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Trey Novosad Valuation of Industrial Properties For Ad Valorem Tax Seminar February 8 th – 10 th San Antonio, TX.

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Presentation on theme: "Trey Novosad Valuation of Industrial Properties For Ad Valorem Tax Seminar February 8 th – 10 th San Antonio, TX."— Presentation transcript:

1 Trey Novosad Valuation of Industrial Properties For Ad Valorem Tax Seminar February 8 th – 10 th San Antonio, TX

2 Legislative History 1993 voters approved Proposition 2 1993 voters approved Proposition 2 § 1-1 added to Article VIII of the Constitution § 1-1 added to Article VIII of the Constitution 73 rd Legislature passed HB 1920 73 rd Legislature passed HB 1920 Added § 11.31 to tax code Added § 11.31 to tax code 77 th Legislature passed HB 3121 77 th Legislature passed HB 3121 Established an appeals process 11.31(e) Established an appeals process 11.31(e) Granted the commission authority adopt implementation rules 11.31(g) Granted the commission authority adopt implementation rules 11.31(g) Commission established rules; Title 30 TAC §17 Commission established rules; Title 30 TAC §17 80 th Legislature passed HB 3732 80 th Legislature passed HB 3732 Added CO 2 to qualifying list 11.31(b) Added CO 2 to qualifying list 11.31(b) Created nonexclusive list of 18 items 11.31(k) Created nonexclusive list of 18 items 11.31(k) Nonexclusive list must be reviewed every three years 11.31(l) Nonexclusive list must be reviewed every three years 11.31(l) 30 days to make determination for section (k) applications 11.31(m) 30 days to make determination for section (k) applications 11.31(m) 81 st Legislature passed HB 3206 & 3544 81 st Legislature passed HB 3206 & 3544 Rules for making determination apply to all applications 11.31(g-1) Rules for making determination apply to all applications 11.31(g-1) Established a permanent advisory committee 11.31(n) Established a permanent advisory committee 11.31(n)

3 History of the Commission Gary McArthur Office of the Chief Engineer retired Gary McArthur Office of the Chief Engineer retired Glenn Shankle, Executive Director retired Glenn Shankle, Executive Director retired Replaced by Mark Vickory June 2008 Replaced by Mark Vickory June 2008 Three New Commissioners Appointed Three New Commissioners Appointed Buddy Garcia appointed January 2007 Buddy Garcia appointed January 2007 Carlos Rubinstein appointed August 2009 Carlos Rubinstein appointed August 2009 Bryan Shaw, Ph.D. appointed September 2007; current chairman Bryan Shaw, Ph.D. appointed September 2007; current chairman

4 Issues Heat Recovery Steam Generators HRSG Heat Recovery Steam Generators HRSG Low sulfur gas and diesel hydrotreaters Low sulfur gas and diesel hydrotreaters Brine storage pits Brine storage pits Advisory Committee Advisory Committee

5 Heat Recovery Steam Generator HRSG

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7 HRSG Applications Listed on nonexclusive list 11.31(k) Listed on nonexclusive list 11.31(k) $2.6B total cost on applications $2.6B total cost on applications HRSG and Enhanced Steam Turbines included HRSG and Enhanced Steam Turbines included Requested partial percentages on initial applications ranged from 13% to 100% Requested partial percentages on initial applications ranged from 13% to 100%

8 HRSG Industry Points Its on the list Its on the list Not required to use Tier III calculation Not required to use Tier III calculation Reduces lbs NOx/MWh Reduces lbs NOx/MWh Applicants submitted multiple calculations Applicants submitted multiple calculations Theory of substitution; compared cost to simple cycle with SCR Theory of substitution; compared cost to simple cycle with SCR 15 to 25 percent exemption requested 15 to 25 percent exemption requested Efficiency-based output Efficiency-based output 35 to 65 percent exemption requested 35 to 65 percent exemption requested Output-based emissions Output-based emissions 100 percent exemption requested 100 percent exemption requested

