Actual Expenditures, Last Three Budgets, include funding sources:

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1 Actual Expenditures, Last Three Budgets, include funding sources: Actual Expenditures: : $597, : $652, (projected): $725,099 Funding Sources: Energy Supplier Assessment & US DOE State Energy Program (SEP) Grant Number of FTEs: FTE: 2013: : (projected): 4.6 ORS Authority ORS 469B B.118; 469B.991; Legislatively-directed Purpose ORS provides a personal income tax credit for the construction or installation an alternative energy device in a dwelling. ORS outlines Oregon s goal to promote the efficient use of energy resources. ORS states that ODOE shall endeavor to utilize all public and private sources to inform and educate the public about energy problems and ways in which the public can conserve energy resources What is the objective of this program or function? Describe the major activities performed under this program. Explain why these functions are still needed. The Residential Energy Tax Credit promotes residential energy savings, energy displacement, and market transformation by providing personal income tax credits to Oregonians who purchase energy efficient devices and renewable energy systems for their homes. The program was designed to help offset Oregon s energy load growth needs with conservation and renewable resources. Since the program was created in 1977, ODOE has provided tax credit incentives to encourage adoption of new energy saving technologies. Homeowners or renters can apply for a tax credit certificate to use on their personal Oregon income taxes after purchasing qualifying energy efficient products and renewable energy systems. The application process includes submitting a receipt or proof of purchase. If the device, appliance, or system is deemed eligible, the applicant receives a tax credit certificate. The Residential Energy Tax Credit helps address Oregon s energy load growth needs. The Northwest Power and Conservation Council (Council) has found that improved efficiency of electricity use is by far

2 the lowest-cost and lowest-risk resource available to the region. Cost-effective efficiency should be developed aggressively and on a consistent basis for the foreseeable future. The Council s plan states that in more than 90 percent of future conditions, cost-effective efficiency could meet all electricity load growth through In addition to electricity savings, the RETC program saves natural gas, propane, and gasoline. For almost 40 years, ODOE has helped Oregonians save money and energy. ODOE has issued more than 570,000 tax credits to help residential consumers power their homes more efficiently. This program has saved or displaced enough energy in Oregon to serve about 400,000 homes for an entire year. 2. Describe how the program or function is administered. Include flowcharts, timelines, or other illustrations as necessary to describe agency policies and procedures. ODOE offers a set of prescribed personal income tax credit incentives for eligible devices that homeowners or renters can purchase and install in their primary or secondary residence located in Oregon. Eligible devices, appliances, and systems have changed over time in to adapt to changes in energy use and market conditions. Below are the program s currently eligible devices; tax credits are issued for the lesser of 50 percent of the cost of the device or $1,500, unless stated otherwise. Credits over $1,500 must be claimed over multiple years, with no more than $1,500 being claimed per year per device. Electric heat pump water heater ($300-$600) Tankless gas water heater ($225-$245) Storage gas water heater ($175) Gas furnace e ($352-$492) Direct vent gas fireplace ($350-$550) Air-source ducted heat pump ($800-$1,125) Ductless heat pump, mini-split ($1,200-$1,300) Duct sealing, in unconditioned spaces ($250) Geothermal and upgrade of a geothermal system ($600-$900) Whole house ventilation system, HRV/ERV ($225-$645) Waste water heat recovery ($92-$138) Wood and pellet stoves ($144-$288 or formula based on actual measured efficiency ) Solar electric, photovoltaic ($1.50/watt of installed capacity, up to $6,000) Solar space heating ($0.60/first year energy yield in kwh, up to $1,500) Solar domestic water heating ($2.00/first year energy yield in kwh, up to $6,000) Solar swimming pool heating ($0.20/first year energy yield in kwh, up to $2,500) Solar spa or hot tub heating ($0.15/first year energy yield in kwh, up to $1,500) Wind system ($2.00/first year energy yield in kwh, up to $6,000) Alternative fuel device (50% of eligible cost, up to $750) Fuel cell ($3.00/watt of installed capacity, up to $6,000) Program staff provide a high level of customer service to potential applicants, often providing information before purchases are made or connecting callers with technical staff who can offer technical advice. Applications are received, screened, analyzed, and either approved or denied by staff. Applications are processed within approximately one week during off peak seasons, and can take up to three weeks during 2

