Affirming BTA’s Discretion in “Battles of Appraisals”
Rover Pipeline, L.L.C. v. Harris (2025-Ohio-2806) and the New Guide-Post Valuation Rule for Public-Utility Property

Introduction

The Supreme Court of Ohio’s August 13, 2025 decision in Rover Pipeline, L.L.C. v. Harris settles a high-stakes dispute over the taxable “true value” of a 700-mile interstate natural-gas pipeline. Appellant Rover Pipeline challenged the Board of Tax Appeals’ (BTA) reliance on an appraisal sponsored by the Tax Commissioner after the BTA rejected Rover’s substantially lower valuation. The Supreme Court unanimously (Fischer, J.) affirmed the BTA, providing important clarification on four key issues:

1. How much leeway the BTA possesses when confronted with competing appraisals (“battle of appraisals”).
2. The legitimacy of using indirect equity transactions—here, Blackstone’s minority investment—as market “guideposts.”
3. The treatment of “cost overruns,” regulatory delays, and alleged functional obsolescence within the cost approach.
4. The scope of judicial review and the non-requirement that an adopted appraisal be flawless.

Beyond resolving the parties’ $2 billion valuation gap, the judgment cements a flexible “guide-post” framework under which the BTA may triangulate true value from multiple sources (actual costs, market transactions, income projections) without being shackled to any single method or formula.

Summary of the Judgment

• The Court affirmed the BTA’s order instructing the Tax Commissioner to assess Rover’s Ohio property at $3.669 billion (88 % of true value).
• Applying abuse-of-discretion review for factual determinations, the Court held that:
  • The BTA acted within its “wide discretion” in preferring the Tax Commissioner’s expert (Brent Eyre) over Rover’s (Robert Reilly).
  • Considering the 2017 Blackstone transaction as a “floor with an upward range” was reasonable and consistent with Columbus City Schools v. Franklin Cty. BOR (“Palmer House”).
  • Eyre’s cost approach properly incorporated actual construction costs—including weather-related and environmental expenditures—because Rover’s contingency budgeting was atypically low.
  • Obsolescence was adequately captured through regulatory depreciation; a separate deduction was not required by law.
• All four propositions of law advanced by Rover were rejected.

Analysis

1. Precedents Cited and Their Influence

• R.C. 5727.10 & 5727.11 – Set statutory anchor requiring public-utility property to be assessed at “true value in money,” ordinarily via historical cost less depreciation, unless another method is needed.
• Youngstown Sheet & Tube, 66 Ohio St.2d 398 (1981) – The Court reiterated that it will not “bind the BTA to a particular method of valuation,” preserving BTA discretion.
• Texas Eastern Transmission Corp. v. Tracy (1997) – Distinguished “statutory method” from “unit appraisal” and confirmed true value is a factual question; cited to show valuation method flexibility.
• Salem Medical Arts (1998) & Gahanna-Jefferson (2000) – Addressed use of entity sales for real-property valuation. Court clarified they are not “iron rules”; context matters.
• Columbus City Schools v. Franklin Cty. BOR (2020) – “Palmer House” – Allowed the BTA to rely on an entity transfer where evidence showed the purchase price essentially targeted the real estate. Formed the doctrinal bridge for using Blackstone’s equity purchase as a value guidepost.
• Arbors East RE (2018) – Distinction between business value and real-estate value; cited to show why the pipeline, unlike a nursing home, generates a single stream of income tied to its physical plant.

