Actual Expenditures, Last Three Budgets, include funding sources: Actual Expenditures: 2011-13: $1,254,657 2013-15: $479,587 2015-17 (projected): $61,737 Funding Sources: Fees Number of FTEs: FTE: 2013: 4.9 2015: 1.7 2017 (projected): 0.2 ORS Authority ORS 469B.130-469B.171; 315.354-315.357 Legislatively-directed Purpose ORS 469B.133 outlines that in the interest of the public health, safety and welfare, it is the policy of the State of Oregon to encourage the conservation of electricity, petroleum and natural gas by providing tax relief for Oregon facilities that conserve energy resources or meet energy requirements through the use of renewable resources. 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 Business Energy Tax Credit Program (BETC) began in 1979 and sunset in July 2014. The program, which grew and evolved over time, was used to help Oregonians invest in energy conservation, renewable energy resources, rental weatherization, and cleaner transportation fuels. In the 35 years of the program s existence, ODOE certified 24,744 BETC projects that helped save energy, displace conventional energy sources, or generate renewable energy. 2. Describe how the program or function is administered. Include flowcharts, timelines, or other illustrations as necessary to describe agency policies and procedures. Generally, the process for issuing BETCs started with project developers submitting an application and fee for preliminary certification to the Oregon Department of Energy. Once the application was submitted, the agency would review it based on its technical merits and issue a precertification. At that point, developers could begin constructing a project. ODOE did not play a role in the construction phase. After project construction was complete, the applicant could apply for final certification of the project and project costs. ODOE again reviewed submitted materials, and if the project received certification, the applicant would receive a tax credit equal to a percentage of the certified costs, as dictated by statute. 1
Alternatively, the applicant could choose to transfer the tax credit to another entity in exchange for a cash payment. The payment amount was the net present value of the tax credit as prescribed by ODOE. 3. Provide a summary of key performance measures and other outcomes that convey the effectiveness and efficiency of this function or program. The agency has used many metrics to measure BETC s scope, but perhaps the simplest is to look at the volume of projects and dollar amounts of tax credits issued, as outlined below. Applications 34,537 Pre-Certifications 31,142 Final Certifications 24,744 Tax Credits Issued $1.332 billion Qualified Project Costs $3.238 billion Qualified project costs are not the same as total project costs; additional investments may very well have been higher, but the agency did not collect this information consistently from applicants. The chart below is another way of looking at the scale and scope of BETC over its 35 year history. $300 BETC Projects 5000 4500 $250 4000 $200 $150 3500 3000 2500 2000 $100 1500 $50 1000 500 $- 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Tax Credits Issued (millions) # of Applications Received # of Projects Finaled 0 2
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. BETC started in 1979. By 1984, the program was well established and relatively stable with annual program results that varied only slightly from 1984 through 2001. During that time, tax credits issued averaged $9.4 million per year, with the most tax credits issued in 1992 ($15.5 million) and the least in 1998 ($4.7 million). Prior to 2001, the program was relatively small, and limited options existed for transferring tax credits. In 1999, the Oregon Legislature removed the $40 million cap on total certified costs for all projects (SB 1264). In 2001, the Oregon Legislature revised the transfer provision to make it applicable to all BETC facilities (SB 521). These changes prompted steady growth of the program in both applications and in the dollar value of tax credits issued, with about $60 million in tax credits issued in both 2006 and 2007. These same years brought the housing crisis and the beginning of the collapse of the U.S. economy. The Oregon Legislature responded by initiating several economic stimulus packages, one of which was the expansion of BETC. In 2007, the Oregon Legislature increased the percentage of the incentive from 35% to 50%, and increased the maximum allowable project costs that could qualify for the tax credit to $20 million for renewables, co-generation, and renewable equipment manufacturing facilities (HB 3201). That year, the Legislature further expanded the program by increasing from three to five years the length of time for which preliminary certifications for renewable equipment manufacturing facilities were valid (HB 3619). Following these changes, BETC dramatically expanded in size, with nearly $180 million of tax credits issued in 2008. Between 2008 and the sunset of the program, for all projects that weren t granted an extended sunset, ODOE issued on average of about $154 million in tax credits per year. ODOE attempted to deal with the dramatic increase of applications by hiring new staff, as authorized by the Legislature. This included the hiring of the first compliance officers in July of 2010 as part of ODOE s approved 2010-2011 biennial budget. Range Period Years Avg. Annual Tax Credits Issued Total Tax Credits Issued 1980-1983 Beginning 4 $1.3 million $5 million 1984-2001 Stable period 18 $9.4 million $170 million 2002-2007 Steady growth 6 $38 million $229 million 2008-2012 Explosive growth 5 $171 million $853 million 2013-2014 Extended sunset 2 $38 million $75 million As a result of this explosive growth and the pending drain on the general fund, the Oregon Legislature restricted and then ended the BETC program. In 2009, the Oregon Legislature placed a January 1, 2012, sunset on BETC projects for gasoline-electric hybrid vehicles (HB 2078) and moved the sunset date for all other BETC projects from January 1, 2016, to January 1, 2012 (HB 2067). The following year, the Oregon Legislature placed caps on preliminary certifications that ODOE could issue; set up a tier system whereby ODOE could determine how to best allocate available tax credits based on project type and size; and moved the sunset date to January 1, 2014, for manufacturing projects and July 1, 2012, for other BETC projects (2010 HB 3680). In 2011, the Oregon Legislature moved administration of the Renewable Energy Resource Manufacturing projects to the Oregon Business Development Department (HB 2523) and moved the sunset of remaining 3
BETC projects to January 1, 2013. To remain eligible for BETC, projects were required to have filed for their pre-certification prior to April 15, 2011, and the pre-certification must have been issued by July 1, 2011. Additionally, projects that had begun construction prior to April 15, 2011, could apply to be exempt from the BETC sunset (HB 3672). Finally, in 2012, the Oregon Legislature set a July 1, 2014, date on which all outstanding preliminary BETC certifications would expire (HB 4079). All of the above hints at the challenges ODOE had managing BETC as it expanded. There is no question that BETC served as a significant driver of economic and clean energy development. BETC projects are found in every county in the state, and the associated dollar figures are significant. However, the program also had countless challenges, including but not limited to data management, inconsistent and frequently changing rules that staff did not keep up with, and an increase in volume and responsibilities that was challenging for a small agency to handle. The director will go into detail on these issues and more at the June 27, 2016, hearing. 5. Describe who or what this program or function affects. BETC benefited businesses, organizations, nonprofits, tribes, schools and public bodies that invested in energy conservation, renewable energy resources, rental weatherization and cleaner transportation fuels in Oregon. The program was utilized by many sectors, including commercial, agricultural, industrial and renewable energy the top 10 industries represented in the program are shown on the next page. Equipment vendors, engineering firms and the construction industry also benefitted from the added business due to eligible purchases and installations. 4
The program continues to affect the Oregon Department of Energy today, and directly contributes to ongoing challenges at the agency, including ODOE credibility and effectiveness. BETC has encountered numerous lawsuits over the years. The Oregon Department of Justice has an active investigation of a nearly $12 million tax credit that may have been allowed due to a fraudulent document. Additional, the Oregon Secretary of State s Office is overseeing a third-party forensic audit of BETC this summer. 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. This program has sunset, but during its operation, it was available to and heavily utilized by state, regional, and local governments, often in combination with federal incentives and with other ODOE programs, including the Small-Scale Energy Loan program. N/A 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. 5