SALEM — Oregon energy officials have decided not to follow through on their plan to rewrite the rules for sales of energy tax credits, and Gov. Kate Brown says questions raised about the program are being addressed.
Both developments come in response to an audit by the Secretary of State’s Office that confirmed reporting by the EO Media Group/Pamplin Media Group Statehouse Bureau that raised questions about the pricing of those credits when sold to third parties.
Publicly, the Oregon Department of Energy has since March portrayed the proposal as a routine tweak to administrative rules.
However, interviews and public records revealed energy officials had allowed some companies and wealthy individuals to purchase the tax credits at deeper discounts than allowed under state price regulations, and the deals appeared to contradict the intent of lawmakers who wanted to prohibit the practice. The energy agency also gave a competitive advantage to tax credit brokers who knew they could ignore the state’s published price rules. The proposed rule change, which would eliminate tax credit price regulations going back to mid-2012, would retroactively legitimize these deals.
Pressure built in recent months for the energy agency to rethink the effort, as the Secretary of State’s Audits Division started to investigate and staff at the Oregon Legislature also sought to understand the reasons behind the proposal.
Last week, lawmakers called on the agency to abandon its plan to retroactively change the rules. Rep. Phil Barnhart, D-Springfield, is chairman of the House Committee on Revenue and said in testimony submitted to the Department of Energy that lawmakers wanted to prevent the deep discounts allowed by the agency’s chief financial officer Anthony Buckley.
“Unnecessarily large discounts on tax credit sales have frequently been noted as indicative of failure to get the best value for tax dollars, and we have therefore persistently focused on ways to restrict and reduce the low price sale of tax credits,” Barnhart wrote. “The conversations we’ve had and the statutes we’ve passed demonstrate clearly that we are interested in tax credit programs that do not give outsized payouts to private investors.”
In response to the audit, Energy Department Director Michael Kaplan wrote Thursday that the department would allow temporary rules to expire Sept. 18, and “revert to the previous rules until given direction otherwise by the Legislature.”
Brown said in a statement that it has “increasingly become clear, the Business Energy Tax Credit program, while developed with the best interests of the state in mind, was not managed to the standard that Oregonians demand and deserve.”
She said the administration would work with the Legislature to clarify the rules.
So far, however, there do not appear to be any repercussions for energy officials who allowed people to ignore tax credit price rules. The Department of Energy has not disciplined any employees for allowing people to disregard published price regulations, according to spokeswoman Rachel Wray.
Oregon issues tax credits as an incentive to renewable energy and efficiency projects to help offset capital costs. Recipients can use them to reduce taxes, or sell them to raise cash. Many tax credit recipients are governments and companies that do not owe state taxes, and a majority of business energy tax credits issued from 2006 to 2014 were sold to investors. The Department of Energy issued tax credits worth $968.1 million during that period, and recipients sold $703.6 million worth of those credits, according to an analysis of Department of Energy data by the EO Media Group/Pamplin Media Group Capital Bureau.
In an attempt to ensure the tax credits provide the maximum benefit for the projects they are supposed incentivize, the Legislature passed a law in 2009 that required the Department of Energy to develop formula to set the sales prices of credits. The proposal the Department of Energy abandoned Thursday would have eliminated the formula. The agency already adopted a temporary version of the rule change in March, and Buckley and agency director Michael Kaplan told energy employees to process negotiated price tax credit sales even before the temporary rule change because they planned to make it retroactive.
Kaplan acknowledged in an internal email in February he was also aware of earlier tax credit sales that violated state price regulations.
“This effective date will recognize past activities, but we are not certain at this time how far back this recognition will be,” Kaplan wrote in a Feb. 17, 2015, email to employees who oversee the tax credits. Kaplan wrote that he had asked Buckley to research how far back the retroactive rule change should extend.
However, Kaplan and other Department of Energy employees have been unwilling to identify which tax credits were sold for less than the required price. Kaplan did not respond to the EO Media Group/Pamplin Media Group Capital Bureau’s request for the results of Buckley’s research on the issue. Kaplan did acknowledge in an email that he knew since he was appointed acting director of the agency in May 2014 that people were buying and selling tax credits at larger discounts than allowed under state regulations.
“When I was appointed acting director in May 2014, I recognized the need for the change, but this and other policy and administrative decisions, in my view, needed to be made by a permanent agency director,” Kaplan wrote in an email. “When I was appointed agency director in November 2014, I pursued this and other issues that had been identified as needing to be fixed. That’s what this comes down to: our agency has a responsibility to improve the way we do our work; if our rules are unclear, we fix them. If our processes need to be better defined, we do that.”
Lawmakers will likely learn more about the Department of Energy’s actions when they hold interim meetings Sept. 28 through 30. Barnhart asked Oregon’s Legislative Revenue Office this summer to review the Oregon Department of Energy’s handling of the tax credits and Chris Allanach, a senior economist who works on tax credits, said he expects to present the results of his research on the subject later this month.
As recently as an Aug. 25 public hearing, energy officials appeared determined to implement their retroactive rule change before lawmakers hear the report.
“The Oregon Department of Energy will make the ultimate decision regarding these rules,” said Elizabeth Ross, an energy policy analyst who is overseeing the agency’s rule change, at the public hearing. “The rules will be effective upon filing for September. We hope to do this prior to the expiration of the temporary rule on Sept. 18, 2015.”
Barnhart’s comments, submitted the day after the hearing, could influence the agency’s plans. A spokesman for Gov. Kate Brown, who can hire and fire agency directors, also said this week the governor expects energy officials are considering public input on the proposal.
“It’s important that Oregonians make their voices heard, and Governor Brown appreciates the concerns that have been raised,” press secretary Chris Pair wrote in an email Monday. “Governor Brown is confident that the Oregon Department of Energy will give public comment careful consideration in their rule making process.”
Buckley did attempt in March to take disciplinary action against another employee who handled energy tax credits, Joe Colello, after Colello delayed sales of deeply discounted tax credits because he wanted to confirm the deals were legal. Buckley emailed human resources employees in early March about Colello’s “possible insubordinate activities.”
“Joe has been given clear direction from both me and Director Kaplan regarding the (sale) of tax credits using negotiated pricing methodology,” Buckley wrote in an email.
The Department of Energy eventually obtained an opinion from the Oregon Department of Justice on the legality of the discounted tax credit sales, but the energy agency has refused to release the opinion and described it as privileged legal advice. Public records obtained by the EO Media Group/Pamplin Media Group Capital Bureau show Buckley frequently communicated with tax credit brokers about the energy agency’s discussions with Department of Justice lawyers and the written legal opinion.
Colello resigned from the Department of Energy in August, according to a letter released by the agency.
If lawmakers expected energy officials to follow the rules, members of the renewable energy industry appreciated the willingness of energy officials like Buckley to look for ways around regulations.
David Brown, a senior principal at Obsidian Finance Group, LLC in Lake Oswego, testified in support of the proposed rule change at the Aug. 25 public hearing. Brown said this week that tax credit recipients lost out when they took advice from Colello, who said they had to follow state rules, instead of consulting with “Anthony (Buckley) the good guy.”
Brown said he purchased tax credits several years ago but like other people interviewed by the EO Media Group/Pamplin Media Group Capital Bureau, Brown said he was not involved in any sales of tax credits that were discounted below the state price regulations.
“Did I know that Anthony had come up with a softer gentler approach? Yeah I heard that from other friends and professionals,” Brown said. “It’s not a very big community.”