## Facts

- Oregon’s biomass-tax-credit program (ORS 315.141) allowed a tax credit for an agricultural producer or biomass collector that produced or collected qualifying biomass in Oregon and used it in Oregon as biofuel or to produce biofuel.
- The statute defined “biomass” to include certain renewable organic matter, including “forest or rangeland woody debris from harvesting or thinning” done to improve ecological health and reduce wildfire risk.
- The legislature assigned the Oregon Department of Energy (ODOE) responsibility for setting procedures and criteria to calculate the credit and for issuing written certification of eligible taxpayers.
- ODOE adopted an administrative rule (OAR 330-170-0040) that excluded from “biomass” “[s]awdust or other residual wood waste from mill operations.”
- Warrenton Fiber Company operated a mill that purchased pulp logs, hauled them to its facility, stripped bark from the logs, processed the debarked logs into wood chips, and sold some of the removed bark as “hog fuel” used as fuel.
- Warrenton applied to ODOE for certification to claim the biomass tax credit based on its sale of hog-fuel bark.
- ODOE denied the application, concluding that bark stripped at the mill and sold as hog fuel was “residual wood waste from mill operations” excluded by rule from the definition of “biomass.”
- Warrenton sought judicial review in circuit court, arguing that the rule was invalid because it conflicted with ORS 315.141’s definition of biomass and that its bark qualified because it ultimately came from trees harvested or thinned for the statute’s ecological objectives.
- The circuit court agreed with Warrenton, concluded that ODOE relied on an invalid rule, granted summary judgment to Warrenton, and denied Warrenton’s request for attorney fees.
- ODOE appealed the summary-judgment ruling; Warrenton cross-appealed the denial of attorney fees.

## Issues

1. Whether ODOE had authority under ORS 315.141 to adopt a rule excluding “sawdust or other residual wood waste from mill operations” from the definition of “biomass” for purposes of the biomass tax credit.
2. Whether excluding bark stripped at a mill and sold as hog fuel conflicts with ORS 315.141’s definition of “biomass,” including material “derived from” forest or rangeland woody debris from qualifying harvesting or thinning.
3. Whether Warrenton could obtain attorney fees under ORS 183.497(1) after judicial review of ODOE’s denial of certification.

## Decision

- The Oregon Court of Appeals held that ODOE’s rule excluding residual wood waste from mill operations from “biomass” was valid and within ODOE’s delegated authority.
- The court concluded that ODOE could treat mill-generated residuals (including bark removed at a mill) as outside the statute’s targeted category of qualifying biomass tied to specified forest and rangeland management activities.
- The court reversed and remanded the circuit court’s grant of summary judgment to Warrenton and its denial of summary judgment to ODOE.
- Because Warrenton did not prevail, the court dismissed Warrenton’s cross-appeal for attorney fees as moot.

## Legal Principles

- An agency rule is valid when it fits within the authority the legislature delegated and is consistent with the statute’s text, context, and purpose.
- When a statute directs an agency to set eligibility criteria and certification procedures for a tax credit, the agency may define operational boundaries for statutory terms through rulemaking, so long as the rule does not contradict the statute.
- Statutory language tying eligibility to biomass “derived from” specified forest or rangeland debris does not require inclusion of all downstream byproducts created during later industrial processing at a mill.
- A court reviewing a rule-validity challenge focuses on compatibility with the statute, not on whether a broader reading could extend benefits to more applicants.
- Attorney fees under ORS 183.497(1) depend on a judicial determination in favor of the petitioner; if the agency prevails on the merits, a fee claim based on petitioner success fails.

## Conclusion

The Court of Appeals held that ODOE validly excluded residual wood waste from mill operations from the biomass-tax-credit program, reversed the circuit court’s judgment that had invalidated the exclusion as applied to Warrenton’s hog-fuel bark, and dismissed Warrenton’s attorney-fee cross-appeal because Warrenton did not prevail.


Warrenton Fiber Co. v. Department of Energy, 283 Or. App. 270 (2016)