department of justice referral confidential business...

Department of Justice Referral

Confidential

Business Energy Tax Credit Program Investigative Examination

Dated August 29, 2016

Phone: (971) 266-1846

www.MarshMinick.com

[email protected]

Department of Justice referral - Confidential

Marsh Minick, P.C. 2

August 29, 2016

RE: Project Referrals from the BETC Examination

Prepared for the Oregon Department of Justice;

Please reference the enclosed report of BETC projects investigated during the BETC

Examination that may be of interest to the ODOJ. These projects were discovered through

data analysis performed using a fraud detection technology, examination of project files,

conducting of interviews, and research for red flag activity. These project files being referred

had varying degrees of red flags of suspicious activity and the possibly of statute violations. A

summary of problems that existed with files includes:

• Projects exceeding the program limits

• Structured projects to circumvent or abuse program statutes and rules

• Suspiciously timed business closures right after benefit of the tax credit

• Projects not completed as stated or expected

• Project outcomes with limited to no direct beneficial impact for Oregon

• Costs for projects presenting red flags of their relevancy

This report contains the project files that may warrant an additional review from the ODOJ.

Accompanying this report is supporting evidence and reference material.

Marsh Minick, P.C. a Financial Crime Consultancy Firm performed the BETC examination and

is submitting this referral to the ODOJ. Melissa Frick Minick and Brandi Marsh hold specialized

credentials in financial crime subject matter and advanced degrees in financial forensics.

If you need to contact us, please do so through telephone at 971-266-1846 or by email at

[email protected].

Sincerely,

Brandi Marsh, MS, CAMS, CFE, CFCI

Melissa Frick Minick, MS, CFE, CFCI



Contents

Legislative Overview .................................................................................................................. 4

2007, House Bill 3201 ............................................................................................................ 4

2008, House Bill 3619 (Special Session) ................................................................................ 9

2010, House Bill 3680 (Special Session) ...............................................................................11

Projects Exceeded Eligible Costs ..............................................................................................13

Klondike Wind .......................................................................................................................13

Pacific Ethanol .......................................................................................................................15

Cascade Grain Products .......................................................................................................17

Solar World AG .....................................................................................................................20

Willow Creek Energy .............................................................................................................22

Projects of Concern ..................................................................................................................23

SunE Projects ........................................................................................................................23

Solar City Projects .................................................................................................................28

FUSP LLC Project .................................................................................................................31

Team Estrogen Warehouse Project .......................................................................................36

ClearEdge Power Projects .....................................................................................................38

PV Powered Projects .............................................................................................................40

Finavera Renewables Ocean Energy Project ........................................................................44

Bear Mountain Forest Products Project .................................................................................47

Boise Paper Project ...............................................................................................................49

Flakeboard America Limited Project ......................................................................................51

Hampton Lumber Mills Project ...............................................................................................53

Rough and Ready Lumber Projects .......................................................................................55

Douglas County Forest Projects ............................................................................................57

American BioDiesel/American Beef Processing Projects .......................................................57

Henson Farm Project .............................................................................................................60

Enclosures ................................................................................................................................64



LEGISLATIVE OVERVIEW

2007, House Bill 32011

On September 27, 2007, HB 3201 became law as an act related to taxation. Several

sections of the bill apply to the ODOE for the BETC program.

Section 14

Section 14 has several amendments to ORS 315.354, overall it provides for tax credits

based on certified costs of a facility:

(1)(a) Describes a 35% tax credit as standard, claimed over five years, in

proportions each year at a rate of 10% for the first two years, and 5% for

the remaining three years; exceptions are (b) and (c):

(1)(b) Permits a one-year tax credit, specifically when certified costs do

not exceed $20,000, claimed in the first allowable tax year, and not

exceeding the taxpayers liability.

(1)(c) Allows a 50% tax credit, specifically for a facility that “uses or

produces renewable energy resources or is a renewable energy resource

equipment manufacturing facility,” claimed over five years, in proportions

each year at a rate of 10%; but cannot exceed tax liability of the taxpayer.

(2)(c) Permits a one-year tax credit specifically for “high performance

home” facilities, claimed in the first allowable tax year, not exceeding the

taxpayers liability.

The Section 14 for ORS 315.354 has controls to the administration of the BETC

program. These controls, in concept, assist with risk mitigation for the

administration of the tax credits:

(3)(a) Facilities must be located in Oregon

(3)(b) A final tax credit must be issued before it can be claimed

(3)(c) The tax credit applicant must be eligible

(5)(a) Provision for the ODOE Director to revoke a tax credit “upon any

sale, termination of the lease or contract, exchange or other disposition of

1 MMINV220



the facility.” Furthermore, any new owner is “limited to the amount of credit

not claimed by the former owner.”

However, Section 14 for ORS 315.354 limited the ability for ODOE to make

revocations.

(5)(b) Limits the ODOE Director from being able to revoke a tax credit

after transfer to another eligible taxpayer

Provisions for rolling forward a tax credit impacts revenue in future years per

section 14 for ORS 315.354:

(6) A tax credit may be carried forward for taxpayer’s tax liability for the

next succeeding years, up to the eighth year.

Section 15

Section 15 for ORS 315.356, provides a control to prevent combined tax credit and

federal grant monies from exceeding the project cost:

(1) Grants from the federal government reduce on a dollar for dollar basis

from the eligible costs of the project for a tax credit. In addition, it required

the grant applicant notify the ODOE within 30 days of application, and

after the receipt of any grant.

Section 16

Section 16 of ORS 469.185, defines facilities, projects and costs, to determine

qualification for BETC incentives. The definition of what qualifies as a project and facility

is wide sweeping, and qualified costs are vague and lack detailed specificity:

(1) Alternative fuel vehicle

(2) Car sharing facility

(3) Car sharing program

(4) Cost is capital cost and expenses to acquire, erect, construct, or install,

including site development

(5) An energy facility is a capital investment with a simple payback of

greater than one year, and (5)(a) especially used for renewable energy



resources, with a wide range of eligible facility types, such as land,

structures, installation, equipment, device, etc.

(6) Facilities defined as energy, recycling, transportation, car sharing,

sustainable building, alternative fuel, heat and power, and manufacturing.

ODOE refers to these as project types.

(10) Qualification for mass transportation passes

(11) Recycling Facility

(12)(a) Renewable energy resource includes but is not limited to, farm and

forestry plant matter, animal biomass, solar energy, wind power, water

power, geothermal or

(12)(b) Hydroelectric generating facility (i) not exceeding 10 megawatt

capacity or (ii) qualifies as a research, development, and demonstration

(RD&D) project

(13) Manufacturing facility for equipment, machinery or other products for

renewable energy resources in trade and business

Section 17

Section 17 for ORS 469.200, provides for maximum (may not exceed) tax credit

amounts based on certified costs of a facility:

(1)(a) $20 million, in the case of a facility using or producing renewable

energy resources, a renewable energy resource equipment manufacturing

facility, or a high efficiency combined heat and power facility

(1)(b) $10 million, in the case of any other facility

(2) Authorizes the ODOE Director shall determine the dollar amount

certified for any facility and the priority between applications with

emphasis on, RD&D facility of new renewable resource generating and

conservation technologies or a qualified transit pass contract in the

determination

LEVEL BETC PROJECT CATEGORY ELIGIBLE COST LIMIT % TAX CREDIT

1 Renewable Energy – Using or

Producing Resources, or Equipment Manufacturing Facilities

$20 million per facility per year

ORS 469.200(1)(a)

50% of eligible project costs

ORS 315.354(1)(a)-(c)



2 Conservation Energy – All Other

Facilities (Facilities defined by 469.185)

$10 million per facility per year

ORS 469.200(1)(c)

35% of eligible project costs

ORS 315.354(1)(a)-(c)

Section 18

Section 18 of ORS 469.205 provides details of the preliminary application process

administered by the ODOE. Such as defined in Section 16, the preliminary application

allows for a wide array of eligible project types:

(1) A preliminary application submitted to ODOE, prior to starting erection,

construction, installation and acquisition of the project

(1)(c)(A), (B), (i), and (ii) Requires the applicant to be in the position of

ownership, planned interest, or control of the project of facility

(1)(c) The project applicant is to meet one of the criteria as follows:

o (A) applicant is a person the tax credit was transferred to, or

o (B) applicant is the owner or contract purchaser, and (i) plans to

utilize the facility in connection with Oregon property, or (ii)

plans to lease the facility in connection with Oregon property

(2) The preliminary application requires detail of project plans, information

on expected energy savings or generation, projected cost, and applicable

supporting documentation for the following types of projects eligible for a

BETC, (2)(a)(A) to (2)(a)(O):

o plans to convert from a purchased energy resource to

renewable energy resource facility

o plans for a renewable energy facility

o plans to use renewable energy resource to generate electricity

o plans to reduce consumption of purchased energy

o plans for recycling

o plans for alternative fuel vehicles

o plans for a facility to operate an alternative fuel vehicles

o plans to acquire mass transit passes

o plans for a transportation facility

o plans for a car sharing program

o plans for high efficiency combined heat and power project

o plans for homebuilder installed renewable energy systems



o plans for high performance homes

o plans for a renewable energy resource equipment

manufacturing facility

(4) Provides a waiver option when the ODOE Director finds a project

applicant did not file the preliminary, prior to the start of the project:

o (a) a special circumstance rendering an earlier filing

unreasonable, and

o (b) the facility would qualify for a tax credit

Section 19

Section 19 for ORS 469.206 pertains to the transferring of tax credits through a pass-

through process administered by the ODOE:

(1) A tax credit can be transferred in exchange for a cash payment equal

to the present value of the tax credit

(2) Provides the ODOE the directive to establish uniform discount rates

Section 20

Section 20 amended ORS 469.215; requiring a final tax credit not be issued unless the

facility competed its project in accordance with what was approved on the preliminary

application:

(1) A final tax credit is not be issued unless the facility was acquired,

erected, constructed, or installed as expected from the preliminary

application project details, in accordance with provisions, and any

applicable rules or standards set by the ODOE Director

(2)(b)(A) A final tax credit application is submitted after completion of the

project, or qualified transit pass contract

(3)(a) The final tax credit application should contain a statement of

compliance with that the conditions of the preliminary certificate

(3)(b) Actual project costs, if less than $50,000, requires copies of receipts

from purchase and installation, or if costs for a project are $50,000 or

over, an independent Certified Public Accountant (CPA) is to certify costs

(3)(c) The applicant should give a statement that the facility is in operation,

or if not in operation, has made every effort to make it operational

(3)(d) Any other information as determined by the ODOE Director, such as

an inspection, necessary prior to issuance of the final tax certificate



(4) Allows the Director to certify final eligible costs at +10% over the

preliminary certificate

Section 22

Addresses the need for ODOE to establish an Oregon Administrative Rule (OAR) for

BETC facilities:

(1) High performance homes

(2) Homebuilder-installed renewable energy system

(3) High efficiency combined heat and power facility

(4) Renewable energy resource equipment manufacturing facility

Section 27

This bill and its amendments applies retroactively to facilities acquired, erected,

constructed or installed on or after January 1, 2007, and for tax years thereafter.

2008, House Bill 3619 (Special Session)2

At the request of the House Interim Committee on Revenue, HB 3619 unanimously

passed in a 2008 Special Session, as an act related to taxation that modified the BETC

for renewable energy resource equipment manufacturing facilities. This bill retroactively

became law, as it applies to preliminary applications for a BETC approved on or after

January 1, 2008 and was passed into law effective May 23, 2008. The bill amended

ORS 469.200 reflecting an increase in the total eligible cost of a BETC for

manufacturing renewable energy facilities.

Essentially, what happened in Section 2 is the creation of three levels of maximum

eligible costs:

(1)(a) A facility using or producing renewable energy resources or a combined

heat and power still qualifies for a $20 million eligible cost BETC, but

(1)(b) A modification was made to increased only renewable energy

manufacturing, up from $20 million to $40 million per facility; providing certain

risk mitigating stipulations, such as performance contract expectations

(1)(c) $10 million in the case of any other facility

2 MMINV256, MMINT129, MMINV332


Marsh Minick, P.C.

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LEVEL BETC PROJECT CATEGORY ELIGIBLE COST LIMIT % TAX CREDIT

1 Renewable Energy – Manufacturing

Resource Equipment

$40 million per facility per

calendar year

ORS 469.200(1)(b)

50% of eligible

project costs

ORS 315.354(1)(a)-(c)

2 Renewable Energy – Using or

Producing Resources or Combined

Heat and Power


year

ORS 469.200(1)(a)

50% of eligible

project costs

ORS 315.354(1)(a)-(c)

3 Conservation Energy – All Other

Facilities

(Facilities defined by 469.185)


year

ORS 469.200(1)©

35% of eligible

project costs

ORS 315.354(1)(a)-(c)

For the maximum level of $40 million of manufacturing BETCs, risk-mitigating

stipulations were added to the program. Per Section 2, ORS 469.197, the ODOE was

required to establish rules (OARs) for the manufacturing category of BETCs, including:

(4) Renewable energy resource equipment manufacturing facility

(4)(a) Standards for the equipment, machinery and other products being

manufactured

(4)(b) Standards for what constitutes a single facility [reference 469.185]

(4)(c) Standards for minimum level of employment

(4)(d) Standards of financial viability of the applicant

(4)(e) Standards for long-term success

(4)(f) Standards for likelihood an applicant will locate or expand in Oregon

The ODOE and Oregon Business Development Department (OBDD) entered into an

Interagency Agreement (IGA) in July 2008. This IGA established a formal relationship

between the agencies regarding the manufacturing BETC (Level 1 in chart) and the due

diligence to be performed on prospective projects. ODOE would pay for services from

OBDD to perform the activities and to contract with an independent, third-party entity to

ensure all potential projects met the standards and criteria outlined in HB 3619.

