Oregon reviewing tax credits for wind farm; Giveaways have drained funds from other services

PORTLAND - The state Department of Energy is reviewing whether a major wind farm in north-central Oregon should have received $30 million in tax credits.

Officials decided to re-evaluate their recent approval of the tax breaks for the Shepherd's Flat wind farm after The Oregonian newspaper raised questions about whether it should have qualified for them.

Shepherd's Flat is a collection of 338 turbines in Gilliam and Morrow counties. The Oregonian questioned whether it should have received multiple Business Energy Tax Credits under state rules governing what constitutes a "separate and distinct" renewable energy facility.

Some wind farm developers have subdivided their projects to garner multiple tax credits. It's something lawmakers have wrestled with for years, as the tax credits have drained state coffers of millions of dollars that might otherwise pay for schools and other public services.

One wind developer applied for nine tax credits, and received approval in 2009 for four, worth a total of $40 million, for what some in the Energy Department considered to be a single project. Solar manufacturers have also been able to break projects into phases to claim multiple credits.

The owner of Shepherd's Flat, New York-based Caithness Energy, insists the farm was developed as three separate projects, each with its own site permit, interconnection agreement and power purchase agreement -- and each entitled to a $10 million credit.

But the three sections of Shepherd's Flat, which are on adjacent parcels of land, used the same general contractor, Minnesota-based Blattner Energy, for construction. They share operations and maintenance contractors under a 10-year agreement with General Electric. And they were financed under a single loan guarantee from the U.S. Department of Energy that went to Caithness Shepherd's Flat, LLC.

Even Caithness's own website and communications refer to Shepherd's Flat as a single "wind farm."

"We do need to revisit this one," said Kyleen Stone, deputy director at the Energy Department. "We are going to do some work and actually legitimately look at it and review our determinations."

The Legislature previously moved to phase out the tax credit to rein in costs but is now considering an extension of the tax credits for manufacturers. Meanwhile, the Energy Department is sifting through a backlog of some 2,000 tax credit applications filed to beat the program's sunset date, department officials said.

"This is a program that's has been riddled with problems," said Chuck Sheketoff, executive director of the Oregon Center for Public Policy and a frequent critic of the state's tax giveaways. "The DOE has taken the promotion role for industry to the exclusion of being careful with the tax credits. They're not giving any scrutiny."

Shepherd's Flat is a big deal for Gilliam and Morrow counties. It supported 400 construction and 35 to 45 permanent jobs. It promises more than $100 million in property taxes during the next 15 years. And landowners stand to collect millions in lease payments.

Caithness Energy jumped through numerous hoops to legally separate the wind farm into three projects on paper, dividing the ownership and various contracts between subsidiaries. In 2009, the state pre-certified the company's three tax credits based on assurances the projects would meet state standards for separate and distinct facilities, both in development and ongoing operation.

Lynn Frank, a former director of the Energy Department who helped write the tax credit rules, said Oregonians "cannot understand a public official paying three times for one duck cut into three parts. It is still one duck. Why was taxpayer money used this way? Good question. It deserves a good answer."