AN BINSE LUACHÁLA
VALUATION TRIBUNAL
AN tACHT LUACHÁLA, 2001
VALUATION ACT, 2001

Independent Biomass Systems Ltd. APPELLANT
and
Commissioner of Valuation RESPONDENT

RE: Electricity Generating Station at Lot No. 15/36AC.38.46.51C(inc 9AB.16D)/2,
Derrigra, Teadies, Bandon, County Cork.

B E F O R E
John O'Donnell - Senior Counsel Chairperson
Leonie Reynolds - Barrister Member
Michael McWey - Valuer Member

JUDGMENT OF THE VALUATION TRIBUNAL
ISSUED ON THE 20TH DAY OF JULY, 2005

By Notice of Appeal dated the 12th day of April, 2005 the appellant appealed against the determination of the Commissioner of Valuation in fixing a rateable valuation of €600.00 on the above described relevant property.

The Grounds of Appeal are set out in a letter accompanying the Notice of Appeal a copy of which letter is contained in Appendix 1 to this judgment.

The appeal proceeded by way of an oral hearing which took place in the offices of the Valuation Tribunal, Ormond House, Ormond Quay Upper, Dublin 7 on the 13th June, 2005. The appellant was represented by Mr. Owen Hickey, BL., instructed by Mr. James O'Sullivan, Ronan Daly Jermyn Solicitors. Ms. Sheelagh O Buachalla, B.A., A.S.C.S., Mr Desmond Killen, F.R.I.C.S., F.R.C.S., I.R.R.V., and Mr. Pat Twomey, Financial Director also attended on behalf of the appellant. Mr. Colm MacEochaidh, BL., instructed by the Chief State Solicitor, represented the respondent. Ms. Elizabeth Murphy, BSc. (Hons) Real Estate Management and Dip. Auctioneering, Valuation and Estate Agency, a district valuer in the Valuation Office, also attended on behalf of the respondent.

Having taken the oath both valuers adopted their respective written submissions, which had previously been exchanged and received by the Tribunal as their evidence-in-chief. From the evidence so tendered and adduced the following facts largely not in dispute emerged as being those both relevant and material to the issues arising at this appeal.

Introduction
The property the subject matter of this appeal is located in the village of Enniskeen on the main Bandon to Bantry road in Cork. The property is a Combined Heat and Power (CHP) plant located in the grounds of Grainger Saw Mills Limited. It is used in conjunction with the sawmill. It is a standard steel framed building with cladded walls, incorporating a boiler room, turbine room and ash handling room. At the side is a single storey open-fronted steel framed metal decked building used for the storage of sawdust. The property in question is described as the first and only Biomass CHP plant as it is a wood-burning CHP plant rather than a solid fuel (i.e. gas or oil) CHP plant.

The main reason the plant in question was constructed was to enable Grainger Saw Mills (who are the in the saw-milling business) to utilise the raw material available to them to run a Biomass CHP plant. The project was funded by a BES scheme.

Valuation History
The subject premises was assessed for the first time on the 10th June 2004. A Valuation Certificate issued at that time proposed an RV of €1,000. Following representations to the Revision Officer an error was corrected and the RV was reduced to €843. This was then appealed. Following submissions made to the Revision Officer at first appeal stage the RV was reduced to €600.

The Issue
The central issue between the parties is whether or not the property is comparable to any other property on the valuation list. Section 49 of the Valuation Act, 2001 requires the value of a relevant property to be determined "by reference to the values, as appearing on the valuation list relating to the same rating authority area as that property is situate in, of other properties comparable to that property."

Broadly speaking, the contention of the appellant was that there were other comparable properties in the area (for which considerably lower RVs had been fixed). The respondent was of the view however that this property was in effect sui generis, being the first CHP plant which was utilising its own co-product to produce the energy in question.

The Appellant's Case
Mr. Pat Twomey, Financial Director, gave evidence on behalf of the appellant. He stated that he had become aware of a Biomass CHP plant in Finland. It provided heat and generated electricity. He indicated that the materials used by Grainger Saw Mills to run this CHP plant would in the past have been sold on in the market to other consumers. They invested €5.6 million in the plant in question. He acknowledged it was the first such plant in Ireland. The plant was awarded an Alternative Energy Requirement Contract by the Department of Energy, which is due to come through very shortly.

