42-14204

42-14204. Computing valuation of pipelines;
definitions

A. The valuation of pipeline property that is subject to valuation for tax purposes
shall be determined in the manner prescribed by this section.

B. The value of construction work in progress equals eighty-five per cent of the
amount spent and entered on the taxpayer's accounting records as of December 31 of the
preceding calendar year as construction work in progress.

C. The value of materials and supplies equals the total cost of materials and
supplies as of December 31 of the preceding calendar year.

D. The value of gas stored underground equals the total cost of gas stored
underground as of December 31 of the preceding calendar year.

E. The value of noncapitalized leased operating property shall be determined by
applying to the original cost of the noncapitalized leased operating property the ratio
derived from dividing the preliminary system value by the original cost of the plant.

F. The department shall determine the valuation of a pipeline as follows:

1. Determine the base value.

2. Compute the value change factor.

3. Multiply the values in paragraphs 1 and 2 of this subsection to compute the
preliminary system value. If the value change factor does not apply, the preliminary
system value is the system net book value of plant in service as of December 31
immediately preceding the current year.

4. Add the value of construction work in progress, materials and supplies,
noncapitalized leased operating property and gas stored underground to the preliminary
system value.

5. Compute the allocation factor.

6. Multiply the sum computed pursuant to paragraph 4 of this subsection by the
allocation factor.

G. All terms and applications of terms shall be interpreted as nearly as possible,
under the circumstances, according to the federal energy regulatory commission uniform
system of accounts for pipelines in effect on January 1, 1989.

H. In this section, unless the context otherwise requires:

1. "Allocation factor" means the factor used to assign a portion of the system
value to this state and is computed by dividing the total Arizona original cost of plant
in service, materials and supplies, construction work in progress, noncapitalized leased
operating property and gas stored underground as of December 31 of the preceding calendar
year by the corresponding total system original cost as of December 31 of the preceding
calendar year.

2. The "asset change factor" is computed by dividing the system net book value of
plant in service as of December 31 immediately preceding the current valuation year by
the system net book value of plant in service as of December 31 immediately preceding the
prior valuation year. If the denominator is zero, the asset change factor does not
apply.

3. The "base value" is the final full cash value of the system plant in service in
the preceding valuation year. If the property was not subject to property valuation in
this state in the preceding valuation year, the value is the net book value of plant in
service plus the value of construction work in progress, materials and supplies,
noncapitalized leased operating property and gas stored underground. If ownership
changes, the base value shall be transferred to the new owner.

4. The "capitalization rate" is the sum of the year-end thirty year treasury bond
rate plus 6.8 per cent.

5. The "change in capitalization rate" is computed by dividing the current year
capitalization rate by the previous year capitalization rate.

6. The "change in earnings before interest and taxes" is computed by dividing the
average earnings before interest and income taxes for the three years immediately
preceding the current valuation year by the average earnings before interest and income
taxes for the three years immediately preceding the previous valuation year. If less
than four years of earnings data are available, this factor does not apply. If four
years of earnings data are available and a major plant addition or retirement occurs, for
the valuation year after the addition or retirement occurs, this ratio shall be derived
by dividing the earnings before interest and income taxes for the year immediately
preceding the current valuation year by the earnings before interest and income taxes for
the year immediately preceding the previous valuation year.

7. "Construction work in progress" means the total of the balances of work orders
for plant in process of construction on the last day of the preceding calendar year.

8. "Gas stored underground" means the noncurrent portion of the cost of recoverable
gas that is purchased or produced by the utility, that is stored in depleted or partially
depleted gas or oil fields or other underground reservoirs and that is not held to meet
the service requirements of the utility's customers.

9. The "income change factor" is computed by dividing the change in earnings before
interest and taxes by the change in the capitalization rate. If the change in earnings
before interest and taxes does not apply, the income change factor does not apply.

10. "Major plant addition or retirement" means an addition or retirement of plant in
the year preceding the current valuation year that results in an increase or decrease of
at least twenty per cent of the original cost of plant in service.

11. "Noncapitalized leased operating property" means property that is subject to an
agreement that transfers the use of property to the lessee during the term of the lease
and that is not capitalized on the lessee's balance sheet.

12. "Preliminary system value" means the base value multiplied by the value change
factor.

13. "System net book value of plant" means the original cost of the system plant in
service less the related accumulated provision for depreciation.

14. "System value" means the sum of the system value of plant in service,
construction work in progress, materials and supplies, noncapitalized leased property and
gas stored underground.

15. The "value change factor" is the average of the income change factor and the
asset change factor. If the income change factor does not apply, the value change factor
is the asset change factor. If the asset change factor does not apply, the value change
factor does not apply.