3 the spring tax seasons. Incomplete applications take longer to process as ODOE awaits additional information from the applicant. While this process is handled primarily using paper or PDF applications, in January 2015, ODOE leveraged funding from the U.S. Department of Energy to create an online application process for solar photovoltaic applications. This has streamlined the application process for contractors and is part of a larger agency effort to reduce soft-costs associated with solar photovoltaic installations. Annually, ODOE reviews market conditions for eligible devices to determine if tax credit rates are appropriate. ODOE received this authority for solar photovoltaic and fuel cell devices starting in 2012 and for the rest of the program s devices starting in ODOE considers energy savings, other available incentives, price of the device, installation costs, and market penetration when determining rates. Through a rulemaking process, ODOE reviews the findings with stakeholders to make tax credit rate adjustments for the following year. Applicants may sell their RETC tax credits to others with a personal income liability at the present value uniform discount rates set in rule. 3. Provide a summary of key performance measures and other outcomes that convey the effectiveness and efficiency of this function or program. RETC has operated consistently since the late 1970s. As energy efficient appliances were added in the late 1990s, the program saw significant increases. RETC Applications Approved by Year 76,917 80,000 Number of Applications 70,000 60,000 50,000 40,000 30,000 20,000 15,322 10, ,956 2,

4 Tax credit amount totals and device distribution have also changed as eligible devices have been phased out and replaced. RETC Tax Credits by Year $25,000,000 $19,477,065 $20,174,255 $20,000,000 Tax Credits $15,000,000 $10,000,000 $10,375,498 $5,000,000 $0 $2,510,931 $1,900,052 $468,805 RETC Tax Credits Issued 2010 vs 2015 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $ Renewable Resources Ducts Appliances Alt Fuel 4

5 4. Describe any important history regarding this program, including how the services or functions have changed from the original intent. Describe problems or lawsuits that have been encountered in this program. Oregon Laws 1977, chapter 196 (SB 339) created the Residential Energy Tax Credit; ODOE adopted temporary rules to administer the program in October 1977 followed by permanent rules in March As new energy-saving technologies have come on the market, the Legislature has expanded the tax credit program to encourage their adoption. Similarly, products have been removed from the RETC program as market options have been become more efficient and mainstream, completing the consumer adoption cycle. In the last 20 years, since 1997, the program s statutes were amended over 10 times and ODOE has amended rules to administer the program over 15 times. Some of the major changes from this time period include: Oregon Laws 1997, chapter 534 (SB 892), added eligibility for alternative fuel devices, such as alternative fuel vehicles and fueling stations, and energy efficient appliances such as washers, refrigerators and dishwashers. ODOE filed permanent rules effective at the beginning in The program expanded in 2000 to include fuel cells and in late 2001 to include high-efficiency furnaces, boilers, heat pumps (ducted), and air conditioning systems. Oregon Laws 1999, chapter 765 (SB 1192), made alternative fuel vehicle RETCs transferable, and Oregon Laws 2001, chapter 584 (SB 520), made alternative energy device RETCs transferable at a uniform discount rate established by rule. ODOE filed permanent rules in October Oregon Laws 2005, chapter 832 (SB 31), increased the solar electric tax credit to $6,000 but limited the credit to 50 percent of the total installed cost. Only $1,500 of the credit could be claimed in a single tax year. The bill also added that the RETC program would sunset for tax years on or after January 1, ODOE filed permanent rules in December Oregon Laws 2007, chapter 843 (HB 3201) increased the tax credit incentive for wind systems and fuel cells up to $6,000 with only up to $1,500 claimed each tax year. Highly efficient wood and pellet stoves were also added to the RETC program. ODOE filed permanent rules in December Oregon Laws 2009, chapter 909 (HB 2078) ended the tax credit for new gasoline-electric hybrid vehicles. That same year, Oregon Laws 2009, chapter 913 (HB 2067) accelerated the RETC sunset to tax years on or after January 1, Alternative fuel vehicles such as those powered by electricity, natural gas and propane were no longer eligible for a residential energy tax credit as of January 1, 2012, under Oregon Laws 2011, chapter 730 (HB 3672). HB 3672 also removed the eligibility of dishwashers, refrigerators, clothes washers, and air conditioners, effective January 1, HB 3672 gave ODOE statutory authority to adjust the incentive rate for solar photovoltaic and fuel cell systems based on market conditions along with adding eligibility for third-party installed devices. The RETC program is scheduled to sunset December 31, ODOE filed permanent rules in December

