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Oregon Legislature Hears Proposals To Modify The Business Energy Tax Credit

February 4, 2010
The 2010 special session of the Oregon Legislature began this week, and the House Revenue Committee wasted no time in holding a hearing on proposed revisions to the Business Energy Tax Credit ("BETC") that is available to projects in the conservation and recycling, renewable energy generation, and renewable energy manufacturing sectors. House Bill 3680, in its current format, proposes several significant changes to the BETC program.

Program Caps

Prior to July 1, 2009, the Department of Energy had pre-certified projects for about $220 million in BETC credits that have not yet been used. These projects would not lose their pre-certifications nor have the amount of awarded credits modified. However, HB 3680 would cap the overall program at $300 million, which means only $80 million in new credits would be available for projects pre-certified in the current biennium between July 1, 2009 and June 30, 2011. This prospective cap would have a significant impact on applications, given that the Department of Energy has predicted it will receive applications for over $1.1 billion in BETC credits during this time period.

Of these new credits, 10% would be allocated to projects seeking BETC credits under $500,000, 20% would be allocated to projects seeking credits between $500,000 and $3 million, and 70% would be allocated to projects seeking credits over $3 million. In this last category, the maximum credit for a single project would be reduced from $10 million to $3.5 million for a project certified in 2010, and to $2.5 million for a project pre-certified in 2011.

Regulatory Changes

Temporary emergency rules adopted by the Department of Energy on November 3, 2009 that govern the BETC application process would be made permanent and retroactively applicable to pre-certification applications filed after June 1, 2009. These rule changes have four primary effects.

First, they create a sliding scale of the information required for a BETC application, with less information being required for projects seeking credits under $500,000, more information required for projects in the $500,000 to $3 million range, and still more information required for projects over $3 million. Applications for projects in the smallest range can be submitted anytime, but applications in the middle range will only be accepted quarterly and applications in the top range will only be accepted biannually.

Second, under the prior rules BETC credits can be applied to Oregon tax liability over a 5-year period starting when the project receives final certification. The rule changes require projects in the over-$3 million category to wait a year after receiving final certification, so that for these projects, the BETC credit effectively becomes a 6-year credit with no credit available in the first year after final certification.

Third, and perhaps most importantly, the rules tighten up the rules with respect to phasing large projects, which some believe were previously abused to describe single projects as more than one project and thereby qualify for more BETC credits.

Fourth, the BETC is currently scheduled to sunset at the end of 2011. HB 3680 would extend the sunset date to the end of 2014, but only for renewable energy manufacturing projects.

Budgetary Impact and Industry Response

Under existing law, the predicted revenue impacts of the BETC program are $235 million in the 2009-2011 biennium and $374 million in the 2011-2013 biennium. The Revenue Committee's preliminary projections are that HB 3680 would reduce these impacts to $53 million in 2009-2011 and $97 million in 2011-2013.

Renewable energy advocates are cautiously optimistic about the decision not to retroactively apply changes to projects pre-certified in the previous biennium, and about the percentage allocations of new credits to small, medium and large projects. However, advocates fear that the reduction in the maximum credit amount from $10 million to $3.5 million in 2010 and to $2.5 million in 2011 are too drastic to keep the renewable energy generation industry growing in Oregon, and believe a more gradual reduction in benefits would better maintain Oregon's competitive advantage over other states for investment in this sector. Also, the industry is pressing to extend the sunset for all BETC programs to 2016, so as to enable businesses in these industries to have the confidence to engage in long-term investment planning in Oregon.

For further information about the BETC program, please contact David Petersen, Mark LeRoux, Gwen Griffith or Michael Millender.