The Prior ODOE Director, Grainey, who also later went to work for the OBDD, stated in

an interview that the typical BETC (Level 2 and 3 in chart) was a “credit of right;” if you

met the criteria of the credit, you got the credit, there was no “discretion to deny” the

credit. However, the manufacturing BETC (Level 1 in chart), had conditions and

requirements, such as the number of employees, salary requirements, and how long in

operation.


Marsh Minick, P.C.

11

2010, House Bill 3680 (Special Session)3

Sponsored by the House Committee on Revenue, HB 3680 is a bill related to taxation

and was signed into law on May 27, 2010. This bill made several amendments to the

BETC program and has various effective dates.

This bill begins the contraction of the BETC program and added several risk mitigating

controls:

ORS 315.354 (5)(d) Requiring the tax credit not be claimed for a prior year to

when it was obtained

ORS 469.195 (2) Requiring the ODOE to establish by rule a tiered priority

system, based on the cost of the facility, to be used in evaluating applicants

using or producing renewable energy resources; also allows the ODOE

discretion in evaluating projects in a more competitive way using established

criteria.

ORS 469.197 (6) Standards for what constitutes as single facility

ORS 469.205 (2)(a)(O)(b) The facility must remain in operation for at least five

years, with discretion for the ODOE Director to shorten required operations

ORS 469.210 (2) Certificate indicates conditions for claiming the tax credit

ORS 469.210 (3) ODOE Director authority to add conditions or deny preliminary

tax certification under certain criteria

o (b) duplicative costs

o (c) unable to demonstrate the facility is economically viable without credits

o (d) cancellation of related applications when such action taken on one

o (e) applicant of a limited liability company in arrears on money owed to the

government

Standards for evaluating economic impacts and assurances were controls added in this

bill:

ORS 469.197 (4)(b)(B) Considerations for increased production, and number of

jobs created or maintained by the applicant, and expansions or additions to

facilities

ORS 469.205 (2)(f) Information about the amount and type of jobs being created,

the number of jobs sustained throughout construction, installation and operation

3 MMINV271


Marsh Minick, P.C.

12

ORS 469.205 (2)(g) Compliance with applicable, state and local laws, licenses

and permits

ORS 469.215 (3)(d) A final certificate cannot be issued unless, the number and

type of jobs over the proceeding five year period and economic activity of the

state is received

ORS 469.215 (3)(e) A final certificate cannot be issued unless, sufficiently

demonstrated will be in operation for five years

ORS 469.215 (3)(f) A final certificate cannot be issued unless, sufficiently

demonstrated all attempts made to make operational for a RD&D project

ORS 469.215 (3)(g) A final certificate cannot be issued unless, compliance with

state and local laws

ORS 469.225 (1)(b) ODOE Director may suspend or revoke the tax credit if failed

to have constructed or operated the facility

ORS 469.225 (1)(c) ODOE Director may suspend or revoke the tax credit if the

facility is no longer in operation


Marsh Minick, P.C.

13

Projects Exceeded Eligible Costs4

There were projects that exceeded the maximum eligible cost limits, which per

ORS 469.200 was $20 million per renewable energy facility in a calendar year,

equating to a maximum $10 million final tax credit at 50% of eligible costs.

The amount in excess of the maximum is because:

Maximum BETC applicants were granted a ±10% allowance above the

maximum eligible cost limit for the program due to ORS 469.215. Causing

BETC to be for greater than $20 million limit per renewable energy facility.

The ±10% allowance from ORS 469.215 should have been based on the

stated costs in the preliminary certification, not new program limits,

causing some projects to have received a ±120% above the preliminary.

Tax credits issued to the same project owners, or for projects at the same

site locations, exceeding the limits for a single facility in a single calendar.

Each project receiving this treatment resulted in an additional $1 to $6 million

impact to the State General Fund.

Klondike Wind5

Red Flags:

Exceeded the maximum allowable certified cost of $20 million per facility per year

Exceeded +10% allowance for final eligible costs above the preliminary certificate

Internal CPA as an attester to eligible costs

CPA attested to an amount different than on the final application

Possible non-collection of BETC review fee for the increase in certified cost

Possible violation of standards for Separate and Distinct Facility criteria

Klondike Wind Power has four projects, #17993, #17994, #17995, and #20888.

Klondike is known as PPM Energy Inc., later becoming Iberdrola Renewables Inc., and

is a part of Scottish Power Holdings. There are various other BETC projects for PPM

Energy and Iberdrola Renewables Inc.

4 MMINV220, MMINV302, MMINV309, MMINV116, MMINV115, MMINV117, MNINV314

5 MMINV307, MMINV308


Marsh Minick, P.C.

14

Each project #17993, #17994 and #17995 was issued an $11 million tax credit. The

final eligible costs granted was $22 million, in excess of the stated maximums for a

renewable energy project. The $22 million caused by a 10% allowance for eligible costs

above the maximum eligible costs per project, which was a 120% increase based on the

preliminary certification of $10 million.

Project #20888 received different treatment. ODOE issued the final certified eligible

costs letter for $22 million, which was later rescinded by the ODOE after issuance and

changed to the $20 million in eligible costs.

All four projects share the same site address of 98536 Klondike Lane, Wasco, Oregon

97065, which is problematic per OAR 330-090-0150 for standards of a distinct facility.

The project applicant names were similar but slightly different. Three projects were in

the name of Klondike Wind Power III LLC, using project titles Webfoot, City, and Market.

One project was in the name of PPM Energy Inc. Klondike III. The project files show

each wind facility had different buyers, including a utility, city and state energy markets

using power purchase agreements. Given these projects were treated as four distinct

facilities instead of one facility; it qualified the Klondike projects to receive four times the

eligible costs.

Timeline for Projects #17993, #17994 and #17995:

1. September 29, 2006 Preliminary applications

2. January 30, 2007 Preliminary certificates for $10 million eligible project costs per

project

3. October 4, 2007 CPA letter from Scottish Power stating certified eligible costs as

$20 million for each project

4. October 8, 2007 Final application received at ODOE

a. January 30, 2007 Stated project completion date with final project costs by

applicant as $20 million per project

5. October 26, 2007 Another CPA certified with eligible costs as $115,250,138

a. CPA attestation by Harold Elliott, seemingly not with the project owner

company

6. January 14, 2008 Issued an $11 million tax credit letter for $22 million eligible

costs, or 120% over preliminary costs on each project

a. Not issued for +10% of preliminary costs, rather 10% of new project limit


Marsh Minick, P.C.

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Timeline for Project #20888:

1. September 25, 2007 Preliminary application received

2. December 19, 2008 Preliminary certificate for $10 million

3. February 12, 2009 CPA letter certifying $52,970,618 in eligible costs

a. March 1, 2009 Expected service operations date

4. February 24, 2009 Final application received

a. June 24, 2008 Date of project completion per applicant

5. July 1, 2009 ODOE letter to project owner requesting a CPA certify actual cost of

the facility; as opposed to eligible costs of a facility

6. July 15, 2009 A new CPA letter certifying costs at $134,760,805 and indicated

costs were paid in full as of June 30, 2009

7. August 11, 2009 Issued an $11 million tax credit for $22 million eligible costs

a. Granted the +10% allowance

8. March 9, 2010 $2 million over maximum rescinded, and reissued for $20 million

a. The pass through amount was calculated using the $20 million.

There were two other PPM projects submitted along with #20888 in successive order for

other site locations, #20887 for Hay Canyon and #20886 for Pebble Springs; each

receiving $20 million tax credits within limit.

The final tax credits for projects were passed-through for a lump sum cash payments.

Pacific Ethanol6

Red Flags:



Project may be partially or no longer operational, sold, traded or leased

Possible non-collected of BETC review fee for the increase in certified cost


Two project files #17033 and #18781 were located at the same site address on Rail

Loop Drive in Boardman, Oregon. Project #17033 was for the production of ethanol and

project #18781 was for the distribution of ethanol. The projects had similar yet different

names; project #17033 was Pacific / Columbia Ethanol, LLC and project #18781 was



Marsh Minick, P.C.

16

just Pacific Ethanol, LLC. Both projects had the same applicant. These red flags may be

problematic for the standards of a distinct facility per OAR 330-090-0150.

Project #17033 was issued a preliminary certificate for $10 million in eligible costs. Final

eligible project costs were calculated for +10% of renewable energy project limits,

resulting in $22 million of eligible costs and an $11 million tax credit. This is problematic

as the +10% was calculated not on the $10 million preliminary costs, but the $20 million

maximum eligible costs permitted.

Project #18781 had a preliminary certificate issued for just over $6.6 million. The final

certificate was issued for just under $7.2 million in the same year as project #18781.

With the two projects combined, they exceed the maximum eligible costs per renewable

energy facility per calendar year.

In May 2009, Pacific Ethanol filed for chapter 11 bankruptcy on all four of their plants in

Oregon, California, and Idaho. Bankruptcy was filed in the district of Delaware, case

1:09-bk-11715 filed on May 17, 2009. Reports indicate that the two plants in California

are in ‘cold shutdown’, while Idaho and Oregon are purported to still be operating.

Online reports do not reveal if the plants were ever shut down or closed.

Timeline for Project #17033 ethanol production:

1. April 19, 2006 Preliminary application

2. June 6, 2006 Preliminary certificate was issued for $10 million

3. November 27, 2007 CPA letter for $90,918,707 in total costs

4. November 30, 2007 Final application was received by the ODOE

a. September 2007 is the stated project completion

9. December 21, 2007 Final certified cost letter was $22 million for an $11 million

tax credit, or 120% over preliminary costs on each project


Timeline for Project #18781 ethanol distribution:

1. February 13, 2007 Preliminary application

2. March 26, 2007 Preliminary certificate was issued for $6,616,183 million

3. November 27, 2007 CPA letter for $7,761,906 in total costs

5. November 29, 2007 Final application was received by the ODOE

a. September 2007 is the stated project completion


Marsh Minick, P.C.

17

4. December 21, 2007 Final certified cost letter was $7,277,911, adhering to the

+10% allowance, for a $3,638,956 tax credit

While both projects started in different years, they completed and received final certified

costs in the same year. The total certified eligible costs for the two projects were

$29,277,911; problematic for ORS 469.200 which has a $20 million limit per facility per

calendar year.

Cascade Grain Products7

Red Flags:


Possible non-collection of BETC review fee for the increase in certified cost

Possible improper acceptance of waiver for late submittal of preliminary

application

Same CPA attested and brokered project; additionally, same CPA issued the

Independent Auditor’s Report to the Bankruptcy Court

Project owner filed chapter 7 bankruptcy less than a year after the sale of tax

credits

Cascade Grain Products/Cascade Kelly Holdings had two projects #17188 and #18587,

one is an ethanol production facility and the other is a distribution facility.

Project #17188 shows that by May 1, 2006 the ODOE had drafted a $20 million and 12-

year term SELP Loan for Cascade Grain Products LLC, amortized at 20 years with a

7% rate. Loan payment terms were ten years of regular payments followed by

accelerated payments for the remaining two years. It is unknown how much of this loan

has been repaid to date.

The preliminary application for project #17188 came with a waiver letter in the file dated

May 19, 2006, which indicates the project construction contract was signed before the

preliminary application was submitted to the ODOE. This is problematic as BETC is an

incentives program and per ORS 469.205 the project preliminary application should be

submitted beforehand. The project owner stated the construction contract was

necessary to seeking funding, including backing by financial institutions in New York

and “Those arrangements were contingent on obtaining the $20 million financial with the



Marsh Minick, P.C.

18

ODOE under the business loan program [SELP].” This is concerning as loan terms in

the project file do not reflect the collateral position for ODOE on the asset.

Project #17188 had final certified eligible costs above the limit at $22 million on July 17,

2008, even though the preliminary certification on July 14, 2006 reflected just $10

million in certified costs. Project #18587 had final certified eligible cost as $10.16 million

on July 23, 2008. Together these projects exceed the $20 million renewable project

facility maximum cost per calendar year.

The final applications signed by CEO Charles Carlson on June 17, 2008 and June 24,

2008. The final applications required the applicant to agree to comply with all conditions

and operate in accordance with the preliminary application; including disclosure to

ODOE in writing within 60 days if the facility is sold, traded or disposed of, in some way,

or if the term of a leased facility has ended. Based on the file contents, the ODOE was

not notified of the bankruptcy until almost a year after, when the facility was sold.

On December 23, 2009, there was a letter from Cascade Kelly Holdings LLC (CKH)

assignee from JH Kelly LLC saying they purchased Cascade Grain Product’s ethanol

facility, and all contracts entered by Cascade Grain Product have been terminated with

the chapter 7 bankruptcy. The “essential contracts” as specified by the court order have

been assumed by CKH. Signed by Paul Furth, CFO.

Court records show that Cascade Grain Products filed chapter 11 bankruptcy on

January 28, 2009, case #3:08-bk-30508; this was changed to a chapter 7 in March

2009. Attorney, Stoel Rives LLP (Nikki Dobay), sent an email to BETC Manager

Suzanne Dillard on October 15, 2009 asking about the BETC (both applications)

seeking the status of the tax credits. The ODOE response sent on October 27, 2009

stated 75% had been sold as a pass-through for project #17188, had none been sold for

project #18587.

There was a submission of a pass-through partner, Comcast, with the form signed

February 3, 2009, attempting to buy the remaining of the tax credit for project #17188

$3,150,000 tax credit (28.636%). It is not clear if the tax credit was issued to Comcast;

there is no record of the pass-through in the file or records of payment verification.

Online media reports alleged that Cascade Grain Products was only sporadically

operational [at best] for about six months before their bankruptcy, and was plagued with

problems, including machinery and design problems. The plant was purchased by the


Marsh Minick, P.C.

19

main creditor JH Kelly, and was used to store crude oil for a short term. News reports

show that the ODOE was not able to recover any of the funds for BETC and SELP, due

to the bankruptcy filing.

