"1. Pawtucket Power Associates Limited Partnership ('PPA') is a Massachusetts limited partnership, of which EMI/PAWTUCKET, INC. ('EMI'), a Rhode Island corporation, is the general partner.
"2. PPA owns and operates a cogeneration facility (the 'Facility') located within the City of Pawtucket (the 'City') on land leased from Colfax Realty Company ('Colfax Realty') and described as Assessor's Plat 59, Lot 19, and Assessor's Plat 61, Lots 5, 190 and 192. Neither PPA nor EMI is engaged in any other business activity unrelated to the Facility.
"3. PPA operates the Facility exclusively for the production of steam and electricity for sale pursuant to two private long-term contracts negotiated at arms-length. The Facility makes both steam and electricity in a sequential cogeneration process. Natural gas, oil and air are converted to heat energy, which is then converted both to electricity in a combustion turbine and, in combination with water and other materials, to steam in a heat recovery steam generator; such steam is then both converted to electricity in a steam turbine and also used as a final product for sale.
"4. Steam produced at the Facility is sold exclusively to Colfax, Inc., a Rhode Island corporation ('Colfax'), and electricity produced at the Facility is sold exclusively at wholesale to New England Power Company ('NEP'), a Massachusetts corporation, pursuant to an Agreement dated as of December 14, 1987, which does not allow property tax expenses to be passed on.
"5. All of the machinery and equipment located at the Facility and used by PPA in the production of steam and electricity for sale was purchased after December 31, 1974 as new items.
"6. All steam sold by PPA to Colfax is consumed in manufacturing processes at Colfax's industrial food oil manufacturing plant located on a lot adjacent to the Facility on land also leased from Colfax Realty, an affiliate of Colfax. The delivery of such steam is effected via a pipe bridge which structurally connects the Facility to Colfax's manufacturing plant as an integral part of Colfax's production process. Colfax formerly generated its steam requirements with its own on-site steam plant, which plant has been and continues to be treated by the City as tax-exempt manufacturer's machinery and equipment. Upon the termination of PPA's lease, title to the Facility will vest in Colfax Realty.
"7. At the request of PPA, PPA and the City in November of 1988 commenced negotiations regarding a tax agreement to specify property tax amounts applicable to the Facility.
"8. On January 30, 1989, the Division of Taxation of the Rhode Island Department of Administration ('DOT') issued a declaratory ruling pursuant to R.I. Gen
Laws § 42-35-8 (the 'DOT Ruling') that PPA's ownership and operation of the Facility would cause PPA to be a 'manufacturer' for Rhode Island sales and use tax exemption purposes. DOT ruled that PPA's machinery and equipment used at the Facility to produce steam and electricity (as more specifically listed in the DOT Ruling, the 'Machinery') qualifies for the sales and use tax exemption of R.I. Gen. Laws § 44-18-30(W) as 'manufacturing machinery and equipment.' * * * The City was not a party to nor given prior notice of the PPA's request for the DOT Ruling.
"9. PPA holds no public utility franchises, monopoly powers, eminent domain powers, or exclusive service territories, and does not have the right, the ability, or the obligation to provide steam, electricity or any other utility service to the public or to any party other than Colfax and NEP. PPA has not displaced or caused any party to discontinue receiving service provided by any public utility.
"10. On March 21, 1988, the Federal Energy Regulatory Commission ('FERC') certified the Facility's status as a 'qualifying facility' as defined in FERC's regulations (18 CFR §§ 292, et seq.) and found that 'no electric utility, no electric utility holding company or any combination thereof has any ownership interest in the facility.' Such regulations of FERC expressly provide that qualifying facilities, such as the Facility, are excluded from the definition of 'electric utility company' under the Public Utility Holding Company Act, are exempt from utility rate regulation under the Federal Power Act, and are exempted from all state law or regulation respecting electric utility rates, finances or organization. Id. at § 292.602. * * * The City was not a party to nor given prior notice of PPA's request for the FERC order.
"11. On February 3, 1989, the Rhode Island Public Utilities Commission (the 'PUC') issued a Declaratory Judgment (the 'PUC Order') pursuant to R.I. Gen. Laws § 42-35-8 that PPA's ownership and operation of the Facility as set forth herein would not cause PPA to become a 'public utility' under Rhode Island law. * * * The City was not a party to nor given prior notice of PPA's request for the PUC Order.
"12. On January 21, 1991, PPA filed a notice of intention to bring in a property tax account to the City pursuant to R.I. Gen. Laws § 44-5-15.
"13. On March 14, 1991, PPA filed an account of its tangible property located within the City as of December 31, 1990 pursuant to R.I. Gen. Laws § 44-5-16 (the 'Account'). The Account indicated that PPA's tangible property located at the Facility consists primarily of machinery and equipment costing $26,337,900 which is used exclusively in the production of steam and electricity for sale and which qualifies for the property tax exemption provided at R.I. Gen. Laws § 44-3-3(22) for new manufacturer's machinery and equipment.
"14. The Account also indicated that the value of the conventional, non-cogenerating energy production capacity that would otherwise have been necessary to install to supply Colfax with steam was $380,000.
"15. On May 29, 1991, the City issued a property tax bill to PPA in the amount of $732,710.28, which bill reflects an assessment of tangible property at the Facility other than real estate of $14,652,330 (the 'Assessment'). * * * Such Assessment includes as taxable property all of the Machinery utilized by PPA at the Facility exclusively in the production of steam and electricity for sale.
"16. On June 11, 1991, PPA paid the first installment of the Assessment in the amount of $90,809.96. On August 15, 1991, PPA paid the second installment in an identical amount. The third installment is payable on December 15, 1991.
"17. On or about September 30, 1991, PPA received a recast bill from the City and a cover letter * * * .
"18. The parties to this litigation agree to stipulate as to the correctness of the valuation amounts set forth in the
Account * * *. The primary issue before this court is whether the Machinery is exempted from property taxation by the City under R.I. Gen. Laws § 44-3-3(22). The challenge by the defendants to said exemption is that PPA is not subject to the exemption because it is not a 'manufacturer' pursuant to R.I. Gen. Laws § 44-3-3(20) and therefore is ineligible for the exemption under R.I. Gen. Laws § 44-3-3(22).
"19. In the event that PPA is determined not to be a manufacturer and the Machinery were therefore not exempt from property taxation under § 44-3-3(22), the issue before this Court would then be whether the provisions of R.I. Gen. Laws § 44-3-18(B) respecting the maximum assessment of cogeneration facilities is applicable to the Facility and whether the Assessment is therefore illegal, void and excessive.
"20. During December of 1990, PPA did engage in the production and sale of electricity to NEP and in the production of steam used for industrial and heating purposes at the Facility. For the year ending December 31, 1990, 100 percent of the income derived from the activities at the Facility were derived from the sale of electricity sold to NEP by PPA.
"21. For the first six months of 1991, no less than 80 percent of the income derived from the activities at the Facility were derived from the sale of electricity manufactured by PPA to NEP, and no less than 10% of the total energy output of the Facility on a BTU basis consisted of steam as the final product, as opposed to electricity."