The family business of Grainger Saw Mills is of course saw-milling. The CHP plant uses the by-product; it also provides heat for kilns. It would also be regarded as being a "green" energy provider which might enhance the attractiveness of it as a property.
His view is that the CHP plant was not making money at present but that it might break even soon. He gave evidence as to the megawatts per hour generated by the plant and also indicated that it was not yet operating at full capacity but expected that it would be at in or about 90% within 3-4 months of the date of hearing.

In cross-examination he acknowledged there was another plant five miles away but contended that the only difference between the subject property and that plant was that that other plant used another kind of fuel. The bulk of the energy used by Grainger Saw Mills still comes from the ESB. He acknowledged there was no other Biomass CHP plant burning wood in Ireland. He did not accept however that the product used in the CHP plant was waste product. He claimed that he would have needed a waste disposal licence to dispose of this material were it waste. He acknowledged that the Carbery plant (which converts milk into cheese) produced a co-product called whey. This whey is then distilled and vodka is produced from it. It was suggested to him that the wood chippings and other wood materials used were a co-product or a by-product or a waste product of the main business of Grainger Saw Mills. He agreed that the product used by Carbery (whey) was not a by- or co-product of the end product produced by Carbery (i.e. vodka).

Mr. Des Killen, Valuer, then gave evidence. He had valued the Shannon Bridge and Lanesborough CHP plants. In his view there were numerous "electricity generating stations" throughout the country. These utilised a number of different products to generate electricity. These varied between oil, gas, coal, water (in a hydro-electric station) and wind. All such generating stations contribute electricity to the national grid. He went through his analysis of the Lanesborough and Edenderry stations. He valued these on the basis of the megawattage produced by each station. The Shannon Bridge station was also valued (on an agreed basis) on the megawattage produced. In all three cases the stations were peat burning stations.

Mr. Killen said that different fuels produced different types of efficiency. However the fact that one chose to burn one fuel rather than another fuel does not change the nature of the property; it is still a generating station. In his view there are some 20 properties designated as generating stations throughout the country. However the use of the type of fuel in each of these properties is irrelevant.
He further expressed the view that the contractor's method suggested by the respondent was a method of last resort. However he accepted that it was a recognised method. If however the contractor's method had been used, for example, at Lanesborough, a very significantly higher valuation would have been achieved. He believed the contractor's method in such circumstances would be unsafe.

On cross-examination he accepted that it appeared that the contractor's method of valuation had been used initially in the Edenderry property. Then the megawattage of that property had been compared with the output of Lanesborough. He also acknowledged that he was not familiar with any plant which used its own product to produce heat and electricity and had a need for heat for its own purposes.

He expressed the view that most CHP plants are located near an industry who can supply them with the raw product. Most such plants have an agreement with the national grid that electricity can be utilised by the industry in question though this is usually not a large amount of electricity.

He accepted that in the Carbery and Dairygold plants they did not use their own by-products or co-products to run the plants in question. However it was his view that the property was an electricity generating station. Indeed it was so described on the Valuation Certificate. He acknowledged that the ESB would buy back electricity from such a plant at a higher price than the appellant would normally have to pay for such electricity because the electricity had been produced in accordance with "green" eco-friendly principles. In re-examination he was asked whether the type of fuel used had any bearing on how a hypothetical tenant would view the property in question. His response was "No; the only issue is the rent which the tenant in question would pay".

Ms. Sheelagh O Buachalla then gave evidence. She adopted her précis. She said that this type of CHP plant is still in its infancy and high start-up costs are associated with it. She said that there was a difficulty in using the kind of fuel used by Grainger Saw Mills; such fuel had a large moisture content which had to be reduced. So by using this fuel such a user was likely to be competitively disadvantaged. It also appeared to be more capital intensive to use this kind of fuel as opposed to the other type of fuels used by CHP plants. She said that CHP plants are and should be analysed by looking at the electrical output rather than the thermal output, given that the plants in question were "electricity generating stations".

She then went through her comparisons. On cross-examination she acknowledged that in No.s 5 and 6 the contractor's method (sometimes referred to as the construction cost method of valuation) appears to have been used. She also acknowledged that a construction based method of valuation appears to have been used in the Dairygold model and that items 1-4 in her list of Comparisons, (see Appendix 2 to this judgment) were in a sense derivative of that model.

It was put to her that the key difference in this plant was that this plant used its own product to produce what its own plant needed (heat) and sold off electricity. She accepted that this was a distinction from any similar property elsewhere but said there will always be distinctions.

