By Tom Ballard, Director of Innovation and Entrepreneurial Initiatives, Pershing Yoakley & Associates, P.C.
We had the opportunity to attend part of TenneSEIA’s quarterly stakeholder briefing last week and heard some insightful presentations from representatives of the Tennessee Valley Authority (TVA) and the State Comptroller’s Office.
The briefing, conducted via video and audio conference, originated from the Nashville offices of Baker, Donelson, Bearman, Caldwell & Berkowitz. TenneSEIA is the acronym for the Tennessee Solar Energy Industries Association, the state chapter for the national Solar Energy Industries Association.
TVA representatives updated the participants on participation levels in several existing solar-focused programs and also outlined a new effort called the “Value of Solar Initiative.”
As described by TVA’s Patty West, the goal of the new program is to develop a methodology and framework to both classify and quantify the value and cost components of distributed generation of which solar is a component.
“Our initial focus is solar,” she said, explaining that the model is being developed so that it can be applied to other distributed generation sectors. Those include areas like wind, waste-to-energy, and cogeneration.
The initial kick-off meeting for the “Value of Solar Initiative” is set for tomorrow (April 23) in Nashville with follow-up sessions set for June 5 and 6, August 27, and December 3.
“We need your input,” West told the TenneSEIA members.
Other TVA representatives reported on the agency’s “Green Power Providers Program,” “Solar Solution Initiative,” and “Renewable Standard Offer.” It was clear from the reports that Tennessee’s solar industry is a major contributor to these programs.
Later in the meeting, Barry Murphy and Gary Harris of the State Comptroller’s Office of State Assessed Properties described the methodology used to establish the tax basis for solar installations. It was a good, step-by-step explanation of the methodology that was approved by the General Assembly in 2013 and the way it is applied to determine the final property tax bill.
In fact, we found the explanation so useful for those who are usually mystified by the manner in which taxes are determined that we thought we would do our best to capture it.
Murphy and Harris started by describing how the “Capacity Factor” or valuation percentage for a solar generation facility is established. Using a four KW installation as an example, they explained that it would operate 24 hours a day, 365 days a year. Over a four-year period – there’s a leap year built-in, so the average is actually 365.25 days each year, the potential energy output totals 35,064 units. They determined that the actual output would average 4,383 units or 12.5 percent of potential capacity.
To qualify for this 12.5 percent rate, they said the owner of the installation had to either show a Green Energy Production Facility Certificate issued by the Tennessee Department of Environment and Conservation or file a schedule as mandated in state law (TCA 67-5-1303).
So, how is the valuation factor applied to determine the assessed value against which a local property tax rate is levied?
Murphy and Harris showed an example where a $1 million installation ended-up with a tax bill of less than $3,000 annually. What were the calculations?
- They started with the 12.5 percent valuation factor being applied to the $1 million cost, resulting in a valuation baseline of $125,000.
- Next, the state has established an assessment ratio of 55 percent for utility properties, setting the assessed value at $68,750 (55 percent of $125,000).
- Next, an equalization factor is applied. In the case of personal property, it’s 85 percent of the assessed value. This produces what is called the “Equalized Assessed Value” of $58,438 (85 percent of the previously determined assessed value).
- Finally, they cited the typical local tax rate of $5 per $100 of assessed value. By applying the number to $584.38 ($58,438 divided by $100), the calculation results in a tax bill of $2,922.