Timeline:

1. May 22, 2006 The preliminary application was received

2. July 14, 2006 A preliminary certificate was issued for $10 million

3. June 16, 2008 CPA attestation of $143,897,958 in certified costs for ethanol

production

a. June 13, 2008 Stated ethanol production of project completed

4. June 23, 2008 CPA attestation of $10,166,668 in certified costs for ethanol

distribution

a. June 20, 2008 Stated ethanol distribution of project completed

10. June 20, 2008 Final certified costs were $22 million for #17188, or 120% over

preliminary costs on each project


5. June 26, 2008 Final certified costs were $10.16 million for #18587

Both projects completed and received final certified costs in the same year. The total

certified eligible costs for the two projects were $32,166,668; exceeding the $20 million

limit per facility per calendar year.

Moss Adams brokered the pass-through transactions from June to August 2008.

There does not appear to have been a financial investigation at the time when the

company filed for bankruptcy protection, and assets were turned over to a trustee. If the

timeline is correct, the larger project for the ethanol production facility was completed

June 13, 2008 and should have been operational on that day. Then in seven months by

January 2009 the company filed for bankruptcy protection. During the seven months,

news reports claim the facility was not operational.

The bankruptcy listed $5,583,334 as BETC Receivables, an asset on the balance sheet

of Cascade Grain Product; additionally, a high level review of the Debtor’s Disclosure

statement shows that the project owner acquired millions of dollars in debt before

applying for the SELP loan and BETC funds. The ODOE funded a $20 million SELP

loan on May 1, 2008, this is concerning because the Independent Auditor Report


Marsh Minick, P.C.

20

revealed that the company had only been in inexistence one month. The Independent

Auditor’s Report, completed by Moss Adams on March 24, 2008, reviewed financials

from the company inception from April 4, 2006 to December 31, 2007 used in the

bankruptcy filing Exhibit E-1. In this report, it indicates that construction is 90%

complete as of December 2007, and that there are no depreciable assets as of that

date. Yet, the BETC final application shows projects completed in June 2008 and Moss

Adams attested to the costs and brokered the tax credits.

The contractor who built the plant purchased it from bankruptcy. JH Kelly, purchased

the facility for $15 million on or about March 2010, which was estimated to be worth

$232 million according to bankruptcy records. The acquisition was approximately $4

million was cash, and the rest was a construction lien JH Kelly had on the facility. JH

Kelly made an investment in the facility but never started ethanol production and used

the facility to export crude oil. Then in January 2013, four years after the initial

bankruptcy filing, JH Kelly sold the facility in a package deal for $95 million. The

bankruptcy documents indicated that JH Kelly had an outstanding debt of $22.3 million.

Solar World AG8

Red Flags:




Invoice proof of costs written in a language other than English

Solar World has two projects #18884 and #18887 both receiving nearly $22 million in

eligible costs each, an amount over the eligible cost limit of $20 million per facility per

calendar year. The two final projects had originated as five projects. Project #18888

collapsed and merged into #18887. Project #18885 and #18886 collapsed and merged

into #18884.

Project #18887 has an email from ODOE Director Michael Grainey dated September

12, 2007, reflecting a new limit of $40 million in eligible costs for manufacturing facilities.

Grainey’s email states he talked with Tim McCabe in Governor Kulongoski’s Office, and

Bob Repine the Director of Economic Development [now OBDD], and “we have agreed



Marsh Minick, P.C.

21

on how we [ODOE] should proceed with solar and other large manufacturing renewable

energy facilities. We can approve as many as two BETCs at $20 million each in eligible

cost, for a total of $40 million of eligible cost… we have also agreed on incorporating

this approach in the BETC rulemaking that we are beginning… Both ODOE staff and

Economic Development [now OBDD] staff should be clear in following this approach on

the amount of tax credits which we can offer.”

The new manufacturing BETC eligible cost limit of $40 million had not yet become law.

Solar World projects and Grainey’s email precedes House Bill 3619 and its retroactive

effect date of January 1, 2008. The email in this project reveals that Grainey, Repine,

and McCabe agreed to something different from what the statutes allowed. Tim McCabe

would go on to become the Director for OBDD and Bob Repine would go on to become

interim Director of the ODOE.

Project #18887 had $22 million in final eligible costs and a tax credit of $11 million,

above the maximum limit of eligible costs because of the 10% allowance. Project

#18884 had a tax credit for $10,962,343 from $21.9 million in certified costs, also above

the maximum limit in costs. Both projects ran concurrently; the preliminary applications

were received by the ODOE on February 26, 2007, and preliminary certifications issued

12/31/2007 for $20 million each. Together the projects exceeded the limit per facility in a

calendar year.

Additionally, one project showed an invoice that literally is written in Japanese for line

item descriptions of costs seemingly considered eligible for a tax credit.

Timeline:

1. February 26, 2007 Preliminary applications

2. March 2, 2007 Project completion date for project #18884 per the FoxPro System

3. December 31, 2007 Preliminary certifications issued for $10 million each

4. May 28, 2008 Letter from the applicant Bob Beisner seeking an accumulative

$97.5 million in eligible costs for the five files consisting of a “variety of projects”

5. November 14, 2008 CPA letter attestation

6. November 17, 2008 Final certified amount letter for $22 million project #18884

7. July 22, 2009 Final application received by ODOE for project #18887

a. August 17, 2008 Signature of applicant Bob Beisner

b. August 17, 2008 Stated project completion date


Marsh Minick, P.C.

22

8. August 28, 2009 Final certified amount letter for $21.9 million project #18887

This timeline is problematic as file #18884 may have completed before receiving the

preliminary application. In addition, the final application for project #18887 was signed

by the applicant almost one year earlier. These tax credits were sold to pass-through

partners.

Willow Creek Energy9

Red Flags:

110% of the costs exceeded the maximum allowable certified costs Willow Creek Energy, a subsidiary owned by Invenergy LLC, has one project, #23229,

with preliminary application received on May 16, 2008. Final application submitted on

February 17, 2009 with eligible costs of $22 million. The pass-through was completed

by April 30, 2009.

Portland General Electric Company10

Red Flags:

110% of the costs exceeded the maximum allowable certified costs

Portland General Electric Company had one project file # 18343. The preliminary

certification was dated March 15, 2007 for $20 million in eligible costs. On September

15, 2008 the final eligible cost letter was issued for $22 million, or an $11 million tax

credit that was later sold to a pass-through partner.

9 MMINV307

10 MMINV307


Marsh Minick, P.C.

23

Projects of Concern11

During the BETC examination, these projects were identified for more action than just a

review of the file for red-flag activity. Due to the volume of projects where red-flag

activity was observed, investigative efforts were motivated by perceived risks. This

should not be considered a comprehensive list or a complete investigation.

SunE Projects12

Red Flags:

Highly complex financial arraignments for costs on projects High risk for investor fraud in energy market Project sites are not owned by project owner Unknown who owns physical solar and PV assets Company partially filed chapter 11 bankruptcy

Project file numbers: #21025, #24663, #24662, #21543, #22183, #22181, #21804,

#21803, #21802, #21807, #22180, #21796, #21794, #21832, #21545, #21831, #21829,

#21809, 21828, #21827, #21826, #21825, #22179, #28691

SunEdison, Incorporation (SUNE/SUNEQ) was beneficial owner of 24 project files

between January 30, 2008 and September 24, 2009 for a total of $11,970,960 in eligible

costs, with $5,985,483 in tax credits issued. SunEdison utilized the pass-through

program, and earned a net income of $3,964,947 from the sales of the tax credits that

occurred between July 13, 2009 and December 28, 2012.

SunEdison was a renewable energy company headquartered out of Missouri, with

assets and subsidiaries located on six continents in 24 countries. In April 2016,

SunEdison filed for chapter 11 bankruptcy, case 16-10992-smb.

SunEdison’s subsidiaries, SunEs, had 24 solar photovoltaic (PV) BETC projects,

installing solar panels and PV systems at business locations throughout Oregon.

ODOE project files identify the project owner as an Oregon Limited Liability company,

with a common element of “SunE” contained within the registered name. Business

names appeared to correspond specifically with the City of the installation location, the

11 MMINV313



Marsh Minick, P.C.

24

site address. As an example, project file #21543 is for SunE W63817 Gresham LLC,

and the site location for this project is a Walgreens in Gresham, Oregon.

As evident in project files, the SunEs were either the original project owner or had

assumed the project owner roll before the completion of the project. The preliminary

application answers were common throughout the 24 projects, which included vendor

contract services provided by NVT Licenses, LLC. Similarly in the files, the final

application showed the beneficial owner, SunEdison, not the project owner, had

contracted with the same CPA firm attesting to the project expenses. Finally, the pass-

through payments were made directly to SunEdison, not to the SunE project owners.

Publicly available information found that NVT Licenses, LLC is registered out of the

State of Oregon, identifying NVT, LLC (NVT) as the member. NVT is a subsidiary of

SunEdison, this is concerning as SunEdison benefited both as SunEs and as the NVT.

Ultimately, SunEdison, through subsidiaries, received the pass-through payment funds,

payments from SunEs, and payments through installation of the solar systems with

NVT. NVT is registered out of Maryland with a Post Office Box address used by

SunEdison. Both NVT Licenses and NVT were also in chapter 11 bankruptcy

administered through SunEdison bankruptcy filing.

As part of the supplemental material contained in the project files, there are two main

agreements: a Collateral Agency Agreement and a Master Lease Finance agreement.

In reviewing these documents, it was determined that the Collateral Agency Agreement

appeared to be the structured sale of the solar panels and solar systems to the SunE

project owners, while the Master Lease Financing agreement appeared to be loan

documents; where the SunE project owners were committed to make payments on the

solar panels over the next 25 years.

With the transferring of assets and liabilities through subsidiaries owned by SunEdison,

it created a complex financial structure that is convoluted and difficult to determine.

Additionally, with subsidiaries registered out of Delaware, the ultimate beneficial

ownership is obscured.

While there are only 24 SunE projects, the Oregon Secretary of State (SOS)

Corporation Division website revealed that “SunE” had 49 individual businesses

registered, with 27 of those LLCs listing other SunEdison subsidiaries as members. In

total, SunEdison and SunE had 55 individual businesses registered by CT Corporation

System, a registered agent; although at this moment, most of the LLCs are now


Marsh Minick, P.C.

25

inactive. Originally, LLC member owners were found to be other subsidiaries of

SunEdison, but in June 2009, merger documents were received by SOS disclosing a

new member owner for 29 of the SunE’s as SunEdison Origination2, LLC.

While not all SOS SunE’s were part of this merger, SOS records were corroborated with

Securities and Exchange Commission (SEC) 10-K filings for SunEdison and

subsidiaries. This review revealed that the merged SunE’s are owned by a subsidiary,

owned by TerraForm Power. The “merger” of LLCs effectively moved the assets from

SunEdison to TerraForm.

The SunE project owner LLC’s are owned by subsidiaries registered out of Delaware.

Registered agents and Delaware privacy laws obscure the true ownership of the SunE

ownership subsidiaries. SEC records show 110 subsidiaries owned by SunEdison, with

49 of those entities acting as intermediaries for another 822 subsidiaries. SunEdison’s

primary subsidiaries were registered out of 17 countries, including Korea, Netherlands,

Chile, and South Africa. The 822 subsidiaries were registered out of many other

countries, including Bulgaria, Panama, Turkey, Cayman Islands, Greece, and Mauritius.

Through the numerous subsidiaries and intermediaries, SunEdison has businesses

within the solar manufacturing operations, wholesale distributing and sales, commercial

sales and leasing, and installation. Overall, SunEdison had controlled, most, if not all,

of the supply chain for their products around the world.

On July 18, 2014, TerraForm Power (TERP), a yieldco13 and subsidiary of SunEdison,

was released as an initial public offering (IPO) on the stock exchange, offering Class A

common stock to the public for $25 per share. TerraForm intended to use the $371.2

million in net proceeds to pay $86 million in milestone payments relating to TerraForm

Power’s initial portfolio of third parties, and use aproximently $92.8 million to purchase

Class B shares of Terra LLC common stock held by SunEdison or its affiliates. In

totality, $178.8 million, or about 48% of net proceeds from the IPO would be used to pay

off debts and to subsidiaries owned by SunEdison. This was concerning because they

are releasing stock to the public on a company, which was owned by another company,

using the proceeds to pay debt on their own assets they already, in theory, paid for.

TERP assets are diversified in developed markets in U.S., Canada, U.K., and Chile.

13 Publicly traded corporation that provides stable and growing distributions for investors from operating assets that generate a predictable stream of cash flow; created usually by a parent company by bundling renewable or conventional energy assets.


Marsh Minick, P.C.

26

Then on July 31, 2015, TerraForm Global (GLBL), a yieldco and a subsidiary of

SunEdison, announced their IPO offering of Class A common stock at a price of $15.00

per share, anticipating $675 million in net proceeds. This IPO would have injected new

cash from public investments into ultimately SunEdison’s operation. GLBL intended to

use the net proceeds to acquire Class A unit of TerraForm Global, LLC. TerraForm

Global, LLC will be using the proceeds, along with other sources of funds, to repay all

debts, interests, and for general purposes, which may include future acquisitions from

SunEdison. GLBL assets are globally diversified in high-growth emerging markets in

Asia, Africa, and Latin America. Since the July 2015 release, GLBL’s stock has never

increased back to the IPO price point.

The yieldco concept was derived from the Real Estate Investment Trust (REIT) law

enacted in 1960. The REIT, a type of security, invests money in many real estate

properties, and offers investors special tax considerations through the unique structure

distribution of high dividends. Investments in real estate normally include large

commercial property or multi-occupant homes, such as shopping malls, hotels,

apartment complexes, and even timberland. The dividends and investment income is

based of the ‘rent’ it collects from the real estate properties.

In 2012, yieldcos were created as a spin-off of REIT for companies in the Renewable

Energy sector. Yieldcos work with the same concept as REITs, where the operating

assets are moved to an independent power producing (IPP) company to manage the

assets. These assets are sold to investors as investments with a predictable cash flow,

based on long-term energy sales contracts with income distributed to its shareholders

as dividends. Based on this concept, yieldcos are essentially bundled renewable energy

projects that are under purchase power agreement (PPA) contracts for an extended

period of time. A yieldco company stock is funded by the income received from the

PPA agreements; these securities are attractive to lower-risk individuals and mutual

funds.