2. Court’s Legal Reasoning

1. Standard of Review – Factual findings are reviewed for abuse of discretion; legal issues de novo. Because valuation is “quintessentially factual,” deference to the BTA dominates.
2. Going-Concern vs. Property Value
   • The Court rejected Rover’s claim that Eyre’s “going-concern” language converted a property appraisal into a business valuation. The unit appraisal conceptually treats integrated assets as a whole, yet still isolates value attributable to tangible property.
   • No specific “intangible enhancement” dollars were identified; therefore no reversible error.
3. Perpetual Cash-Flow Assumption
   • Rover argued a 30-year life cap. The Court declined to impose “rigid methodological strictures,” emphasizing the BTA’s prerogative to accept perpetual DCF so long as supported by evidence.
4. Cost Approach & “Cost Overruns”
   • Contingency budgeting was scrutinised. Evidence showed Rover budgeted only 1.3 % contingency, far below industry norms (10-50 %). Thus “overruns” reflected foreseeable costs a rational buyer would anticipate.
   • Functional obsolescence concerns were dismissed: weather and regulatory events are external, not design defects; FERC-based depreciation already captured any obsolescence.
5. Blackstone Transaction as Guide-Post
   • Even though Blackstone bought an indirect 32.435 % interest, evidence showed the pipeline was the venture’s “overwhelming asset.”
   • Minority, illiquid interests trade at discounts; thus $1.51 billion purchase price implies a floor (~$4.66 billion) for the pipeline’s value.
   • Improvements between July 2017 and the Dec 31 2018 lien date justified an upward range; therefore the transaction could not be a ceiling.
6. Imperfect But Admissible Appraisal
   • The Court refused to vacate merely because Eyre did not model every nuance (e.g., explicit obsolescence line item or full Blackstone write-up). Valuation is an art; perfection is not required.

3. Anticipated Impact

• BTA Latitude Cemented – Future litigants will find it harder to overturn BTA valuations unless they can demonstrate methodological illegality, not just competing expert opinions.
• Guide-Post Doctrine – Indirect equity trades, partial interests, and other “non-traditional” market signals may now be marshalled as credible value benchmarks, widening the evidentiary palette.
• Cost Overrun Treatment – Developers of utility infrastructure must anticipate that actual, fully capitalised costs—even if driven by weather or regulatory events—may be treated as intrinsic to replacement cost.
• Functional Obsolescence Arguments Narrowed – Taxpayers bear the burden to isolate genuine design-related obsolescence; external mishaps will not automatically reduce value.
• Utility-Rate & Tax Synergy – Reliance on FERC forms signals that regulatory accounting may bleed into state-tax valuation; utilities should align depreciation policies accordingly.

Complex Concepts Simplified

• Board of Tax Appeals (BTA) – An administrative tribunal that hears appeals from the Tax Commissioner and county boards of revision. It is not an assessor; it weighs evidence and determines value.
• Unit Appraisal – Values an integrated system (e.g., a pipeline network) as a single economic unit, then allocates the total value to the taxing jurisdiction.
• Cost Approach (Historical-Cost-Less-Depreciation) – Starts with book (original) cost, subtracts accumulated depreciation/obsolescence, adds allowances for construction work-in-progress and supplies.
• Income Approach / Discounted Cash Flow (DCF) – Projects future net cash flows and discounts them to present value using a required rate of return. A “terminal value” often represents cash flows beyond the explicit forecast horizon.
• Functional Obsolescence – Loss in value due to design shortcomings relative to current market standards (e.g., a factory with low ceiling heights). Distinguished from external or “economic” obsolescence (outside forces).
• Minority-Interest Discount – A price reduction reflecting lack of control and marketability when purchasing less than 50 % of an enterprise.
• “True Value in Money” – Ohio synonym for fair market value: the price a willing buyer would pay a willing seller in an arm’s-length transaction.

Conclusion

Rover Pipeline v. Harris marks a significant doctrinal refinement for Ohio tax jurisprudence. The Court reiterated that:

The BTA’s role is to weigh competing evidence and reach a reasonable valuation; courts will not “second-guess” that determination absent clear abuse.

Key takeaways are:

1. The BTA may freely select among appraisal methods—and mix them—so long as its choice is tethered to record evidence.
2. Actual construction costs and indirect equity sales are legitimate valuation guideposts, even when those data require interpretive judgment.
3. Arguments predicated on business-value contamination, functional obsolescence, or appraisal imperfections must demonstrate concrete dollar distortions, not merely methodological preferences.
4. Public utilities should expect heightened scrutiny of contingency budgeting and should maintain detailed, transparent cost records—once capitalised on FERC books, costs may become tax-significant.

Ultimately, the “Guide-Post Valuation Rule” endorsed here—allowing the BTA to triangulate true value from cost, income, and market indicators without rigid hierarchies—will shape Ohio tax litigation in every arena where multi-billion-dollar infrastructure assets meet the property-tax roll.