Turners Falls Ltd. v. Bd. of Ass'rs of Montague, 99-P-2020

• Decision Date: 14 May 2002
• Docket Number: 99-P-2020
• Citation: 54 Mass. App. Ct. 732
• Parties: TURNERS FALLS LIMITED PARTNERSHIP vs. BOARD OF ASSESSORS OF MONTAGUE. Docket No.: 99-MASSACHUSETTS COURT OF APPEALS County: Suffolk
• Court: Appeals Court of Massachusetts

TURNERS FALLS LIMITED PARTNERSHIP vs BOARD OF ASSESSORS OF MONTAGUE

Docket No.: 99-P-2020

MASSACHUSETTS COURT OF APPEALS

County: Suffolk

January 10, 2002.

May 14, 2002

Taxation, Appellate Tax Board: findings, Value, Real estate tax: value. Evidence, Judicial admission.

Appeal from a decision of the Appellate Tax Board.

Jay E. Gruber (Kevin Batt with him) for the taxpayer.

Ellen M. Hutchinson for Board of Assessors of Montague.

Philip Burling & Kevin Conroy, for PG&E Generating, amicus curiae, submitted a brief.

Present: Brown, Kass, & Kantrowitz, JJ.

KASS, J.

In their presentation to the Appellate Tax Board (board), the parties debated whether the income stream from a government-sponsored contract should be a factor in determining the fair market value of the taxpayer's real property, an electric power plant. Although the board's decision unmistakably reflects that it regarded the government-related income stream as a significant valuation factor, the board rested its decision wholly on the ground that the opinion of value of an expert witness called by the assessors constituted a vicarious admission by the assessors of the correctness of that opinion. The expert's opinion reduced the assessed value of the real estate in question by $5,427,100 for the tax year 1995, and by $5,298,100 for the tax year 1996. Both the assessors and the taxpayer have appealed from the decision of the board. We decide that the board's theory of vicarious admission was error as matter of law, and we remand the case to the board for further consideration.

1. Facts. The real property in question is a cogeneration plant designed to manufacture steam (for a paper company) and electricity. That plant consists of a four-story building of 9,000 square feet per floor, located on a 3.193 acre site in the Turners Falls section of the town of Montague. There is a small attached one-story office building. Within the plant, there are boilers, turbines, condensers, interconnection controls, coal handling equipment, a desulfurization system, transformers, and other equipment. The facility was capable of producing 19.9 megawatts of electricity when in full operation. There is no dispute that the building, inclusive of its equipment, is correctly assessable as real property. See, in that regard, Boston Edison Co. v. Assessors of Boston, 402 Mass. 1, 3 (1988).

On the assessment dates that are material, January 1, 1994, and January 1, 1995, the taxpayer was Turners Falls Limited Partnership (TFLP), which had possession of the property as a long-term lessee. The tax years, or billing cycles, in issue on appeal are the years 1995 and 1996.¹

In order to convey the degree to which the Turner Falls cogeneration plant, from its inception, was intertwined with government programs and regulations, we set out in regrettably tedious detail the legislative, regulatory, and contractual background of the power plant venture. The Turners Falls plant was built in 1988 under the stimulus of the Public Utility Regulatory Policies Act (PURPA), Pub. L. No. 95-617, 92 Stat. 3117 (1978), codified in relevant part in 16 U.S.C. §§ 796, 824a-3 (1982). That legislation was a reaction to a nationwide energy crisis during the 1970s. Federal Energy Regulatory Commn. v. Mississippi, 456 U.S. 742, 745 (1982). PURPA added to the Federal Power Act, 16 U.S.C. §§ 791a et seq., incentives in the form of guarantees and risk protection for the construction of supplementary power generating facilities by nonutility generators. Cf. Massachusetts Inst. of Technology v. Department of Pub. Util., 425 Mass. 856, 857 n.2 (1997). Regulated public utilities were obligated to buy power from these independent producers. See Plymouth Rock Energy Assocs. v. Department of Pub. Util., 420 Mass. 168, 169 (1995). Skipping over details of limited partnership and corporate relationships, TFLP is a nonutility generator. If a nonutility generator's power plant met criteria prescribed under PURPA and Federal and State regulations promulgated under PURPA, it would gain the status of a "qualifying facility."² TFLP secured that status for the Turners Falls plant before it began construction.