As following the yieldco model, SunEdison “spun off” assets and liabilities to TERP or

GLBL. In this investigation with the 24 BETC SunE projects, the SOS records have

most of the SunE’s managed by SunEdison Holdings II, LLC and SunE Solar (III, IV,

VIII, and XII), LLC. According to SEC documents filed in 2015, these entities are

subsidiaries of SunEdison. Then on or about June 17, 2009, SOS received Article of

Merger paperwork for SunEdison Holdings II, LLC with SunEdison Origination2, LLC. In

reviewing SEC documents, SunEdison is owned by TERP.


Marsh Minick, P.C.

27

The yieldco structure and market is a specialized and highly-complex financial

arrangement that can be exploited financially by key members and owners within the

company structure. In a high-level overview of SunEdison’s structure, the “assets” are

the future revenues of PPA agreements, and the project asset of the solar unit and the

“debts” appear to be the costs of the solar system (loan agreements). Assets of

SunEdison were moved between subsidiaries to yieldcos; the PPAs fund the yieldcos

and investors though distributions, and in concept the yieldco is paying for the

SunEdison asset. However, this is a complex scheme that can easily be financially

exploited. Recent lawsuits by stock holders (class action) allege that SunEdison

(defendant) misled investors on the financial health of the company, and a lawsuit was

filed by GLBL alleging that $231 million was misappropriated by SunEdison. Based on

the complexity of the transactions and the recent bankruptcy filing, more lawsuits may

be forthcoming.

On April 21, 2016, SunEdison filed for chapter 11 bankruptcy protection. This included

26 subsidiaries still owned by SunEdison, including NVT and NVT Licenses, LLC. Court

records show SunEdison with total assets of $20.714 million and total debts of $16.141

million; these numbers include consolidated assets and debts of TERP and GLBL (non-

debtors).

There are concerns on who is the ultimate owner of the solar system and PV projects. It

is not clear if during the “spin off” the assets were legitimately paid for by the yieldcos

and if payment was made on SunEdison’s commercial loan. At some point, the

bankruptcy courts may have to rule if there is any basis for reclamation of these entities.

With the transference between companies, it is unclear if the debts/promissory notes

directly related to the installation, manufacturing, and sales of the solar systems are still

collectable. Furthermore, with the looming financial issues of the head company,

SunEdison, investors are concerned with TERP and GLBL, as their stocks have shown

decrease stock performances. If energy costs decrease, or if their assets

underperform, these companies may have a difficult time in obtaining capital to survive.

This may pose a risk of the collapse of the controlling company, and subsequently the

collapse of relying subsidiary companies. With SunEdison controlling many aspects of

the supply chain, this could possibly lead to an energy crisis in certain areas of the

renewable energy sector and loss of investor funds.

In a February 2016 media report, just prior to SunEdison announcing their filing for

chapter 11 reorganization, SunEdison announced as part of their cost cutting measures


Marsh Minick, P.C.

28

they were selling their plant in Malaysia, closing their plant in Texas, and will “refocus its

Portland, Oregon operations into a cost effective R&D and technology demonstration

center.” This statement is concerning due to RD&D funding that is available through the

ODOE.

Timeline:

1. January 30, 2008 and September 24, 2009 SunE BETC project period

2. June 2009 merger documents received at SOS office; SunE projects merged

with subsidiary owned by TerraForm Power

3. December 28, 2012 last pass-through completed, payments to SunEdison

4. July 18, 2014 initial IPO for TerraForm Power

5. July 31, 2015 initial IPO for TerraForm Global

6. February 2016, closing plants and refocus RD&D in Portland

7. March 29, 2016 lawsuit filed on behalf of TerraForm Global

8. April 21, 2016 SunEdison files for chapter 11 bankruptcy

Solar City Projects14

Red Flags:

Possibility of positive net proceeds after project expenses with Federal funds Allegations of using false documents and invoices Attestation by CPA obscured the invoice/payment documents hindering ODOE Using incentives to pay back investors

Project file numbers: #29594, #29210, #22097, #27190, #28180, #34413

SolarCity Corporation (SCTY) was owner of six project files between March 19, 2008

and April 19, 2010 for a total for $6,878,029 in eligible costs, with $3,439,016 in tax

credits issued. SolarCity utilized the pass-through program, and received cash

payments worth $2,273,709 from the sales of the tax credits that occurred between

January 12, 2010 and December 28, 2012.

SolarCity is a full services solar provider, offering services to homeowners, businesses,

schools, non-profits, and government organizations. The company installs solar

systems and facilitates the switch from conventional energy to solar power. SolarCity



Marsh Minick, P.C.

29

was owned by two brothers, Lyndon Rive and Peter Rive, up until the July 2016 merger

with Tesla. The Rive’s are reported to be Telsa’s CEO, Elon Musk’s, cousins.

Project files reveal a business model closely aligning with SunE businesses, where

assets are owned by subsidiaries and leased through other entities. While the

subsidiary structure appears similar to other companies in the renewable industry, there

are a few differences between SunE and SolarCity at this moment. SolarCity appears

to have retained their ownership assets on the books, as evident by current SEC

records. SolarCity project names for subsidiaries are obscure, masking beneficial

ownership which makes it challenging to link subsidiaries. The generic name structure

includes Mound Solar Owner V, LLC and USB SolarCity Owner 09-10, LLC, which may

make SolarCity projects undetectable to the ODOE. SEC records reveal that as of

December 2015, SolarCity has 212 subsidiaries located in Arizona, California,

Delaware, Germany, Hong Kong, Mexico, Australia, United Kingdom, Canada, Cayman

Islands, and China. The few LLCs registered in Oregon are foreign corporations, and

none of the subsidiaries listed with the SEC are based out of Oregon.

In or around July 2012, the U.S. Department of Treasury Office of the Inspector General

served subpoenas to SolarCity [and other solar panel companies] formally requesting

documents pertaining to the Treasury’s 1603 program. Allegations have been made

that large solar companies, including SolarCity, have been overvaluing their price of

solar projects in order to increase their claims on federal subsidies. It is reported that by

July 2012, SolarCity had received about $501 million in 1603 funds.

According to the Treasury website, the 1603 program is part of the Recovery Act, and

"The purpose of the 1603 payment is to reimburse eligible applicants for a portion of the

cost of installing specified energy property used in a trade or business or for the

production of income.” There is no dollar limit on projects, but the maximum amount

payable for any project is 30%, or 10% of the eligible costs; unlike the ODOE BETC, the

1603 program is a cash payment processed through the Automated Clearing House

(ACH) directly to the applicant’s bank account.

About the same time in July 2012, the pending 1603 program applications submitted to

Treasury for reimbursement by SolarCity were paid with funds less than what was

anticipated by the company. This shortage caused the company to pay their investors

the difference between the anticipated 1603 funds and the actual 1603 payment

received. This is concerning as it appeared SolarCity is using government funds to

payback investors.


Marsh Minick, P.C.

30

In early 2015, media reports reveal that ODOJ is involved in an investigation on six

solar projects completed for the Oregon University System, projects which may have

involved false documentation and the use of prison labor. Purportedly through some

difficulty, SolarCity was eventually awarded the contract, which was allegedly described

as “intended to stimulate the ‘buy American, buy local’ initiative for the regional

economy.” In conflict with the project initiative, it was reported that SolarCity used

prison labor, at less than a dollar an hour, to install the solar system that may have been

manufactured outside the local area.

On the Treasury website, under the frequently asked questions about the 1603

program, they provide answers on the “Use of Awarded Funds”.

FAQ Treasury Website on Use of Awarded Funds

38. Question: Do the “Buy American” provisions in the American Recovery and Reinvestment Act of 2009 apply to the Section 1603 program?

Answer: No

39. Question: Does the Davis-Bacon Act apply to the Section 1603 program?

Answer: Receipt of funds under Section 1603 does not trigger the requirements of the Davis-Bacon Act

The federal program articulates that 1603 applicants do not need to Buy American or

pay locally prevailing wages or fringe benefits.

The ODOE is in a compromising situation with the 1603 program when accounting for

Oregon funds and interests. The 1603 application cannot be submitted until after the

project has been completed, and there appears to be no timeline for the application

beyond that the energy system must be operational. In totality, there is a high probability

that non-disclosure of the 1603 funds by SolarCity and other project owners may have

occurred, and resulted in total credits/dollars exceeding project expenses. Furthermore,

as the market changes and mergers/acquisitions increase, and as larger companies will

continue to control more and more of the supply chain, the easier it will be to overinflate

or misreport actual costs or products sold. With the solar industry extremely

competitive, and tax credits and cash incentives readily available, this market

combination produces an environment rampant with fraud, waste and abuse.


Marsh Minick, P.C.

31

While ODOE mitigated a risk by transferring the risk onto the CPA to determine eligible

costs for projects over $50,000, the physical financial records not provided by the CPA

may reveal more information about the structure of ownership and payment obligations.

This information may assist ODOE in their evaluation of the project, including who is the

payer of the expenses, if there is any lien obligations left unpaid, any legal claim to the

energy assets, and copies of invoices from vendors to determine if there is a difference

in prices that may substantiate overbilling and/or a fraud attempt.

The allegation of SolarCity [and others] overbilling to obtain more 1603 money is highly

concerning. Without copies of the paid invoices, and the front/back of checks or other

payment details, the onus is left relying on CPAs to attest to these expenses. In most

all cases, CPAs are only sampling invoices/payments and are not conduct a thorough

financial examination.

While the scope of the BETC examination did not include assessing financial markets,

the comments made by SolarCity regarding the dependability of 1603 funds to pay

investors is concerning. This statement may indicate a larger systemic problem within

the renewable energy sector. As companies become more and more financially

dependent on tax credits, or the proceeds on the sale of tax credits, and other forms of

cash incentives, or grants, that when these incentivized programs expire or end, it will

create a vacuum in this industry, which may impact the financial markets.

Timeline:

1. March 19, 2008 and April 19, 2010 SolarCity BETC projects

2. December 28, 2012 Last tax credit issued

3. July 2012 Treasury subpoenas for records; allegations of false invoices

4. July 2012 Treasury disperses 1603 funds in an amount less than expected by

SolarCity; SolarCity needing 1603 funds to pay investors

5. SolarCity Under investigation with ODOJ

FUSP LLC Project15

Red Flags:

Project vendor found guilty of fraudulent invoices in a separate matter Several instances where project owner attempted to get BETC money early



Marsh Minick, P.C.

32

Project does not have a site address Attesting CPA also brokered tax credits

Project file number: #20484

FUSP, LLC was a project owner with a preliminary application in June 2007 for a total of

$7,523,199 in eligible costs, with $2,633,120 in tax credits issued. FUSP utilized the

pass-through program, and received cash payments worth $1,918,416 from the sale of

the tax credit during February 2008.

According to the project file description, FUSP was to acquire the operating assets and

facilities of First US Pallet, Inc., DBA Caliber Forest Products, and the assets of Oregon

Pallet. These assets would be operated together at the Turner location, at the site

address 5255 Chicago Street, Turner, Oregon. The FUSP project recovered fiber for

the production of finger joint pallets and pallet stock, and to facilitate the repair of pallets

with recycled materials. This approach was believed to be a first in the U.S. made

possible, with the combined capability of the equipment that will be brought together in

this operation. The progressiveness of this project was the allure for the ODOE to

approve the project.

The new recycling operation was to secure discarded pallets of all kinds, capture as

much urban waste in the form of wood by-products, and discard the no longer usable

material to the generator. FUSP would acquire as much material from these waste

streams, and recycle it into new uses. Wood waste for which no more valuable use

can be found will be recycled for use in post-consumer paper.

The project owner provided a copy of an Evaluation Appraisal for the used machinery at

Oregon Pallet and Caliber Forest Products as support for project expenses.

At the beginning of August 2007, the project owner contacted ODOE asking about

partial advances of the BETC money, or if there is a way to do different projects to get

money quicker. Then in mid-August, the project owner sent in a memorandum about the

original structure of the BETC, instead of acquiring both company’s assets, the project

was amended to only acquire the assets of Caliber Forest Products. The funds

allocated for Oregon Pallet would be for “blue sky” to further its mission of recycling,

while acquiring additional needed equipment on the open market.


Marsh Minick, P.C.

33

On November 29, 2007 the ODOE received a fax cover letter from Columbia

Investments, although the faxed contents itself missing and not in the project file. A

handwritten note on the fax cover sheet, presumably from an employee at the ODOE,

stated that on November 29, 2007 they spoke with project owner who said that he

“doesn’t know who Columbia Investment is. Not Authorized”, and that the project would

not be done until 2008. Although, on August 24, 2007, there was an email from the

project owner to an ODOE employee, with carbon copy to Bill Claussen the project

contractor, and Dennis Strand of TeamCBA.com, indicating the attachment was the Tax

Credit Application for FUSP, and the original will follow by mail with the check.

TeamCBA.com is for Columbia Business Advisors; the phone number on the fax

corresponds to the phone number for Dennis Strand.

Around that same time, Columbia Investment had released an “Available for Purchase”

press release on their website (TeamCBA.com) advertising the opportunity to purchase

tax credits of approximately $2.8 million, for a purchase price of $2.04 million, payable

in 15 days after the Pass-through Partner Agreement is signed by the buyer and

submitted to the ODOE. This announcement disclosed a project completed estimated

date of November 30, 2007. This opportunity contact was Dennis Strand; Strand and

Wiley are currently listed as owners/consultants on the Columbia Business Advisors

website. Additionally, Wiley’s current LinkedIn profile disclosed that he has been a

Managing Member at Columbia Business Advisors, LLC since January 2004.

The BETC fee was paid for by Adams Lumber on Pacific Highway; the project owner

contact provided an email address at Adams Lumber.

