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Last Updated: 8/3/2016

Assessment Methods

Determining Estimated Unit Value

The department estimates the unit value of all operating property used by a utility company which operates in Minnesota.  The unit value is the value of the entire utility’s operating property as a single unit.  We generally consider the cost, income, and stock and debt approaches to value.  

  • The cost approach to value original cost less depreciation of the system plant, plus the cost of improvements to the system plant, plus the original cost of all types of construction work in progress that are installed by the assessment date, plus the cost of property held for future use, plus the cost of contributions in aid of construction. Original cost less depreciation is presumed to be equal to historical cost less depreciation. For more information, see Minnesota Rules, chapter 8100.0300, subpart 3.  

  • The income approach converts future anticipated income into present value. It’s based on the assumption that investors will buy and sell property for its future expected income potential. That conversion process is called capitalization.  To calculate the income approach value, we use a weighted average of the net operating earnings of the utility company for the most recent three years. We then capitalize that average by applying the capitalization rate, which is computed using the band of investment method*. The band of investment method considers both equity and financing aspects.  It is a blending of the weighted rates for each aspect. For more information, see Minnesota Rules, chapter 8100.0300, subpart 4.  

  • We may use the stock and debt approach and other additional indicators of value. The stock and debt approach adds a company’s debt to the worth of its stock to establish its value. For more information, see Minnesota Rules, chapter 8100.0300, subpart 4a.   

Allocating Unit Value to Minnesota

After the unit value of the utility property has been estimated, we determine the portion of that value which is attributable to Minnesota based on an allocation formula which is specific to the type of utility being valued. For more information, see Minnesota Rules, chapter 8100.0400.   

Apportioning Minnesota Taxable Market Value to Parcels

Once we have determined the taxable Minnesota portion of the unit value, we distribute it among the various counties and taxing districts in which the company operates based on a percent of the current original cost of each parcel as a part of the total current original cost.  For more information, see Minnesota Rules, chapter 8100.0600. 


The apportioned property values must be equalized to coincide with the assessment levels of commercial and industrial property within each respective county receiving a share of the apportioned market value.  We do this by using a tax assessment-to-sales ratio our Property Tax Division computes every year.  For more information, see Minnesota Rules, chapter 8100.0700.

The commissioner certifies the equalized fair market value to the county auditor and assessor on or before August 1.  Corrections can be certified on or before October 1.  

View the statutes: M.S. 273.33 – M.S. 273.372
View the rules: M.R. 8100

*An example of the band of investment method

Capital Structure ​ ​ ​
Composite​ ​ Market Rate​ ​
​Debt 50%​ X​ 10%​  5%​
Equity​ 50%​ X​ 12%​   6% ​
​ ​ Capitalization Rate​ 11%