Gov. John Kitzhaber (fourth from left) helps break ground for the solar array at Oregon Tech in Klamath Falls in August 2011. He is standing next to Martin Shain (third from left). The groundbreaking took place four months after a required construction deadline to qualify for a state tax credit. Actual construction of this array didn't start until 2013.
By TED SICKINGER and HILLARY BORRUD
A Seattle-based energy consultant and the state employee he’s accused of bribing became the public faces of corruption charges at the Oregon Department of Energy after their arrests last summer.
But it wasn’t one rogue employee who enabled consultant Martin Shain to reap $12 million in green energy tax credits for solar projects that should have failed to qualify, according to thousands of records reviewed by The Oregonian/OregonLive. Four other Energy Department employees, including the director, helped Shain obtain the credits by circumventing program rules and ignoring deadlines lawmakers insisted on.
None of the four has been accused of wrongdoing. All four employees declined to answer questions about their particular roles in greenlighting the tax credits.
But records illustrate that officials scrambled to ensure success of the politically high-profile project. Documents also show how the culture of the agency contributed to the misuse of millions in taxpayer funds.
The emails, obtained by The Oregonian/OregonLive under a public records request, open a new window on a years-long pattern of cozy regulatory relationships and institutional failure at the department. The agency’s mishandling of the subsidies undermined the state’s credibility in using tax incentives to achieve its green energy goals and tarnished the very industry the agency was supposed to advance.
Shain and the state employee he’s accused of bribing, Joe Colello, face life-altering consequences for their conduct. Shain, who denies committing any crime, has amassed staggering legal bills and awaits trial. Colello has pleaded guilty and will be sentenced in January.
Agency officials acknowledge that the tax credit program was besieged by problems, including flawed processes and poor management. Former director Michael Kaplan has said those problems were blatant when it came to the solar projects. “Clearly we didn’t follow our own rules,” he said of the department’s decision-making on the tax credits.
No one at the Energy Department has faced consequences for those missteps.
Rachel Wray, a spokeswoman for the Energy Department, declined to respond to several detailed questions about the actions of its employees. Concerns about this specific set of projects drove the agency’s request for a Department of Justice investigation and a full-blown audit of the tax credit program, she said.
The tax credit program’s “decision-makers no longer work at the agency, and we aren’t able to explain their every action or defend the program,” Wray wrote.
Two of the four employees involved in approving the tax credits moved on to other jobs with the state of Oregon. A third still holds his job in the energy department.
The Oregon University System's Solar By Degrees Initiative included five separate arrays at Oregon State University facilities, this one a 221 kilowatt installation in Aurora that was completed in early 2014.
A POWERFUL CHAMPION
In 2011, state officials touted the Oregon University System’s “Solar by Degrees” initiative as the state’s signature renewable energy project. By installing solar arrays on campuses around the state, it would showcase Oregon’s clean energy vision and simultaneously boost economic development by exclusively using Oregon-made equipment and Oregon contractors.
Within the department, it was known as “the governor’s project,” giving everyone a stake in its success. Gov. John Kitzhaber and energy staffers directed a $60,000 economic impact study to focus specifically on the university solar projects to highlight what could be accomplished with the state tax credit program. Shain and state employees offered U.S. Bank access to the governor if the bank would commit to finance the project, records show. Kitzhaber was the guest of honor at the groundbreaking.
And when the university initiative was in danger of falling apart, the four state employees each played a role in resuscitating it. The director and chief financial officer guided Shain around program rules restricting changes to projects. The chief financial officer, the manager of the incentives program and the technical reviewer edited his submissions to the agency. That same technical reviewer accepted inadequate, and in two cases phony, documentation. And all four ignored what was staring them in the face: Backers had missed required deadlines to qualify for state support.
In the end, a developer did build six solar arrays that are providing cheap, emissions-free electricity to two universities. But Solar by Degrees failed to deliver on most of its promises.
Shain’s company, meanwhile, walked away with a $2.4 million payday, about 10 percent of the projects’ total costs. And SolarCity, the California developer that built the arrays, pocketed proceeds from the sale of $12 million in taxpayer subsidies.
