 |
| Marvin Morse, a real estate agent in Christmas Valley, says Energetics installed a single row of solar panels in 2009 on the 160-acre site he sold to Alfred Fairbanks. But those panels came down a year later and no construction has taken place since. Morse contends big solar installations bring no permanent jobs and little tax revenue to the county, and generate power that's far more expensive than the electricity |
Before he showed up in south-central Oregon, Alfred Fairbanks had never tried to build a solar farm. Yet when the Pullman, Wash., dentist told state officials in 2009 that his company planned to build the state’s largest solar array in the desert southeast of Bend, they welcomed him with open arms and the promise of a massive subsidy from taxpayers.
According to his application with the Oregon Department of Energy, Fairbanks planned to carpet his 160-acre plot of sagebrush with solar panels. The $50 million array, he said, would include 133,000 panels capable of generating 6.7 megawatts of power. All this outside Christmas Valley, a hardscrabble community of alfalfa farmers and ranchers in an area so remote it’s known as the Oregon Outback.
Energy Department analysts approved his paperwork, promising Fairbanks a $10 million tax credit if his company, Energetics, built the project within three years.
He never did. An investigation by The Oregonian shows the only thing Energetics ever completed was a small installation of 180 solar panels that never sent any electricity to the grid and was taken down by late 2010. Yet the Department of Energy’s staff, without ever visiting the site, has repeatedly extended the project’s eligibility for a $10 million taxpayer subsidy.
The department is the fulcrum of a program designed to encourage projects just like the one Fairbanks envisioned. But because each dollar in tax credits has the potential to erase the equivalent in general fund revenues, the agency is tasked with ensuring applicants meet the program’s rules, and taxpayers get what they pay for.
The Christmas Valley project won’t create a single permanent full-time job. It will be exempt from property taxes for three years. And its contribution to Oregon’s supply of green energy will be negligible. But it illustrates just how far the Energy Department goes to help developers get their subsidies.
The Legislature killed the Business Energy Tax Credit in 2010, livid at its mushrooming cost and lack of financial controls. Lawmakers set a July 1, 2012, sunset date for projects to be completed, but they subsequently allowed developers to extend their eligibility for tax credits for another two years if they could show evidence of beginning construction before April 15, 2011. Agency staffers repeatedly approved extensions to Fairbanks’ tax credit, despite evidence that the project did not resemble what he originally proposed and that construction had not moved forward. Ultimately, agency staff gave the go ahead to transfer the tax credit to an entirely different company, which was buying Fairbanks’ site and plans to build something different than what was originally proposed or started.
The Energy Department says Fairbanks’ diminutive array, installed in 2009, satisfied the statutory requirement to start construction before April 2011. In the department’s view, the removal of those solar panels three years ago doesn’t change its eligibility for continued extensions. And the site’s new owner, Element Power, will be treated as if its project was under construction before April 2011, too.
Element can also completely redesign the project, as long as it amends the existing pre-certification before completion. That’s not the way Oregon’s business energy tax credits are supposed to work, according to Lynn Frank, a former director of the Department of Energy. He says when applicants show evidence of beginning construction on the facility before April 2011, “the facility” has an unambiguous meaning:
“It is not a successor, a demonstration or anything else. It is the facility,” he said. “Had the Legislature intended otherwise, the language did not express that intent. The applicant was given the opportunity to complete the facility under construction.”
Rep. Jason Conger, R-Bend, describes the Department of Energy’s actions as “an epic process failure.” He says he’s a big fan of solar, but that sustainability also implies that the state will be a responsible steward of taxpayers’ money. “That doesn’t mean ignoring our own administrative rules to make projects work,” he said.
Green grows fast
Fairbanks was part of Oregon’s green rush after Gov. Ted Kulongoski super-sized the state’s long-running energy tax credit program in 2007. Determined to build a green legacy, the governor and his chief sustainability adviser, David Van’t Hof, helped persuade the Legislature to pass aggressive renewable energy mandates for utilities and the most generous taxpayer subsidies in the nation for developers.
A subsequent investigation by The Oregonian found the estimated revenue impact of the tax credits was lowballed. Before a year was out, the program exploded. Oregon taxpayers were soon subsidizing everything from transit passes for Nike employees to a massive solar manufacturing plant in Hillsboro.
With a mandate to promote renewable energy, and the authority to determine which projects met the rules, the Department of Energy was effectively given the keys to the state general fund. The agency says that since 2007, it has approved 12,529 business energy tax credits worth $857 million. It has pre-certified another 122 projects that have yet to be completed for tax credits worth $86 million. Meanwhile, the state’s economic development arm, Business Oregon, has stamped out another eight credits for manufacturers worth $40 million.
All in all, it’s nearly a $1 billion liability since 2007. And only a fraction of those credits have yet to be exercised, leaving a potentially massive bill to come.
Cost is only part of the problem. With loose administrative rules and lax oversight, taxpayers ended up funding projects that never should have qualified, that quickly went bankrupt, or would have been built without state support.