The Respondent's Case
Ms. Elizabeth Murphy, Valuer, gave evidence on behalf of the respondent. She agreed that it was preferable where possible to use what is described as a "tone of the list" basis. However she had no difficulty in using the contractor's basis where appropriate. She gave a reduction in RV of 25% because the financial investment in the CHP plant in question was extremely high as were the start-up costs. She accepted that this was a more expensive CHP plant to run than, for example, a gas turbine. She then analysed the comparisons put forward by Ms. O Buachalla. Her view is that items 5 and 6 had been in effect valued on a contractor's basis.

In cross-examination she agreed that the contractor's basis should be used as a method of valuation where there was no other method open to value property. She agreed that it was a method of last resort and should only be used where property cannot be satisfactorily valued by other means. She accepted that cost of construction does not necessarily equate with value. She asserted that the Lanesborough plant had been valued by reference to the Edenderry plant which had in turn been valued on a contractor's basis. She accepted that the capital cost involved in the instant plant would be as high as three times more than e.g. a gas powered CHP plant. However she expressed the view that this CHP plant was unique because it was burning its own product. She accepted that Bord Gáis based CHP plants might also use their own product. However she said that this plant was different because it was not burning a wasting resource.

She conceded that tenants do not generally care about capital cost. However she was of the view that a landlord would not rent a property for a low rent if he had incurred a high cost to build the property in the first place.

In her view the property was unique because it was specifically designed to use this type of fuel and also because it had a "green energy" element to it which made it more attractive to prospective tenants. She accepted however that the property could not be valued in conjunction with the property owned by Grainger Saw Mills. She also accepted the fact that the fuel was sourced from another property was irrelevant.

In her view gas, oil and other fuel-based CHP plants are valued now by megawattage output rather than by construction costs in most cases. However all comparisons prior to the coming into effect of the 2001 Act were in her view valued on a construction basis. After the passing of the 2001 Act a valuer could then use other comparisons. However when a unique property had to be considered it still had to be valued on a contractor's basis because there was no appropriate comparator.

Appellant's Legal Submissions
On behalf of the appellant Mr. Owen Hickey referred to Section 49 of the Valuation Act, 2001. That section requires the value of a relevant property to be determined "by reference to the values as appearing on the valuation list relating to the same rating authority area as that property is situate in, of other properties comparable to that property." This is sometimes referred to as the "tone of the list" basis of valuation. Mr. Hickey submitted that it was a matter of fact for the Tribunal to decide whether there are or are not comparable properties to the subject property situate in the same rating authority area.

Mr. Hickey submitted that there were undoubtedly comparable properties. They might not be identical or even ideal comparators. However he contended that the statutory duty of the respondent under Section 49 is to extrapolate and adjust from the array of comparable properties available in the relevant rating area.

In his submission the fact that the CHP plant in the instant case is wood-burning rather than gas or oil-burning is not sufficient to prevent it from being a property to which other properties in the same rating authority area are comparable. In his submission there were many comparable properties within the Cork area, which, while burning different fuels, were nonetheless comparable. By failing to compare the subject property with these properties, the appellant submitted, the respondent failed to comply with the mandatory requirement of Section 49 and he referred to the cases of VA04/1/054 - DID Electrical and VA01/1/055 - Banba Toymaster. In those cases it was suggested that the Commissioner of Valuation had arrived at his valuation in an ultra vires manner, in that he took evidence from outside the relevant rating authority area in which the subject property was situated.

Mr. Hickey contended that in the instant case following the DID Electrical and Banba Toymaster decision, the effect of non-compliance with Section 49(1) of the 2001 Act is to render the valuation issued by the Commissioner a nullity, thereby bringing the revision process to an end.

Respondent's Legal Submissions
On behalf of the respondent Mr. Colm MacEochaidh contended that the plant in question was the first Biomass Combined Heat and Power plant in Ireland; the nearest comparable plant being in Finland. The respondent acknowledged that the determination made by the respondent was based upon a contractor's basis of valuation; however he submitted that this accorded with the provisions of Section 50 of the Valuation Act, 2001. In addition such an approach is consistent with the approach taken by the Valuation Office in respect of this type of situation.

Section 50 of the Act provides that:

"If, in determining the net annual value of property or any part of it in accordance with section 48, a method of valuation relying on the notional cost of constructing or providing the property or part is used, then, notwithstanding sub-section (3) of that section, the net annual value of the property or part, for the purposes of that section, shall be an amount equal to 5 per cent of the aggregate of the replacement cost, depreciated where appropriate, of the property or part and the site value of the property or, as the case may be, part."

