Consumers Power Co. v. Port Sheldon Tp.
| Decision Date | 09 July 1979 |
| Docket Number | Docket No. 78-589 |
| Citation | 283 N.W.2d 680,91 Mich.App. 180 |
| Parties | CONSUMERS POWER COMPANY, Plaintiff-Appellant, v. PORT SHELDON TOWNSHIP, Defendant-Appellee. 91 Mich.App. 180, 283 N.W.2d 680 |
| Court | Court of Appeal of Michigan — District of US |
[91 MICHAPP 181] Travis, Warren, Nayer & Burgoyne, P. C. by Bert Burgoyne, Detroit, for plaintiff-appellant.
Bauckham, Reed, Long, Schaefer & Travis by Richard D. Reed, Kalamazoo, for defendant-appellee.
[91 MICHAPP 182] Before KELLY, P. J., and J. H. GILLIS and CAVANAGH, JJ.
Plaintiff appeals as of right from the Michigan Tax Tribunal's decision to adopt the State Tax Commission's appraisal of plaintiff's James H. Campbell Electric Generating Plant, Port Sheldon Township, Ottawa County, for assessment purposes for tax years 1975, 1976 and 1977.
On appeal, the parties focus entirely upon the proper method to be used in valuing the subject property for the above tax years. Plaintiff's expert considered two methods to arrive at the true cash value of the Campbell facility a unit valuation, in which earnings of the entire system are first capitalized, and then a portion of those capitalized earnings is allocated to the power plant as its value; and a cost approach, based on original cost of the facility less accrued depreciation and less the economic obsolescence caused by rate regulation. These approaches resulted in the following values for assessment:
1975: $40,063,000
1976: $49,910,000
1977: $61,500,000
The State Tax Commission appraisal adopted a valuation method using the Current reproduction cost of the Campbell plant less depreciation, which resulted in substantially higher appraisals for the same period, as follows:
1975: $ 93,467,000
1976: $105,719,000
1977: $116,788,000
[91 MICHAPP 183] The Commission's expert testified that he considered but rejected a unit valuation based on capitalized earnings on the grounds that the choice of the allocation factor presented innumerable practical problems when assessing power companies on a local basis.
In its opinion adopting the valuation of the Campbell facility determined by the State Tax Commission, the Michigan Tax Tribunal also indicated its concern with the practical problems of fairly and uniformly allocating an accurate portion of the capitalized earnings among the various power plants in the Consumers Power system, as well as with allocation of economic obsolescence created by rate-making done on a statewide basis. Plaintiff appeals from this adverse decision, arguing that the Tax Tribunal has adopted "wrong principles" by relying exclusively on a depreciated current reproduction cost approach to value the plaintiff's plant.
All assessments for Ad valorem property taxes must be based on a proportion of the property's "true cash value". 1963 Const. art. 9, § 3. M.C.L. § 211.27; M.S.A. § 7.27 defines "true cash value" as:
[91 MICHAPP 184] Because the concepts of " 'true cash value' and 'fair market value' in this state are synonymous", CAF Investment Co. v. State Tax Comm., 392 Mich. 442, 450, 221 N.W.2d 588 (1974), the usual appraisal method is to posit a hypothetical market to value the property from both a buyer's and a seller's points of view in order to arrive at a usual sales price. A number of valuation methods, in addition to actual selling price, may legitimately be used to establish the "fair market value" of the property. It is the duty of the Tax Tribunal to weigh the values produced from the various valuation methods and to adopt the method that approaches true cash value most closely on "a cosmic scale of truth". This weighing process involves a considerable amount of judgment and reasonable approximation. Consumers Power Co. v. Big Prairie Twp., 81 Mich.App. 120, 131, 265 N.W.2d 182 (1978).
Finally, we reiterate that the scope of review in property tax cases is limited by Const.1963, art. 6, § 28, which prevents a court from substituting its own judgment in matters of valuation for that of the agency charged with administering property tax laws, in the absence of fraud, an error of law, or, as alleged here, the adoption of wrong principles by the agency. Pantlind Hotel Co. v. State Tax Comm., 3 Mich.App. 170, 176, 141 N.W.2d 699 (1966), Aff'd 380 Mich. 390, 157 N.W.2d 293 (1968).
With these principles in mind, we turn to the merits of this controversy. The dispute in the instant case centers on which valuation method is most properly utilized to assess an electric generating plant which is an integral part of an entire energy-producing system. Plaintiff contends primarily that a "unit valuation", based on the capitalized earnings of the entire system, achieves the [91 MICHAPP 185] best approximation of the plant's value. This approach rests on the theory that the primary purpose of a utility system like Consumers Power is to earn a return, that is "income", on the investment in its various generating plants, distribution lines and other operating components. Plaintiff argues that, because an individual power plant has little value apart from its contribution to the system's output expressed in terms of earnings, a plant's value for property tax purposes should be synonymous with the portion of the system's total earnings allocable to it. According to plaintiff's methods, this value is derived by applying an allocation multiplier, based on the original cost in the individual plant divided by the original cost of the entire system, to the system's capitalized earnings. In support of this system income approach plaintiff cites CAF Investment Co. v. State Tax Comm., supra an...
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