Elma gas plant property value drops by $52M

Agreement says costs of climate bill pushed down the value of largest taxpayer in Grays Harbor

In December 2023, a historic property tax adjustment delivered a blow to the value of a natural gas power plant near Elma, raising taxes of remaining property owners in the area and across the county.

The adjustment shrinks the value of the Grays Harbor Energy Center by a sum of more than $100 million for the next three years. The natural gas power plant, which sits on 20 acres of private land within the boundaries of the Satsop Business Park, is the most valuable property in Grays Harbor County, formerly set at $128 million.

The agreement, a memorandum of understanding, sets the plant’s 2024 taxable value for the next three years: a 40% decrease, to $76.5 million, this year and a 25% cut for two more years after that. The company cannot appeal again during that time.

Signed by the Grays Harbor County Assessor and the property owner, Grays Harbor Energy, the agreement states that the high costs of carbon credit purchases imposed by the state’s Climate Commitment Act substantially reduced the plant’s market value.

The deal marks the largest property tax adjustment in the history of Grays Harbor County and is unprecedented in the context of the Climate Commitment Act.

Opponents of the landmark bill hope voters will repeal it by voting in favor of a ballot initiative in November.

The legislation requires businesses that emit greenhouse gases to pay for pollution sent into the atmosphere. Under a cap-and-invest program, covered businesses purchase carbon allowances at auctions for pollution over a certain threshold. Auctions have brought in more than $2 billion for climate change projects so far.

The agreement states the Climate Commitment Act “imposed significant obligations on GHE (Grays Harbor Energy) which significantly impact GHE’s ability to do business.”

According to the agreement, carbon purchases acted in this case as “external obsolescence” — when a value depreciates because of some outside factor, not any change to the property itself.

Dan Lindgren, Grays Harbor County assessor, said the required costs for carbon make the business less profitable, which led to a diminished value of the power-producing equipment on the open market.

Metal combustion turbines, which turn burned natural gas into electricity are tied to the profitability of the power they create, Lindgren said.

“That equipment is meant for one purpose: to take natural gas and turn it into electricity. That’s it,” Lindgren said in an interview. “You can’t retrofit it to do something different. So, when the power generation plant business, or the natural gas power plant business, becomes no longer viable, those turbines, they’re scrap metal.”

Taxpayers in Grays Harbor County will pay higher property taxes because of the drop. Property owners closest to the plant will see the biggest impact.

In the most extreme example, the East Grays Harbor Fire and Rescue District, which contains the power plant, homeowners with a house worth $250,000 are paying $217 more per year on property taxes than they would have without the plant’s adjusted value, according to a calculation performed by the assessor’s office. The total levy rate in that district, $10.15 per $1,000 of assessed value, would have been $0.87 cents lower if not for the appeal.

“The tab has to be picked up by the remaining taxpayers in the district,” Lindgren said.

Property appeal and lawsuit vs. state filed in tandem

The effects of the agreement on taxpayers could have been much harsher.

When Grays Harbor Energy came to the county in 2022 with a tax value appeal, the company asked for a value of $18.5 million, a fraction of the previous value.

But after a year of negotiations between the assessor’s office, the company and its tax consultants, much of that value was retained. Lindgren said the company was “very honest and upfront with us” about how allowance purchases would affect its bottom line.

“I try to always do the right thing by the taxpayer and listen to whatever concerns they have,” Lindgren said. “When they have valid concerns like that, and valid reasons their value has been affected, we’re going to change that value.”

In the appeal, dated Dec. 16, 2022 — before the climate bill went into effect in 2023 — the company’s tax consultants estimated a $60 million yearly cost for carbon emissions, stating, “The property is the only gas-fired electric generation station in the state of Washington subject to these government mandated expenses, which provide no offsetting sales or profit benefits, and effectively eliminates any value for the plant on the open market due to the expectation the plant will no longer be profitable.”

The company used similar language when it sued the state over carbon allowances three days earlier. In federal court, the suit argued the climate bill was unconstitutional in discriminating against private owners of natural gas power plants, which are required to buy carbon allowances while natural gas utilities receive them for free.

A U.S. District Court judge threw out that argument, writing that the law did not unfairly target Grays Harbor Energy or its parent company, Chicago-based Invenergy, due to its out-of-state headquarters. The ruling distinguished Grays Harbor Energy as an “electrical generating station” separate from the state’s electrical utility companies with gas-fired industry.

The ruling was handed down the month before the deal was signed but after deliberations over the property tax appeal had already occurred. Lindgren said he was not aware of the judge’s ruling when the agreement was signed — it includes a stipulation that would return property values to normal if, for whatever reason, including the lawsuit, the company no longer had to pay carbon credits.

Lindgren said he felt it “seemed unfair” that the Grays Harbor Energy Center had been “singled out.”

Power-producing utilities in Washington are regulated by the state’s utility commission, which decides when power companies can raise rates. Grays Harbor Energy is not regulated by that same commission and sells power wholesale to customers and utilities across the country, running the plant when market conditions are profitable, according to court arguments submitted by the state.

