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Texas Court of Appeals Confirms Power Generation Plants’ Eligibility for TCEQ Administered Tax Exemption

On July 11, the Texas Court of Appeals, Third District, at Austin, TX, decided the case of Freestone Power Generation, LLC, v. Texas Commission on Environmental Quality, et al., reversing the trial court’s ruling that eight Texas power companies were not entitled to certain property tax exemptions administered by the Texas Commission on Environmental Quality (TCEQ).

Appellants are power-generation plants that operate combined-cycle plants, as opposed to single-cycle plants. Combined-cycle facilities use heat recovery steam generators (HRSGs) to capture hot exhaust from a gas turbine and use the recovered heat to generate steam, which is then used to propel a steam generator that produces additional electricity. While HRSGs are used to produce electricity, Appellants contended that they also reduce pollution by reducing the amount of fossil fuel that must be burned to produce a given amount of electricity and the amount of emissions discharged into the air. Appellants sought property tax exemptions by applying for positive use determinations for HRSGs used in their power plants. Denying the Appellants an exemption for the HRSGs, the Executive Director of TCEQ’s (ED) issued negative use determinations, and TCEQ and the trial court upheld the ED’s determinations. The trial court upheld TCEQ’s “negative use determination” that rejected the companies’ applications for property tax exemptions for pollution control equipment.

Appellants argue that TCEQ had no statutory authority to issue negative use determinations for their HRSGs and that in issuing its order affirming the ED negative use determinations, it therefore exceeded its authority.

The Texas Legislature has amended the Tax Code several times to allow for property tax exemptions in appropriate cases, subject to the review and approval of the TCEQ. The Tax Code was recently amended to specifically include heat recovery steam generators as the kind of pollution control equipment that qualifies for the exemption.

In rejecting these applications, the Court of Appeals held that the TCEQ misconstrued the interplay of various sections of the Tax Code, and in so doing, abused its discretion. The judgment of the trial court was accordingly reversed.

Posted in: Tax