SolarCity spokesman Jonathan Bass said in 2015 that the company and its investors had no knowledge of misleading documents and relied on the university system and Shain’s assurances. “We believed we met the eligibility criteria,” he said.
Martin Shain was arraigned in June in Marion County District Court after being indicted earlier on 78 counts of bribery, racketeering, theft and tax evasion in connection with the brokering of state energy tax credits. He also faces forgery charges related to phony documentation submitted to the state to qualify six solar projects for $12 million in tax credits.
When The Oregonian/OregonLive revealed in 2015 that the projects were marred by forgery, the FBI and the Oregon Department of Justice undertook investigations that ultimately led to criminal charges against Shain and Colello.
Yet despite Kaplan’s assurances to lawmakers and state auditors that the agency was “building a culture of accountability,” no one was held publicly accountable for the solar project errors.
Meanwhile, a year-long legislative push to reorganize or dissolve the department ended in a partisan stalemate over whether to expand the agency’s mission to include global warming policy. And Gov. Kate Brown just assigned the agency more than a dozen new tasks, from improving energy efficiency at state buildings to electrifying the state vehicle fleet.
In the end, taxpayers lost more than $12 million. The state’s nascent renewable energy industry ended up tinged with corruption. And the agency’s mismanagement of the Business Energy Tax Credits fundamentally damaged the state’s credibility in managing any large incentive program.
“The stain of the BETC is so pervasive that it can’t even be considered a possibility to have any kind of tax credit program for renewables in this state,” said David Brown, the president of a solar developer, Obsidian Renewables.
A proposed $1.4 billion new green energy initiative is slated to go before the Legislature in February. A key supporter acknowledges that the tax credit scandals cast a long shadow on that proposal.
“It will have to carry that burden,” said Angus Duncan, who heads Oregon’s Global Warming Commission. The tax credit problems, he said, “put more backpressure on this bill to have a tight, well-managed and focused allocation of those revenues … not just a big slush fund that people can show up with their buckets and start dipping.”
CHUMMY RELATIONSHIPS
Shain’s career as an entrepreneur spanned several minimally related areas: soda water, sewage and solar. In 1996, a beverage company he had founded a decade earlier entered bankruptcy. By then, Shain had left that company and moved on to energy consulting, forming his Seattle-based consulting firm, BacGen Technologies.
BacGen was soon at work in Oregon, coordinating energy efficiency projects for municipal wastewater treatment systems. Shain earned a reputation as a committed partner, working directly alongside managers in the lagoons, up to his hip boots in raw sewage.
David Cohan, a former regional energy association manager who worked with Shain, was deeply impressed. “He was a promoter, no question about it, but so were all these developers,” Cohan said. “I spent a lot of time with him. He’s a really, really smart guy, a great strategic thinker who was doing great stuff.”
By the time Shain became involved with the university solar projects, he was a familiar and credible presence to Energy Department staffers, with whom he had assiduously cultivated connections.
When Oregon launched the solar incentive program, Shain stepped up his schmoozing. From 2011 to 2015, he sent hundreds of emails to agency staffers, many of them soliciting their “wise counsel,” complimenting their professionalism and intelligence, and empathizing with their workload.
He often portrayed himself as a harried consultant whose expertise was in demand across the country. The tagline he used on emails was illustrative: “U.S. Department of Energy Contractor of the Year award recipient.”
A spokesman for the Bonneville Power Administration, the part of the federal agency Shain worked with, said the agency was unable to find any record of such an award.
Shain found ways to personally connect with key energy employees whose help he needed. The agency director at the time, Bob Repine, was a former Republican lawmaker who became a go-to administrator for both Kitzhaber and his predecessor, Gov. Ted Kulongoski. Shain repeatedly sought Repine’s input on the university projects, reminded him of Kitzhaber’s interest in them, and offered him national exposure as a co-speaker on “public agency energy success stories” at several industry conferences.
