Review of Oregon’s Department of Energy

by Sen. Doug Whitsett

The Joint Interim Committee on Department of Energy Oversight was created by Senate President Courtney (D-Salem) and House Speaker Tina Kotek (D-Portland) partially in response to a request by a group of Republican lawmakers who had called for a criminal investigation into energy tax credits issued by that agency. Our request was based on information we received from whistleblowers within both the Oregon Department of Energy (ODOE) and the Oregon Department of Revenue.

Senate President Peter Courtney (D-Salem) assigned me to serve on the bicameral, bipartisan oversight committee. We have both been quoted in the press observing that a full and open legislative investigation of the purpose and function of the agency was needed.

The committee’s work has thus far involved four monthly public hearings at the capitol. They have consisted of presentations on each of the department’s various divisions, followed by public comments. To date, the meetings have resulted in many more questions than answers. With the salient exception of representatives of the environmental community, public comments regarding the agency have generally been less than complimentary.

At the March meeting, we heard invited testimony from stakeholders who deal with ODOE, such as public utilities. Also presented were overviews of the agency’s budget, the history of Oregon Energy Tax Credit programs and the nuclear safety division.

In April, we learned about ODOE’s emergency preparedness and planning and innovation division.

The May meeting was devoted to the Energy Facility Siting Council (EFSC). This division was identified early on by agency officials as one of its core competencies.

However, before, during and after that meeting, committee members received an abundance of correspondence from residents throughout the state complaining about EFSC. Most of the public concern was focused on allegations the EFSC administrative processes are biased, as well as perceptions the Council is prejudiced toward siting energy facilities regardless of either need or legitimate public concerns.

There were a number of further developments related to the Oversight Committee and its work last week.

An Oregonian article by reporter Hillary Borrud disclosed that ODOE employees were subpoenaed last week as part of an Oregon Department of Justice (DOJ) investigation into the tax credit program. The agency’s director declined to answer my questions regarding whether these subpoenas were civil or criminal in nature and whether they had been issued to former or current ODOE employees. He said the Oregon DOJ had specifically requested that he not disclose that information. The individuals subpoenaed are expected to testify next month.

Additionally, the Secretary of State’s Office has contracted with a private auditing firm to perform an extensive audit of ODOE’s Business Energy Tax Credit (BETC) program. I met with a representative of that auditing firm and provided her with information as part of the process.

The Borrud article cites Governor Brown’s office as being reluctant to make meaningful changes at ODOE. It says her administration feels the agency is necessary to help combat climate change, although she may be willing to allow all of the tax credit programs to sunset as scheduled.

This kind of rhetoric sounds too familiar. In my opinion, it is exactly the kind of thinking that lead to ODOE’s current problems. The agency has been directed to spend enormous amounts of public money to advance social/political motives rather than low-cost energy solutions. It’s worth noting that former Governor Kitzhaber’s girlfriend Cylvia Hayes claimed that “I don’t work for the governor, I work for the Earth.”

Senate President Courtney is quoted in Borrud’s article as saying it’s premature to conclude that ODOE should be left completely intact as it is. I strongly agree with the Senate President on this point.

A series of memos from the Department of Administrative Services (DAS) review of the agency has been made public. They cover ODOE’s Energy Incentive Program (EIP) tax credit, Small Energy Loan Program (SELP), Residential Energy Tax Credit (RETC) and Biomass Tax Credit programs.

Small Energy Loan Program (SELP)

The DAS memos state that a “significant amount” of the SELP loan portfolio that was started 35 years ago consists of loans that were made to local government entities. It was designed to provide low-interest loan to projects “in a market where there was little interest” in funding such ventures. It has since provided 874 loans totaling $611 million.

The SELP program is in financial disarray. While meant to be an incentive program for small projects, it devolved into a government venture capital investment tool. Several of those major venture capital investments have failed and others are in or near default.

Due to these accumulated bad investments of public money, SELP will be unable to meet its debt service obligations between the years 2020 and 2034. The program will require at least $15.3 million of general fund money to recapitalize its fund sufficient to pay for the projected shortfall. Oregon’s State Treasurer has asked for a moratorium on further SELP loans.

The DAS memo further states the SELP program may no longer be needed. Private low-interest rate financing is now available for these kinds of projects.

An Alternative Fuel Vehicle Revolving Fund created through the SELP program has $3 million in available funds. According to the DAS memo, no loans have been made because its “structure is not attractive to borrowers.”

Energy Incentive Program (EIP)

The Energy Incentive Program resulted from the passage of House Bill 3672 during the 2011 session. It was intended to replace BETC by reducing and refocusing the program to help address the controversies swirling surrounding that program.

EIP has three components totaling $51 million per biennium that include: energy conservation, transportation and renewable energy development. The program has received a total of 1,436 applications for tax credits. It has issued $94 million in tax credits for public projects and a mere $5.1 million for private projects.

