Cross-section of Oregon companies under review
PORTLAND — Some of the biggest names in Oregon's renewable energy and forest products industries landed on a list of suspicious state giveaways during an investigative audit of Oregon's Business Energy Tax Credit Program.
The list included tax credits large and small, subsidizing everything from gigantic wind farms to a fat-rendering technology that was supposed to make biodiesel from meat scraps. It never worked and only operated briefly, but still collected more than $1.1 million in taxpayer subsidies for equipment that was left piled in a parking lot.
The forensic audit was conducted by Marsh Minick, a financial crime consulting service hired last summer by Oregon Secretary of State Jeanne Atkins. The audit identified 165 projects with $347 million in tax credits as potentially concerning.
Marsh Minick delivered its results to the secretary of state in late August. Separately, it forwarded a report to the Oregon Department of Justice detailing projects it red-flagged during its investigation through the use of fraud detection technology, its review of project files, interviews and other research.
The firm's findings weren't conclusive. It noted, for example, that it didn't complete a full inquiry of the tax credits in question, and that its list of questionable deals, culled from more than 14,000 the department processed from 2006 to 2014, was not comprehensive. But it's another embarrassing coda to a program that some Oregon lawmakers would love to forget.
The audit details ongoing and costly failures by staff at the Oregon Department of Energy in applying the most fundamental rules of the program or performing basic due diligence to ensure tax credit applicants qualified for the money and used it as intended.
Its release comes as a joint oversight committee appointed to look at restructuring the department meets Friday to discuss its recommendations for the Legislature. It also leaves the open question of whether Attorney General Ellen Rosenblum will pursue her own investigation of the questionable credits.
A spokeswoman, Kristina Edmunson, said the Justice department was "still reviewing for any potential criminal or civil violations."
Neither the Energy Department nor any of the companies on the list contacted by The Oregonian/OregonLive have heard from Rosenblum's office in the two months since the report was forwarded.
"I would hope the DOJ has several people investigating those allegations in depth," said Sen. Doug Whitsett, R-Klamath Falls and a member of the oversight committee. "These are serious allegations of misuse of public funds ... and I think the people deserve to know where that money got spent."
Marsh Minick divided its list of questionable tax credits into two buckets: large projects in which the costs and resulting tax credit exceeded program limits; and "projects of concern."
The former is tied to qualifying expenditures. State law sets a maximum tax credit for each facility, per year, of $10 million, or 50 percent of eligible project costs up to $20 million. But Marsh Minick found that a variety of applicants exceeded their maximum eligible program costs, and had requested multiple credits for the same project in the same calendar year. Among those companies:
Klondike Wind Farm: The Sherman County wind farm was developed by the Portland-based developer Iberdrola Renewables, now known as Avangrid. The project was developed in four phases, and Klondike III alone applied for and received three separate $11 million tax credits in the same year.
Art Sasse, a spokesman for Avangrid, says the company's projects are separate and distinct and that it will cooperate with the Justice Department if contacted.
SolarWorld: Marsh Minick said the Hillsboro solar manufacturer applied for multiple credits on separate projects and may have violated the program's separate and distinct facilities. It ultimately received tax credits with a face value of $42 million. The report said the company's applications exceeded maximum allowable costs.
The company sent a statement: "SolarWorld operates in conformance to the highest legal and ethical standards. Regarding this investigation, we have not been approached with any questions."
Pacific Ethanol: This company built an ethanol production plant and distribution facilities in Boardman, aided in part by two tax credits worth $18.2 million. Both projects were completed in September 2007. Marsh Minick said there were possible violations of the separate and distinct facilities standard and that they exceeded maximum allowed costs.
Paul Koehler, a vice president for Pacific Ethanol, said the California-based company simply followed instructions from program managers at the Department of Energy when applying for tax credits. He maintains the two projects were separate, remain operational and represent a success for the program.
Marsh Minick labeled its second bucket of questionable tax credits as "projects of concern," which were flagged for multiple reasons.
They included a series of solar projects built by SunEdison and SolarCity. Both companies used highly complex financial arrangements that resulted in opaque project costs and ownership shared among multiple subsidiaries. In the case of Missouri-based SunEdison, Marsh Minick said it was unclear who owned the physical assets subsidized by Oregon taxpayers.
As for SolarCity, Marsh Minick pointed to cost reporting problems, and allegations that false documents and invoices had been used to make the case for tax credits. It also said there was a possibility that the California-based company generated positive net proceeds through state and federal subsidies.
Forest products companies were heavy users of the BETC program to upgrade their facilities, and a number of them were flagged as dubious, including Bear Mountain Forest Products, Boise Paper, Rough & Ready Lumber Co., and Douglas County Forest Products.
Marsh Minick found projects undertaken at the same facility with conflicting goals. In some cases, tax credits were finalized before projects were inspected. Some facilities closed or were sold soon after tax credits were granted; in one case, the equipment subsidized by taxpayers was found sitting in shipping containers, uninstalled and non operational.
There was the Team Estrogen Warehouse Project, an online retailer of fitness apparel that received $23,493 to build what Marsh Minick determined was an illogical bike commuter room, at its warehouse along a country road in Hillsboro. The credit was justified by its projected 15-year energy savings, but the company moved after three years.
Clear Edge Power Projects, another Hillsboro firm, received $8.6 million to help develop and manufacture fuel cells. The company ultimately moved its operations to California, filed for bankruptcy, then was purchased by a South Korean firm that sold its assets in an auction.
There's no record of what became of the equipment funded by Oregon taxpayers.