BETC feud heads to court

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David Brown, Obsidian Finance Group

A Tigard company that’s developing nearly $170 million in solar projects is suing the state as a result of changes to the controversial Business Energy Tax Credit program.

In March, the Oregon Department of Energy reduced Obsidian Finance Group LLC's eligibility for tax credits from $50 million to $10 million after it consolidated the company’s five separate applications.

Obsidian filed a lawsuit on May 21 in Oregon District Court in Salem trying to overturn the decision. The Department of Energy declined to comment on the lawsuit.

The company filed five separate applications because each represents a different project it hopes to develop, in this case solar farms that could generate around 5 megawatts of energy per year, enough to power as many as 1,000 homes.

Obsidian says the tax credits, referred to as BETCs, are necessary in order to make the projects financially viable. Each solar farm would cost around $28 million.

“Without the BETC the project doesn’t come anywhere close to breaking even,” said David Brown, a senior partner and co-founder of Obsidian. “The subsidy is necessary.”

Obsidian plans to build three solar farms each in Klamath and Lake counties, any one of which would be the largest solar farm in the state. The lawsuit involves the three projects in Lake County and two in Klamath County.

Between May and October of 2009, the five projects received preliminary BETC certificates from the state, with each project entitled to up to $10 million in tax credits upon completion.

After coming under heavy criticism, however, state lawmakers subsequently enacted new rules giving officials the authority to revoke applications and scrutinize requests from developers seeking multiple credits for similar projects.

The Legislature also capped the program at $300 million in overall tax credits through June 30, 2011.

At the request of Obsidian, the department reviewed the status of the company’s projects. It ruled in March that the projects were not “separate and distinct” and consolidated them into a single application.

In a letter to the company, the department made the conclusion based on five criteria, including that they would share the same general contractors, sources of financing and use equipment purchased by the same people.

In its lawsuit, Obsidian said the new rules adopted by the department were only supposed to be applied to applications filed after the rules were enacted Nov. 3.

Even so, it said the department’s ruling on its projects was “erroneous” because, among other reasons, it hasn’t bought any equipment for the projects or identified any contractors.

Further, Brown said Obsidian only intends to own the first project it develops. It plans to sell the others to third-party developers.

Brown realizes developers will have to make concessions when it comes to the new limitations on the BETC program.

But the department’s ability to revoke certifications is problematic to developers trying to finance projects. He is advocating for a more clear-cut set of rules.

“We need to have a ruling from the department that says, ‘If you do this, then you’ll get a BETC,’” he said. “The incentive doesn’t work if you don’t know whether or not you’re going to get it.”

Department of Energy spokeswoman Kathy Shinn said the changes enacted by the department and the Legislature were intended to reduce the program’s impact on the state general fund, which faces a $577 million budget shortfall.

“While that’s caused issues for some companies, industries are adapting and applications are coming in for the new funding period,” she said. “We think this will provide some good projects and the state will benefit.”

John Audley, deputy director of the Renewable Northwest Project, a Portland-based renewable energy advocacy group, said the state’s financial limitations have created a “troubling environment for large-scale renewable energy projects.”

The state, he said, is in the unenviable position of trying to maintain Oregon’s stature as a leader in renewable energy while reining in an incentive program that developers have come to rely upon.

“We are at a point where Oregon’s going to figure out some new suite of economic incentives,” Audley said. “We’re going to have to come up with a new way of doing business.”