How it’s Used Hydroelectric Energy System
Hydroelectricity uses flowing water (from tides, rivers, dams, etc.) to produce electricity through turbines. While hydroelectricity is renewable, there are concerns about how these facilities impede the natural flow of water.
Current taxation process
There are 24 hydroelectric energy production facilities in Minnesota. These facilities have a combined capacity of approximately 200 megawatts. They include:
- Twelve investor-owned utilities
- Eight independent power producers
- Four municipal governments
Hydroelectric facilities are valued and taxed in the same manner as coal, nuclear, natural gas, and biomass facilities. Hydroelectric facilities owned by investor-owned utilities are valued on a unitary basis as described beginning on page 11.
- Privately-owned hydroelectric facilities are taxed based on the value of the facility itself.
- Municipally-owned hydroelectric facilities are exempt from property taxation.
Exemptions
Statutory exemptions
Statute grants a special tax exemption to one hydroelectric facility. However, this facility is not assessed by the state so it is not included in this report. Additionally, municipally-owned hydroelectric facilities are exempt from property taxes.
Impact
The statutory exemption mentioned reduces the taxable value of that hydroelectric facility, and the taxes the facility pays.
However, hydroelectric facilities are also impacted by pollution control exemptions to other (non-hydroelectric) facilities owned by the same company. Because of unitary valuation, the pollution control exemption can result in an increase in value in property that does not have pollution control equipment. This is the case for some hydroelectric facilities5.
Variation in taxes
The tax per kilowatt hour produced can vary by facility. Variations happen because:
- Some facilities are more efficient
- Some run more continuously than others
- Some qualify for different levels of exemptions
- Some are municipal utilities that are not subject to property taxes
- Local tax rates vary
Costs and benefits
The costs and benefits of hosting a hydroelectricity facility are similar to those for other traditional and renewable energy sources. Benefits include job creation and a skilled workforce, a stronger tax base, and lower taxes.
Like other renewable energy sources, the costs of hosting a hydroelectricity facility are much less than fossil fuels. Costs to host communities may include impacts on the natural flow of water, wildlife, and landscape.
Since the costs of the impact on wildlife, natural flow of water, and landscape cannot be quantified, it is inconclusive whether the property tax system adequately addresses these costs.
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