Energy Tax Law Alert: Oregon Governor Signs 2010 BETC Bill into Law
On Thursday, March 18, 2010, the Governor signed HB 3680, which makes substantive changes to the Business Energy Tax Credit (BETC) and delegates substantial new rulemaking authority to the Oregon Department of Energy (ODOE). The BETC is a state income tax credit designed to stimulate development of a wide range of renewable energy and conservation projects. For further background, see our client alerts of July 2, 2007
, February 27, 2008
, and November 5, 2009
HB 3680 curtails the BETC in a number of important respects. The law reflects concerns about continuing declines in state tax revenues, persistently high unemployment, and media reports that the cost of the BETC has not been adequately monitored, controlled, or disclosed.
Effective Date and Sunset: Most of the changes in HB 3680 apply retroactively to projects receiving preliminary certifications issued on or after July 1, 2009. HB 3680 generally contains tight sunset provisions, except in the case of manufacturing facilities. For a renewable energy resource equipment manufacturing facility, the taxpayer must receive preliminary certification before January 1, 2014. For any other facility, the taxpayer must receive final certification before July 1, 2012.
Statewide Caps: One of the most substantial changes is the imposition of aggregate statewide caps on the amount of project costs ODOE can preliminarily certify.
- In the case of facilities using or producing renewable energy,
- For the 2009-11 biennium a cap of $300 million is imposed; and
- For the fiscal year July 1, 2011 through June 30, 2012 a cap of $150 million is imposed.
- In the case of renewable resource equipment manufacturing facilities,
- For the 2009-11 biennium a cap of $200 million is imposed;
- For the 2011-13 biennium a cap of $200 million is imposed; and
- For the fiscal year July 1, 2013 through December 31, 2013 a cap of $50 million is imposed.
BETC Program Cost Controls: HB 3680 contains the following provisions designed to address concerns about the cost of the BETC program:
- For any wind facility with an installed capacity that exceeds 10MW and with respect to which preliminary certification is issued in 2010, the maximum amount of cost that can be precertified is reduced from $20 million to $7 million; for a facility obtaining preliminary precertification during 2011, the maximum is $5 million; and for a facility obtaining preliminary certification on or after January 1, 2012, the maximum is $3 million.
- HB 3680 eliminates the 10 percent allowance previously allowed for costs added between preliminary and final certification.
- Pursuant to HB 3680, a five-year BETC must now be claimed in the year ODOE receives a complete application for final certification, eliminating an applicant's ability to elect to claim a BETC in the year the facility was placed in service.
- For facilities using or producing renewable energy resources with certified costs in excess of $10 million that receive final certification after January 1, 2010, HB 3680 imposes a one-year waiting period for claiming the BETC.
Tiered Priority System in Future Rulemaking: The new law requires ODOE to develop a tier system to evaluate renewable energy facilities based on cost, applying "closer scrutiny" to higher-cost facilities. HB 3680 lists the following factors that ODOE may consider in developing rules to implement the statewide caps:
- Technology-specific energy production standards;
- Market sector;
- Delivery of energy into existing distribution and transmission network;
- Investment payback period;
- Expected lifespan of the facility;
- Potential for long-term viability;
- Environmental standards established by the director;
- Potential to create and sustain new jobs;
- Projected siting in a location that is geographically or socioeconomically advantageous;
- Demonstrated readiness to begin implementation;
- Amount and quality of energy generated;
- Strength of business plan;
- Provision of operations and maintenance data, with appropriate protections for trade secrets consistent with ORS chapter 192;
- Connection to existing infrastructure;
- Third-party review of the applicant's business plan; and
- Data related to projected return on investment.
It is not clear whether these rules can allow ODOE to apply the same factors for the general purpose of determining the amount of credit to allow for a particular facility up to the amount allowed by law.
Additional Grants of Authority to ODOE: HB 3680 grants ODOE the following authority (some of which ODOE already asserted through administrative rules), which generally is aimed at curtailing the BETC:
- To establish rules on what constitutes a "single facility," which affects determinations about issues such as the per facility caps on eligible costs and the one-year waiting period for claiming the credit, discussed below.
- To establish rules on renewable energy resource equipment manufacturing facilities, such as included and excluded property, phased development, expansions, and number of jobs created or maintained.
- To alter, condition, suspend, or revoke preliminary certifications based on lack of economic viability, prior imposition of civil penalties, or a determination that any officer or manager is "in arrears" for payments owed to any governmental agency.
- To deny final certification unless the applicant shows that it is able to provide information requested, and satisfy any conditions imposed, in connection with preliminary certification, relating to the criteria listed above.
- To revoke or suspend an already issued final certification if a facility is no longer operating.
- Limits are imposed on the time that ODOE has to make preliminary certification determinations for renewable energy facilities (six months for a facility with a cost of $6 million or more and 90 days for all other renewable energy facilities).
- A preliminary certification for a facility other than a manufacturing facility will be valid for three years, subject to two one-year extensions upon reapplication.
- HB 3680 also imposes additional application requirements, targeted at collecting data about the BETC.
- While most of the BETC provisions in HB 3680 are meant to cut back the BETC, HB 3680 does expand the program to include certain renewable energy storage devices and facilities that manufacture electric vehicles. HB 3680 imposes a dollar limit on the eligible costs of electric vehicle manufacturing facilities of $2.5 million per facility. In addition, the definition of "transportation facilities" is expanded to include efficient truck technology and related truck trailers.
ODOE is expected to engage in substantial rulemaking pursuant to the authority granted in HB 3860, starting with a March 30, 2010 meeting to discuss criteria to determine a "single facility," among other topics. Additional rulemaking is expected through at least June 2010 to implement ODOE's new authority under HB 3680, as well as the January 2010 increase in the "pass-through" rate, which determines the price that a buyer must pay for the BETC.
The 2012 sunset date for most kinds of facilities ensures that the BETC will be the subject of continuing legislative debate, at least in the session that will begin in January 2011, and possibly in any special session in early 2012.
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.