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Application of income approach valuation method concerning Oklahoma wind energy projects

Dockrey, DaLacy
There are three generally accepted property valuation approaches for wind energy projects: the income approach, market approach, and cost approach. In Oklahoma, counties typically use the cost approach set forth by the Oklahoma Tax Commission's (OTC) Oklahoma Business Personal Property Valuation Schedule to assess the value of wind turbines over time and apply applicable deprecation rates. Counties use the OTC schedule due to widespread participation in the law creating the Oklahoma Reimbursement Fund (ORF) which pays the ad valorem taxes for wind projects for the first five years of existence. However, now that most wind projects have aged out of the ORF program, counties have defaulted to use the OTC's schedule. While the OTC schedule is not binding, most assessors follow it because of the complexity of the income approach and the lack of comparative information for the market approach. Among Oklahoma county assessors, there is not a consensus on the proper methodology for valuing wind energy projects; however, there is a desire to explore every possible option (5). The income and market valuation approaches, while more challenging to conduct, are both options that could increase assessor's overall ability to assess the value of wind projects. My thesis explores how the income approach for wind project valuations could stand to increase or decrease county tax revenue that funds public services within wind dense counties. I analyzed the FPL Energy Cowboy Wind project within Custer County, and while the evidence supports using the OTC cost schedule, I was able to determine which variables would impact the study differently. The results of my thesis reinforced that every wind project must be evaluated on per project basis with proprietary information supplied by wind energy company's if they should choose to use the income method.