Repine now claims he had only one sit-down meeting with Shain and bumped into him in the Energy Department hallway twice. But the emails show him meeting with Shain at least four times in 2011 and 2012 to discuss how to ensure state support for the projects, and exchanging regular emails. “I know this will be an accomplishment we can all be proud of once they are all operational,” Repine told him in one email.
After being shown the emails that document multiple meetings, Repine did not respond to a request for comment.
When it came to details of the tax credit program, Repine leaned heavily on the agency’s chief financial officer. Anthony Buckley, who’d been recruited by a previous director to help clean up the administration of the tax credit and loan programs, had quickly became the agency’s fix-it guy and a key liaison to the governor’s office.
“Over at (the energy department), who we were trusting to move things along was Anthony Buckley, who’s a certified smart guy,” Curtis Robinhold, Kitzhaber’s chief of staff at the time, recalled in a fall 2017 interview.
Other agency staffers saw Buckley as simply an adept political operator. Nevertheless, Buckley was a key decision-maker, and Shain took pains to ingratiate himself, the emails show.
Buckley, who did not respond to requests for comment, met repeatedly with Shain, both in and out of the office, and even offered to travel to Seattle for a “touchbase” with Shain. He expedited various department actions on the solar projects at Shain’s request, such as project amendments and letters of support.
Repine and Buckley knew that Shain wanted to make huge changes to his proposed solar arrays despite rules to the contrary, emails show. They greenlighted those amendments anyway.
Maureen Bock was the agency’s program manager for energy incentives, in charge of assigning and checking technical reviews to determine the tax credit eligibility for proposed projects. Shain offered her ideas and feedback, from design for new incentive programs to the fee structures on existing ones. He also praised her repeatedly.
“Good luck and God speed with the work load on your plate there at ODOE this month,” he emailed Bock in December of 2012. “The agency is fortunate to have your level-headed intelligence and experience.”
Bock forwarded the note to her boss, Buckley, adding, “At least someone appreciates me…. :)”
He was equally solicitous of the department’s technical analyst, Evan Elias. Elias’ position description indicated he was supposed to determine, based on his technical expertise, whether the tax credits met the program’s eligibility requirements specified in state rules.
A 2010 performance appraisal described him as the department’s “center of gravity with respect to program technical and administrative knowledge” and praised him for “reasonable, well documented and proven decisions … especially the most complex conservation and renewable energy projects we have.”
Emails show Shain cultivating a friendship with Elias based on their shared passion for music. Some of their correspondence took place on Elias’ personal email, after Shain offered to send him an album on iTunes. But the emails continued on the state server too.
“Missing you buddy,” Shain wrote in September 2013 to Elias. “I'm looking to move my travel schedule around so I can be in Salem when you'll be there. Would really like to get together and talk. Some personal life changes pending on my side, music, etc.”
To which Elias responded: “Definitely would like to get together.”
Both Bock and Elias’s state job description made it clear what the stakes were in their jobs.
“Failure to make wise and timely decisions could create costs for the agency, lead to litigation and create political embarrassment for the agency,” the job description for Bock noted. “Poor decisions could also damage established and new programs, create a negative public image and harm staff morale.”
Elias and Bock would eventually approve changes to the projects that violated state rules, and ignore the fact that the projects had missed a critical construction deadline in state law, enabling the developer to claim $12 million in tax credits the projects didn’t qualify for.
Bock did not respond to requests for comment, saying she was cooperating with the prosecution of Shain. The Energy Department sent a statement attributed to Elias.
“I was friendly with Martin. It felt like we bonded over music; I sent him some YouTube links, and he sent me one album. I never had coffee, lunch, or dinner with him or accepted any other gifts. It felt like an innocent exchange that I regret in hindsight. Our conversations about music did not affect how I processed the OUS project applications.”
In his interactions with department staff, Shain went out of his way to personalize what are normally arms-length relationships. He shared details of family medical problems, the strain of his own workload and his gratitude for their friendship.
He wrote to Bock: “I'm deeply thankful for the handful of people in my life who, although I've met them on a purely work-related basis, over the past month have proved to be remarkably kind, caring human beings who I hope to call friend for many years to come.”