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10 Application Issues Executive Director ED responded uniformly Executive Director ED responded uniformly Issued 100% positive use determinations on 26 HRSG units Issued 100% positive use determinations on 26 HRSG units Issued negative use determinations on 26 Enhanced Steam Turbine applications Issued negative use determinations on 26 Enhanced Steam Turbine applications Stated that it did not use any of the applicants proposed calculations to arrive at its conclusion Stated that it did not use any of the applicants proposed calculations to arrive at its conclusion Appraisal districts filed appeals on 6 use determinations Appraisal districts filed appeals on 6 use determinations HRSG units produce a product; steam HRSG units produce a product; steam Steam turbines produce a product; electricity Steam turbines produce a product; electricity HRSG and steam turbines would be built without NO x regulation HRSG and steam turbines would be built without NO x regulation If HRSG qualifies, what about wind, nuclear If HRSG qualifies, what about wind, nuclear TCEQ put all pending and new applications on hold TCEQ put all pending and new applications on hold

11 HRSG Application Status Four Categories Four Categories Granted, not appealed by CAD Granted, not appealed by CAD Granted, appealed by CAD Granted, appealed by CAD On hold at staff level On hold at staff level Pre/Post January 2009 & 11.31(g-1) Pre/Post January 2009 & 11.31(g-1) Appraisal district appeals expected to go to hearing in Spring 2010 Appraisal district appeals expected to go to hearing in Spring 2010

12 Refinery Hydrotreaters

13 Hydrotreater Background New EPA rules required significant reductions in sulfur contained in the domestic fuel supply New EPA rules required significant reductions in sulfur contained in the domestic fuel supply Refiners installed hydrotreaters to meet new low sulfur specifications Refiners installed hydrotreaters to meet new low sulfur specifications

14 Hydrotreater Applications January 2007, Valero filed 10 Tier II applications January 2007, Valero filed 10 Tier II applications April 2007, ED issued notices of deficiency April 2007, ED issued notices of deficiency April 2007, ED issued negative use determinations April 2007, ED issued negative use determinations May 2007, Valero appealed EDs determinations May 2007, Valero appealed EDs determinations January 2010, appeal goes before Commission January 2010, appeal goes before Commission

15 Hydrotreaters Commissioners Hearing Are the hydrotreaters required by law? Are the hydrotreaters required by law? Is Valero a producer of pollution control equipment? Is Valero a producer of pollution control equipment? Are hydrotreaters production equipment? Are hydrotreaters production equipment? Do the hydrotreaters provide a benefit at the site Do the hydrotreaters provide a benefit at the site

16 Hydrotreaters Commissioners Order Portions of hydrotreaters were installed to meet E.P.A. low sulfur requirements Portions of hydrotreaters were installed to meet E.P.A. low sulfur requirements Hydrotreaters may provide a partial environmental benefit at the site in satisfaction with the requirement found in the Commissions rules Hydrotreaters may provide a partial environmental benefit at the site in satisfaction with the requirement found in the Commissions rules Set aside the EDs Negative Use Determinations and remand the applications to the ED for new use determinations consistent with the Commissions statements and rules Set aside the EDs Negative Use Determinations and remand the applications to the ED for new use determinations consistent with the Commissions statements and rules

17 Brine Storage Pond

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19 Brine Pit Background Mount Belvieu Caverns, LLC MBC (Enterprise Products) operates storage caverns in Chambers County Mount Belvieu Caverns, LLC MBC (Enterprise Products) operates storage caverns in Chambers County Brine water is used to operate the storage facility Brine water is used to operate the storage facility 2007 MBC built a storage pond to store brine water 2007 MBC built a storage pond to store brine water

20 Brine Pit Applications 2008 MBC filed Tier I application for $23M 2008 MBC filed Tier I application for $23M Included pond, lining, instrumentation, transfer pump, piping Included pond, lining, instrumentation, transfer pump, piping May 2008 ED issued Negative Use Determination May 2008 ED issued Negative Use Determination MBC appealed MBC appealed December 2008 Commissioners heard appeal December 2008 Commissioners heard appeal

21 Brine Storage Pond Commissioners Hearing Are the Brine Pits on the ECL Part A list? Are the Brine Pits on the ECL Part A list? Was the equipment installed to meet or exceed an environmental rule and/or law? Was the equipment installed to meet or exceed an environmental rule and/or law? Is the application being treated equitably? Is the application being treated equitably? Does the equipment provide an environmental benefit at the site? Does the equipment provide an environmental benefit at the site?

