Boston Gas Company, doing business as Key span Energy Delivery New England (company), made timely application to the board of assessors of Boston (assessors) for abatement of the tax imposed on its rate-regulated
The plaintiff filed a notice of appeal from the decision of the board, and we granted direct appellate review. On appeal, the plaintiff claims (1) the board lacked substantial evidence in support of its determination that a valuation method other than net book value was permissible, and that the board therefore erred in according equal weight to net book value and RCNLD; (2) the board lacked substantial evidence to support the analysis of earnings before interest, taxes, depreciation, and amortization (EBITDA) in the income capitalization approach for valuing the personal property; (3) the board erred in failing to use a tax factor to account for property taxes in the income capitalization
1. Background, a. The legal framework. City assessors are charged with making a “fair cash valuation” of property that is subject to taxation. G. L. c. 59, § 38. We have determined “fair cash value” to mean “fair market value,” or “the price an owner willing but not under compulsion to sell ought to receive from one willing but not under compulsion to buy.” Boston Gas Co. v. Assessors of Boston,
Various methods are used to value taxable utility property. These include (1) a determination of the property’s net book value, (2) an income capitalization valuation, (3) a sales comparison valuation, and (4) a determination of RCNLD.
The Department of Public Utilities (DPU) regulates the rates that gas companies charge to consumers. See G. L. c. 164, § 94. The net book value of regulated utility property, also known as the “rate base” value, plays an important role in the DPU’s calculation of the revenue that a regulated gas utility is permitted
In the context of a sale of utility assets, the DPU has maintained a general policy of limiting the net book value of the assets in the hands of the buyer to the existing net book value in the hands of the seller. See id. In this way, any acquisition premium paid for the assets — that is, an amount paid above net book value
As a result of this regulation, we have stated that the net
b. Facts. With this understanding of the legal framework for valuing regulated utility property, we turn to the facts of the present case. We recite the basic facts here, reserving a more detailed discussion of some of the facts for our subsequent analysis.
The personal property at issue consists primarily of the pipes, lines, and meters used to transport and monitor the distribution of natural gas to the company’s customers within the city. The pipes, or “mains,” represent about eighty percent of the value of the personal property. Approximately two-thirds of the mains are made of cast iron — a material used between 1850 and 1950 — and the remainder consists of steel, which was introduced in the 1930’s, and plastic, which was introduced by 1970.
The real property at issue is a parcel known as Commercial Point. The majority of the parcel is used as a liquid natural gas storage and distribution facility, and is improved with a 1.13 billion cubic foot storage tank, a cooling tower, a containment dike, and a monitoring and control building.
For fiscal year 2004, the assessors valued the personal property
At the hearing before the board, the assessors’ expert, George Sansoucy, presented his appraisal report for the personal property. He derived a value for the property based on three valuation methodologies: an income capitalization approach,
The board concluded that a number of factors justified the use of a valuation methodology other than net book value. Specifically, the board determined that (1) there has been a trend in Massachusetts regulatory policy away from a strict carry-over rate base valuation model; (2) the useful life of gas utility pipeline vastly exceeds its depreciable life,
Finally, with respect to the real property, the board determined that the appraisal evidence offered at the hearing was substantially flawed, and thus did not establish a sufficient basis on which to determine a value for the parcel that differed from the assessed value. As a result, the board concluded that the plaintiff had not met its burden of proof in challenging the assessment. As neither of the experts who testified on the matter provided a sufficient basis for valuing the parcel, the board did not address a dispute between the experts as to the size of the parcel or the portion of it that was “upland acreage.”
2. Discussion. A decision of the board will not be reversed or modified if it is based on substantial evidence and a correct application of the law. Koch v. Commissioner of Revenue,
a. Valuation of the personal property, i. Use of a valuation methodology other than net book value. The company asserts that the board erred in using an equal weighting of RCNLD and net book value in valuing the personal property, arguing that the board should have been limited to using net book value. To support this contention, the company maintains that the board’s stated reasons for departing from strict adherence to net book value were flawed.
First, the company claims that substantial evidence does not support the board’s findings that changes in the regulatory environment for utilities justified the use of a valuation method other than net book value. We do not agree.
