Utility Seeks Tax Break

An electrical power producer that five years ago took over a mothballed Huntington Beach generating plant and three others wants the state to cut its property taxes by more than half.

State Board of Equalization staff members have recommended that the lower values be accepted at a meeting today in Sacramento.

If approved, the total value of plants in Huntington Beach, Long Beach, Redondo Beach and Newhall owned by AES Corp. would drop to $591 million from an initial state assessment of $1.3 billion -- with a proportional drop in the amount of property taxes paid.

Huntington Beach, for instance, would receive $1.7 million less in tax revenue intended, among other uses, for affordable-housing projects and wetlands restoration.

AES also is appealing millions of dollars’ worth of taxes already paid after Orange and Los Angeles counties assessed their plants last year. The company’s appeals in Los Angeles County will be heard in February; a hearing on the Huntington Beach plant is scheduled for March.

The AES plants are among a dozen power-generation facilities whose assessments are being appealed before the state tax board. Power companies insist that plummeting energy prices in California and a glut of new power plants have drained the properties of value. AES officials insist their four Southern California plants are now worth substantially less than the $850 million they paid for them in 1998.

The plant in Huntington Beach, for example, was valued last year at $325 million by Orange County and resulted in property tax payments of $3.32 million. State assessors this year set the plant’s value at $260 million. But AES argued successfully a few months ago that lower income and aging equipment had reduced the value even further, to $93 million, and the state staff agrees.

At stake are millions of dollars in future tax payments -- plus millions more already paid. In Orange County, for example, AES wants last year’s $325-million assessment retroactively reduced to $102 million, which would result in a tax refund of about $2.2 million.

Dropping the plant’s value to $93 million means about $1.7 million a year less in anticipated property taxes for Huntington Beach. The plant is a key fixture in a redevelopment zone created in 2001 and was seen as a major source of tax revenue for improvement projects.

“We want to make sure they’re paying their fair share,” said Huntington Beach Treasurer Shari Freidenrich. “The plant represents a significant amount of dollars. They want to value it below the original purchase price. We want it valued properly.”

The new values more accurately reflect the power plants’ value, said C.J. Thompson, AES president for its Southern California plants.

“We’ve been criticized to a certain extent because we spent $850 million for these plants in 1998,” he said. “The question is: Why would you expect [the value now] to be lower? It’s because the [assessment] method for a business like ours looks at income and obsolescence of equipment.”

State tax officials took back the job of assessing power plants last year after a five-year absence. Power companies complained that local assessors between 1998 and 2002 had set wildly different values based on different assessment methods. Companies also protested what they said were inflated values that resulted in excessive taxes.

State assessors agreed that the plants’ values were less than those set locally. A plunge in the price of electricity since 2000, plus the addition of 25 new power plants licensed in California that added 8,000 megawatts to the energy grid, created a surplus in generating capacity that will exist for several years, according to a staff report prepared for the Board of Equalization.

Many of the plants under appeal are old and fueled by expensive natural gas, further decreasing their profitability. If the plants had been locally assessed for this year, many owners probably would have seen their values drop, the state analysis said.

The valuation changes can be traced to the state’s move to deregulate the electricity market in 1996. California’s largest public utilities were ordered to sell many of their generating facilities. Utility companies eventually sold 22 power plants to private companies, many of them based out of state, for a total of $3.2 billion.

Then, in 1999, the job of determining the taxable value of the plants shifted to local assessors.

The Orange County assessor’s office set the value of the Huntington Beach plant by figuring the amount AES paid for the plant and adding the cost of improvements. But county staffers failed to take into account the cost of buying the natural gas necessary to run the plant, Thompson said.