USGen New England, Inc. v. Town of Rockingham, 2003 VT 102 (Vt. 11/7/2003)

• Decision Date: 07 November 2003
• Docket Number: No. 2001-426.,No. 2001-427.,2001-426.,2001-427.
• Citation: 2003 VT 102
• Parties: USGen New England, Inc. v. Town of Rockingham. USGen New England, Inc. v. State of Vermont.
• Court: Vermont Supreme Court

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2003 VT 102

USGen New England, Inc. v. Town of Rockingham.

USGen New England, Inc. v. State of Vermont.

No. 2001-426.

No. 2001-427.

Supreme Court of Vermont.

Filed November 7, 2003.

On Appeal from Windham Superior Court, John P. Wesley, J.

Robert E. Woolmington of Witten, Woolmington, Bongartz, Campbell and Boepple, P.C., Manchester Center, and Philip Burling of Foley, Hoag & Eliot LLP, Boston, Massachusetts, for Plaintiff-Appellant.

Richard H. Saudek and David L. Grayck of Cheney, Brock & Saudek, P.C., Montpelier, for Defendant-Appellee Town of Rockingham.

William H. Sorrell, Attorney General, William E. Griffin, Chief Assistant Attorney General, and Mary L. Bachman, Special Assistant Attorney General, Montpelier, for Defendant-Appellee State of Vermont.

PRESENT: Amestoy, C.J., Dooley, Morse(¹), Johnson and Skoglund, JJ.

DOOLEY, J.

¶ 1. Following the deregulation of the electrical power markets, the Vermont General Assembly in 1998 and again in 1999 temporarily "froze" the grand list valuation of hydroelectric generating facilities for property tax purposes. The "freeze" set the valuation of these properties at the 1997 values for the tax years 1998, 1999, and 2000. Plaintiff USGen New England, Inc. (USGen), the owner of hydroelectric power plants affected by the freeze — including the Bellows Falls facility located in the Town of Rockingham — filed an appeal challenging the 1999 valuation of this property as well as the constitutionality of the freeze.(²) USGen also filed a second action seeking a declaratory judgment that the freeze was unconstitutional. The Windham Superior Court issued a partial judgment on the pleadings, holding that the legislative acts were constitutional. The court also denied USGen's request to offer evidence on the fair market value of the frozen assets, which USGen had argued was relevant to the remaining unresolved issues. USGen argues that the judgment on the pleadings was in error and that the restriction on the introduction of evidence makes the freeze legislation unconstitutional as applied. We affirm.

¶ 2. The freezing of the grand list valuation for all hydroelectric generating facilities was originally effected by the enactment of Section 78 of Act 71 of 1998, see 1997, No. 71 (Adj. Sess.), § 78, eff. March 11, 1998, which froze the listed values at the April 1, 1997 listed value until January 1, 2000. According to Act 71, the freeze would not apply to three situations: (1) where a tax stabilization agreement existed that predated the legislation; (2) where the owner of the hydroelectric facility entered into an agreement with the municipality not to reduce the grand list value; and (3) where the municipality completed a reappraisal of all taxable real estate after April 1, 1997. The freeze was later extended to June 30, 2000 by the enactment of Section 23 of Act 49 of 1999.(³) See 1999, No. 49, § 23, eff. June 2, 1999.

¶ 3. Although the 1998 act did not include an express statement of legislative purpose, the stated purpose for the 1999 extension was as follows:

[T]o provide additional time for the owners of hydroelectric generating facilities and the municipalities in which they are located to more accurately determine the fair market value of these special and unique utility assets in a changing and deregulated utility market, for greater coordination with and assistance from the Department of Taxes, to permit expert independent appraisals, and to facilitate and continue negotiations regarding determination of fair market values.

1999, No. 49, § 23(a), eff. June 2, 1999.

¶ 4. In September 1998, six months after the initial freeze went into effect, USGen purchased from New England Power Company, Inc. (New England Power) several hydroelectric plants, including the Bellows Falls station in Rockingham. This purchase consisted primarily of the generation assets of these facilities, with New England Power retaining the transmission assets.

¶ 5. At the time of the initial freeze, the Bellows Falls hydroelectric facility was owned entirely by New England Power. The property — consisting of electric generation assets, transmission assets, and other land — was listed on the Rockingham grand list at a single value of $94,000,000 for the tax year 1997, as it had been for several years previous. As part of the sale of this facility, USGen and New England Power agreed to allocate the 1998 property taxes on the $94,000,000 grand list value by a ratio of 87% to USGen for the generation assets and other land, and 13% to New England Power for the transmission assets. This allocation was communicated to the Town of Rockingham (the Town). USGen and New England Power proceeded to pay the 1998 property taxes on the Bellows Falls facility based on this allocation.