In Boston Edison Co. v. Assessors of Boston,
The DPU formalized a shift in its policy with respect to the carry-over rate base principle in a 1994 order regarding mergers and acquisitions of utilities. See Guidelines & Standards for Acquisitions & Mergers, D.P.U. 93-167-A (1994) (Mergers & Acquisitions). There, the DPU stated that it would “no longer follow the practice of denying acquisition premium recovery on a per se basis,” id. at 18, concluding that “[mjerger proposals
This court acknowledged the DPU’s regulatory change in Stow Mun. Elec. Dep’t v. Department of Pub. Utils.,
Finally, in Attorney Gen. v. Department of Telecomm. & Energy,
These cases and DPU orders amply demonstrate the type of regulatory change anticipated in Boston Edison Co. v. Assessors of Watertown, supra at 305-306, justifying the use of a valuation methodology other than net book value. The DPU has declared its abandonment of a strict carry-over rate base policy, this court has repeatedly and recently acknowledged that policy change, and the DPU has, in practice, allowed the recovery of a premium in a utility merger.
The company contends that developments since the 1994 change in DPU policy in the Mergers & Acquisitions order have made it “less . . . likely” that a step-up in rate base would be allowed. The company acknowledges that the DPU has allowed recovery of an acquisition premium in a merger context but claims that the DPU has not allowed an increase in rate base value following an acquisition since the Mergers & Acquisitions order. Such an argument may speak to a diminished probability of a buyer earning a return on an acquisition premium, but factors bearing on valuation need not be certainties before the board may consider how they would manifest in a hypothetical sale. The company’s evidence does not rebut evidence of the DPU’s current practice of considering inclusion of premiums in the buyer’s rate base on a case-by-case basis. The evidence in the record warrants a finding that a potential buyer of the subject property could reasonably conclude that the DPU no longer fol
The company also disputes the board’s second reason for concluding that it was proper to rely on a valuation method other than net book value: evidence from prior transactions that utility assets in fact sold for more than net book value. The validity of the sales comparisons are relevant to the resolution of this case in two ways. First, as noted, they serve as a second reason cited by the board for departing from a strict adherence to net book value as the value of the subject property. Second, the assessors’ expert relied on such sales in each of his three valuation approaches, and the board ultimately credited the expert’s use of those sales in determining the value of the property. The company argues that the sales comparisons were flawed and, as a result, that they did not justify the use of a valuation method other than net book value. The company likewise maintains that the sales should not have been relied upon in estimating the value of the subject property.
At the hearing, the assessors’ expert, George Sansoucy, testified that he reviewed twenty-two sales of gas utility property in the United States over the preceding decade, and chose from among them six sales he thought most comparable to the utility property in the present case.
The company takes the position that the assessors’ expert had not in fact isolated the price paid for the utility assets. It alleges that in merely subtracting unrelated assets from the price paid for entire utility enterprises, the expert had attributed to the
To that end, the company presented evidence and testimony from Susan Tierney, an economic and regulatory consultant and former DPU commissioner. She described how the value of a utility enterprise as a whole may include sources of value other than the regulated utility assets. Sources of value beyond the utility assets could include, inter alia, intellectual property, brand name, management acumen, customer base, business relationships, and economies of scale. She also opined that, because utilities earn a return only on their rate base, a buyer of regulated utility property would not pay more for the property than the expected net book value, and that the “norm” of the carry-over rate base principle would restrict the willingness of a buyer to pay more than the seller’s existing net book value. Thus, she reasoned, the portion of the price paid that was in excess of net book value was for sources of value in the enterprise other than the regulated utility assets.
The company’s other relevant evidence came primarily in the testimony of Joseph Bodanza, who was the chief accounting officer and head of regulatory affairs for Keyspan Corporation in 2003, and who had been an executive with the company prior to Keyspan Corporation’s acquisition of the company’s parent, Eastern Enterprises. He testified that, with respect to the Eastern Enterprises acquisition of utility company Colonial Gas Company (Colonial Gas) (one of the six transactions analyzed by the assessors’ expert), the premium paid was projected to be offset by synergies from elimination of redundant staff and facilities, and
To counter the assertion by the company that any premium was necessarily paid for value other than the tangible assets, and thus to reinforce the analysis of its own expert, Sansoucy, the assessors presented evidence from an expert witness in public utilities. This expert discussed a prior series of utility transactions in Rhode Island, a State that he described as having a regulatory regime somewhat similar to that of Massachusetts.