Wind farms developed to serve California or satisfy renewable energy mandates collected more than $200 million in tax credits, with some developers subdividing their projects to qualify for multiple subsidies. A New Mexico trucking company with virtually no connection to Oregon relicensed its entire fleet here to collect 752 tax credits worth $4.5 million. Ethanol, solar and recycling companies harvested tens of million in credits but never reached full operation or quickly went bankrupt.
Many of the renewable energy developers that flocked to Oregon never planned to actually use the tax credits they applied for. Instead, the state allowed them to raise cash by selling their credits at a discount to a company or individual who could use them to offset their tax liabilities.
Legislators pushed the Energy Department to tighten the rules and prevent abuses of the program as early as 2009. That year, they passed a bill to downsize tax credits for large wind farms, figuring they would be built without state support. Kulongoski, under pressure from rural counties, unions and the industry lobby, vetoed the rollback, saying it threatened Oregon’s green success. By the spring of 2010, however, the state budget was in free fall and legislators agreed to put sunset dates on all state tax credits, including the Business Energy Tax Credit.
The Legislature’s subsequent sunset extension for projects under construction by April 2011 provided the grace period that kept Energetics’ tax credit alive.
Barely off the ground
In late spring 2010, the Energy Department wrote to developers whose applications had been approved, asking them to send proof that their project was under construction and could be completed by the new sunset.
In late May, Energetics sent back a sheaf of paperwork to show the project was under construction. Receipts show that 180 solar panels were installed in late 2009, short of the 133,000 planned. The electrical permits pulled by Fairbanks were for 200-amp service — the same as a house, not a utility scale solar farm. The electrical inspection describes a 41-kilowatt installation, one-half of 1 percent of his proposal.
Even then, Energetics acknowledged that construction had been postponed “until further notice” due to uncertainty about evolving tax credit rules and ongoing negotiations of a power purchase contract. But the cover letter said Energetics was still contractually bound to Renewable Energy Construction “to have the Christmas Valley Solar Farm completed no later than 2011.”
By that point, the project had gone 180 days without a building inspection. Jennifer Stephens, Lake County’s assistant building director, says that means its building permits would have expired.
Energy Department staffers say they never visited the site to confirm what had or hadn’t been built. The department’s one-page review of the submission doesn’t mention that construction had been halted. It doesn’t note that Energetics was using different equipment than proposed, which would have required an amendment to its pre-certification. And the receipts are redacted, so it’s unclear how much had been invested.
“Documents satisfy request,” the reviewer concluded. “They explained how the project will be completed, provide a timeline and information about what they have already done.”
The energy agency approved the extension, apparently convinced the project met the requirements. Fairbanks, who didn’t respond to repeated requests for comment, including phone calls and a brief conversation with his son, soon had other issues, however.
With the panels and racking installed, Fairbanks’ property was assessed as a commercial utility and the value shot from $25,000 to nearly $700,000. His tax bill grew twentyfold to more than $7,000, according to county tax records. Lake County exempts most renewable energy projects from taxation for three years if their owners apply for an enterprise zone designation. Fairbanks didn’t apply, and once construction started, he couldn’t. Without it, he faced further tax increases if he built more.
“That’s when he stopped the project,” Lake County Assessor Larry Reeder said. “He took all the panels off.”
No power, but a credit
Three years later, nothing has changed in Christmas Valley. The Energetics project site consists of two empty racks, a mangled lawn chair and a collection of poles poking out of the windswept field.
Also unchanged is the project’s still-viable $10 million tax credit. The Department of Energy has concluded that the utility-scale solar project was under construction before April 15, 2011.
Fairbanks, meanwhile, was describing the project differently to other state authorities. Fairbanks spent much of 2011 telling Lake County, the Department of Revenue and the Oregon Tax Court that his project should be exempt from taxation. His installation, he argued, was not a utility scale solar farm, but a net metering facility similar to a residential or small commercial array. Its primary function was to offset on-site electricity use, he said.
The property in question “neither produced, transported nor distributed any energy. The idea of taxing someone for futures without any results is absurd,” he said in a court filing describing what he called the “county assessor decision error.”
Fairbanks appeals wents nowhere. But once the solar panels were removed, the assessed value of his utility property for 2011 taxes dropped to $75,000 and his tax bill shrank by 90 percent.
in the meantime, Fairbanks’ lawyer was petitioning the Energy Department to extend the project’s eligibility for a tax credit. The lawyer was David Van’t Hof, Kulongoski’s former renewable energy adviser, now in private practice and helping developers navigate the BETC program he’d helped expand.
Van’t Hof is out of the country and didn’t respond to multiple emails seeking comment. But emails in the Department of Energy’s file on the project indicate that Van’t Hof met with the agency’s director, Bob Repine, and its manager of business energy incentives, Maureen Bock, to discuss the project in early 2012.