Before the lawsuit, Invenergy unsuccessfully lobbied for an exemption from carbon purchases while lawmakers drafted the Climate Commitment Act, said former state Sen. Reuven Carlyle, a lead author of the bill and former chair of the Senate’s Environment, Energy and Technology Committee.

In an email, Carlyle said he viewed Invenergy’s property tax appeal as another attempt to avoid paying the costs of pollution, rather than a kink in the climate bill. He said he’s unaware of property value adjustments to other polluting properties.

“There is nothing in the Climate Commitment Act that meaningfully reduces the value of Invenergy’s facility,” Carlyle said in an email. “Invenergy’s story line is a made-up narrative constructed by PR folks, lawyers and lobbyists to reduce their property taxes to virtually nothing compared to fair market value. The state legislation requires covered entities that emit CO2 including Invenergy to cap their emissions and pay some of the cost of their own pollution to reinvest in local communities statewide. That’s it.”

Profit margins unclear

Under the Climate Commitment Act, which aims to put the state at net-zero emissions by 2050, the state is set to continually lower limits on greenhouse gases, and costs of pollution will grow, meaning companies that reduce emissions pay less, an incentive to invest in expensive carbon-reducing technology.

Invenergy did not respond when asked about whether it had invested in decarbonizing its natural gas plant in Elma. The company did not provide information when asked about how, specifically, carbon costs have affected its bottom line.

According to Lindgren, the assessor, Grays Harbor Energy provided data about income to the assessor’s office for the purposes of the appeal but was “unable to disclose that information to the public as it is proprietary information.”

Martin Grego, a spokesperson for Invenergy, provided a statement in response: “New market changes required an appropriate property tax adjustment for the Grays Harbor Energy Center which continues to operate as one of the most efficient power producers in the state.”

Invenergy operates 13 natural gas plants across the company, but wind, solar and thermal are the largest part of its portfolio.

The company announced in 2022 it had developed 30 gigawatts — 10 million homes worth — of clean energy, making it the “largest privately held global developer, owner and operator of sustainable energy solutions in the world.” It owns the largest solar project in the United States and the largest wind farm constructed in a single phase, according to the release.

Natural gas, which burns cleaner than coal, is necessary to support the clean energy transition, the company says.

The Grays Harbor Energy Center is Washington’s fourth-largest individual source of pollution, surpassed only by the coal-fired power plant TransAlta in Lewis County and oil refineries.

The company has participated in all five carbon auctions hosted by the state Department of Ecology, according to auction summaries. The agency does not publicize company-specific results from the auctions, but The Daily World obtained information about the first two auctions through a public records request through the county.

Grays Harbor Energy told the county in July 2023 it had purchased 779,000 carbon allowances between the first two auctions. Up to that point in the year, the plant had released 571,000 metric tons of carbon dioxide, equivalent to about 136,000 cars driving for one year, according to the Environmental Protection Agency’s emissions calculator.

Each allowance unit, which can also be purchased on secondary markets, is enough to offset one metric ton of greenhouse gas emissions. According to auction summaries from Ecology, carbon prices sold at $48.50 per metric ton in February and $56 in May of 2023, putting the expense for Grays Harbor Energy during the first two auctions somewhere between $37 million and $44 million.

At the state’s fifth and most recent auction in March, with Grays Harbor Energy continuing to participate, carbon prices dropped by half, to about $26 per unit.

By Nov. 1, companies must turn in allowances equal to 30% of their emissions from 2023.

Future factor in appraisals?

It’s unclear if costs of the Climate Commitment Act will factor into property values in the future elsewhere.

According to a March email from Department of Revenue Spokesperson Mikhail Carpenter, state appraisers began work Jan. 1 on property appraisals for 2024, which contain data from the previous year, the first year of carbon auctions. Carpenter said 2024 appraisals “may include information about CCA credit allowance payments.”

“Until our appraisal team has had an opportunity to see how CCA credit allowance payments are accounted for and work through them in the greater context of Washington’s property tax system, we cannot say with any certainty that they will or will not affect the appraised value,” he said. “If it does affect the value, it may be unique to the individual taxpayer’s situation and addressed on a case-by-case basis. To date we are not aware of any other Assessor adjusting market value prospectively via an MOU (Memorandum of Understanding).”

County assessors can request advisory appraisals on properties worth more than $25 million, though it’s up to the county to determine final values.

Lindgren had the Grays Harbor Energy Center appraised a few months before the plant appealed the final value. A state appraiser put the value between $97 million and $115 million.

Because the appraisal occurred in 2022, before carbon auctions began, Carpenter said, the department did not factor allowance purchases into the value. The company notified appraisers afterward about concerns that carbon costs would affect the plant’s value.

Lindgren said that even though Grays Harbor Energy did not pay into the carbon program until 2023, the power plant was affected by a “market stigma” after the Climate Commitment Act passed in 2021.

“Any potential buyer would be considering that considerable future cost in determining market value,” he said in an email.

Contact reporter Clayton Franke at 406-552-3917 or clayton.franke@thedailyworld.com.