PITCHING ACCESS
As Shain noted repeatedly in emails to Repine and Buckley, the tax credits were the financial lynchpin for the solar projects. As Shain and Colello struggled to lock in buyers in 2011, the emails show Buckley was willing to tap the governor’s office to make the deal happen.
Shain and Colello approached the state government’s longstanding primary bank, U.S. Bank, to see if executives could help. If U.S. Bank would commit to buy tax credits from the solar projects, they promised bank executives in emails that BacGen and the Energy Department would facilitate meetings with the governor, the university system’s chancellor’s office and legislators and other “influential individuals or agencies specific to energy policy.”
The emails show Buckley arranging access to the governor’s office or his staff in line with Shain’s plan to secure financing. Kitzhaber’s then-chief of staff recalls discussing whether U.S. Bank should buy the tax credits with Malia Wasson, the bank president.
“My recollection was Malia was in touch with us saying, ‘We’re interested in doing this if it’s important to the governor or if the governor thinks it’s a really important project,’” Robinhold said. “And I’d say, ‘Look, you’ve got to judge it on your own.’”
Wasson, who has since retired, did not respond to requests for comment.
Shain struck a deal with a U.S. Bank vice president, Robert Espeland, who requested the Energy Department provide written acknowledgment of their pact.
U.S. Bank committed to be a buyer if no others emerged, Shain’s email summarized. In exchange, “we committed to work closely with U.S. Bank over the coming months to assist them in furthering their efforts in Oregon, and make clear our appreciation for their kindness and support of energy projects for the Oregon University System.”
A spokesman for U.S. Bank declined to comment.
One of the original tax credits precertified by the state in 2010 was for a 388 kilowatt roof mounted array at the Moshofsky Center at the University of Oregon. But 11 of the 14 arrays Shain proposed, including this one, proved infeasible. The tax credits were transferred to different projects, this one to a 431 kilowatt ground mounted array at Oregon State's agricultural research center in Hermiston.
CAPITALIZING ON CONNECTIONS
From the get-go, the proposed university solar projects faced significant delays and technical hurdles that should have disqualified them from taxpayer support if the rules were applied as written. Instead, state officials collaborated with Shain to circumvent those rules, emails show.
State rules carry the force of law, though courts typically grant agencies discretion to interpret the rules when the law behind them is vague, experts say.
By 2012, legislators had made their intent clear: They wanted to eliminate the energy tax credit program and prevent changes to projects already in the pipeline that would increase the costs to the state. The rules that Energy Department staffers helped Shain get around were specifically designed to achieve that goal.
The Energy Department originally approved Shain’s plans to build 14 arrays on seven campuses. Each application was for a separate project, with a specific location, capacity and tax credit. In total, the projects would cost $27 million and be eligible for $13 million in credits.
If everything had gone according to plan, those arrays would have been operational by the end of 2011.
But that’s not what happened. The first developer backed out over uncertainty about the tax credits, records show. A second developer was named, but by mid-2011, the university system hadn’t finalized a contract, much less started construction. By the end of the year, the second developer went bankrupt.
Moreover, records show that Shain jettisoned some of the arrays he’d originally proposed because they weren’t viable in the configuration or location proposed. That put the tax credits – and the projects – in jeopardy. Nearly three years of work would be for naught.
With Colello, Shain scrambled for potential solutions, eventually settling on a wholesale reorganization of the projects. They would consolidate the planned 14 arrays into six larger projects with the same overall capacity and cost, preserving the original $13 million in incentives.
The rules only allowed three specific changes to proposed renewable energy facilities that had already been precertified by the agency, as the university projects had: small changes in capacity of up to 10 percent, improvements that “do not result in an increased tax credit,” or new owners.
As the Legislature moved to phase out the tax credit program, it directed the agency to beef up those limitations to put a lid on the state’s mushrooming liability. So new rules made it more explicit: Any change request received after January 13, 2012, would not be approved if it would increase the tax credit.