An online search for the preliminary application’s project site address at 5255 Chicago

Street, Turner is indicating the Turner City Hall. Showing at the end of Second Street in

Turner, there is two lumber-type businesses, Action Pallet and Turner Lumber. One of

their buildings is close to Turner City Hall on Chicago Street. Online shows that Caliber

Forest Products, LLC is also at the same address of 5255 Chicago Street SE, Turner,

but it seems their location is further down on Chicago Street.


Marsh Minick, P.C.

34

The SOS Corporation Division indicated that Caliber Forest Products, LLC is no longer

an active business since 2005, but it appears they are now operating under a new

name, Turner Forest Products, Inc. Up until August 2008, SOS for Caliber Forest

Products listed an authorized representative as William Claussen; on the preliminary

application, the contractor is Northwest Lumber Products, Inc. (NLP) listing a contact

person as Bill Claussen.

The non-renewed registration, which expired August 15, 2006, showed that Caliber

Forest is now part of FUSP. FUSP registered with the SOS’s office in March 2007 and

was later dissolved in May 2010, listing William Wiley as a company manager. The

registration had two addresses that did not appear conducive for recycling.

One CPA certified the project costs and brokered the tax credits administered by

George Hughes, the CPA who appeared to have brokered the most BETC, based on

tallies made during the examination.

As previously mentioned, Bill Claussen with NLP is listed as the vendor/architect for the

project. The SOS Corporation Division for NLP has William Claussen as President.

This business was opened April 2006 and dissolved June 2011.

In August 2014, William (Bill) Claussen pled guilty to wire fraud and ordered to pay just

over $2.1 million in restitution. According to the indictment, beginning about April 2007

to at least January 2008, Claussen prepared false invoices for ‘completed’ sales of

lumber for Caliber Forest Products and sold invoices to Middleman Northwest, a

factoring company. However, as the timber-products market was collapsing, Claussen

began selling invoices for products his company had not, and did not ever, deliver to

buyers. Middleman Northwest, which was trying to collect on the invoices, asked

Claussen where the products were, but the government indictment said that ‘Claussen

View of 3rd Street Turner Forest Products Aerial view of Turner Forest Products


Marsh Minick, P.C.

35

lied claiming the lumber had not yet been delivered to the customer because of a

shortage of railcars or that the customer was waiting for a buyer before paying for the

lumber’.

In summary, based on the timing of the red flags, it suggests that Wiley may have

needed the funds immediately:

The email from Wiley inquiring about structuring the project to get BETC money

early

The pre-existing relationship, and subsequent denial, between Dennis Strand

with Columbia Business Advisors (Columbia Investment)

Strand publically advertised the BETC credit purchase opportunity for FUSP

The project change from purchasing equipment from two different companies,

which resulted in foregoing a small fraction of the total project dollars ($103,325)

that was allocated for Oregon Pallet & Oregon Wood Fibre

Moreover, during the timeframe of when this project occurred, Claussen, owner of

Caliber, was selling false invoices according to the guilty plea. As this project was in

excess of $50,000, the costs were reviewed by a CPA and no records of the

transactions were provided to ODOE; the CPA in this project attested to the costs for

FUSP, and also brokered the tax credits. No site inspection was conducted by the

ODOE.

When all the facts are taken in totality, it suggests that this BETC project is highly

suspect and warrants a further review by the ODOJ.

Timeline:

1. June 2007 Project started, listing Bill Claussen as vendor

a. Project owner provides email address at Adams Lumber, and BETC fee

paid for by Adams Lumber

2. August 2007 Project owner inquired about partial advances of BETC money

3. November 2007 Dennis Strand with Columbia Investments has public

announcement to sell BETC

4. November 24, 2007 Email from project owner has carbon copied to Bill Claussen

and Dennis Strand

5. November 29, 2009 ODOE gets a fax from Columbia Investments (fax contents

unknown), and the project owner claimed that this is not authorized


Marsh Minick, P.C.

36

6. February 2008 The pass-through process is completed

7. April 2007 to January 2008 Bill Claussen was creating false invoices. Pled guilty

to wire fraud for false invoices in August 2014

Team Estrogen Warehouse Project16

Red Flags:

Illogical commuter project in an area with very little commercial industry Project owner is an online retailer Project owner only at site location for (at most) three years CPA and preliminary certification dollar for dollar match BETC energy credit calculated based off 15 year future bicycle commuting


Team Estrogen Warehouse was a project owner with a preliminary application in June

2006 for a total of $67,122 in eligible costs, with $23,493 in tax credits issued. Team

Estrogen is owned by Leapfrog Investment, LLC, and is an online retailer of women’s

cycling and fitness apparel, www.teamestrogen.com. Leapfrog Investments had an

address at 5705 SW Main Ave, Beaverton, and the BETC fee was authorized by Susan

Otcenas. All applications were signed by Jeff Mendenhall. The address for Team

Estrogen was at 22115 NW Imbrie Drive #400, Hillsboro, which is a dropbox at UPS.

The BETC project description stated that Leapfrog Investment, LLC will construct a new

building with a 500 square foot room to provide facilities for cycling. This room was part

of the construction of a new office/warehouse building who's primary, and eventual sole,

tenant will be TeamEstrogen.com, and will enable their employees (present and future)

to commute by bicycle for a majority of their trips to work.

Specifically this was a room designed to secure indoor bike parking for 20 bikes.

Function-specific features of this room to include:

Wall-mounted bicycle racks

Damage-resistant wall materials

A floor drain to dispose of water that would otherwise pool beneath the bikes

Storage shelves/lockers for each employee's bicycling gear



Marsh Minick, P.C.

37

Inclusion of this space in the building's HVAC coverage to facilitate drying of

wet gear and to provide a comfortable environment for employees to get into

and out of their cycling gear

This project site address is at 21350 NW

Mauzey Road, Hillsboro 97124, and is off

a country road in a very limited developed

area. The first street views recorded

online are in 2009, and while this project

started in mid-2006, it shows that there is

no industry around the area, just open

agricultural fields and an apartment

complex.

The earliest records online show that since December 2010, Right Weight Load Scales

has been at that location. Right Weight is a reseller of digital displays of freight loads.

These weights are installed and monitor air suspension systems on the tires of trucks.

On July 5, 2016 the BETC examination team took a drive-by of the Mauzey location.

The commercial door is labeled Right Weight, and, even in 2016, there is not enough

commercial industry to make this bike room usable for 20 bikers. Moreover, in

reviewing the archived website for teamestrogen.com, the website shows that the

Mauzey road address was added to their webpage in 2009, with a note saying they do

not have a retail store. This address continued to be on their website through 2010, but

Right Weight was physically at that location, which may indicate they did not

immediately update their webpage.

March 16, 2007 there was an email change between an unaffiliated third party and

Susan Otcenas discussing how the BETC would not approve her shower section of the

bike room, but she put it in anyways. In the email signature line, it stated that effective

March 19, 2007, Team Estrogen new address was 21350 NW Mauzey Road. Analyzing

the sequence of dates, it may be possible that Team Estrogen was at that location from

between March 19, 2007 to December 2010.

However, the BETC was based on calculations of five-year increases in bicyclists to

their location.

Team Estrogen

location


Marsh Minick, P.C.

38

Calculations in the BETC:

Year 1 10 Riders (50% capacity) $4,500*.5= $2,250 Travel Reduction at Full Capacity (20 riders) 2 trips per day per rider = 40 trips 5 miles per trip 3 days per week =150 days per year = 30,000 miles @20mpg = 1500 gallons fuel saved @$3/gal = $4,500 /yr.

Year 2 14 Riders (70% capacity) $4,500*.7= $3,150

Year 3 18 Riders (90% capacity) $4,500*.9= $4,050

Years 4-15 20 Riders (100% capacity) $4,500*12= $54,000

Calculations were based off a 15 year payback period. The BETC calculated the 15

year energy savings at $63,450, and the CPA submitted costs for $67,122.93 for the

bike room. The CPA attested costs is the exact amount down to the dollar as in the

preliminary certification.

It is concerning that Team Estrogen was only at the site location for, at most, three

years of the anticipated 15 years. Additionally,

this is a new building in an area mostly

surrounded by agricultural areas protected by

the Urban Growth Boundary. The areas inside

the Urban Growth Boundary around Mauzey

road is still mostly agricultural. If the project

owners were anticipating storing commuter

bicycles in their indoor bike room, there was not

enough businesses/jobs in the area that would use a bike room. On the flip side, if

Team Estrogen planned on using the bike room for just their employees, the business

was at that location, at most, for three years, devaluing the energy savings potential.

Assuming that they did increase ridership, the project owner was not at the site location

in year #4 (and current), there may be a potential for a reclaimation of approximately

$54,000.

ClearEdge Power Projects17

Red Flags:

Moved operations from Oregon to California Majority of company operations in California and Connecticut Filed for bankruptcy

17 MMINV307, MMINV319, MMINV308


Marsh Minick, P.C.

39

Physical assets in Hillsboro were sold at auction Technology purchased by offshore company

Project file numbers: #15752, #16443, #16926, #18456, #19157, #17440, #17979,

#20924, #22876, #23834, #24886

ClearEdge Power (ClearEdge) was owner of 11 project files between March 26, 2006

and December 3, 2009, for a total of $21,848,226 in eligible costs, resulting in a tax

credit of $8,621,089. ClearEdge utilized the pass through program, and received cash

payments of $6,908,448 from the sales of the tax credits.

ClearEdge was a fuel cell developing and manufacturing company located in Hillsboro,

Oregon. The company had other locations, notably in California and in Connecticut,

used specifically for their manufacturing and sales operations. Based off the

information contained in the BETC project files and the site-space constraints, it is

presumed that ClearEdge used the Hillsboro location solely for RD&D.

According to the project files, the $21.8 million in project costs went to engineering a

prototype beta test fuel cell, supplies and equipment, professional outside services,

salaries and payroll, travel facility upgrades (including lab equipment purchases), and

technical seminars. From 2011 to 2013, ClearEdge received other sources of funds

that included investments from venture capitalists and USDOE grants. In 2013,

ClearEdge moved their operations from their Hillsboro to Sunnyvale, California.

Then on May 14, 2014, ClearEdge filed chapter 11 bankruptcy (case 14-51955) with

subsidiaries ClearEdge Power Inc., ClearEdge Power, LLC, and ClearEdge Power

International Service, LLC. According to bankruptcy documents, the events leading up

to the filing was constraints on working capital derived from the instability within the

industry, which resulted in the financial distress commencing towards the end of 2013.

As the bankruptcy progressed, ClearEdge purportedly continued to market its assets for

sale to the highest bidder. Ultimately, the sale of ClearEdge’s assets was sold through

the supervised asset auction by the bankruptcy court. Doosan Corporation (Doosan), a

South Korea holding company specializing in the energy sector, purchased ClearEdge

for $32.45 million in July 2014. In total dollars, ClearEdge was purchased for

approximately one-fourth of the total tax credits paid to the company.


Marsh Minick, P.C.

40

Less than two months after the purchase of ClearEdge, in September 2014, Doosan

hired an auction team to dispose of the assets in the lab in Hillsboro, Oregon. The

auction was held September 2-9, 2014. The investigation was unable to determine the

results of the auction, how much was earned or who purchased the equipment.

Doosan has only one location in the United States, in Atlanta, Georgia. The rest of their

locations are in China, India, Qatar, United Arab Emirates (UAE), Serbia, Poland,

Czech, Germany, United Kingdom (UK), and Scotland.

The RD&D projects were mostly approved before the existence of ODOE’s RD&D

committee, a group of ODOE staff making collective decisions on the approval of RD&D

projects. The project approval, objectives, outcome, and site inspections had been

done primarily by one ODOE employee. Based on the project description, the ODOE

may have allocated this type of project to this specific employee due to his experience

in engineering. This investigation did not reveal any implications of impropriety by

ODOE employees.

However BETC projects in total were in excess of $21 million, with a tax credit amount

over $10 million, for the purchase of equipment and research staff over a 3-year period.

Before five years after the last tax credit, in December 2009, ClearEdge filed for

bankruptcy, and their technology and equipment were purchased, liquidated, and

moved out of the country.

Timeline:

1. 2006-2009 BETC projects

2. 2013 operations moved from Hillsboro to California

3. May 2014 ClearEdge filed for bankruptcy

4. July 2014 assets sold at bankruptcy auction

a. Technology acquired by Doosan Corporation in South Korea

5. September 2014 Hillsboro physical assets sold at auction

PV Powered Projects18

Red Flags:

CPA attested costs all used the 10% overage allowance



Marsh Minick, P.C.

41

Another CPA firm represented the project owner when ODOE inquired about the sale of the company; this same CPA firm also brokered the tax credits

Project owner was acquired by a third party company Moved jobs and operations to Hong Kong RD&D technology phased out and no longer in use


PV Powered (PVP) was owner of six projects between November 29, 2006 and

December 28, 2012, for a total of $11,387,501 in eligible costs, resulting in a tax credit

of $5,018,843. PVP utilized the pass-through program and received cash payments of

$3,153,704.01 from the sales of the tax credits.

All the project files, except for one file with eligible costs of $6,469, indicated RD&D

project costs went to materials, labor, fringe benefits, payroll taxes, consultants, UL

certification and testing, and general/administrative costs. The five projects had

expenses in excess of $50,000, and were attested by a CPA; all five of the certified

project costs were in amounts that took advantage of the 110% buffer increase. As the

expenses were reviewed by the CPA, there were no financial costs contained within the

file.

PVP was a solar energy equipment supplier with a manufacturing plant in Bend, Oregon

creating solar inverters, their PowerVault Inverter “PV Inverter” solar products. The PV

Inverter technology appeared to have been created, modified, and improved with RD&D

BETC funds.

