Rebuttal to the Louisiana Assessors Associations Proposed Revisions

Rebuttal to the Louisiana Assessors’ Association’s Proposed Revisions to 2011 LTC Rules and Regulations Chapter 13 – Pipelines (local assessed) by Louisiana Oil and Gas Association and Louisiana Mid-Continent Oil and Gas Association July 20, 2010 Information included in this presentation is the same as submitted in writing July 9, 2010 to the Louisiana Tax Commission. This presentation is prepared only to facilitate the verbal rebuttal on July 20, 2010 as indicated in the LTC Docket Number RR-2011, Notice of Hearing. 1

Table 1307. C – Physical Depreciation _____________________ • Statement of Issue: – We are objecting to the proposed depreciation schedule submitted by the Louisiana Assessors Association (LAA) to value locally assessed pipelines as stated in Table 1307 C. • 35 Year Life – 2. 0% Annual Depreciation rate • 30% floor rate • The effect of this Proposal would be 50% increase in pipe value and at least a 64. 3% increase in the value of older pipe. • Recommendation: – We propose that the Louisiana Tax Commission use the Marshall Valuation Manual 26. 5 Year Economic Life with a 20 % Floor as per the LTC proposal for the 2011 Rules and Regulations for Chapter 13. 2

Table 1307. C – Physical Depreciation ____________________ • What Type of Pipe Are We Depreciating? Ø Intrastate • • Typically smaller diameter pipe Locally assessed with fewer regulations Tied to production fields Current Depreciation Schedule (Intrastate Pipelines) • • 26. 5 Year Economic Life – Marshall Valuation Manual 20% floor rate – floor’s in year 22 3

Table 1307. C – Physical Depreciation _____________________ • A 35 year economic life (2. 0% depreciation rate) is not appropriate for locally assessed gathering/transmission pipeline. • FERC Interstate Pipelines - Longer economic life • • FERC regulated with longer economic lives. These are larger diameter lines that carry gas to local distribution systems for the end user market. Gas is not allowed in the Interstate pipeline system that does not meet FERC regulations, mainly the content of the NGL’s. Local Intrastate Pipelines - Shorter economic life • • Not regulated by FERC. Typically smaller diameter pipe in local areas, connecting individual facilities to larger diameter lines. Exposed to corrosive impurities that are being transported. Dependent on productive life of their particular gas field. 4

Table 1307. C – Physical Depreciation ____________________ • A 30% salvage value is not appropriate for locally assessed gathering/transmission pipeline. • Intrastate pipeline salvage value “Reality” – – Intrastate pipelines are generally abandoned in place, rather than salvaged The overall cost to remove, re-condition line pipe and to restore the right-ofway usually makes it impractical to salvage intrastate pipelines. 5

Table 1307. C – Physical Depreciation 6

Table 1307. C – Physical Depreciation ____________________ • What do other States and well known valuation publications use? 7

Table 1307. C – 2011 Recommendations _____________________ • Use the Marshall Valuation Manual 26. 5 Year Economic Life with a 20 % Floor as proposed by the Louisiana Tax Commission. 8