December 12, 2004 | By Keith Martin in Washington, DC

CALIFORNIA will continue to assess 44 independent power plants at the state level.

An appeals court on November 30 rejected an effort to have the plant value determined by local assessors. The ruling means high property taxes for some independent power producers.

California, like other states, collects annual property taxes. The taxes are a percentage of the assessed value. Most property is assigned a value by county assessors, but property belonging to public utilities has historically been valued by the State Board of Equalization. Local assessors are barred by Proposition 13
from claiming more than a 2%-a-year increase in property value unless the property is sold.

This limit does not apply at the state level. California moved in late 2001, in the wake of charges that merchant power companies were gaming the system to boost electricity prices, to assess independent power plants at the state level. Some power plants that are “qualifying facilities” under the Public Utility
Regulatory Policies Act and power plants with nameplate capacities of less than 50 megawatts are exempted from the change and continue to be assessed locally. 

Independent generators assumed the move would lead to higher property taxes. It may have at least in some cases. Calpine is challenging a $320 million assessment for its Sutter Energy Center plant. The company believes the plant is worth only $243 million. 

The state constitution directs that property belonging to any “regulated . . . companies transmitting or selling gas or electricity” should be assessed at the state level. The independent generators maintain that independent power companies are not regulated utilities in the sense envisaged by this phrase in the constitution. The appeals court disagreed. There is concern that because the court suggested that 
independent power plants are like public utilities, this could open the door to broader regulation of such plants. The court said the companies owning the plants are public utilities in the sense that they supply their output indirectly to the public and benefit in many cases from use of public funds and purchase
commitments from the state government. 

The Independent Energy Producers Association is deciding whether to appeal to the state Supreme Court.