In its decision, the board credited Tierney’s distinction between the value of rate-regulated utility property and the value of a broader business enterprise. The board found unsubstantiated, however, her insistence that any amount paid in excess of net book value was necessarily for enterprise value other than the utility assets. With respect to the potential intangible sources of value that Tierney had raised, the board noted that she could not recall an instance of a utility company owning intellectual
The board concluded that the company had not shown that the hypothetical sources of intangible value that Tierney had discussed were in fact present in the sales analyzed by the assessors’ expert, and noted also that the company did not present any expert testimony from a qualified appraiser of utility property who might have offered such evidence. With respect to Bodanza’s testimony, the board found that he had not broken out the components of value in the Eastern Enterprises acquisition, or the contribution of intangible value to the purchase price. The board also emphasized that Bodanza was neither presented nor qualified as an expert on the valuation of utility property, and that his testimony was accordingly of limited worth in determining the value of the subject assets.
By contrast, the board credited the assessors’ expert’s testimony as to the portions of prior sale premiums attributable to regulated utility assets, and credited the evidence from the Rhode Island transactions as to the minimal intangible value involved in regulated utility sales. The board accordingly found that a valuation method other than net book value was warranted in the present case, and that the methods of the assessors’ expert — including implicitly the sales comparisons upon which they rely — were sound.
In the present appeal, the company restates its contention that the analysis of prior sales failed to account for intangible assets, and argues that the board’s findings were thus unsupported and amounted to impermissible taxation of intangible value. As such, the company claims, the analysis of prior sales does not provide a legitimate justification for using a valuation methodology other than net book value. We disagree.
“Although the burden of establishing overvaluation is on the [company],. . . until there is some evidence offered by the assessors to show that, because of [special] circumstances, the relevance of rate base value is put in question,” the company is
Once the assessors put the exclusive use of net book value in question, the company could have prevented the use of methods other than net book value by rebutting the assessors’ evidence. See Tennessee Gas Pipeline Co. v. Assessors of Agawam,
ii. Substantiality of the evidence supporting the EBITDA analysis in the income capitalization approach. Although the board rested its final valuation on an equal weighting of net
To account for external obsolescence in the RCNLD approach, the expert simply decreased the RCNLD value to the value derived from the income capitalization approach. He reasoned that the income approach accounts for the effect of regulation and other external factors on the value of the property in a way that the RCNLD approach, before an external obsolescence adjustment, does not. He opined that the difference between the higher RCNLD value (before accounting for external obsolescence) and the lower income approach value was thus itself a measure of external obsolescence. Subtracting this difference from the RCNLD approach, of course, renders the value from the RCNLD approach equivalent to that of the income approach. It was this final RCNLD value that the board weighted equally with net book value to reach its final valuation.
We accord deference to the expertise of the board in its choice of an appropriate methodology for valuing the subject property. Here, the board gave weight to the assessors’ expert’s income capitalization approach for the purpose of estimating economic
In his analysis, the assessors’ expert first estimated the annual EBITDA attributable to the company’s subject property. He then capitalized this figure, using an “EBITDA multiplier,” to arrive at a valuation of the property.
Rather than capitalizing a single year of the company’s EBITDA from the subject property, the expert chose to “smooth” the EBITDA estimate by taking a seven-year sample of the company’s annual EBITDA figures. Those years were calendar years 1997 through 2003. The expert eliminated year 2000, the year for which there was the lowest EBITDA, for reasons that are not challenged by the company. He also eliminated year 2001, the year for which there was the second-lowest EBITDA, on account of the abnormal amounts of deferred income taxes and amortization expenses that were taken that year.
Because neither income taxes nor amortization expenses enter into EBITDA, the company alleges that the board provided no evidence upon which to exclude the 2001 figure. The board’s decision states only that the expert “removed 2001 because of discrepancies relating to depreciation and amortization.”
The company also objects to the inclusion of EBITDA from calendar year 2003, because those earnings were generated after the relevant assessment date of January 1, 2003. See G. L. c. 59, § 18 (establishing January 1 assessment date for personal property). The fact that the data arise after the relevant assessment date, standing alone, does not mean that they are per se excluded from the board’s consideration. Cf. Teele v. Boston,
In the present case, the 2003 figure was one of five data points used for the purpose of “smoothing” an annual EBITDA figure, so that evidence from before the assessment date formed the principal basis of valuation.
Finally, the company argues that the board erred in failing to adjust the expert’s EBITDA multiplier for an alleged error in his analysis. For the reasons outlined below, we remand this issue for consideration by the board.