PURPA's incentive system required a public utility to factor into the electricity price that it agreed to pay to a qualifying facility what it would cost the utility if it pursued the most efficient alternative method of obtaining the electric power that the qualifying facility could sell. That price factor was known in the industry as "avoided cost." See 18 C.F.R. §§ 292.101(b)(6), 292.303(a), 292.304 (1986). Indeck Energy Services of Turners Falls, Inc. (Indeck), an Illinois corporation with a home base in Wheeling, Illinois, is a general partner in the taxpayer, TFLP. On November 4, 1986, prior to construction of the TFLP plant, Indeck entered into an agreement (the "Purchased Power Contract") with UNITIL Power Corp. (UNITIL), a New Hampshire public utility based in Bedford, New Hampshire. UNITIL agreed to buy Indeck's electric power output from the Turners Falls qualifying facility for twenty years. Apparently by an assignment, TFLP succeeded to Indeck's rights under the agreement with UNITIL.

From calendar year 1991 through 1995, TFLP's annual sales of electricity under the contract with UNITIL averaged about $9,000,000. By 1994, however, the price of oil had begun to tank, producing, by derivation, a sharp decline in the market price of electric power. Notwithstanding that decline, UNITIL was obliged to pay TFLP in accordance with the governmentally-directed contract provision that tied the wholesale price to the 1986 avoided cost, i.e., the approximately $9,000,000 per year. UNITIL was bound to that obligation to the year 2009. Both as a business proposition and in terms of public policy, UNITIL's position was awkward because the difference between the contract cost and market cost of energy was ultimately being borne by consumers. Consequently, the Massachusetts Department of Public Utilities encouraged public utilities to buy out contracts such as that between TFLP and UNITIL.

By a "Termination Agreement" dated August 15, 1996, TFLP and UNITIL agreed to end the "Purchased Power Contract"; TFLP would mothball the Turners Falls cogeneration plant.³ In return, UNITIL would make monthly payments to TFLP at the rate of $6,600,000 per year through August, 2009.

2. Board's view of the evidence. Five experts, three for the taxpayer and two for the assessors, paraded opinions of value before the board. In its findings, the board in varying degrees found all the expert opinions fatally flawed. It serves no useful purpose to rehearse the details of those opinions and the board's autopsies of them. The parties offered no other evidence concerning value. The consequence of the board's rejections of the expert opinions, therefore, was that the taxpayer had not persuaded the board that the property had been overvalued and, therefore, in the formulation employed in State tax cases, had not carried its burden of proving that the assessors had overvalued the property. See Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974); Foxboro Assocs. v. Assessors of Foxborough, 385 Mass. 679, 691 (1982); General Elec. Co. v. Assessors of Lynn, 393 Mass. 591, 598-600 (1984); Hampton Assocs. v. Assessors of Northampton, 52 Mass. App. Ct. 110, 118 (2001). "[T]he taxpayer loses when the taxpayer and the assessors present the board with equally footless cases." Id. at 119.

As may any trier of fact, the board could accept or reject and pick and choose from evidence the parties present to it. New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 473 (1981). Hampton Assocs. v. Assessors of Northampton, supra at 115. In the process of weighing the evidence, the board does not have carte blanche; the board must articulate an objectively adequate rationale for rejection of the evidence, particularly expert evidence, put before it. New Boston Garden Corp. v. Assessors of Boston, supra. Hampton Assocs. v. Assessors of Northampton, supra at 115.

3. Expert's opinion as admission of party that called him. Along with the opinions offered by other experts, the board shredded that of the assessors' second expert, Neal D. Suess. His appraisal and opinion rested largely on a depreciated replacement cost analysis of the property, and he valued the property at $20,744,000 for fiscal 1995 and $20,873,000 for fiscal 1996. Although well above the opinions of value that the taxpayer had offered, the highest of which, inferentially, was $2,000,000, the Suess opinion was some twenty percent lower than the valuations of the assessors for the years in issue, $26,171,100. As Suess was an expert proffered by the assessors, the board took his opinion as a vicarious admission of the assessors and ordered an abatement of taxes in accordance with the lower Suess valuations.

As used in the Massachusetts cases, a vicarious admission describes an exception to the hearsay rule; namely, a witness may testify to the out-of-court statement of an agent of a party. For example, in Ruszcyk v. Secretary of Pub. Safety, 401 Mass. 418, 420-424 (1988), the court held that an extrajudicial statement damaging to the codefendant (the Commonwealth), made by the commandant of the State Police Academy, could be received in evidence on the theory that the commandant was an agent of the Commonwealth. The evidence could be admitted only after the trial judge had ruled that the probative value of the evidence exceeded its prejudicial quality. Similarly, an out-of-court admission of liability by a party may be received in court through an intermediary witness who heard the statement. Zandan v. Radner, 242 Mass. 503, 504-505 (1922). See Proposed Mass.R.Evid. 403 and 801(d)(2)(D), which are discussed in the Ruszcyk case. See also Liacos, Massachusetts Evidence § 8.8.6 (7th ed. 1999).

So far as the in-court testimony of Suess is concerned,...