In his submission the contractor's basis of valuation produced the sum of €373,469.32 for construction costs and €2,999,256.90 for capital goods. A site value of €100,000 was presumed. The net annual value was determined to be €161,899.85 using a factor of 4.8%. The initial valuation of €800 was reduced by a factor of 25% to take account of the relatively high costs of the relevant property.

Mr. MacEochaidh said that the Valuation Office was entitled to use the contractor's basis of valuation under Section 50 rather than the "tone of the list" basis as provided for under Section 49. His contention in effect is that there are no properties comparable to the first mentioned property in the relevant rating area. In such a situation the Valuation Office was compelled to make a determination pursuant to Section 48(1) and employing the methodology provided in Section 50. Specifically, the respondent contended that the use of the waste product from the plant to produce the critical thermal energy required by the plant together with electricity available for sale to the national grid constitutes the characteristics of the property in question which make it unique. The plant is an example of the application of the principles of sustainability in industry and is the first of its kind in Ireland.

Mr. MacEochaidh further contended that the Valuation Office took account of special factors which would permit an allowance to be made in relation to the valuation and would ultimately reduce the valuation. Indeed he pointed to what was described as a generous allowance in the amount of 25% which was in effect built into the valuation in the instant case.

By way of summary Mr. MacEochaidh contended that:

(i) There were no comparable properties in the State.
(ii) The 25% allowance took full account of the cost disadvantages in supplying the relevant property.
(iii) Insofar as the plant is designed to burn large quantities of low calorific fuels in a location where such quantities are immediately available at lower cost and where there is a ready market for all end products and, significantly, where the burning of the fuel constitutes the disposal of waste from the plant itself, the plant is unique and should be so regarded.

The Law
Section 15 of the Valuation Act, 2001 directs that (subject to certain exceptions which are not relevant here) relevant properties shall be rateable. "Relevant property" is set out in Schedule 3 of the Act. At Clause 1, paragraph (m) of the Schedule it is provided that included within the definition of relevant property is:

"electricity generating stations, including where appropriate-

(i) all buildings and structures,
(ii) all tanks, including fuel oil tanks, water tanks and chemical tanks,
(iii) boilers, furnaces and ancillary fuel handling equipment,
(iv) cooling water inlet and outlet facilities, including pump-houses, culverts, pipe works, weirs and outfall works,
(v) natural gas installations,
(vi) effluent disposal works, including chimneys and treatment plant,
(vii) wind generators, turbines and generators, together with ancillary plant and electrical equipment, including transformers,
(viii) docks, cooling towers, embankments, canals (head race, tail race), locks, penstocks and surge tanks,
(ix) dams, weirs, bridges, jetties, railways, roads and reservoirs,
(x) all ancillary on site developments,
(xi) all electric lines."

In the circumstances all of the parties were agreed that the property the subject matter of this appeal is an "electricity generating station". Indeed the Valuation Office so described it in the Certificate. The property in question is within the area of Cork County Council which is the rating authority area relevant here. There are at least four other properties within the relevant rating authority area which can be said to fall also within the description of "electricity generating stations".

(i) Dairygold, Mitchelstown.
(ii) Dairygold, Mallow.
(iii) BV Power, Charleville.
(iv) Bord Gáis Eireann.

Specifically, it appears that there are Combined Heat and Power plants in the refinery at Whitegate (Transpower Limited) and Carbery Milk Products (C.M. Power Limited).

It would appear that the Bord Gáis Eireann plant at Midleton utilises gas as fuel in its electricity generation. It is true however that none of the other CHP plants use as fuel anything which might be regarded as a waste product, by-product or co-product of what is produced by the industry utilising the CHP plant. In this regard it appears that all other CHPs plants "import" (if that is the word) the fuel they utilise to run each of their CHP plants. Independent Biomass Systems Limited is different however in that it has the fuel on site, being the wood chippings from Grainger Saw Mills.

The Tribunal is satisfied that the comparisons referred to above do set a "tone". It is acknowledged that some of the valuations arrived at in respect of some of these plants were assessed on a contractor's basis. So, for example, the first Dairygold plant at Mitchelstown appears to have been assessed in 1998 on a contractor's basis under the Valuation Act, 1986. In this regard the real issue is whether or not these other properties constitute "comparable properties" for the purposes of the Valuation Act. If they do not constitute comparable properties then it seems to us that the Valuation Office is justified in using the contractor's basis for valuation. It has of course been said that the contractor's basis is a method of last resort. We note, however, that this implicit criticism is tempered in a guidance note issued by the British Valuation Office who advised (at page 16 of the note);

"…it is considered that if the contractor's basis is properly applied in accordance with the foregoing guidance, with the Valuer using appropriate professional judgment, it is an acceptable method of ascertaining the value of properties which cannot be satisfactorily valued by other means."