The energy department’s stated need for the rule change was also quite specific: “The Oregon Department of Energy finds that failure to promptly adopt these rules will result in serious prejudice to Oregon taxpayers and the public interest, because amendments to increase project size within the (Business Energy Tax Credit) program will subvert the controls on revenue impact imposed by Oregon Laws.”
Yet that’s exactly what Shain was proposing – and after the cutoff date. One of the new arrays was 10 times larger than originally proposed, and the tax credit on that facility went up 800 percent. Changes on other arrays also violated the rules.
This $6.5 million, 1.4 megawatt solar array in Corvallis was originally certified as two separate projects on a dining hall and PE center at Western Oregon University in Monmouth, with at total capacity of 150 kilowatts and a $411,000 tax credit. The capacity grew almost 10 fold, and the tax credit increased 800 percent. Neither change was allowed under state rules.
Nevertheless, Shain emailed Repine, the Energy Department director, in July to request a meeting to discuss the proposed changes. He said most “are very simple,” though he was perplexed by “how to accomplish one specific and important issue.”
Repine forwarded the email to Buckley, who responded: “From the tone of his email it sounds like they’ve reviewed the rules and may be facing a challenge.”
“That would be my guess,” Repine emailed back.
But Repine and Buckley were in a position to make “the challenge” go away. And after a series of meetings with Shain in 2012, it did.
Shain made the case that reorganizing the projects improved the original proposals. The agency bought that logic, in effect agreeing to treat all the original pre-certifications, which comprised seven tax credits for 14 distinct solar arrays, as a single project. Buckley and Repine decided that, as long as the total capacity, cost and tax credits of the six newly proposed facilities combined didn’t exceed the total originally proposed in 2010, Shain and the developer could reorganize as planned.
The project amendment map that Shain submitted to the Energy Department to explain how developers would redistribute the capacity of the solar projects he originally proposed.
Lynn Frank, a former Energy Department director who helped draft various program changes designed to rein in abuses, said the agency’s “overall approach on consolidating the applications is mind boggling.”
“There is nothing in the rules that allows consolidation of separate and distinct facilities in a final certification at the applicant’s request,” Frank said.
Employees tracked precisely what was happening, with Bock insisting that Shain map how the money was reallocated from the pre-approved projects to the revamped ones.
Shain sent a prompt thank-you email to Buckley and Repine after the meeting at which he got their permission to treat the separate projects as a whole: “As is always the case, I appreciate your kindness and guidance as we move through this process.”
Buckley responded that he’d spoken with the agency’s technical analyst, Elias, who was in charge of vetting the changes. “In his review there were no challenges identified,” Buckley noted, giving Shain the go-ahead.
On Sept. 6, 2012, Shain met with Elias to go over the changes and checked in with Buckley via email to “confirm with you (e.g., confirming the three conditions that you and Bob gave me to amend the OUS projects... 1) stay within the tier, 2) stay under the cap, and 3) stay at or under existing project costs).”
In his email response, Buckley registered no objection. “Let's schedule an update/touchbase meeting for when your (sic) back in the region. I'm also not adverse to a meeting in the Seattle area.”
Shain appreciated the agency’s flexibility, telling Buckley: “Thank you again for your efforts in rule review. Identifying the solution was brilliant.”
Dan Weldon, a commercial banker who once worked as a loan officer at the Energy Department, says staff routinely ignored or reinterpreted rules for projects with strong political backing. The agency’s priority, Weldon said, “was not how decisions would be viewed by the public, but by the governor’s office.”
Frank, the former Energy Department director, says there’s a more significant lesson to be learned: “The public interest has no standing to challenge agency decisions.”
A whole cast of luminaries was on hand in April 2014 for the ribbon cutting on a solar array at Oregon Tech in Klamath Falls. The project missed the deadline to begin construction by more than two years, but Energy Department officials awarded it a $5.1 million tax credit anyway.
BLOWN DEADLINES
Shain had other major problems. But the department would overlook those, too.
When the legislature decided to end the controversial business energy tax credit program in the summer of 2011, lawmakers created two new cutoff dates to bring the program to a close.
