The power plant in Bow was worth less than half of the amount the town used to calculate its tax bill, the New Hampshire Supreme Court ruled Thursday.
In a decision posted Thursday afternoon, the court affirmed a Merrimack County Superior Court judge’s ruling that Merrimack Station was worth less than $70 million in 2012 and 2013, and not $159 million, which the town used for tax purposes.
“The search for fair market value is ... akin to a snipe hunt carried on at midnight on a moonless landscape,” the decision read.
The state’s highest court ruled there was nothing wrong with the assessment methods of the plant’s owner Eversource, previously known as Public Service of New Hampshire.
“Accordingly, we cannot say that the trial court erred by granting PSNH an abatement of taxes on its property in the town for tax years 2012 and 2013,” the decision says.
The case has stark implications for Bow taxpayers; according to various town estimates, Bow could owe Eversource a tax refund of at least $8.5 million. If Eversource decided to pursue differences in valuation for the 2014, 2015 and 2016 years, it could add even more to the amount the town will need to refund. By contrast, the town’s operating budget is about $10 million.
In preparation it might lose the case, the town has been setting aside money and has about $1 million saved up so far.
“We’ve been prepared for this possibility,” Bow select board chairman Harry Judd said.
But town officials have held back on details about exactly how much money has been set aside, and the decision to start saving it up.
While the town’s budget calculates expenditures in finite detail – even down to the cost of postage to send out tax bills to residents – the money the town has been collecting in taxes and saving to pay Eversource wasn’t approved by voters and doesn’t show up on town documents.
The money is not in a dedicated fund, Judd said.
“The selectmen decided that was the appropriate way to proceed,” he said, adding the town’s finances are audited each year.
In a December newsletter, Bow town manager David Stack wrote that most of the town’s 2017 property tax rate increase was due to the plant.
One quarter of the increase was related to the board’s decision to lower the plant’s assessment rate to match the $75 million sale price announced by the Public Utilities Commission in late November, Stack wrote.
The rest of the increase was attributed to a $1.2 million increase in the amount of funds raised for potential property tax abatements.
“Both of these actions were taken by the Board of Selectmen to help alleviate the total financial impact of the plant’s value change,” Stack wrote.
A statement from Eversource spokesman Martin Murray said the company was pleased with the court’s ruling and would be working with the town to decide the most appropriate way to implement the court’s decision.
“We pay our taxes in full and on time but have a responsibility to our customers to challenge those assessments we believe are excessive,” the statement read.
It’s also too early to say how the town will have to pay back its refund, Judd said, but he said the town has been in communication with Eversource prior to the decision and will continue to work on the issue.
“Until a few hours ago we had no certainty on this, whether we would prevail or not,” he said.
That newfound certainty is going to be a big challenge for the town’s budget committee, which was set to tackle the select board’s budget Thursday night.
“It’s a big deal – it’s a lot of money,” said budget committee chairman John Heise. “We’ve spent that money and now we have to give it back, and it’s not in our wallet.”
Heise said there had been previous discussions of what it would look like to bond the refund out over several years. He noted that paying it back in a shorter period of time could add thousands of dollars to a person’s tax bill.
Last year, Heise said during a public hearing on the school district’s budget that if the refund was due in one year the tax rate would spike $10.78 per $1,000 of assessed property value, or an additional $3,234 on the taxes for a home valued at $300,000.
Bow has the ability to ask the court to reconsider. Judd said the select board would have to make that decision, but said it was unlikely.
The ruling caps years of court battles between the town and Eversource. Superior Court Judge Richard McNamara ruled in October 2016 that the value of all Eversource property related to the plant was worth $66.6 million in 2012 and $67.4 million in 2013. The town valued the plant at $159 million when it sent the company a tax bill.
A year later, the two parties met again in the Supreme Court.
Bow attorney Paul Fitzgerald argued that valuing the plant’s property at its net book value rather than its fair market value was improper. He also argued that the value of the plant’s two combustion turbines, essentially generators used during peak periods and emergencies, are valuable because they generate additional revenue while running, despite Eversource’s characterization of the engine as “decrepit” and of zero value. He argued the turbines should be valued separately from the plant itself.
Another key point of Bow’s argument was Eversource’s decision to invest in a $422 million mercurial scrubber because it saw the plant as valuable.
But Eversource saw it differently, countering that the turbines, although they do create a revenue stream, have no independent value. They also said that the mercurial scrubber was necessary due to regulations at the time, and that the plant would have had to close if it wasn’t installed.
As of Wednesday, Merrimack Station is owned by Connecticut-based Granite Shore Power.
(Caitlin Andrews can be reached at 369-3309, can drews@cmonitor.com or on Twitter at @ActualCAndrews.)