On March 3, 2010, the then CEO of PVP, sent in a letter to ODOE Director Long on

behalf of Sage Renewables, Outback Solar LLC, and Lost Forest Solar LLC. He states

that “Obsidian Renewables, LLC, through subsidiary companies, is ready to develop the

three largest solar PV projects in the Northwest to date, known as Outback Solar, Lost

Forest Solar, and Sage Renewables. PV Powered is pleased that our PowerVault

system has been chosen to be the inverter solution for all three projects.” The letter

wanted to express his interest that the ODOE leave the three businesses as three

projects, and not to combine them into a big project, so that “the economics of scale” is

favorable to PVP and Obsidian. This is concerning as the standards for separate and

distinct criteria had pressure to be circumvented to be most favorable for several project

owners. Additionally, in the Sage Renewables project there were at least a dozen


Marsh Minick, P.C.

42

letters addressed to Director Long pressuring him to approve three projects, and not to

apply the separate and distinct criteria.

Shortly after the letter was written, on March 24, 2010, there was a press

announcement saying that Advanced Energy Industries Inc. (AEI) of Fort Collins

Colorado acquired PVP.

The ODOE inquired with the company about filing an amended application and had

received an email that appeared to be a response from ODOE inquiry.

The email dated November 30, 2010 was from Irina MacEwan at Moss Adams

to Joe Colello at ODOE,

“…Additionally, you inquired about PV Powered being acquired by

Advanced Energy Industries, Inc. ("AEI"). Sometime during 2010, PV

Powered was in fact acquired by AEI. PV Powered is a C corporation. The

acquisition was structured as a stock sale. PV Powered continues to do

business as a C corporation and continues to operate the facility for which

the BETC was earned.

ORS § 315.354(5) states that,

"Upon any sale, termination of the lease or contract, exchange or other

disposition of the facility, notice thereof shall be given to the Director of the

State Department of Energy, who shall revoke the certificate covering the

facility as of the date of such disposition."

PV Powered did not sell, terminate the lease or contract, exchange, or

dispose of the facility for which the BETC was earned. As mentioned above,

PV Powered has always operated the BETC eligible facility. PV Powered,

the corporation, was acquired by AEI through a stock sale. However, no

sale of the BETC facility occurred as a result of the acquisition. Therefore,

PV Powered is not required to notify the DOE of the acquisition of PV

Powered stock by AEI and the DOE does not need to revoke the BETC

related to the facility operated by PV Powered.”

The final application was processed and the pass-through was brokered by Moss

Adams.


Marsh Minick, P.C.

43

At the height of the company in 2011, PVP employed close to a 120 workers, and was

in the 50th largest regional employer in the Bend area. During the 2008 presidential

election, then-presidential candidate Barack Obama toured the facilities and used PVP

as an example for his renewable energy agenda.

In May 2010, AEI purchased PVP for $90 million. About a year later in the fall of 2011,

AEI started to restructure their operations, and moved manufacturing jobs from their

Colorado operations to their Shenzhen, Hong Kong location. As part of the corporate

restructure and cost cutting measures, AEI announced in December 2011 layoffs at the

Bend plant; by 2013 AEI had consolidated the Bend manufacturing operations with their

operations in Shenzhen, Hong Kong.

On December 23, 2014, AEI announced that with the continued losses sustained in the

Solar Inverter business, they were considering options to sell the product line. Reported

on AEI’s website through the ‘News to the Investors’ dated June 29, 2015, AEI

announced they were unable to find a suitable purchaser for the Solar Inverter

business, so the company had made the decision to wind-down the operations.

In summary, the last BETC tax credit was issued in December 2012. Since Mid-2010,

the PVP was sold, experienced layoffs and outsourced jobs, and in mid-2015 the PV

Inverter ceased to be manufactured. Based on reports, the PVP manufacturing plant in

Bend, Oregon only continued operations for at most a year after the final tax credit was

issued.

Timeline:

1. February 2006 to September 2009 BETC projects

a. Last pass through money received by project owner end of December

2009

2. March 25, 2010 PV Power was acquired by AEI

3. May 3, 2010 SEC Corp division got merger paperwork

4. Fall 2011 AEI initiated restructuring, started moving jobs to their solar

manufacturing from Fort Collins to Hong Kong

5. November 10, 2011 Email from Moss Adams saying that ODOE cannot revoke

tax credits as the facility is still being used

6. December 2011 AEI announced layoffs in Bend inverter plant


Marsh Minick, P.C.

44

7. June 2013 Fully shifted Bend operations; manufacturing to Hong Kong and

headquarters to Fort Collins, Colorado

8. December 23, 2014 Announced looking to sell Solar Inverter Business

9. June 29, 2015 AEI did not find a successful buyer or joint venture, so shut off the

Solar Inverter business section. Layoffs occurred in Colorado

Finavera Renewables Ocean Energy Project19

Red Flags:

Project was never designed to generate or save energy, just research Technology no longer with company, sold to unknown third-party Project costs included in eligible costs incurred before precertification Project owner on Renewable Energy Working Group (REWG) for Governor

Kulongoski Possibility of moving deployment from Washington to Oregon for BETC (not used

as an incentive)


Finavera Renewables, Inc. (Finavera) had one project with preliminary certified costs of

$2,787,191 issued on July 27, 2007. The final application was received by the ODOE in

April 2009, with the CPA attesting to $3,065,910 in eligible costs utilizing the 10%

allowance, resulting in a tax credit of $1,532,955. Finavera utilized the pass-through

program, and received cash payments of $1,027,080 from the sale of the tax credit.

The pass-through exchange was completed by August 28, 2009.

Finavera is a Vancouver, Canada based company, and currently develops and operates

renewable power projects. At the time of this project, Finavera was in the ocean wave

technology industry, and this project was for an AquaBuOY prototype for research and

data collection. However, Finavera has since moved out of the ocean wave technology,

and has been purchasing and selling pre-existing wind and solar companies according

to the news. Finavera Renewable Ocean Energy, LTD (FROE) was a subsidiary of

Finavera, and a project owner for an RD&D project AquaBuOY launched off the

Southern Oregon Coast. The device deployed was not supposed to produce or harness

power, and the sole focus of this project was to provide flow-data and proof of energy

19 MMINV307, MMINV319, MMINV238, MMINV243


Marsh Minick, P.C.

45

collection abilities of the device, and demonstrate mooring designs (in conjunction with

OSU monitoring). This was to be the first phase of the RD&D project.

This project had a CPA letter attesting to the expense; although, Finavera (or the CPA)

also provided a print out of line items, showing that there were expenses in the eligible

costs that were incurred before the precertification date of July 27, 2007. These

expenses occurred in May through to July 17, 2007 that should have been removed

from the total certified costs resulting in an estimated $603,000 increase in final eligible

costs.

The project was paid for by a promissory note to Science Applications International

Corporation (SAIC) for $2,418,761, out of San Diego, California. The promissory note, if

paid in full by March 20, 2008, offers a 20% discount to $1,935,008.80. The California

Secretary of State has SAIC registered out of Delaware at an address at an address in

Virginia. According to a press announcement, SAIC had assisted Finavera with the

engineering and marine experience.

The AquaBuOY was deployed about ½ nautical mile from Newport, Oregon in the Coos

Bay area; it was in the ocean for a month during September/October 2007. The BETC

application project description did not forecast any revenues or energy savings, but

once the “AquaBuOY development is completed, the end product is an offshore wave

energy generating plant deploying a number of AquaBuOYs…” This statement, found

on the preliminary application, aligns with then Governor Kulongoski’s clean energy

legacy and vision. Published February 11, 2007, the Oregonian reports that

“Kulongoski’s vision: … Buoys the size of refrigerators bobbing off the Oregon Coast.”

Moreover, Finavera was a participant on Kulongoski’s REWG which met during 2006-

2009 era.

On October 27, 2007, seven weeks after deployment, the AquaBuOY sank off the coast

of Newport. Unsubstantiated media reports during this period suggest that the company

only intended the device to last a few months, but was not intended to sink; it was their

“test platform” for data modeling and validation. While reports during this 2007 period

are minimal, there were reports that Finavera and Pacific Gas & Electric in California

may have entered into a commercial agreement to harness wave energy commercially,

but was later rejected by California’s Public Utilities Commission due to the sinking of

the device.


Marsh Minick, P.C.

46

In July 2010, Finavera sold FROE, with assets and intellectual property relating to

AquaBuOY, to an undisclosed third party, and the company has ceased their

involvement with ocean wave energy.

It is concerning that the project file does not contain any information about the flow data

or the viability of energy collection abilities that this device may have collected, nor is it

known if any of this energy data collection has been shared with the USDOE, OSU, or

ODOE for future research opportunities. A high level overview of patents held at the

U.S. Patent office indicated the wave technology are still primarily held by AquaEnergy

Group, LTD (see below), but no other information had been found specifically regarding

ownership of the AquaBuOY technology.

In a review of Federal Energy Regulatory Commission (FERC) public records, Finavera,

formerly known as AquaEnergy Group, LTD prior to February 2007, applied for, and

received, their FERC permit in November 2006. In and around 2003/2004 era,

AquaEnergy/Finavera appeared to have a permit to conduct research out of Makah Bay

in Washington State. It is not known why Finavera ultimately submitted for their permit

off the coast of Oregon, but based on their involvement on the REWG, it may suggest

that Oregon provided more favorable treatment for ocean wave technology than

Washington. This project is concerning due to the timing of expenses acting more as a

reimbursement program than an incentive program because costs were incurred before

the preliminary certification, and the costs submitted appeared to only be operational

relating to the deployment of the AquaBuOY and not the design.

Timeline:

1. 2003/2004 Permit from FERC for research out of Makah Bay in Washington

2. 2006 to 2009 Project owner on REWG committee

3. November 2006 Applied for and received FERC permit for research off the coast

in Oregon

4. February 2007 Kulongoski vision of buoys bobbing off Oregon coast

5. July 2007 BETC application

6. September 2007 AquaBuOY deployed in Coos Bay area

7. October 2007 AquaBuOY sank

8. July 2010 assets and technology sold to an undisclosed third party, and Finavera

no longer in the ocean energy sector


Marsh Minick, P.C.

47

Bear Mountain Forest Products Project20

Red Flags:

Equipment not operational, not installed, and in their containers BETC was issued after company laid off 21% of their workforce Project mostly worked by one ODOE employee No site inspection conducted before BETC was issued


Bear Mountain Forest Projects (BMFP) had one project with a preliminary certificate

issued on March 11, 2008 for $7,520,000 in eligible costs; the ODOE received a letter

from Moss Adams, dated March 12, 2008, attesting to a total of $7,688,629 in project

costs. By end of April 2009, the pass-through process had been complete, with all the

tax credits sold. No site inspection was conducted.

BMFP had submitted their Project Assessment for a complete hogged fuel biomass

dryer system with their preliminary application signed May 4, 2006. Their Project

Assessment was self-administered, and included possible building locations of their

pellet facility, and the market research of pellet sales/uses. These figures were used to

support their request in a complete biomass system. BMFP had also applied for a

$5.76 million dollar SELP loan on June 26, 2006, using the machinery, worth $7.2

million, as collateral.

In February 2008, a memorandum from an ODOE employee, Mark Kendall, states that

“SELP staffing changes at the time caused the original application to remain in the

SELP file without being forward to for Business Energy Tax Credit review”. Apparently,

BMFP started their project and realized that they only had the preliminary certificate for

the dryer portion of the project, and not the second part of the project. BMFP had two

concurrent projects in this application: a wood pellet production and a woody biomass

fired dryer.

During this time, Albany, Oregon media reported that on February 16, 2008 due to a

shortage of raw woody materials, BMFP laid off 21% of their staff at the project site

address in Brownsville, Oregon, and laid off 15% of their staff in their Cascade Locks

location.



Marsh Minick, P.C.

48

On January 4, 2013 an email was sent by a third party to ODOE Director’s Lisa

Schwartz and carbon copied to Bob Repine. The context of this email alleged that

BMFP received millions of dollars in tax credits on equipment that had never been used

and was collecting dust. The third party went on to say that the sawdust, shavings, and

hog fuel needed for their products, is of such high quality that there is a huge demand

for the material in the marketplace, and the quality of product needed would never be

put into landfills. Furthermore, if BMFP had put the machinery into production, their

current EPA Air Emissions permit would not have allowed for the additional processing.

The BETC program allowed BMFP a convenient way to replace aging machinery with

the remaining uninstalled equipment and machines stored in the warehouse, including

an entire packaging line and robotic palletizer.

With the allegation of abuse and possible fraud, Anthony Buckley requested Ralph

Harding (BETC) and Adam Morgan (SELP) to conduct a site inspection. The

conclusion of the ODOE site inspection has pictures of equipment stacked on the floor,

in the corner, not being used and inoperable. When inspectors spoke to the plant

manager, it was discovered that BMFP was not using the installed bagging system.

When asked, the manager is documented as stating he didn’t want to lay off the two

employees doing the manual bagging and stacking in the production line. The site

inspection conducted on March 27, 2013 subsequently failed with a recommendation

that “No action is possible, 100% of the credit was transferred” in a pass-through

transaction.

The project files indicate that most of the communication between BETC and the project

owner occurred with Mark Kendall. In a review for any conflict of interests between

Kendall and BMFP, there is one notable commonality with Kendall and Rolf Anderson.

Kendall and Anderson, CEO BMFP (2008/2010 era) were participates in the State of

Oregon Forest Biomass Working Group. Anderson was invited as a member due to his

experience. Kendall is now a principal at his own company, Kendall Energy Consulting,

LLC as of 2009 when he separated from the ODOE. Currently, Kendall is on the Board

of Directors for the Energy Trust of Oregon where his biography indicates he also

served as the Governor’s appointee to the Northwest Energy Efficiency Alliance board

from 2001-2006.

Timeline:

1. May 2006 Preliminary application for BETC


Marsh Minick, P.C.

