Actual Expenditures, Last Three Budgets, include funding sources: Actual Expenditures: 2011-13: $450,666 2013-15: $685,017 2015-17 (projected): $803,010 Funding Sources: Fees collected from program applicants, ORS 469B.294 Number of FTEs: FTE: 2013: 2.6 2015: 3.6 2017 (projected): 3.4 ORS Authority ORS 469B.270 469B.306; 315.331 Legislatively-directed Purpose ORS 315.331 provides a tax credit for energy conservation projects up to 35 percent of the certified cost of the project. ORS 469.030 states that ODOE shall endeavor to utilize all public and private sources to inform and educate the public about energy problems and ways in which the public can conserve energy resources. ORS 469.010 outlines Oregon s goal to promote the efficient use of energy resources and to development permanently sustainable energy resources. 1 1. What is the objective of this program or function? Describe the major activities performed under this program. Explain why these functions are still needed. The Energy Conservation Tax Credit program promotes energy savings and market transformation by providing a tax credit of up to 35 percent of certified costs for businesses, organizations, public bodies, schools, nonprofits, and tribes that make a capital investment in energy efficient devices, measures, or upgrades that yields a simple payback period greater than three years. The conservation tax credit program is capped. It may issue no more than $28 million in tax credit preliminary certifications for any biennium, and no more than $7.5 million for the six months beginning July 1, 2017, and ending Dec. 31, 2017. The major activities performed under this program include ODOE issuing competitive and noncompetitive opportunity announcements for conservation projects to apply for a tax credit. Applications for projects are processed through several levels of review, and if successful result in a preliminary tax credit certificate. Once the project is complete and operational, ODOE reviews and may inspect the project prior to issuing the tax credit. Project owners may use the tax credit themselves or utilize the passthrough or transfer process administered by ODOE to sell the tax credit.
The energy conservation tax credit helps the state meet energy conservation goals. The Northwest Power and Conservation Council Plan finds that improved efficiency of electricity use is by far the lowest-cost and lowest-risk resource available to the region. The Council s plan states that cost-effective efficiency should be developed aggressively and on a consistent basis for the foreseeable future. Further, the plan states that in more than 90 percent of future conditions, cost-effective efficiency can meet all electricity load growth through 2030. Oregon has established similar goals to meet 100 percent of load growth in Oregon with energy conservation and efficiency. Incentives are a part of meeting increasing demand by influencing and accelerating customer buying and investment decisions. 2. Describe how the program or function is administered. Include flowcharts, timelines, or other illustrations as necessary to describe agency policies and procedures. ODOE divides the available $28 million per biennium in potential tax credit funding for the conservation program among competitively selected projects and non-competitive small premium projects. Small premium project opportunity announcements are for pre-qualified conservation projects with under $20,000 in qualifying cost. These projects reserve tax credits on a first-come, first served basis through a simplified application process in which basic project information is submitted. The simplified process is allowed the defined measures are well-understood and have a shorter timeframe to complete. Eligible projects include LED lighting, heat pump water heating, ductless heat pumps, and building envelope improvements. ODOE reserves tax credits based on the predetermined average cost of the device or measure. The applicant has one year to complete the project and submit a final application. ODOE reviews the final application and may inspect the project to ensure program compliance. If the final application is approved, the applicant will receive a tax credit based on the reserved amount but no more than 35 percent of the actual cost of the project. The tax credit is a one-year credit that may be claimed all in the first year. The other facet of the conservation program is for projects that apply for the tax credit though competitively selected opportunity announcements. These projects include commercial buildings, combined heat and power, renewable thermal and commercial agricultural and industrial processes. Under the competitive process, projects submit an application for preliminary certification, and ODOE performs a completeness review. Complete applications are scored and competitively ranked according to criteria in rule and the opportunity announcement. Based on available funding, the top ranked applications are moved into technical review. During the technical review, ODOE reviews the information provided in the application against industry standards to determine whether the project is technically feasible and should operate in accordance with the representations made by the applicant. If the project passes technical review, a preliminary certificate is issued for the project; it is valid for three years or until the sunset of the program. Preliminary certificates can be issued for no more than $10 million in certified cost. Once complete and operational, projects submit a final application. ODOE reviews the application and may inspect a project before issuing a tax credit up to 35 percent of the certified cost. The tax credit is taken over five years for projects over $20,000 in certified cost. For projects not exceeding $20,000 in certified cost, the tax credit may be claimed in one year. 2
Projects with certified cost of $1 million or more are also subject to a performance agreement as part of the final review and certification process. The performance agreement requires the recertification of the tax credit annually for up to three years after final certification to ensure project operation and performance. The applicant will only receive the entire value of the tax credit upon meeting the requirements of the performance agreement. All applicants pay fees set by rule during each point of the review process to cover the cost of administering the program. All projects issued a tax credit must remain in operation for at least five years. Through its compliance program, ODOE may inspect a project prior to issuing a final certificate or during the required five year period of operation. The department periodically leads rulemaking sessions for the program in order to collect stakeholder feedback and incorporate program improvements. Conservation tax credits are transferable and may be sold through the pass-through or transfer process at a present value rate set by ODOE. The present value rate is assigned based on the date ODOE receives the initial application for the conservation project. By rule, ODOE created the present value formula, which includes inflation projections and the market real rate of return. The formula is updated quarterly and posted on ODOE s website. ODOE does assist project owners in locating a partner for the pass-through process. An applicant pays fees associated with the service and processing to sell the tax credit. This program is scheduled to sunset December 31, 2017. ODOE may not issue tax credits for tax years beginning on or after January 1, 2018. 3. Provide a summary of key performance measures and other outcomes that convey the effectiveness and efficiency of this function or program. Small premium projects those projects under $20,000 in qualifying cost make up the bulk of the applications the department receives. Conservation, Percent Distribution of Applications (as of 6/17/16) Buildings Sustainable Systems Thermal Small Premium Projects 89% Processes CHP Small Premium Projects Education 3
