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The Shepherds Flat wind farm near Arlington, Oregon received an extra $20 million in energy tax credits after staffers at the Energy Department allowed its owners to subdivide the wind farm into three separate projects on paper.
(Jamie Francis/The Oregonian)
Gov. Kate Brown on Thursday called for a broad review of how the Oregon Department of Energy is managing its energy tax credit program, saying the program was "not managed to the standard that Oregonians demand and deserve."
Brown acted after the Secretary of State's audit division found that the Energy Department appeared to be violating its own administrative rules and legislative intent by allowing recipients of energy tax credits to sell them to third parties at steep discounts.
The Department said Thursday that it would back away from efforts to pass permanent rules allowing such discounted sales and seek guidance from lawmakers.
The governor's move comes after years of controversy around the agency's lax administration of its energy incentive programs. Its missteps included a lack of due diligence on tax credit applications, and its staffers' willingness to bend the program's administrative rules to accommodate specific projects.
In a statement issued Thursday, Brown said the tax credit program was conceived with the best interests of the state in mind, but that the agency's "ability to advance its broader sustainability mission is hindered by the continued administration of and fallout from past BETC program decisions."
In her statement, Brown singled out the state's Business Energy Tax Credit program, which the Legislature finally sunset in 2014 due to its ballooning cost and ongoing administrative embarrassments. Yet the problems have continued unabated in its scaled down successor, the Energy Incentive Program.
State auditors launched an inquiry into the tax credit sales after receiving an anonymous tip that the agency was giving preferential treatment to sales brokered by a particular Portland firm, Blue Tree Strategies. They found no such preferential treatment, but in a letter to the department this week, said the department was effectively breaking its own administrative rules by allowing tax credit sales at lower prices than dictated by state rules. They also found that agency staffers had been providing conflicting advice bout such discounted transfers to tax credit recipients and brokers since 2012.
The department has said it began allowing such discounts because of ambiguities in the rules, and only after receiving legal advice from the Department of Justice allowing them. It has declined to release that advice to the media or lawmakers, citing attorney client privilege.
Oregon does allow recipients of energy tax credits to sell them for cash to a third party if they can't use them or are looking to raise cash to support their projects. But to limit the discounts on such sales and make sure taxpayers' money was going to support the desired energy projects, lawmakers in 2009 directed the Energy Department to develop a pricing formula and update the discount rate quarterly.
Earlier this year the department enacted temporary rules that effectively rescinded the formula and allowed parties to negotiate their own price. The temporary rules were retroactive to 2012, effectively covering up the discounted transactions that it previously allowed. The department now says it will back away from an ongoing rulemaking process that was intended to make those rules permanent and seek guidance from the Legislature.
In a response to the Secretary of State's inquiry, Energy Department Director Michael Kaplan said the tax credit program has been "besieged by problems" that "accumulated over years and are still being dealt with today, hopefully in ways that demonstrate put commitment to improving our practices and restoring our agency's credibility."
Brown said the Energy Department would begin working immediately with the Legislature to clarify how to deal with outstanding tax credits, improve their tracking and consistently communicate the rules to the public.
She acknowledged that those measures addressed only some of the issues with the program.
"My administration will engage with the Legislature to develop a process and devote the resources needed to finally finish the work to put the BETC program behind us so we can focus on other important energy and climate change policies in the future."
- Ted Sickinger
tsickinger@oregonian.com
503-221-8505; @tedsickinger