Board Votes to Let State Tax Power Plants

State tax collectors endorsed a proposal Wednesday that could force power plant owners to pay tens of millions of dollars more in taxes next year.

The five-member Board of Equalization voted unanimously to assert jurisdiction over the property taxes paid by companies with power plants that produce more than 50 megawatts. Under the board’s proposal--which faces public hearings before it takes effect--the state would seize from counties the authority to tax these plants.

State control could potentially enrich government coffers, because the state would tax the plants based on their fair market value, while counties tax power plant owners based on the original value of the plants plus a 2% annual inflation rate.

Consumer advocates argue that the value of private power plants has skyrocketed in the past year, as the price of wholesale electricity soared in the malfunctioning market created under California’s 1998 deregulation plan.

Under deregulation, utilities sold 22 power plants to private companies, many of them based out of state, for a total of $3.2 billion.

“They are making exorbitant profits,” said Lenny Goldberg, executive director of the California Tax Reform Assn., a nonprofit group largely funded by unions. He called the power plants “vastly underassessed.”

Board of Equalization Chairwoman and state Controller Kathleen Connell said the move is necessary not only because it might bring in more tax revenue, but because California itself could soon build power plants or own power lines under plans pushed by Gov. Gray Davis.

“We may not be getting the best value through the current system,” said Connell, “especially if the state proceeds with plans to own plants in California.

“It makes sense to act now to bring all generating facilities under the same assessment system,” she said.

For many decades, the Board of Equalization levied property taxes on power plants because they were owned by utilities and regulated by the state. But in 1999, after the launch of deregulation, the tax board voted to allow counties to assess property taxes on power plants under a formula set by Proposition 13, the 1978 ballot measure that limits property taxes for homeowners and businesses.

The board’s vote Wednesday launches a process of public hearings that could lead to a reversal of that 1999 decision.

Officials from several cities that are home to power plants urged the Board of Equalization to take no action. Under the current system, cities with power plants get a greater share of property tax revenue, which is generally split among local governments and schools.

Long Beach got about $55,000 a year in property tax revenue when the state was assessing taxes, said city Controller Barbara Hennessy, but now gets nearly $1 million a year.

Shari L. Freidenrich, treasurer for Huntington Beach, said a reversal of the board’s tax method could cost the city--home to a major power plant--$1.5 million a year in property taxes.

A bill pending in the Legislature by Assemblywoman Carole Migden (D-San Francisco) would protect those cities by guaranteeing that they get the same proportion of property tax revenue even if the state reasserts control over power plant assessments.

Goldberg, of the California Tax Reform Assn., argued that allowing the state to tax plant owners based on market value would bring in more revenue for the entire state.

As an example, he estimated that a big power plant on Monterey Bay owned by Charlotte, N.C.-based Duke Energy North America would have paid Monterey County at least an additional $10 million in property taxes last year under the proposed method of assessment. The plant, valued by the county at $362 million, is probably worth about $2 billion given market conditions, Goldberg said.

The power industry argues that when California lifted state regulation of power plants in 1998, those plants became businesses no different from a department store or bakery in terms of property tax status.

“We would expect to be treated like any other business in California has been treated since Prop. 13 went into place,” said Duke spokesman Tom Williams.