¶ 6. Subsequently, in preparing its April 1, 1999 grand list, the Town again applied the 87%/13% allocation ratio to the frozen value. According to the Town, it used the 87%/13% ratio based on (a) USGen's and New England Power's allocation of taxes in connection with the 1998 sale; (b) a statement by USGen's representative; (c) a letter to the Town from New England Power; and (d) testimony under oath given on August 23, 1999 by representatives of New England Power and USGen to the Rockingham Board of Civil Authority. The Town also used the 87%/13% allocation in preparing its April 1, 2000 grand list. Thus, as a result of the freeze and its extension and the Town's use of the 1998 allocation of value between USGen and New England Power, the value that was used to calculate USGen's property taxes on its Bellows Falls' assets for tax years 1999 and 2000 was $81,780,000 (87% of $94,000,000).

¶ 7. In September 1999, three months after the General Assembly extended the freeze, USGen appealed the April 1, 1999 Rockingham grand list valuation of the Bellows Falls facility to the Windham Superior Court, pursuant to 32 V.S.A. § 4461.(⁴) In that appeal, USGen argued that the Town (1) failed to determine accurately the appraisal value of the facility based on fair market value and equalization with comparable properties; (2) failed to accurately allocate the property values between USGen and New England Power; and (3) acted pursuant to unconstitutional legislative acts. USGen also filed a separate action in October seeking a declaratory judgment that the 1998 and 1999 acts of the Legislature were unconstitutional. The parties, including the State as intervenor, agreed to stay the declaratory judgment action in the hope that a decision on the constitutional issues would be rendered unnecessary by the resolution of the tax appeals. The parties then engaged in extensive discovery in preparation for trial.

¶ 8. As part of discovery, each of the parties hired experts to appraise the value of the generating facility and "other land" — land not associated with either the generating assets or the transmission assets — at the Bellows Falls property. Although USGen and the State now appear to disagree over the actual range of values arrived at by these experts,(⁵) it is clear that there existed a wide variety of opinions concerning the value of the generating assets, and that some of the expert valuations are significantly lower than the $81,780,000 value on Rockingham's grand list.

¶ 9. On June 15, 2001, the Town filed a motion for judgment on the pleadings pursuant to V.R.C.P. 12(c), arguing that the legislative acts imposing the freeze were constitutional. USGen opposed the motion, and filed a motion of its own seeking relief from the court's order staying all discovery in the declaratory judgment action. In that motion, USGen sought approval to conduct discovery respecting the appraisal of the other land at the Bellows Falls facility and the allocation of values between USGen and New England Power.

¶ 10. After hearing arguments on the Town's motion, the court issued a partial judgment on the pleadings on July 23, 2001. The court ruled that the legislative acts were constitutional and that "they preclude the court from determining a value for the hydro-electric facilities for the April 1, 1999 listing other than that established by the legislature." As such, the court dismissed the declaratory judgment action, which involved solely the constitutionality of the freeze. Recognizing that ruling on constitutionality did not dispose of all of the issues in the case, the court stated that it would still take evidence on: (1) the extent to which the Bellows Falls lands now owned by USGen were not covered by the freeze, and whether any such lands decreased in value from April 1, 1997 to April 1, 1999, and (2) whether the frozen value of the Bellows Falls hydroelectric facility had been properly allocated between USGen and New England Power.(⁶) The court emphasized, however, that it would not take evidence or make findings regarding the fair market value of the hydroelectric facilities on April 1, 1999, since "no revaluation of the power plants on April 1, 1999 is necessary."

¶ 11. Four days later, USGen submitted an "offer of proof" and request for evidentiary ruling, arguing that "[t]he only reasonable method" to allocate the frozen April 1999 grand list value between USGen and New England Power was to determine the fair market value of all the frozen assets as of April 1, 1999, and use the relative values of the generation assets, transmission assets, and other land at that time to determine what percentage of the frozen 1997 grand list value is attributable to USGen. USGen asked the court to thereby allow it to present expert testimony relating to this method of calculation. The court denied USGen's request in an August 8, 2001 entry order, stating that "the Legislature has clearly precluded litigation of just this issue [i.e. the fair market value of the frozen assets]."

¶ 12. The parties subsequently entered into a stipulation confirming the 87%/13% allocation — "[w]ithout waiving any claims or defenses" — for the...