As discussed, the EBITDA multiplier was calculated as an approximate average of the ratio of sale price to EBITDA in six prior sales. One of the six sales used was Keyspan Corporation’s acquisition of Eastern Enterprises in 2000. The expert’s report indicates that at the time of that sale, Colonial Gas was a subsidiary of Eastern Enterprises, and the expert testified that Colonial Gas had become a subsidiary of Eastern Enterprises in August of 1999. The company maintains that the expert erred in calculating the sales price to EBITDA ratio for that sale by using a sale price from 2000, which included the amount paid for Colonial Gas, while using an EBITDA from the end of 1998, which did not include Colonial Gas’s contribution to EBITDA. As a result, the company asserts that the expert’s sales price to EBITDA ratio was inflated.
The company cross-examined the expert in detail on the issue, introduced an exhibit showing the proposed recalculation, and noted the error in the post-hearing brief it submitted to the board. While the board recognized that the expert had made a similar error in his exclusion of Colonial Gas’s net book value from his ratio of sales to net book value — and made a correction for that error — the board made no findings with respect to the sales to EBITDA ratio, and indeed did not discuss the issue.
While the board is specifically exempted from the Massachusetts Administrative Procedure Act, G. L. c. 30A §§ 1, 11 (8), the board is nonetheless bound by “general principles affecting administrative decisions and judicial review of them.” Schlaiker v. Assessors of Great Barrington,
iii. Use of a tax factor in income capitalization. The company next claims that the board erred in adopting an income capitalization approach that did not utilize a “tax factor.” We remand the matter to the board for further findings and rulings.
As noted, the assessors’ expert’s income capitalization method took an average annual EBITDA figure for the company’s utility property, and capitalized that figure using an EBITDA multiplier to arrive at a valuation of the property. In calculating the company’s EBITDA figure for each of the years that were included in the average, the expert deducted the property tax expense actually incurred by the company.
The company asserts that the proper method to account for property taxes is not to deduct the tax expense from EBITDA, but to include a tax factor in the capitalization rate —■ or, in the present case, in the EBITDA multiplier.
We have discussed the use of a tax factor on a number of occasions. While we have never held that a tax factor is required in income capitalization analyses — and we do not so hold today — we have noted the board’s preference for the use of a tax factor in accounting for local real estate taxes, Assessors of Lynnfield v. New England Oyster House, Inc., supra at 700 n.2; we have discussed the logic underlying its use, id.; and we have addressed the appropriateness of the tax rate used in its application, Assessors of Lynn v. Shop-Lease Co., supra at 573. A tax factor is often used in income capitalization analyses before the board. See, e.g., Black Rock Golf Club, LLC vs. Assessors of Hingham, Mass. App. Tax Bd. Rep., Nos. F284357, F288545 (Mar. 1, 2010).
The company appropriately raised this issue, together with a proposed recalculation of the income capitalization valuation,
There may well be facts or methodological considerations in the present case that would justify the method used to account for property taxes in the income capitalization analysis. If so,
iv. Weight of the evidence and credibility of the witnesses. The company also asserts that the board made a number of errors in its weighing of the evidence introduced at trial. We conclude that these claims are without merit.
The company first claims that the board erred in finding that evidence of the assessed valuation of comparable utility property was not probative of the proper valuation of the company’s property. The evidence in question included the assessment of other gas utility property in the city at 1.07 times its net book value and evidence that the company’s utility property in other Massachusetts communities had only rarely been assessed at a value above its net book value. The board admitted this evidence at the hearing.
To support its claim, the company cites G. L. c. 5 8A, § 12B, which states that “[a]t any hearing relative to the assessed fair cash valuation or classification of property, evidence as to the fair cash valuation or classification of property at which assessors have assessed other property of a comparable nature or class shall be admissible.” As that statute speaks to the admissibility of evidence, rather than the board’s assessment of its weight, the statute is not a basis for relief here.
With respect to the evidence of assessments in other Massachusetts communities, the board described that evidence and noted in its decision that the testimony on that matter had been brief. Indeed, the testimony did not discuss any of the individual circumstances or other details of those assessments, or provide any other evidence in that regard. The board did not comment specifically on the evidence of Boston utility property valued at 1.07 times net book value, but indicated that the testimony was not helpful in valuation. We conclude that it was within the discretion of the board to determine the weight given to such evidence.
The company next argues that the board failed to address the impact on the income capitalization approach of a regulation mandating replacement of cast-iron mains. See 220 Code Mass.
