Author: mlansing

Unit Valuation – Fundamental Valuation Principles, Not Administrative Rules, Prevail

In Enbridge Energy, Limited Partnership v. Commissioner of Revenue,[i] The Minnesota Tax Court recently rejected the Minnesota Commissioner of Revenue’s (“State”) attempt to artificially increase an interstate pipeline’s value to exceed market value, here, applying unit valuation. It rejected the State’s numerous inconsistent positions and its attempt to assert its own administrative rule as a limitation on the Court’s ability to determine fair market value.[ii] The Tax Court started with two fundamental principles: (1) it was required to determine the fair market value of the pipeline, and to do so, (2) it had to consider the three traditional approaches to value: sales comparison, cost, and income.[iii]  Like most states, Minnesota requires all property “be valued at its market value.”[iv] The Court agreed with the Taxpayer that the sales comparison approach was not applicable, noting the “very limited amount of actual sales data to be used as an evidence of value.”[v] The Court rejected the State’s stock-and-debt approach,[vi] finding the Taxpayer’s partnership interests were not publicly traded, and thereby, the State’s reliance on the partnership interests of the parent partnership, as a proxy, was baseless. The partnership interests of the parent reflected about a dozen other entities.[vii] For the cost approach, after deriving the current cost of constructing the existing improvements on the property, the appraiser then computes and deducts depreciation for each of the following three forms: (1) physical...

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What Happened to the De-Regulated Wholesale Transmission Market?

In LSP Transmission Holdings, LLC v. Lange, 2018 WL 3075976 (D. Minn. June 21, 2018), a court upheld a “traditional” state-based regulation approved by the Federal Energy Regulatory Commission (“FERC”) that restricts the wholesale transmission electricity market. The United States District Court for the District of Minnesota upheld Minnesota Statute § 216B.246,[i] granting incumbent electric transmission owners the right of first refusal to construct transmission lines over merchant transmission developers. It found that neither interstate commerce nor the dormant Commerce Clause was violated, based on the FERC’s approval of such “traditional” state regulation. An interesting concept for those attempting to move from “traditional” state monopolies of wholesale transmission to a de-regulated marketplace. Interstate electric energy transmission and wholesale rates have become a matter of federal public interest since the Federal Power Act was enacted in 1935, granting FERC the authority to regulate the transmission and sale of electricity at wholesale rates in interstate commerce. FERC has since enacted a series of reforms to promote development of competitive markets to address  the finding that “the economic self-interest of electric transmission monopolists lay in denying transmission or offering it only on inferior terms to emerging competitors,” S.C. Pub. Serv. Auth., 762 F.3d at 50; FERC Order No. 888 (requiring each jurisdictional electric public transmission provider to unbundle its wholesale generation and transmission services).Thereafter, FERC issued Order No. 2000, encouraging interstate electric transmission...

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Blurring Necessity and Just Compensation – Pipeline Development Dilemma

As renewable energy increases, and with coal being phased out, landowners and environmental advocacy groups have begun to focus on pipeline development, concentrating on the “need” to account for downstream greenhouse gas emissions and pipeline developers’ use of condemnation powers. For eminent domain, the argument includes that its application against landowners may be “improper”, even raising constitutional claims once thought previously addressed. Such arguments have blurred the line between the public necessity of a pipeline project—the constitutional prerequisite for a valid taking—and the appropriate just compensation due a landowner. For natural gas pipelines and other pipelines subject to federal regulation, the pipeline company’s eminent domain authority arises after the necessity determination (conditional or otherwise) by the Federal Energy Regulatory Commission (“FERC”).[i] Thus, a landowner’s rights are not “jeopardized.” Instead, the landowner is, ultimately, paid just compensation for the taking. Thus, necessity for the pipeline project, arguably, has nothing do with what just compensation should be paid or, thereby, the exercise of eminent domain. Moreover, eminent domain litigation most often arises when the landowner seeks to preclude access to their property for testing and studies or to simply maximize their just compensation (whether state or federal court). Once necessity has been determined, state and federal courts lack authority to consider whether the pipeline route is appropriate or not.[ii] Recently, the Pennsylvania Supreme Court has rejected a number of landowner applications...

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The DW Energy Blog is published by Dickinson Wright PLLC to inform the public of important developments within the firm and practice areas. The content is informational only and does not constitute legal or professional advice. We encourage you to consult a Dickinson Wright attorney if you have specific questions or concerns relating to any of the topics covered in this blog.