49

2. February 2008 BMFP laid off 21% of employees

3. March 2008 Project completed, final application received

4. April 2009 Pass-through process completed

5. January 4, 2013 Email received stating equipment not operational

6. March 27, 2013 Site inspection conducted, revealing equipment in boxes and

equipment not being used

Boise Paper Project21

Red Flags:

Two project owners located at the same site address Shut down of operations after BETC claimed Business location sold to another company Unclear if ODOE received information on energy savings as agreed Additional money was received in order to update plant after BETC money


Boise Paper (Boise) has numerous BETC projects finalized since 2006; in its totality,

there were 27 projects with $22,230,000 in eligible costs for a tax credit amount of

$6,572,728. Of the 27 projects, 16 of them were completed at the site address of 1300

Kaster Road in St. Helens (St. Helens location). This site address is shared with

Cascade Tissue Group (Cascade), a recycling processor, and a producer of consumer

and commercial paper products. Between 2006 and the sunset of BETC, the St. Helens

location had 24 projects for a total of $17,857,369 in certified costs for a tax credit

amount of $6,250,080, with project owners of Boise Paper and Cascade Tissue.

In one of the more recent project file #32413, Boise was installing a single steam supply

line, new clean condensate system, and a new boiler feed water system; the project had

$2,591,618 in eligible costs for $907,066 in tax credits. By October 5, 2012 the project

was finalized and BETC tax credits were issued. This was not a pass-through tax

credit.

On October 16, 2012, 11-days after ODOE signed the tax credit certificate, Boise

announced they were ceasing operations at the St. Helens location mill, specifically the



Marsh Minick, P.C.

50

H2 mill equipment, by December 2012. According to media outlets, Boise indicated that

plant was not able to compete, so the plan was to halt operations by December 31 and

layoff 106 employees.

Boise explained to the ODOE that they share the facility with Cascade, and that only

Boise was closing their production line (H2), but the portion of the facility that was

leased to Cascade will still remain in operation. While Cascade had a site-lease with

Boise, they owned their own production line, the “H3”, and Boise had Cascade under a

10-year lease contract. Boise anticipated that Cascade will be using the building for at

least five years, and the H3 production line will continue to use the buildings

infrastructural assets, including the two natural gas power boilers and the steam

system. These assets where optimized through the BETC program, and the access to

this infrastructure will be leased to Cascade.

On December 18, 2012, the ODOE sent a letter to Boise stating while they were not

immediately revoking the tax credit, they are requesting quarterly updates consisting of

utility bills and an annual report on the amount of energy saved on the projects. The

ODOE would evaluate savings to determine if the department should exercise the right

to revoke the credits or seek other recourse.

About a year after the Boise closure, September 19, 2013, Cascade announced the

possibility of expansion at the St. Helens location, and was to retrofit an existing

machine to add additional production in the market. Also during this era, it was found

that Boise sold the St. Helens location and assets to Packaging Corp. of America

(PCA). It is not clear if the expansion occurred, as media reports suggested they were

attempting to secure their lease with PCA.

Then in April 2014, Cascade officially announced their intentions to expand their

operations and manufacturing center at the St. Helens location. The $30 million

expansion doubled its capacity and improve the facility’s efficiency. As an incentive,

Cascade received a $60,000 forgivable loan from the Governor’s Strategic Reserve

Fund to help with the costs of training employees on the new equipment.

Timeline:

1. 2006 to 2014 sunset of the BETC program had 24 projects for one site location,

both for Boise and Cascade

2. October 5, 2012 Final application for last project at location by Boise


Marsh Minick, P.C.

51

3. October 16, 2012 Announced ceasing operations at site location by December

2012; layoffs of workforce

4. December 2012 ODOE agreed not to revoke tax credit; tax credit not a pass-

through transfer

5. September 2013 Boise sold building to a third party

6. April 2014 Cascade discussed expanding at that location, received money from

Governor’s Strategic Reserve Fund

Flakeboard America Limited Project22

Red Flags:

Collusion with a competitor for lumber market Appears Weyerhaeuser using BETC program to increase marketability in the

sale of the Albany Mill to Flakeboard Concurrent projects that exceed yearly maximum


Flakeboard America Limited (Flakeboard) was the owner of six projects between April 4,

2007 and December 26, 2012 for a total of $18,156,969 in eligible costs, resulting in a

tax credit of $6,354,938. Flakeboard utilized the pass-through program on six of these

projects, and received cash payments of $4,619,339 from the sales of the tax credits.

Five of the seven projects were started by Weyerhaeuser on November 8, 2005 and

account for $16,555,055 of the eligible costs. Flakeboard assumed the role as project

owner after the July 2006 merger.

Flakeboard is a manufacturer of particleboard and other types of fiberboards. The

company was founded in 2006 in South Carolina, and through the July 2006 acquisition

of Weyerhaeuser’s North American Composite Panels Business, Flakeboard acquired

mills in Albany and Eugene, Oregon. Flakeboard is a Delaware corporation

headquartered in Ontario, Canada, with parent company, Celulosa Arauco y

Constitución (Arauco), owned by Inversiones Angelini y Compañia Limitada, a Chilean

corporation headquartered in Santiago, Chile.

The five projects originally owned by Weyerhaeuser were running concurrently as a

Weyerhaeuser upgrade to the same facility, at 2550 Old Salem Rd NE, Albany, and all



Marsh Minick, P.C.

52

the work was being performed by the same contractor. These projects included the

purchases of new machinery to handle green material, modification and retrofitting the

drying system to use biomass as a production energy resource, retrofit the dust

collection system to more energy efficient equipment, and upgrade to an emissions

control device. In a letter from a Weyerhaeuser Tax Manager dated July 28, 2006, he

said Weyerhaeuser was relinquishing five project preliminary certificates. The letter

continues to say that “Weyerhaeuser Company is in the process of selling the facility

related to these five projects to Flakeboard America Limited, with an anticipated closing

of the transaction today, July 28, 2006. It is our understanding the new owners will be

taking these projects to completion and desire to qualify for the Energy Credit.

Therefore we request that the Preliminary Certificates be transferred to them.” An

amended application was not received; but amended preliminary tax credits were

issued. The lack of an amended application does not seem compliant with ORS

469.205 requiring companies wanting to continue BETC after the purchase of a facility

to reapply to be an eligible applicant.

A review of Weyerhaeuser’s 2006 Annual Report revealed that under the discontinued

operations section, it elaborated on the sale of the mills:

Sale of North American Composite Panel Operations

In July 2006, the company sold its North American composite panel operations to Flakeboard America Ltd., a wholly-owned subsidiary of Flakeboard Company Ltd. The sale included six composite panel mills with a combined production capacity of 1.1 billion square feet of medium density fiberboard and particleboard. The company recognized a net gain on the sale of $33 million, including a related tax expense of $18 million in 2006. The pretax gain of $51 million is included in contribution to earnings of the Wood Products segment for the third quarter of 2006. The company received net proceeds of approximately $187 million from the sale, including working capital.

Based on the cap threshold of $10 million as outlined in the statutes and rules, the fact

there are emails indicating these projects are part of a site upgrade, combined with the

same architect doing the work, the totality of the circumstances indicate that this project

may have been split up in order to circumvent the $10 million maximum. Moreover, as

the mill was listed, and then sold, mid-way through the project, it may suggest that

Weyerhaeuser used the BETC program to upgrade the plant to biodiesel for

marketability for a greater return on the sales price.


Marsh Minick, P.C.

53

In November 2014, Flakeboard and subsidiaries reached a $5 million settlement with

the Federal Department of Justice (DOJ) for illegal premerger coordination with

SierraPine. According to the complaint, “after announcing the proposed acquisition on

Jan. 14, 2014, and before the expiration of the HSR Act’s mandatory premerger waiting

period, Flakeboard, Arauco, and SierraPine illegally coordinated to close SierraPine’s

particleboard mill in Springfield, Oregon, and move the mill’s customers to Flakeboard.

This unlawful coordination led to the permanent shutdown of the Springfield mill on

March 13, 2014, and enabled Flakeboard to secure a significant number of Springfield’s

customers for its Albany mill. The defendants’ conduct constituted an illegal agreement

to restrain trade in violation of Section 1 of the Sherman Act, and prematurely

transferred operational control, and therefore beneficial ownership, of SierraPine’s

business to Flakeboard in violation of the HSR Act.”

Timeline:

1. July 2006 Flakeboard purchased Weyerhaeuser’s Oregon mill locations

2. 2007 to 2012 Had several BETC projects on the site location, most started by

Weyerhaeuser and operated concurrently

3. November 2014 Entered into DOJ settlement for violations of the HSR act

Hampton Lumber Mills Project23

Red Flags:

BETC funded equipment not in use

ODOE did not require the dismantling of existing equipment

Unclear if ODOE is receiving updates on jobs and energy savings


Hampton Lumber Mills (HLM) is a lumber sawmill in Roseburg, Oregon. HLM was the

project owner on seven BETC projects, finalized between February 26, 2008 and

December 28, 2012, for a total of $18,249,405 in eligible costs, resulting in tax credits of

$9,087,293. HLM utilized the pass-through process on four of these projects, and

received cash payments of $6,286,197 from the sales of the tax credits.

23 MMINV307


Marsh Minick, P.C.

54

The one project file of concern started in June 2010, which HLM participated in the

BETC Tier selection process to upgrade their facility with a low pressure hog fuel boiler

with all conveyance, pumping, and control equipment. Also included in the project was a

purchase of a 13 year old, 1995 2-zone electrostatic precipitator system for pollution

control. HLM was replacing their existing setup a biomass boiler and natural gas fired

boiler. This project was completed in October 2010, and the project owner passed an

ODOE site inspection on November 30, 2011. This particular project was a pass-

through, and the tax credit was purchased by two parties with the last name of

Hampton, same as the project owner, Hampton Lumber Mills.

On July 10, 2013, the ODOE received a letter from VP and CFO at HLM informing them

that: “Due to changing economic drivers, including reductions in natural gas prices, and

refinements in operational understanding and modeling, Hampton is considering taking

the new biomass boiler offline and using its natural gas boiler to provide steam to dry

lumber produced by its sawmill operations at Warrenton. The biomass boiler would

remain constructed and operational, but would not be operated while more economically

viable alternatives exist. …We [HLM] request that the [O]DOE confirm in writing that

Hampton would have no formal notification requirements under OAR should Hampton

make the business decision to indefinitely shut down its biomass boiler and switch to

the natural gas boiler at Warrenton. Additionally, Hampton requests the [O]DOE affirm

in writing that Hampton’s BETC associated with the biomass boiler project would not be

subject to revocation and that Hampton would not be liable for the BETC claimed to

date, or yet to be claimed by the pass through partner…”

The ODOE responded to HLM after consulting with the ODOJ on a similar case (Boise

Cascade project file) and applied similar treatment. The ODOE affirmed the stipulation

of HLM provide an annual report showing cost savings associated with use of the

natural gas boiler; and as part of the Tier 2 requirements, the number of jobs directly

related to the installation and management of the boiler. It is not clear if any follow up

was done by the ODOE to enforce the stipulation.

Timeline:

1. 2008 to 2012 Multiple BETC projects on the site location

2. June 2010 Participated and was chosen for BETC Tier selection to install a hog

fuel boiler

3. October 2010 Project completed


Marsh Minick, P.C.

55

4. November 2011 Passed ODOE inspection

5. July 2013 Project owner ceased using the hog fuel boiler due to costs to run the

boiler

a. ODOE agreed not to consider revoking tax credit, but required annual

reports showing cost savings and jobs.

Rough and Ready Lumber Projects24

Red Flags:

Duplicative projects paid by Oregon and Federal incentives

Project owner closed mill after receiving BETC money

Project owner requesting BETC money before project was completed

Attesting CPA was also RRL’s tax accountant

Project file numbers: #18011, #28063

Rough and Ready Lumber (RRL) is a lumber sawmill in Cave Junction, Oregon. RRL

was the project owner on two BETC projects, one finalized on December 27, 2007 for

$4,995,309 in eligible costs, resulting in a tax credit of $2,497,655; and the second

BETC project finalized on October 4, 2010 for $47,556 in eligible costs, resulting in a tax

credit of $16,645. RRL utilized the pass-through program, and received cash payments

of $1,685,555 from the sales of the tax credits.

Both of the projects were plant upgrades. The 2007 BETC project included the

purchase and installation of a hog fuel boiler, backpressure steam turbine, and a

synchronous generator. The 2010 project involved adding the partition in the dry kiln,

so that loads can be dried at different times.

In the first project file, there was a ‘memo to file’ dated September 18, 2007

documenting a telephone call from Moss Adams. Moss Adams said they were working

on the cost certificate for this BETC and wanted to know if the ODOE would consider

the project completed by end of the fiscal year (September 30) if all the work had been

done except for the PGE hookup. ODOE responded giving the project owner the option

to have the certificate issued before the project was operational, only if they agree to

forgo the costs associated with PGE hookup. There was no response from Moss



Marsh Minick, P.C.

56

Adams or the project owner; and the final application was submitted on December 14,

2007, which suggested the project owner did not take advantage of the offer. Moss

Adams also attested to the project costs.

In the second project file, there was ODOE discussion regarding a news article dated

April 17, 2013, about 2.5 years after completion of the second project. The headlined

article “Rough & Ready Lumber closes its Cave Junction mill” reported that 90-

employees at the mill got news that the mill would permanently close. Mill owners cited

that a lack of logs was the reason for the closure. ODOE determined that due to the low

dollar amount of the second project file, which was in the 5-year period, it was not cost

effective to pursue revocation, and that funds had already been sold through the pass-

through process.

Online media reports that the timber market is extremely difficult, as more public lands

are protected and off limits to logging the amount of timber available as a raw resource

decreases. RRL was reported to be the last mill in production in Josephine County, a

county surrounded by protected federal forests. Attempts made by local politicians

were unsuccessful in obtaining logging timber rights and the local areas affected by the

shrinking timber resources have thus far been unsuccessful in bringing new markets

and economies to the areas hardest hit.

While RRL permanently closed their operations in April 2013, about a year later, in April

2014, RRL secured $5 million in government funding. Funding included Kitzhaber

loaning $1 million from the Governor’s Strategic Reserve Fund to upgrade their

equipment (all but $250,000 will be forgiven if 60 jobs are created) and the remaining

funds are from the New Market Tax Credit federal program.