6 Annually between 2012 and 2014, ODOE filed permanent rules for the RETC program at the end of each year to update RETC standards and program operations, including reductions in the solar photovoltaic rate. ODOE encourages stakeholder input and feedback during all rulemakings. Oregon Laws 2015, chapter 701 (HB 2171) modified the RETC program by placing an incentive cap of 50 percent of the eligible cost on all devices and provided ODOE rulemaking authority to lower RETC incentives by device based on market conditions. The bill also increased the tax credit amounts for solar thermal devices for domestic water heating and swimming pool heating. ODOE filed permanent rules in October and November 2015 to implement these changes, including lowering the solar photovoltaic and heat pump water heater incentive rates. Oregon Laws 2016, chapter 29 (SB 1507) provided that for RETC credits a taxpayer may claim no more than $1,500 a year. ODOE adopted permanent rules in June 2016 to implement this change. To date, the program has encountered no lawsuits. It has, however, operated for almost 40 years, and when the program was first created, desktop computers were not commonplace. The agency s recordkeeping and data collection have evolved over time. Accordingly, it can be difficult to reliably quantify energy savings across all devices for the entire history of the program. 5. Describe who or what this program or function affects. The Residential Energy Tax Credit program benefits homeowners, renters, and landlords statewide who upgrade or purchase energy efficient devices and renewable energy systems with personal income tax credits and energy savings or displacement. Oregon homeowners, renters, and landlords also benefit from lowered energy use and improved building performance. Retailers, vendors, and the installer industry benefit from the added business from eligible purchases and installations. These include heating, ventilating and air conditioning; solar photovoltaic and thermal; water heating; and wood and pellet stoves organizations. Oregon and the region benefit from reduced energy use by reducing the need for new electric generation in the future. Savings from RETC eligible devices contribute to the regional energy plan that counts energy efficiency as an alternative to new electric generation. 6. If the program or function works with local, regional, other state agencies, or federal agencies, include a brief description of these entities and their relationship to the ODOE program or function. Please identify the roles assigned to each agency. The RETC program tracks market conditions that include: cost of the device, market adoption and other financial support through manufacturers, distributors and utility funded programs. Annual review of the program portfolio includes research, consultation and collaboration with organizations that include the Bonneville Power Administration, Energy Trust of Oregon, Northwest Energy Efficiency Alliance and other leading industry associations. The program maintains a direct relationship with Northwest Energy Efficiency Alliance that promotes awareness of leading edge technologies and market changes. The RETC program also works with the Northwest Power Council s Regional Technical Forum to determine device performance and installation practice. This information is used to build estimated savings values that are the basis for each tax credit. 6

7 To encourage participation and effective operation of the program, outreach and marketing materials are distributed through programs operating in Oregon such as the Energy Trust of Oregon, Enhabit, and Oregon Hearth, Patio and Barbeque Association. The U.S. Department of Energy provides approximately $1,000,000 in federal grant money per biennium for the RETC and Buildings programs. The required 20 percent cost share match is completely offset by RETC tax credits even though the program uses roughly 45 percent of the grant funding. 7. Explain if, and why, each of the key functions is most appropriately placed within ODOE, and how duplication with other related agencies is avoided. The Oregon Department of Energy serves the entire state of Oregon with the RETC program. RETC incentives are available to every residential home located within the state. According to the Northwest Energy Efficiency Alliance 2014 Residential Building Stock Assessment Report, Oregon s population was 3.9 million, with 1.68 million housing units. ODOE is the only agency that provided these incentives on a statewide basis. The broad reach of RETC exceeds other programs operating in Oregon, which can be limited by factors such as utility service territories. ODOE avoids duplication of services by working with other organizations to understand their program offerings and the implications of layering federal, state, and local offerings to stimulate the market. Efficiency measure specifications for RETC-eligible devices are often set at higher levels than other incentive programs in the state to push consumers toward even more efficient devices and influence greater overall industry transformation. 7