It does appear to us however that the Valuation Office in carrying out a valuation should at first at least explore the possibility of valuing the property by "other means" before utilising the contractor's basis. The first and most obvious way of doing this is to examine the values of comparable properties in the same rating area.

It seems to us that the distinction sought to be made here relates solely and exclusively to the nature of the fuel utilised by the subject property. It is submitted that because it is not necessary to "import" this fuel, the property is not comparable to other properties. It is also suggested that the fact that the subject property is in a sense both self-sufficient and "green" in that it utilises its own product as fuel rather than burning up or utilising other fuel, the subject property is different to the other CHPs in the area.

Having carefully considered the written submissions of the parties, as well as the written and oral legal submissions on the issue, the Tribunal is of the view that the nature of the fuel used by the subject property does not make it incapable of being compared to the other properties already referred to within the same rating area. It is undoubtedly true that the fuel used by the subject property is (in this jurisdiction at any rate) a somewhat unusual and distinctive characteristic of its operation. However it seems to us that insofar as the property's function is to provide both heat and power ("CHP") the nature of the fuel used to carry out this function is irrelevant. To put it another way, there is no basis for distinguishing this plant from other CHP plants simply because they "import" fuel. It is undoubtedly true that Independent Biomass Systems enjoys a close relationship with Grainger Saw Mills. But there is no guarantee that this will last forever. One could easily foresee a situation where Independent Biomass Systems would have to acquire the wood chippings in question from Grainger Saw Mills in circumstances where both entities had no relationship of any sort whatsoever. Further, if the Grainger Saw Mills were to close Independent Biomass Systems would be forced to source their fuel elsewhere. It is notable in this regard that both parties accept (correctly, in our view) that the subject plant must be valued separately and independently from Graingers Saw Mills property.

Further, the Tribunal notes that there appears to be a wide variety of fuel types utilised in electricity generating stations. These fuel types include gas, oil, coal, peat, water and wind. The fact that wood chippings have now been added to this list of fuel types does not in our view mean that the plant in question is so fundamentally different from other electricity generating stations as to require the Valuation Office to ignore other such properties in the area and to use the contractor's basis of valuation instead.

Determination
In our view the subject property is capable of being valued by reference to the values of other properties in the same rating authority area. Further, it is our view that properties such as items 1 to 4 in the appellant's booklet of comparisons are capable of being regarded as "comparable properties" within the meaning of the Act. In the circumstances we do not believe it is or was necessary for the Commissioner of Valuation to utilise the contractor's basis of valuation.

Valuation
The appellant contends that the failure of the respondent to utilise the provisions of Section 49 (the "tone of the list" basis of valuation) and the choosing instead by the Commissioner of Valuation of the contractor's basis set out in Section 50 of the Act means that the valuation reached by the respondent is a nullity and that the revision process in the instant case is at an end. In this regard he relies on the decisions in DID Electrical and Banba Toymaster. However it seems to us that those cases are distinguishable from the instant case. In those cases the Commissioner of Valuation took evidence from outside the relevant rating authority in which the property was situated. This was held to be a breach of the mandatory provisions of Section 49(1) of the Valuation Act, 2001. In the instant case however the position is different. In our view it is open to the Commissioner of Valuation to value the property again by examining comparable properties in the same rating area in accordance with Section 49 rather than utilising the contractor's basis of valuation. We believe it is open to the Tribunal to remit the matter back to the respondent so that the respondent may value the property in accordance with this determination. While it is correct that the appellant did put forward a suggestion as to the quantum of valuation based on a Section 49 "tone of the list" basis, the respondent did not deal with this, preferring instead to deal as a preliminary issue with whether or not the contractor's basis of valuation in the instant case was the correct one.

Having regard to our determination on this essentially preliminary legal issue, we direct that the matter be remitted to the respondent in order to allow the respondent to value the property in accordance with this determination. For these reasons the Tribunal expresses no view on the quantum of the valuation in respect of the subject property at this time. Should the parties be unable to agree a valuation in this regard the matter can be re-entered before the Valuation Tribunal to consider the issue of quantum.

And the Tribunal so determines.