According to the DAS memo, many problems exist with the program. Nearly 95 percent of its current tax credit participants are local governments and non-profits that have no tax liability. Further, the memo states the holders of tax credits can transfer the credit for cash equal to its net present value making them difficult to market. Finally, the memo states ODOE doesn’t know how important the revenue from the tax credit transfers is to incentivize recipients to invest in energy conservation projects.

The EIP is set to sunset on January 1, 2018. In my opinion, early termination of this program will be in the best interest of the entire public, other than those who broker and receive the tax credits.

Residential Energy Tax Credit (RETC)

Residential Energy Tax Credits have been in operation since 1978. They have resulted in the issuance of 570,000 tax credits worth $172 million. However, the DAS memo observes quantifying the program’s benefits in any given year is “problematic,” because no data is available regarding the actual cost savings realized as a result of its utilization.

The DAS memo repeatedly states the purpose of RETCs is for “transforming markets.” I would submit it was never government’s business to get involved in the so-called transformation, or social engineering, of any market. RETC is scheduled to sunset on December 31, 2017.

Biomass Tax Credit (BTC)

The Biomass Tax Credit Program has issued $29.8 million in tax credits since 2010. One of its provisions pertaining to animal manure and rendering offal was significantly amended and had its sunset extended to January 1, 2022 by the passage of Senate Bill 1507 during the 2016 session. All other forms of BTCs are due to sunset January 1, 2018.

According to DAS, there are similar issues with this program. It’s “difficult to ascertain the impact of the program on pollution reduction and rural economies,” the memo states.

Unanswered questions – future of ODOE

The ODOE director discussed each of the tax credit programs within the scope of the agency’s energy development services programs during the oversight committee’s Monday, June 27 meeting. Committee members asked numerous questions that largely went unanswered.

Hillary Borrud attended the hearing and produced this excellent article regarding what took place. The article’s headline accurately sums up the committee’s deliberations.

The director defended the agency’s tax credit programs as being critical for economic development. However, DAS was unable to quantify, or even identify, measurable public benefits produced by spending these enormous sums of public money. Moreover, I really question how the economy is developed by loaning money from one part of the public sector to another part of the public sector.

Clearly, there are competing visions about what should be done with ODOE. The agency was formed in response to the energy crisis our nation was facing in the 1970s. The decades since then have proven many of the early assumptions regarding energy to be completely false.

The domestic energy boom of the past few years is in stark contrast to the “peak oil” scare and artificial shortages in supply that were caused by the political elite’s response to geopolitical events in the 70s. An impending shortage of energy supply is no longer at issue. Today’s debate is focused on the political elite’s concern regarding the utilization of our energy abundance.

Does Oregon still need a nuclear safety division?

Consider, for example, ODOE’s nuclear safety division.

Nuclear power has been banned in Oregon for decades. The state’s sole commercial nuclear plant was the Trojan facility, located southeast of Rainier. That plant was closed by its owner, PGE, after 16 years. A 1980 ballot measure was passed by voters banning the construction of further nuclear plants.

Last week, members of the oversight committee toured the Hanford Nuclear Facility near Richland, Washington. My chief of staff attended the tour on my behalf.

Hanford was used to produce the plutonium that ultimately created the nuclear bombs that ended World War II by forcing Japan to surrender. That 586 square mile site is now the largest and most expensive environmental cleanup project in the world. It includes 2000 distinct waste sites, with 177 underground tanks holding over 56 million gallons of waste. Sixty three of those tanks have leaked over one million gallons of radioactive contaminants into the soil.

Hanford’s annual budget is nearly $2 billion. Just over 30 percent of the economy of Washington’s Tri-Cities area is tied to the Hanford cleanup project. It employs around 400 federal employees supervising as many as 8500 contractors.

The cleanup effort is through a Tri-Party Agreement involving the federal Department of Energy, Environmental Protection Agency and Washington State. Oregon and its agencies, such as ODOE and the Department of Environmental Quality, are not a party to it.

The federal Department of Energy has a Richland Field Office at the Hanford site that is under the agency’s Office of River Protection. Despite the lack of any nuclear facilities anywhere in Oregon, the abundance of government agencies, personnel and contractors working at the Hanford site located in Washington State, and the large contingent of Washington State employees assigned to the effort, ODOE unaccountably continues to maintain a nuclear safety division.

Next steps

Two more meetings of the oversight committee are currently scheduled. The DOJ investigation is ongoing. The Secretary of State’s commissioned BETC audits should be completed in August.

The next oversight committee hearing will be July 18, when we are slated to discuss the department director’s office and central services division. We are scheduled to complete our review during the August 29 hearing. Further meetings could be scheduled around the September Legislative Days.

Oregon’s political majority leadership will then decide whether to reform this truly troubled agency, or allow the status quo to prevail.

Senator Doug Whitsett is the Republican state senator representing Senate District 28 – Klamath Falls