Tax credit distribution since program inception: $12,000,000 Conservation, Total Tax Credits (as of 6/17/16) $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $- 2012 2013 2014 2015 2016 $ In-Progress $ Final Scope of program statewide: 4
4. Describe any important history regarding this program, including how the services or functions have changed from the original intent. Describe problems or lawsuits that have been encountered in this program. Oregon Laws 2011, chapter 730 (HB 3672), authorized ODOE to start issuing conservation tax credit certificates. To administer the program, ODOE adopted temporary rules in December 2011 and permanent rules June 2012. Applications were first accepted in 2012, with more than 1,000 applications received through 2015. These programs provide incentives for projects that include commercial buildings; renewable thermal; and commercial, agricultural and industrial processes. In 2011, HB 3627 also authorized eligibility for combined heat and power projects under the Conservation program, but delayed their eligibility until January 1, 2013. Oregon Laws 2012, chapter 45 (HB 4079), amended the program to set the present value rate at the time of the application for preliminary certification. Effective October 5, 2015, Oregon Laws 2015, chapter 545 (HB 2448) authorized the Oregon Department of Energy by rule to require the owner of an energy conservation project with certified total project costs of $1 million or more to enter into a performance agreement as part of the tax credit certification process. These project owners also must apply to recertify eligibility of the tax credit annual for three years following final certification to receive the full value of the tax credit. The performance agreement and recertification requirement ties the use of the tax credit to the energy performance of the conservation project. ODOE adopted permanent rules in March 2016 for performance agreements and the recertification requirement. To date, the program has encountered no lawsuits. Problems encountered include: Inaccurate present value rates provided on preliminary certificates; these rates have been corrected and applicants notified of their applicable rate. Conflicting information provided about transfer process and procedures. Applicants were sent a letter clarifying the requirements. Using predetermined tax credits for small premium projects without making adjustments when actual costs were lower. The review process has been changed to ensure that the tax credit is no more than 35 percent of the actual cost of the project. Process for how tax credits for less than 35 percent may be claimed has been improved. ODOE refers tax credit recipients to the Oregon Department of Revenue to answer these questions about claiming the credit. Implementation of the rectification requirement in relation to the program s sunset and transferability of the tax credit. 5. Describe who or what this program or function affects. The Conservation program serves businesses, organizations, public bodies, schools, nonprofits, and tribes that invest in energy efficiency or conservation projects at a business or residential rental property in Oregon. The tax credit program is utilized by many sectors, including commercial, agricultural, industrial, residential rental, and institutional facilities to initiate energy conservation projects. Equipment vendors, engineering firms, and the construction industry benefit from the added business due to eligible purchases and installations. 5
The Conservation program also positively affects the state by providing incentives for entities to choose energy efficient equipment. Benefits include economically stronger businesses that spend less money on a resource that generally comes from outside of Oregon, giving these businesses more ability to invest in other improvements or expansion locally. 6. If the program or function works with local, regional, other state agencies, or federal agencies, include a brief description of these entities and their relationship to the ODOE program or function. Please identify the roles assigned to each agency. The Energy Trust of Oregon is an independent nonprofit organization dedicated to providing customers of Portland General Electric, Pacific Power, NW Natural and Cascade Natural Gas with low-cost, clean energy solutions. Since the Conservation program and the Energy Trust programs in many areas are complementary, the Conservation program management and staff meet quarterly with the Energy Trust to ensure the coordination of conservation efforts in the state. The Northwest Power and Conservation Council s mission is to ensure, with public participation, an affordable and reliable energy system while enhancing fish and wildlife in the Columbia River Basin on a consistent basis for the foreseeable future. ODOE assists the Northwest Power and Conservation Council in its mission in developing the power plan. The Oregon Department of Revenue administers tax laws which also governs the issuance and claiming of tax credits. ODOE defers to the Oregon Department of Revenue when addressing issues of how the tax credit may be claimed. ODOE provides the Oregon Department of Revenue data on tax credits issued. 7. Explain if, and why, each of the key functions is most appropriately placed within ODOE, and how duplication with other related agencies is avoided. ODOE offers advice to businesses about all options to save energy. Businesses rely on ODOE for impartial expertise and one-on-one technical and financial analysis of potential energy savings projects. This function is appropriately placed within ODOE because the agency has the necessary energy technical expertise and can provide unbiased analysis. These services include energy loans, technical assistance, facility siting, and incentives. When combined, these resources provide a clearinghouse to inform and encourage conservation energy project development throughout the entire state. Without that synergy, the individual functions would be difficult to replicate. No other state agencies provide incentives for statewide conservation and energy efficiency projects. 6