In its findings of fact, the board recounted testimony regarding the regulatory requirement that cast-iron mains be replaced, and noted other expenses associated with the use of cast-iron mains. In its later assessment of excess operating expenses,
Finally, the company alleges that the board did not sufficiently take account of the fact that the expert had prepared a prior appraisal report that differed significantly in its valuation from the appraisal presented at the hearing. The specific redress requested by the company in this respect is somewhat unclear, but the company implies that the board should have found that the expert’s credibility had been undermined.
The board admitted the expert’s prior report as evidence, acknowledged the report in its decision, and ultimately decided that the appraisal presented by the expert at trial was credible. Where the board has reviewed such evidence in the record, we will not second-guess the board’s conclusions as to witness credibility. See Cummington School of the Arts, Inc. v. Assessors of Cummington,
b. Valuation of the real property. The company maintains that the board erred in ruling that there was insufficient evidence to determine the value of the real property. In this respect, the company cites several valuations proposed during the hearing on which the board could have drawn, and concludes that, given the board’s conclusions as to the personal property, consistency dictates that the real property “should be weighted at an appropriate ratio with [net book value].” We do not agree.
In an appeal before the board, the assessment is presumed valid until the taxpayer demonstrates its right to an abatement. Schlaiker v. Assessors of Great Barrington,
The board also heard testimony from two real estate appraisal experts — one offered by the company, the other by the assessors. The board found that the testimony of the company’s expert was of limited probative value because he appraised the land under the assumption that it was not rate-regulated utility property. He did so despite credited evidence from Tierney, and indeed despite his own determination, that the property’s highest and best use was its current use. The board similarly concluded that the assessors’ appraisal expert’s valuation “did not provide sufficient probative evidence” to establish the value of the real property. He valued the land on the assumption that it was vacant and available for development, an assumption that the board found at odds with the evidence that under no foreseeable circumstances would the property be used in any capacity other than its current use.
It was well within the discretion of the board to determine, on the basis of the evidence in the record, that the company had failed to demonstrate its right to an abatement. Having found no credible evidence on which to appraise the real property, the board also left undisturbed the parcel size used by the assessors, which had been a subject of disagreement between the parties’ experts. The board noted in this regard that neither of the parties had offered evidence from a registered land surveyor. This conclusion was likewise within the board’s discretion.
3. Conclusion. The board did not err in using a valuation method that equally weighted net book value and RCNLD.
We remand the matter to the board for further consideration, consistent with this opinion, of (1) its decision not to use a tax factor to account for property taxes in the income capitalization analysis; (2) its exclusion of 2001 EBITDA from the average EBITDA generated by the company’s personal property; and (3) the assessors’ expert’s alleged failure to account for Colonial Gas’s EBITDA in Keyspan Corporation’s acquisition of Eastern Enterprises.
So ordered.
Notes
As will be discussed in further detail, the Department of Public Utilities (DPU) regulates the rates that gas utilities charge to their consumers. See G. L. c. 164, § 94.
Boston Gas Company, doing business as Keyspan Energy Delivery New England (company), also sought abatements with respect to fiscal years 2005-2009. By agreement between the parties and the Appellate Tax Board (board), the fiscal year 2004 appeals were tried as a “test year” for adjudicating the relevant issues. The adjudication will provide guidance for the disposition of the remaining appeals.
The latter three methods are common methods of appraisal used beyond the context of regulated utility property. See Correia v. New Bedford Redevelopment Auth.,
The DPU has defined an acquisition premium in this context as “the difference between the purchase price paid by a utility to acquire plant that previously had been placed into service and the net depreciated cost of the acquired plant to the previous owner.” Guidelines & Standards for Acquisitions & Mergers, D.P.U. 93-167-A at 9 (1994).
The reasoning behind the regulatory change circumstance is that if a buyer were allowed to earn a return on the premium paid, it would be willing to pay such a premium.
The income capitalization approach measures the present value of the future benefits of the property. See Appraisal of Real Estate, supra at 142. The specific method of income capitalization used in this case by the expert for the board of assessors of Boston (assessors) in this case, called direct capitalization, uses one year of the property’s income and converts it into a valuation of the property using a market-derived capitalization rate or income multiplier. See id.
The sales comparison approach “produces a value indication by comparing the subject property with similar (i.e., comparable) properties.” Appraisal of Real Estate, supra at 141.
The reproduction cost new less depreciation (RCNLD) approach is a type of “cost approach” in which, as applied here, one estimates the current cost of constructing a reproduction of the subject matter and then “subtract[s] the amount of depreciation (i.e., deterioration and obsolescence) in the structures from all causes.” Appraisal of Real Estate, supra at 142.