After the meeting, Van’t Hof submitted a summary of progress on the facility. It was different than Fairbanks’ previous submissions, describing the installation completed in 2009 as a “pilot/demonstration project” that was put up to test the panels and ground mounting system.
State rules allowing extension of business energy tax credits for projects under construction don’t mention pilot projects. They don’t say what happens if construction stops or is dismantled. They do, however, require applicants to inform the Energy Department director if a project doesn’t proceed — a notification Fairbanks never made. Applicants looking for an extension are also required to provide a brief update on the progress of the facility, a schedule for completion and “a statement that the facility will be completed as approved in the preliminary certification.”
Van’t Hof’s submission described ongoing negotiations with third parties as evidence of “progress on the facility,” including the power purchase agreement that Energetics had previously said was being negotiated when construction was suspended in 2010. Van’t Hof said “Energetics will complete the facility, consistent with its BETC preliminary certificate.” And he said construction of the “larger project” — now shrunken to a proposed 5 megawatts — would begin in April 2012 and be completed by October 2012.
The energy agency extended the tax credit until July 2013. Construction did not commence in April. But the next month, Van’t Hof petitioned for a further extension. The department agreed, extending Energetics’ eligibility for a tax credit for an additional year, until July 1, 2014.
Nothing in the Energy Department’s files suggests any additional progress until August 2012, when the agency received an email from Element Power. The Portland company had been trying to develop its own solar farm in Lake County. It had a site, but not a $10 million tax credit. So it was negotiating to buy Fairbanks’ project, including his tax credit.
That was fine by the Department of Energy, which OK’d the transfer.
A project transformation
Element isn’t taking over construction of Fairbanks project, per se. It intends to rip out the racking and poles that Fairbanks left behind and build something entirely different. New design. New equipment.
According to Lynn Frank, the former Energy Department director, there’s nothing in state law to suggest legislators ever intended to allow successors. The law, he said, was written in the context of “a facility” under construction before April 15, 2011. It is not possible for a subsequent proposed facility to have been under construction as of that date, he said, and the Legislature never expressed any intent for tax credits to pass to successor facilities.
“If all the assertions made to demonstrate that the facility was under construction are no longer true, and the facility for which the assertions were made no longer exists, how could a final certificate or even an amended preliminary certificate even be granted?” he said.
Energy Department officials say staff already determined that Energetics’ previous submissions met the statutory requirements to extend its eligibility for a tax credit. Element Power, they say, is taking over Energetics project and can amend that project’s preliminary certificate to change equipment and build what it wants right up to the point when it completes the project.
“We allow for changes in equipment,” said Anthony Buckley, the agency’s administrator of Energy Development Services. “We want to allow for advances in technology. We want them to take advantage of costs savings or efficiency gains out there.”
Dennis Desmarais, Element’s project manager, also maintains they are developing the same solar farm Fairbanks started in 2009. The evidence that Element began construction before 2011, and qualifies for a tax credit, he says, is that it plans to use the electrical connection established by Energetics. Also, he said, “they’ve cleared the land to some extent.”
Element says it negotiated a power purchase agreement with PacifiCorp and says it has an interconnection agreement with the local utility. But it has yet to secure financing to build.
Element shares the same financial backer — Hudson Clean Energy Partners — and has shared a top leader with SoloPower, the startup solar manufacturer that closed shop shortly after collecting $20 million in business energy tax credits and a $10 million energy loan from the state.
Desmarais says Element’s cost of capital through Hudson is too high, so it is looking for another backer for the solar farm. He says Element can’t afford to hold the project long term, and may still sell the development rights to the project — with the tax credit — to another entity if it can’t raise financing.
“That may still happen,” he said. “It has to happen pretty dang quick for us to get this done before July.”
Lake County, meanwhile, has approved Element Power for the enterprise zone property tax exemption Fairbanks was not able to get. Program rules don’t allow that exemption for projects that have already begun construction. So the county could approve only the tax break for Element by determining that the Energetics project had been abandoned for at least six months.
“It’s been well over six months to meet that condition,” said Ken Kestner, chairman of the Lake County Board of Commissioners.
Christmas Valley residents aren’t sure why the county and the state are working so hard to make sure big tax breaks go to projects that generate no permanent employment and so little tax revenue.
“It’s of no benefit to the community,” said Marvin Morse, a local real estate agent who sold Fairbanks the property. “There’s a little construction phase, a couple months, then it’s all done. … The county commissioners went after it with their eyes wide shut.”
Gary Perkins, an alfalfa famer who lives a few miles from the Fairbanks site, had to buy two neighboring plots of land to make sure developers didn’t build a solar farm within site of his new house.
“If they didn’t have these BETC credits, this wouldn’t be happening,” he said. “I don’t want to see the state piss that money away. As far as I’m concerned, we’re just pounding that money down a rat hole.”
Source: http://www.oregonlive.com/business/index.ssf/2013/12/the_sun_doesnt_set_on_oregons.html