The primary deadline was that projects had to be done by January 2013. But if backers could prove construction started by April 15, 2011, they were eligible for an 18-month extension.
The administrative rules governing the program were very specific about what constituted construction: “For a renewable energy facility, the applicant shall not be considered to have started erection, construction, installation or acquisition of a proposed facility until excavation or actual physical construction of the renewable energy facility has begun.”
This photo of an array under initial construction in Corvallis was taken in November 2012, more than a year and a half after it was supposed to be under construction to qualify for a state tax credit. State officials ignored that requirement.
By the spring of 2012, there was no excavation or physical construction on any of the arrays, which put the new developer in danger of missing the January 2013 deadline to complete the projects. That meant the tax credits would be gone unless Shain could do the impossible: demonstrate that construction had begun prior to April 15, 2011.
That was infeasible. The ceremonial groundbreaking on a bare hillside in Klamath Falls didn’t take place until six months after that cutoff date, and actual construction on the Klamath Falls array would not begin until late 2013.
Meanwhile, with the agency’s help, Shain was still reorganizing the projects, trying to finalize what would be built and where.
Nevertheless, a university vice chancellor submitted the extension request and said Shain would follow up with the proof of construction documentation.
Several times over the next two months, Shain emailed Elias claiming he’d sent the required documentation. But the agency never received it, Elias said in emails. Finally, Shain scheduled a Sept. 5, 2012, meeting with Elias to go over those documents. “As the projects are fairly complex, it would seem best if we could just walk through them together,” Shain wrote.
Forged documents submitted to the state to prove all six separate projects were under construction before April 15, 2011, and thus qualified for nearly $12 million in state tax credits. They weren't under construction, but the Energy Department approved the tax credits anyway.
The meeting was supposed to last a couple hours, but turned into three days. Shain and Elias apparently spent some of that time talking music.
“Jazz Pistols = Sleep Deprivation,” Shain effused to Elias after the first day. “Ouch... but my music needs were satisfied. Thanks SO much for the tip.”
In the end, the department received only two documents to prove the deadline had been met – an invoice from a purported supplier and a letter from the previous developer describing construction activities in early 2011. It is those documents that are the basis for the forgery charge.
Shain has denied providing those documents to the agency, and his brother has filed an affidavit with the court saying he forged the documents and sent them to the department to save his brother’s business. Either way, the documents fell well short of the minimum requirements in state rules.
And as The Oregonian/OregonLive later reported, the documents raised obvious red flags.
The only document detailing any expenses was an invoice, purportedly for installing solar racking foundation bases and structural fittings at the 14 arrays originally proposed. But the amount spent was tiny – $14,200, or just 0.05 percent of the project costs. Moreover, it showed spending at Southern and Eastern Oregon universities – sites that had been eliminated as infeasible early on. And there was no spending listed at three of the six sites that were now a part of the initiative.
A quick Internet search would have revealed that the contractor on the invoice didn’t exist, its address was made up, its phone number disconnected, and its engineering license fictional.
It’s not clear if Elias bothered with even a cursory inspection. The next day, he emailed Shain electronic copies of extension letters, signed by his boss, Maureen Bock.
“The information submitted has been determined to be sufficient evidence that your project began construction prior to April 15, 2011,” the documents stated.
The next day, Shain was back at the department, meeting with Elias to discuss a new reorganization of the projects, including changes in locations, sizes and costs of some of the arrays. Shain left Salem without finalizing those details. The developer was still trying nail them down. A few days later, Shain emailed Elias again, apologizing for another delay in delivering the final designs.
“Me,” he added, “I'll just take a breath and listen to Bela Fleck!! Lovin' this banjo, damn!!!!! My new favorite tunes!!!”
“No worries on my end,” Elias responded.
The department went on to approve every amendment that Shain requested and provided the six projects that were ultimately built with $12 million in taxpayer support.
- Ted Sickinger
tsickinger@oregonian.com
503-221-8505; @tedsickinger
- Hillary Borrud
hborrud@oregonian.com
503-294-4034; @hborrud