Sections

Weather Forecast

Close
Advertisement

Bemidji School Board OKs tax proposal for new turbine

Email Sign up for Breaking News Alerts
news Bemidji, 56619
Bemidji Pioneer
(218) 333-9819 customer support
Bemidji Minnesota P.O. Box 455 56619

Otter Tail Power Company received unanimous approval from the Bemidji School Board Monday of an alternative property tax proposal for a new turbine to be built in Solway.

Advertisement
Advertisement

The school board approved a resolution to agree to waive the personal property tax and accept the same real property tax arrangement as was agreed upon for the combustion turbine built in Solway seven years ago.

During 2002 and 2003, Otter Tail installed a simple-cycle combustion turbine located one and a half miles north of Solway. Now the company is pursuing development of a second combustion turbine at the same site.

A combustion turbine works similar to a jet engine, using the same technology to produce power. Its primary fuel is natural gas. The established turbine at Solway (named "Solway I") is rated at about 43 megawatts in the summer and up to 48 megawatts in winter. A megawatt is equal to one million watts. Three fulltime employees and one seasonal employee work at the turbine.

The proposed second turbine (dubbed "Solway II"), according to Otter Tail, would be of similar size, with generally the same design, layout and facilities as the existing turbine. Cost estimates for the generation project range from $40 million to $45 million.

"This is a peak unit," said Bill Swanson, manager of supply engineering at Otter Tail. "We're required to have so much capacity available to supply that peak load. Our energy prices are driven down when the wind resources are blowing through the system. When the wind dies, having this unit available protects our customers so the most they pay is the cost of energy from this unit."

Minnesota Statute 272 allows for a personal property tax exemption for a second combustion turbine at the Solway site, contingent upon an agreement with the county, township and school district for payment in lieu of personal property taxes.

Beltrami County and Lammers Township have both approved the resolution for an alternative tax exemption to build a new turbine in Solway.

Electric utilities in Minnesota are subject to a personal property tax and real property tax which could result in higher property tax rates. Real property tax is a tax on land, structures and improvements. Personal property tax is a tax on all equipment and tools located at the facility.

Using preliminary budget information, Otter Tail estimates that personal property tax on the generating facility would be over $800,000 annually.

According to Otter Tail, if the project is constructed at the Solway I site, and the host county, township and school district agree to waive the personal property tax and accept the same real property tax arrangement as was agreed upon for the Solway I turbine, it could result in $125,000 to $135,000 in additional property tax revenue for the local communities.

"Without an exemption to the personal property tax, it would be very difficult to locate something like this in Minnesota," Swanson said. "The tax exemption we're looking for Otter Tail doesn't keep this personal property tax exemption. The property taxes we pay are directly passed through to our customers, so we're looking at saving our customers money."

Chris Leinen, the school district's director of business services, noted the school district's tax levy will be affected positively by the addition of a new turbine.

"Our tax levy will be spread over a larger pie and therefore will result in a lesser tax to all resident of our school district," Leinen said. "We won't see a significant increase in actual dollars, but we'll see a lessening of the burden on the local tax payer from our share of taxing pie."

Otter Tail intends to begin construction on the new turbine in 2013. The power company expects to complete the preliminary design and submit all permit requests by the end of this year. Swanson said now that Otter Tail has tax exemption approval, it will be filing for permits sometime this fall.

"Without the approval of this, the project would have been roughly 20 percent higher in costs," said Ward Uggerud, senior vice president of Otter Tail Power Company. "Then it's likely we would not have been able to get approval to do it because we have public service commissions looking to see if we're using the lowest cost option for generation resourcing. That's a fairly significant increase in the cost of the project."

The approved resolution included the following statements:

E The proposed electric generating facility shall be exempt from the Minnesota personal property tax.

E The electric generating facility, not including transmission and substation equipment, shall be subject to real property tax.

E The real property tax on the generating equipment, not including transmission or substation equipment, shall be based upon 150 percent of the assess value as determined in accordance with existing real property tax rules and procedures.

E If the state of Minnesota exempts personal property tax for new or existing generation without requiring an agreement with the local taxing authority, the real property tax shall be based upon 100 percent of the assessed value.

E Otter Tail Power Company has given the right, at its sole discretion, to elect to discontinue taxation under this resolution and be subject to the tax statutes, rules and procedures in existence at any point in time.

