CITY OF MIDLAND TO FILE

MOTION FOR RECONSIDERATION IN MCV TAX APPEAL

While the City of Midland has received a Michigan Tax Tribunal ruling to refund taxes to Midland Cogeneration Venture (MCV), a Motion for Reconsideration will be filed with the Tribunal due to a property value miscalculation.

This Motion for Reconsideration will not affect a planned return of approximately $3.9 million to Midland taxpayers.

It will, however, allow for the correction of a tax assessment mistakenly allocated by the Tribunal to one of six parcels of land that make up the MCV property. Failure to fix the miscalculation could result in significant future tax losses to the City.

Midland taxpayers could see a tax return in the form of a 1.68 mills reduction in their 2004-2005 property tax bills.

City to File Motion for Reconsideration in MCV Tax Appeal

In thoroughly reviewing court documents issued in the MCV Tax Appeal decision, a misallocation of value was found that will cause the City of Midland to file a Motion for Reconsideration with the Michigan Tax Tribunal.

This motion will, hopefully, correct an error that could create future tax assessment concerns for MCV.

The misallocation has to do with the way tax assessments were allocated by the Tribunal to the six parcels of land that make up the MCV property. Misallocations ranging from $33 million to $45 million were discovered.

Not only is it important that the parcels reflect the accurate taxable value, but not correcting this error could create a scenario where the erroneous increase would be a violation of Proposal A and result in a significant tax loss to all taxing jurisdictions.

“We’re very pleased that our staff and attorneys have thoroughly reviewed these court documents and identified a problem that could have resulted in further complicating this issue,” said City Manager Karl Tomion.

Correction of this misallocation will not change the overall refund due MCV, but will assure that the taxable value of the six MCV parcels is correctly allocated.

Attorneys representing the City must file the Motion for Reconsideration by the close of business on February 6, 2004.

Decision to Appeal

The decision that was rendered by the Tribunal on January 23^rd only applies to the tax appeals submitted by MCV for the years 1997-2000. MCV has filed separate tax appeals for years 2001 through 2003. These appeals have been held in abeyance and there will be no litigation on these years until the current appeals for years 1997-2000 are resolved. The City anticipates that MCV will file an additional tax appeal for 2004.

An appeal of the decision handed down by Michigan Tax Tribunal Judge Victoria Enyart is being considered to resolve issues regarding future assessments and to avoid future litigation costs.

City officials estimate that appealing Judge Enyart’s decision could ultimately save millions of dollars in litigation fees that would be needed to cover the MCV tax appeals for years 2001-2003.

“The City remains hopeful that a negotiated settlement can be reached that would not only resolve the current appeals, but could also be applied to pending appeals and future assessments,” said City Manager Karl Tomion.

Tomion noted that “an appeal at this time would continue to place the 2001-2003 litigation in abeyance until the issue is resolved by either the Michigan Court of Appeals or a settlement between the City and MCV.”

“I have contacted MCV President and CEO James M. Kevra and have expressed the City’s desire to negotiate a resolution of the 2001- 2003 appeals so that all these matters can be concluded,” said Tomion. “The City does not desire to simply resolve the 1997-2000 appeals and start this expensive and time consuming process over again.”

Appealing now would provide MCV and the City time to negotiate a settlement. Without the appeal, the Midland taxing jurisdictions would be required to refund just over $36 million to MCV by mid-February. A negotiated settlement on the appeals in abeyance would provide MCV with a substantially larger refund.

Tomion said a settlement of this nature would provide MCV with an immediate resolution to its assessment concerns, both now and into the future, plus avoid additional court costs and legal fees for both the City and MCV.

“If we don’t appeal within the 21-day window following our Motion for Reconsideration, all appeal options would be lost,” said Tomion.

TES Filer City Station v Township of Filer

Tomion said that negotiating a settlement that resolves MCV’s present tax concerns and future assessments is the main reason for appealing at this time, but it is not the only reason.

Another consideration for appeal is the decision by the Michigan Tax Tribunal on similar litigation involving the TES Filer City Station Generating Facility in Filer City, Michigan. In that tax appeal case, the Tribunal ordered the taxpaying facility to pay approximately $1.2 million in additional taxes to Filer Township.

The Filer Township case is important to the Midland case because it affirms one of the valuation methods that the City of Midland used to appraise the MCV facility. This same valuation method was rejected by Judge Enyart in the MCV case.

In the Filer Township case, Michigan Tax Tribunal Judge Richard A. Southern ruled that TES Filer City Station’s power purchase agreement (PPA) was an “intangible value influencer” that must be considered in appraising the facility, a power plant similar to MCV. The City of Midland used the same approach to valuation in one of the two appraisal methods it used to appraise the MCV facility.

Like the MCV plant, the Filer City facility is a “qualified facility” under the Public Utility Regulatory Powers Act (PURPA).

In the MCV decision, Judge Enyart rejected the City of Midland’s PPA method of appraisal and criticized the City’s primary witness, Dr. Arthur Schoenwald, for using that approach.

Schoenwald’s appraisal considered MCV’s PPA and other contracts in valuing the facility by recognizing actual revenues that the owner and operator of the plant is receiving.

If the Court of Appeals were to affirm the decision of the Filer Township case and reversed Judge Enyart on that point, it would essentially establish that the MCV facility was substantially under-assessed by the City of Midland.

Citizens Will Still See A Refund

Even if the MCV tax appeal is not resolved by the time the City sets its 2004-05 tax rate in mid-May, the City of Midland still intends to return the balance of the tax appeal reserve fund to the citizens of Midland in the form of a millage rate reduction.

Since 1997, the City has levied an additional millage to reserve 80% - which was eventually decreased to 60% - of the potential refund due to MCV in a tax appeal reserve fund. Today that fund contains $13.56 million. In the MCV decision the City was ordered to pay MCV $9.65 million, leaving $3.9 million in the reserve fund that was set aside for MCV’s
1997-2000 tax appeals.

From the start of the MCV tax appeal, Midland City Council has promised to return any unused reserves to the citizens of Midland in the form of a millage rate reduction.

“We know this is a decision that the citizens of Midland have waited a long time for, and it is not our intention to put off this relief any longer,” said City Manager Karl Tomion.

“Throughout this case, Midland City Council has promised to return the unused portion of the tax appeal reserve to the citizens of Midland and it gives us great pleasure to finally be able to do that,” said Tomion.

Tomion explained that now that the Tribunal has determined what the City owes MCV in the case just decided, the reserve fund balance of $3.9 million - the equivalent of 1.68 mills - will be returned to the citizens in the form of a millage rate reduction. The amount ordered to be refunded to MCV will remain in the tax appeals reserve fund until the issue is completely resolved through negotiation or appeal.