In summary, within a seven-year period, RRL would have upgraded their equipment at

least twice, and have accepted $10 million dollars in funding between the ODOE sale of

BETCs and the 2014 cash injection. It doesn’t appear that the O&C Lands Task Force

(Oregon & California) has reached a compromise in federal land logging in order to spur

the local logging economy to put the investment funds to work.

The ODOE conducted a site inspection on October 16, 2008 and examined the newly

purchased machinery, apparently operational. It is not clear when RRL closed their

operations in 2013 if they liquidated the machinery purchased with BETC money, and

it’s not clear what machinery upgrades are necessary in order to re-start operations.


Marsh Minick, P.C.

57

Timeline:

1. 2007 and 2010 Projects to upgrade facility

2. September 2007 Inquiring about an exception to get BETC tax credit early

3. April 2013 Project owner closed operations, and laid off 90 employees

a. Closure of operations was cited as a lack of raw resources (timber)

4. April 2014 Project owner received more government funding to upgrade

equipment

Douglas County Forest Projects25

Red Flags:

Illogical projects with conflicting energy benefits


Douglas County Forest Products (DCFP) is a lumber sawmill in Roseburg, Oregon.

DCFP was the project owner on two BETC projects, finalized on November 15, 2006

and December 19, 2012, for a total of $13,319,755 in eligible costs, resulting in tax

credits of $5,111,914. None of the projects utilized the pass-through process.

Both of these projects were for facility upgrades; the 2007 project for $10 million in

certified costs was for reducing the hog fuel used at the facility, while the 2011 project

for $3 million in eligible costs was to produce electricity using hogged fuel. There was a

conflict in BETC projects for DCPF. The two projects have competing objectives for

energy sources.

American BioDiesel/American Beef Processing Projects26

Red Flags:

Projects never operational

CPA attested ineligible costs

Possible collusion between vendor and project owner

Investor was nominee for US Senator

25 MMINV307



Marsh Minick, P.C.

58


American BioDiesel/American Beef Processing (ABP) was the owner of two projects on

July 1, 2008 and March 9, 2008 for a total of $2,534,625 in eligible costs, resulting in

$1,139,569 in tax credits. ABP utilized the pass-through program, and received cash

payments of $861,873 from the sales of the tax credits.

ABP is a startup company located in Clackamas, with the main operation in Mercer

Island, Washington, and is currently registered with the SOS listing Anthony Garwood

as the only member, with an address out of Mercer Island, Washington. The address

for ABP, at 8015 SE 28th St. Suite 305 in Mercer Island appears to be an office building,

and the business is registered out of Delaware. Due to the privacy laws in Delaware,

true beneficial ownership is not known.

Their BETC projects was a new concept in energy technology for separating fat from

ground beef. The beef was to be sold into the food market and the fat was to be

processed into oil and ultimately biodiesel.

There were two phases to these projects:

Project #18947 was to purchase equipment, labor, materials and engineering that is

required to assemble the appropriate infrastructure to condition animal fat into oil

biodiesel feedstock. The preliminary application was signed by James Ehlert on March

7, 2007. The preliminary certificate was issued on July 1, 2008 for certified costs of

$774,204. On July 10, 2008, Sam Mezistrano, CPA, attested to $1,905,200 in

expenses, but his attestation letter did not support those costs saying, “sampling of

written documentation showing proof of payment totaling $410,534 for project work

completed”. This project was approved for 10% over of preliminary costs, for $851,624,

with a final tax credit of $298,068 issued July 28, 2008 and the pass-through process

was completed by August 2008. The pass-through partners were found by the project

owner, and were Jerry and Sherri Meng, and James and Sharon Meng, all from

Clackamas, Oregon. Beyond an email from the project owner, there was no proof that

the Mengs’ paid for their pass-throughs.

Project #18948 was for the new technology for separating fat from ground beef. The

preliminary application was signed by James Ehlert on October 11, 2007. The

preliminary certificate was issued on March 26, 2009 for certified costs of $1,553,500.

On April 8, 2009, CPA Robert Staudacher, attested to $1,708,585.18 in expenses.


Marsh Minick, P.C.

59

Final application was submitted by Anthony Garwood on April 13, 2009, and the project

was approved for 10% over preliminary costs, for $1,705,585, and the pass-through

was completed by September 2009.

After final certification, ODOE employees preformed a closer inspection of the project

file. In doing so, the ODOE identified $25,584.01 in not eligible costs and pointed to

handwritten note that “costs buried on non-CPA data that were prior to 3/7/07”, prior to

the preliminary application date. The final tax credit was rescinded and this amount was

taken off the $1,705,585 in approved certified costs, resulting in $1,683,001 in certified

costs and a tax credit of $841,501.

The applicant James Ehlert, CEO sent in a waiver request, dated March 7, 2007 asking

for the BETC credit to be approved. According to this letter, the project owner believed

that when they engaged with the ODOE for a loan, they thought that was also linked

with the BETC process. There was not information contained in the project files about a

SELP loan.

An inspection was performed in 2010 and 2011, both resulting in a fail and a

recommendation to revoke tax credits. According to the inspection report, the “project

had only operated on limited basis for USDA grant work… some equipment was outside

in the parking lot and most of the indoor equipment was not plumbed (disconnected)...

equipment is not operational”. The inspection report shows project owner

representative Tony Garwood, stated that “neither Phase 1 or Phase 2 have been

operational beyond test batches”. The ODOE inspector noted “no significant oil for

biodiesel has been produced to date” and recommended to revoke the tax credits.

The ODOE conducted an investigation into the Mengs’, the first project pass-through

partners, and the project owner. Based on the contents of the files, it appeared the

ODOE was attempting to determine if there was any collusion between the Mengs’ and

the project owner, since the project failed inspection twice for equipment not

operational. Their investigation did not identify a connection between the two parties.

During the BETC examination, it was discovered that ABP was a defendant in a civil

lawsuit 3:09-cv-01277 filed by Jim Ehlert (and others) for $1.2 million citing violations of

Oregon Securities Law on September 25, 2009. As an exhibit in this lawsuit, it

disclosed that ABP’s “Technology and Business supplier partners” included Interstate

Meat Distributors, Inc. out of Clackamas, Oregon. Interstate Meat Distributors is owned


Marsh Minick, P.C.

60

by the Mengs’. The case was referred back to Clackamas County Circuit Court in

August 2011.

There is concern with the direct connection between the Mengs’ and the project owner.

As the equipment was not used and was sitting in boxes in the parking lot, and there

was no proof of payment for the pass-through, it is concerning that the two companies

were in collusion. Additionally, with a prior senate nominee contributing to American

Beef Processing, it would be interesting to submit a 314(a) to financial institutions to

determine if there is any fraud or other illicit financial activities occurring.

A candidate for U.S. Senate representing Oregon, Monica Wehby, had financially

contributed to ABP according to financial disclosure, although the timing and amounts of

contributed funds are unknown.

Timeline:

1. March 2007 Waiver received from COE

2. March and July 2008 Projects for a new separation technology

3. July 2008 and April 2009 Tax credits issued; first project pass-through partners,

Mengs’, were Technology and Business supplier partners

4. September 25, 2009, project owner was a defendant in a civil lawsuit for

violations of Oregon Security Law

5. 2010 and 2011 ODOE conducted site inspection, resulting in a fail and

recommendation to revoke tax credit

Henson Farm Project27

Red Flags:

No CPA attested to the project over $50k, a possible statute violation

Projects were ‘forced’ purportedly by the Governor

The used equipment was “purchased” by the Henson’s from their own farm

No dollar for dollar payment as a result of the equipment transfer

Not all the equipment was appraised; ownership of existing equipment unknown

Checks issued to third party in amounts under $10,000




Marsh Minick, P.C.

61

Henson Farm and Ben Henson were project owners on two files on November 24, 2010

and February 23, 2009 for a total of $77,265 in eligible costs, resulting in $38,633 in tax

credits. These projects were not pass-through, and the project owners took the tax

credit.

The Henson Farm, owned by Georgene and Ben Henson, is located at 78514 Redmond

Grade Lane, Enterprise, Oregon. Their projects were for the conversion of 50%

acreage to growing and processing canola seed for biodiesel production. Both projects

consisted of purchasing, or exchanging ownership, of used equipment.

Project #22752 was for the purchases of farm equipment, seed, and other materials

necessary for production during the growing season. This equipment was purchased

from Henson Cattle Company, LLC by Ben Henson. According to SOS website, Ben

Henson is owner of Henson Cattle Company, LLC. The purchase of equipment

essentially was the transfer of assets between the company and owner. This project

was approved for eligible costs of $65,265 and a tax credit for $32,633 was issued on

November 24, 2010.

Contained in this project file was a written conversation between ODOE employees. In

the project file, there was a post-it note from Matt saying that “I do not see this 2nd

Henson Farm application converting acres to growing canola as meeting our criteria for

a BETC “ and that he wanted to discuss with Evan. In another handwriting, they

outlined Madison Farms biodiesel plant files (appears to be file numbers), and another

comment “VOCO Rick, RD&D that ends 12/31/08; forced on us by Governor [this will be

only the second person to do this because of transfer of property]; Rick has 2-page

paper on this.” (presumably this is Rick Wallace, Evan Elias, and Matt Hale).

There is the 2 page document they had discussed, which gave three options for credits

on Biofuel producers. The Credit 2 option is for “Capital costs of equipment necessary

to plant, grow, harvest, collect, store, produce, crush or concentrate and transport

biofuel crops, feedstocks or materials are eligible for the credit. The tax credit is a dollar-

for-dollar credit against State of Oregon income taxes owed. These projects are

considered to be renewable energy projects and are therefore eligible for a 50 percent

credit based on eligible capital costs with a maximum of $20 million per project per

year”. While Credit 3 option is “Oregon farmers who grow crops specifically for biofuel

production may be eligible for a tax credit based on eligible capital cost. New, used or

existing equipment that is dedicated to production of biofuel crops could be eligible. For


Marsh Minick, P.C.

62

equipment used only a portion of the time towards production of biofuel crops the

eligible costs will be prorated. The current appraised value of existing equipment,

rededicated to produce a biofuel crop be eligible for the tax credit. Under Oregon

statute, you must provide proof of the capital cost or expense to be eligible for tax

credits. The remaining appraised value of equipment, newly dedicated to biofuel crop

production, can be transferred to a limited liability corporation or transferred from one

farm business entity to another for the purpose of defining and proving eligible cost

under Oregon tax law.”

The project has an appraisal for some of the equipment, but does not have any proof of

ownership for the equipment before the BETC was processed. Additionally, the

purported payment for the project equipment was apparently combined with other

expenses paid to Henson Cattle Company. The “proof” of payment was a bank

statement for Henson Cattle Company showing a $295,000 incoming wire transfer from

ScotTrade, Inc. However this wire transfer does not show who owns the account at

ScotTrade, and there was no proof that the money came from Ben and Georgene

Henson’s account, or that it was for payment of BETC equipment.

Furthermore, the attester of the costs was not a CPA, but an Oregon Licensed Tax

Consultant. This is concerning because ORS 469.215 requires proof of costs from a

CPA for project costs over $50,000 and to be certified by a licensed CPA. The Oregon

Licensed Tax Consultant, Cathy Johnson, claimed that Ben and Georgene bought

$107,500 of equipment from the Henson Cattle Company. The vendor invoice was from

Henson Cattle Company, and included charges for tractors, implements, storage bins,

pick-up truck, Mack truck, and other equipment. Many of these items do not have an

appraisal to support the invoiced amount. Also, the project owners did not provide the

original purchase orders or truck registration to indicate who the actual owner of the

items were at the time of the BETC project.

Sample of the appraised items:

ARCO Allis 4W220 Tractor at $14,180.50-$15,804.50

Combine ARGO Gleaner N6 1982 at $7,247-$8,074

ARCO White 2-105 Tractor at $8,725-$9,899

New Holland TC40 2003 Tractor at $16,550-$17,992

Seed and labor costs of $5,390


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63

Project #22751 was for the purchase of a used grain drill suitable for planting canola.

Applicant planned to purchase a used Case International Harvester Grain Drill. This

project was approved for eligible costs of $12,000 and tax credit of $6,000 was issued

February 23, 2009.

The project file was missing the invoice showing what was purchased, from whom and

for how much. The final application was submitted with two canceled checks, each for

$6,000, written to Rick Paul. Even if the project owner purchased a used drill from Paul,

there was no appraisal showing what a used drill was worth. Additionally there was no

record of the purchase or transfer of the equipment.

Supplied checks written to Rick Paul at 33561 Parrish Creek Rd, Mitchell, OR 97750.

Check #10005 dated 5/29/08 for $6,000 drawn from Henson Cattle Company

LLC account at First State Bank

Check #1283 dated 4/25/08 for $6,000 drawn from Henson Cattle Company LLC

account at First Bank.

Ben Henson is the founding member of Renewable Energy Solutions, Inc. RES

purports to assist new business to develop competitive operations and works with

existing ventures to explore emerging opportunities. (www.renewablesolutionsllc.com).

There are some news reports advertising local community meetings with RES and

businesses in how to take advantage of Oregon and Federal incentive programs in the

renewable energy sector.

Timeline:

1. December 31, 2008 Note in project file stating project forced by Governor

2. March 26, 2008 Preliminary application received by ODOE

3. August 6, 2008 Preliminary certification

4. August 4, 2010 Letter received from Licensed Tax Consultant, not CPA

5. February 2009 and November 2010 BETC projects completed and tax credits

issued

http://www.renewablesolutionsllc.com/


Marsh Minick, P.C.

64

Enclosures

Accompanying the delivery of this referral is supporting evidence collected during the

investigation. Please contact Marsh Minick, P.C. with any questions 971.266.1846.

Thank you,

Brandi Marsh, MS, CAMS, CFE, CFCI

Melissa Frick Minick, MS, CFE, CFCI

Marsh Minick, P.C.

Phone: 971-266-1846

Email: [email protected]

Website: www.MarshMinick.com

mailto:[email protected]

http://www.marshminick.com/

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