E Otter Tail Power Company is not bound to proceed with development of this project in Lammers Township by the board's approval of this resolution.

Otter Tail Power Company received unanimous approval from the Bemidji School Board Monday of an alternative property tax proposal for a new turbine to be built in Solway.

The school board approved a resolution to agree to waive the personal property tax and accept the same real property tax arrangement as was agreed upon for the combustion turbine built in Solway seven years ago.

During 2002 and 2003, Otter Tail installed a simple-cycle combustion turbine located one and a half miles north of Solway. Now the company is pursuing development of a second combustion turbine at the same site.

A combustion turbine works similar to a jet engine, using the same technology to produce power. Its primary fuel is natural gas. The established turbine at Solway (named "Solway I") is rated at about 43 megawatts in the summer and up to 48 megawatts in winter. A megawatt is equal to one million watts. Three fulltime employees and one seasonal employee work at the turbine.

The proposed second turbine (dubbed "Solway II"), according to Otter Tail, would be of similar size, with generally the same design, layout and facilities as the existing turbine. Cost estimates for the generation project range from $40 million to $45 million.

"This is a peak unit," said Bill Swanson, manager of supply engineering at Otter Tail. "We're required to have so much capacity available to supply that peak load. Our energy prices are driven down when the wind resources are blowing through the system. When the wind dies, having this unit available protects our customers so the most they pay is the cost of energy from this unit."

Minnesota Statute 272 allows for a personal property tax exemption for a second combustion turbine at the Solway site, contingent upon an agreement with the county, township and school district for payment in lieu of personal property taxes.

Beltrami County and Lammers Township have both approved the resolution for an alternative tax exemption to build a new turbine in Solway.

Electric utilities in Minnesota are subject to a personal property tax and real property tax which could result in higher property tax rates. Real property tax is a tax on land, structures and improvements. Personal property tax is a tax on all equipment and tools located at the facility.

Using preliminary budget information, Otter Tail estimates that personal property tax on the generating facility would be over $800,000 annually.

According to Otter Tail, if the project is constructed at the Solway I site, and the host county, township and school district agree to waive the personal property tax and accept the same real property tax arrangement as was agreed upon for the Solway I turbine, it could result in $125,000 to $135,000 in additional property tax revenue for the local communities.

"Without an exemption to the personal property tax, it would be very difficult to locate something like this in Minnesota," Swanson said. "The tax exemption we're looking for Otter Tail doesn't keep this personal property tax exemption. The property taxes we pay are directly passed through to our customers, so we're looking at saving our customers money."

Chris Leinen, the school district's director of business services, noted the school district's tax levy will be affected positively by the addition of a new turbine.

"Our tax levy will be spread over a larger pie and therefore will result in a lesser tax to all resident of our school district," Leinen said. "We won't see a significant increase in actual dollars, but we'll see a lessening of the burden on the local tax payer from our share of taxing pie."

Otter Tail intends to begin construction on the new turbine in 2013. The power company expects to complete the preliminary design and submit all permit requests by the end of this year. Swanson said now that Otter Tail has tax exemption approval, it will be filing for permits sometime this fall.

"Without the approval of this, the project would have been roughly 20 percent higher in costs," said Ward Uggerud, senior vice president of Otter Tail Power Company. "Then it's likely we would not have been able to get approval to do it because we have public service commissions looking to see if we're using the lowest cost option for generation resourcing. That's a fairly significant increase in the cost of the project."

The approved resolution included the following statements:

- The proposed electric generating facility shall be exempt from the Minnesota personal property tax.

- The electric generating facility, not including transmission and substation equipment, shall be subject to real property tax.

- The real property tax on the generating equipment, not including transmission or substation equipment, shall be based upon 150 percent of the assess value as determined in accordance with existing real property tax rules and procedures.

- If the state of Minnesota exempts personal property tax for new or existing generation without requiring an agreement with the local taxing authority, the real property tax shall be based upon 100 percent of the assessed value.

- Otter Tail Power Company has given the right, at its sole discretion, to elect to discontinue taxation under this resolution and be subject to the tax statutes, rules and procedures in existence at any point in time.

- Otter Tail Power Company is not bound to proceed with development of this project in Lammers Township by the board's approval of this resolution.

Advertisement
Advertisement
Advertisement
randomness