilities are working on ways of replacing the tax on distribution and transmission with an objective measurement. • Utilities goal: revenue neutral • More people involved, including distribution co-ops. Resource Planning Changes The nature of electric generation is changing away from fossil fuels and towards renewable energy. • 2016 MN Power IRP plans to close a small natural gas plant in Cohasset • 2015 Xcel IRP plans to close Sherco I and Sherco II in Becker • 2018 Xcel IRP must address nuclear plants; Allen S. King coal plant in Oak Park Heights 5 1/24/2017 Looking Forward The Coalition of Utility Cities will be looking for ways our communities can work with the Legislature to adapt to changes in electric generation. • Monitoring federal clean air regulation • Monitoring state response to Feds • Working with the Legislature to respond lfl�p &ckcr•Cahasul•Granir laps•Hm�laka•:1landrella•Oak Izk Ncigh¢•Rxd lf'ing Protecting the tax base of host utility cities. Questions? 6 JCui. 2j2o��1 4 Minnesota Association of Small Cities Transportation Funding for Small Cities Our city streets are essential to mobility and economic vitality in our small city communities and adequate funding for our city streets has remained unaddressed in transportation funding bills for over a decade. Existing funding mechanisms for city street maintenance and reconstruction are inadequate. MAOSC along with other city groups support the League of Cities proposal to support the passage of an omnibus transportation funding bill that provides additional dedicated state funding for city streets, including funding that can be used for non-MSA city street maintenance, construction and reconstruction. This provision would impose a $10 surcharge on license tab fees and on motor vehicle title transfers to be dedicated to the small and large cities. The provision raises approximately $57 million annually. Half of the funds would be directed to the Small Cities Assistance Account established by the 2015 Legislature, and half would be dedicated to a Larger City Streets and Bridges Account. Support from cities for this initiative will be critical to its success. Please consider communicating with your legislators about the need for this legislation. Let me know if you have questions and watch your MAOSC Legislative Updates for additional information as the session progresses. MAOSC appreciates your support. �l/ Jill Sletten Executive Director Minnesota Association of Small Cities www.maosc.org ,,'IEitie!