The “useful life” is “[t]he period of time over which a structure or a
The board’s finding that special circumstances argued against using net book value as the sole determinant of fair cash value applies to both the personal and real property appeals. Our review here of the board’s findings in that respect applies also to the real property.
The petition was authorized by G. L. c. 164, § 43. See Stow Mun. Elec. Dep’t v. Department of Pub. Utils.,
This measure is evidently very similar to net book value. The court did not discuss whether the measures are in fact identical.
At the time, and for the period between November, 1997, and April, 2007, the DPU was known as the Department of Telecommunications and Energy. See St. 1997, c. 164, § 186; St. 2007, c. 19, § 21.
In another DPU order, the department concluded that it would allow an acquiring company to seek recovery of its acquisition premium after a proposed merger. See Bay State Gas Co., D.T.E. 98-31 at 45 (1998). Recovery of the premium would be allowed if the company could show that the merger-related benefits were equal to or greater than the share of the premium proposed “to be included in base rates.” Id.
We also agree with the board that the DPU’s adoption of “performance-based rates” (PBR) could contribute to a buyer’s willingness to pay more than net book value for rate-regulated utility property. Under the PBR regime, a “cast off” rate of return is set in a given year, and the DPU sets a fixed annual upward inflation adjustment and a downward productivity adjustment to encourage more efficient operation. See Boston Gas Co. v. Department of Telecomm. & Energy,
One of those sales was the company’s acquisition of Eastern Enterprises, the prior owner of the utility assets at issue in this case.
The assessors sought to undermine these assertions in part by evidence that few in management were in fact retained.
Rhode Island was characterized as being less liberal than Massachusetts in the allowance of recovery of acquisition premiums.
The company did not dispute specifically a third reason given by the board for concluding that a valuation method other than net book value was warranted, namely, that the useful life of gas utility pipeline exceeds its depreciable life, so that the property has residual value in excess of net book value. As the board’s decision is supported by the reasons discussed, we do not address this third justification.
A stated reason given by the board for not relying on the income capitalization approach more directly was that it “is not typically used to estimate the value of special purpose property.” The board concluded that while the approach was “generally reliable,” it was “better suited as support for the value derived under the [RCNLD] approach rather than as the primary valuation methodology."
In the direct capitalization method used by the assessors’ expert, one capitalizes the earnings estimate by either dividing it by an appropriate capitalization rate, or multiplying it by an income factor. Appraisal of Real Estate, supra at 499. The expert’s EBITDA multiplier approach is presented as a form of the latter.
The board also states that the 2001 EBITDA figure was $24,556,000, while the range of values of the other five years included in the average was $31,323,000 to $40,432,000. The board does not state that this is why the figure was excluded.
It is notable also that the average EBITDA value with 2003 excluded — approximately $35.78 million — is very similar to the approximate EBITDA
Rates used in capitalization are the reciprocals of multipliers. Dividing annual income by a capitalization rate yields a valuation; multiplying annual income by an income multiplier achieves the same result. See Appraisal of Real Estate, supra at 516; id. at 499.
For example, a tax rate of $33.08 per $1,000 would first be expressed as a decimal (0.03308) and then added to the capitalization rate. The annual income would then be divided by this sum to determine the value of the property. See, e.g., Assessors of Brookline v. Buehler,
This problem may become more acute when the 2004 “test year” is applied to more recent years. The average EBITDA calculated by the assessors’ expert considered the six years prior to the assessment date. If he were to look to the six years prior to fiscal year 2009, for example, nearly all of the tax expenses that would be deducted from EBITDA in those years would be a result of the assessments challenged in this case.
Should the board utilize a tax factor on remand, the question whether the company’s specific figures and calculations should be adopted is a matter for the board.
Part of the assessors’ expert’s RCNLD approach accounts for the fact that, if reconstructed new today, the system would be composed of plastic pipe rather than cast iron or steel pipe. The excess operating costs are those associated with the operation and maintenance of a system composed of these older materials.
The board also decided to average the final RCNLD figure with net book value, in part, to account for the “contemporaneous regulatory environment,” although the board’s primary focus in that respect appears to have been on changes to the carry-over rate base principle.
The board noted that the record did not reflect the precise excess operating costs incurred by the company in the city of Boston.
In an appraisal, the “highest and best use” of property is “the reasonably probable and legal use of vacant land or an improved property that is legally permissible, physically possible, appropriately supported, financially feasible, and that results in the highest value.” Appraisal of Real Estate, supra at 278.