Tax Law Alert: Oregon Department of Energy Issues New Rule Governing the BETC Pass-Through Rates
On January 8, 2010, the Oregon Department of Energy (ODOE) issued a final administrative rule and a news release relating to the Business Energy Tax Credit (BETC) "pass-through" rates. The BETC is a state income and excise tax incentive designed to stimulate a wide range of renewable energy and conservation projects. For a description of the BETC generally, and previous administrative rules, see previous client alerts on July 2, 2007, February 27, 2008 and November 5, 2009.
The BETC "pass-through option" was created in 1995 to stimulate investment in energy conservation, energy efficiency, and renewable energy. The pass-through option allows a renewable energy project developer or other person who is eligible for the BETC to sell the BETC for cash at a price determined by reference to a series of rates established by ODOE. The BETC owner benefits by getting cash for a tax credit it may not be able to use, and the purchaser of the BETC benefits by getting a tax credit at a discount. Previously, the pass-through rates were set by ODOE, without reference to a formula, based on the type and cost of the project. According to ODOE's news release, the resulting annual rate of return to the buyer of the BETC was 9.85 percent for all projects.
Pursuant to a 2009 legislative mandate, in November 2009 ODOE issued a proposed pass-through rate rule. That proposed rule would have created a single formula for all types of projects, resulting in an annual rate of return of 3.42 percent. The proposed rule also would have required that the pass-through rate be adjusted quarterly, and would have provided that the pass-through rate applicable to a particular project be the rate in effect at the time ODOE issued final certification for a project. If adopted, the proposed rule would have applied retroactively.
In response to a significant number of comments, the final pass-through rate rule applies only prospectively, to projects receiving original preliminary certification on or after January 1, 2010. The final rule creates three different formulas, the application of which depends on the type of project and nature of the project owner. According to ODOE's news release, a five-year BETC applied for by a public entity, a federally recognized Indian tribe, or the owner of renewable energy resource equipment manufacturing facility can be sold at a price that results in a preferential rate of return to the buyer of 7.16 percent, and a five-year BETC can be sold by other types of applicants at a price that results in an annual rate of return to the buyer of 4.29 percent. The final rule also creates a separate formula for one-year BETC applicants (generally projects with total costs of less than $20,000).
The new pass-through rate formulas are tied to five-year U.S. Treasury Note rates and the urban Consumer Price Index for the Western region. ODOE is required to review the formula each quarter. ODOE will not adjust the pass-through rate for any particular quarter, however, unless there is a change in either the two- or five-year Treasury Note rates of more than 1 percent. The pass-through rate for any particular project will be the pass-through rate on the date ODOE issues the initial preliminary certification for the project.
For projects that obtained original preliminary certification on or before December 31, 2009, the former pass-through rate will apply.
If you have further questions, please contact:
Stephen Hall at email@example.com or (503) 294-9625
Chris Heuer at firstname.lastname@example.org or (503) 294-9206
Robert Manicke at email@example.com or (503) 294-9664
Kevin Pearson at firstname.lastname@example.org or (503) 294-9622
Eric Kodesch at email@example.com or (503) 294-9684
Adam Kobos at firstname.lastname@example.org or (503) 294-9246
Elisabeth Shellan at email@example.com or (503) 294-9887
IRS Circular 230 notice: Any tax advice contained herein was not intended or written to be used, and cannot be used, by you or any other person (i) in promoting, marketing or recommending any transaction, plan or arrangement or (ii) for the purpose of avoiding penalties that may be imposed under federal tax law.