22 Brine Storage Pond Commissioners Order Uphold EDs Negative Use Determination Uphold EDs Negative Use Determination MBC filed suit in Travis County District Court MBC filed suit in Travis County District Court Only 2 nd case to challenge Commission Only 2 nd case to challenge Commission What will be the Standard of Review? What will be the Standard of Review?

23 4 Big Issues Heat Recovery Steam Generators HRSG Heat Recovery Steam Generators HRSG CAD administrative appeal scheduled for Spring 2010 CAD administrative appeal scheduled for Spring 2010 Low sulfur gas and diesel hydrotreaters Low sulfur gas and diesel hydrotreaters Remanded to ED for further review Remanded to ED for further review Brine storage pits Brine storage pits Pending in Travis County District Court Pending in Travis County District Court Advisory Committee Advisory Committee 1 st scheduled meeting February 25 th 1 st scheduled meeting February 25 th Review ECL list and propose rule changes Review ECL list and propose rule changes

24 References & Resources Application instructions RG 461 including ECL (Effective Sept 2009) http://www.tceq.state.tx.us/assets/public/implementation/tax_relief/rg461_program_guidelines.pdf HRSG TCEQ applications http://www.texas.sierraclub.org/temp/Tier4/tier4.htm Mont Belvieu Caverns Brine Pit Documents http://www7.tceq.state.tx.us/uploads/eagendas/Agendas/2008/12-10-2008/Belvieu.pdf Valero Refining Hydrotreater Documents http://www7.tceq.state.tx.us/uploads/eagendas/Agendas/2010/1-13-2010/valero0724&0740.pdf 2010 advisory committee information http://www.tceq.state.tx.us/implementation/air/taxrelief/advisory_group.html Ronald Hatlett. TCEQ Tax Relief Program. 512-239-6348. txrelief@tceq.state.tx.ustxrelief@tceq.state.tx.us Rick Fine. Managing Director. Duff and Phelps. 512-671-5500. rick.fine@duffandphelps.comrick.fine@duffandphelps.com Edward Kliewer III. Sr. Counsel. Fulbright & Jaworski.. 210-224-5575. ekliewer@fulbright.comekliewer@fulbright.com Gregory Kort. Director. Popp, Gray, and Hutcheson LLP. 512-473-2661. greg@property-tax.comgreg@property-tax.com Gregory Maxim. Director. Duff and Phelps. 512-671-5500. gregory.maxim@duffandphelps.comgregory.maxim@duffandphelps.com Parker Wilson. Managing Counsel. Valero Energy. 210-345-5894. parker.wilson@valero.comparker.wilson@valero.com

25 Bonus – Wells Fargo/TCAD ED issued positive use determination on parcels not covered by apartment complex ED issued positive use determination on parcels not covered by apartment complex TCAD appraised exempt parcels at discounted value TCAD appraised exempt parcels at discounted value WFC filed suit in District Court challenging the application of the exemption WFC filed suit in District Court challenging the application of the exemption Trial court issues order for TCAD to apply TCEQ determination Trial court issues order for TCAD to apply TCEQ determination TCAD does not appeal court order TCAD does not appeal court order WFC files MSJ claiming TCAD did not follow order WFC files MSJ claiming TCAD did not follow order Ask for sanctions and attorneys fees Ask for sanctions and attorneys fees Trial court grants MSJ in favor of WFC Trial court grants MSJ in favor of WFC Grants sanctions equal to total tax for entire property plus fees Grants sanctions equal to total tax for entire property plus fees Issue with order being ambiguous and could exempt entire property Issue with order being ambiguous and could exempt entire property TCAD appealed SJ TCAD appealed SJ Appellate court upheld order based on fact that TCAD had not appealed the original order Appellate court upheld order based on fact that TCAD had not appealed the original order


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