Dignitaries gathered on a dry Klamath Falls hillside in August 2011 to celebrate the launch of the largest solar power project ever attempted in Oregon.As then-Gov. John Kitzhaber and others dug their golden shovels into the hard ground, they were adamant that this was not another state-sponsored green energy boondoggle. This $27 million collection of solar arrays would be a boon for the economy as well as the environment.

For nearly $12 million in tax credits, state officials said, taxpayers could expect the project developer to buy local and hire local, creating a virtuous circle of energy savings, reduced greenhouse gases and jobs.

“An economy of innovation is within our reach,” Kitzhaber said, rewarding “efficiency rather than excess.”

Kitzhaber got the efficiency part right. The solar arrays fired up a year ago, generating even more power than expected at Oregon Institute of Technology and Oregon State University.

But those solar arrays rest on a foundation of falsehoods and false hopes, an investigation by The Oregonian/OregonLive has found.

Interviews and an examination of thousands of pages of documents show that state officials wrongly awarded millions in state tax credits, turning a blind eye to phony documents. The project also was dogged by an international trade war, a bitter corporate rivalry and a stunning twist that traded high-paid Oregon jobs for prison labor at 93 cents an hour.

“The department clearly didn’t follow its own rules,” said Energy Department Director Michael Kaplan when told of the findings of The Oregonian/OregonLive.

Kaplan subsequently asked the Criminal Justice Division of the Oregon Department of Justice to look into the circumstances and whether the state should move to recover the $11.8 million in tax credits.

Chapter 1: A failing company

The state’s energy project initially counted on an out-of-state developer with virtually no experience in solar projects.

Officials at the Oregon University System had big green ambitions. Six years ago, they envisioned 14 solar installations spread over seven campuses. But they had no funding, no practical experience and no in-house talent to develop such a project.

What they did have was access to Oregon’s Business Energy Tax Credit program – the most generous state incentive program in the nation. If the university system could get the array built, they could tap the program and leave Oregon taxpayers with half the cost.

In 2008, the state hired Martin Shain, a Seattle-based renewable energy consultant, to make the project happen. Shain later said on his website that he solicited proposals, selected vendors, negotiated contracts, monitored construction and secured the tax credits.

It did not go smoothly. The university system launched its solar quest in the midst of the worst economic downturn since the Great Depression. At the time, the Legislature was livid at mushrooming costs and weak financial controls in the state Energy Department and was considering killing the tax credit altogether.

Those credits were the linchpin to get other needed financing and to drive down energy costs to make the university project pencil out. In fact, the first developer walked away over worry the credits were in jeopardy.

The state quickly moved on, picking a new developer with no successful solar projects to its name, and a recently failed venture in Needles, Calif.

Renewable Energy Development Corp was founded by Ryan Davies, a nephew of former presidential candidate Mitt Romney. Davies had job hopped between various startups for years before forming what was known as Redco in 2008. His company was working with Shain on a solar project at the University of Utah when it got the Oregon job.

The university system board approved the deal with Redco in June 2011 and two months later Kitzhaber was wielding his golden shovel in Klamath Falls.

Davies was there, too. State rules for the tax credits required that the project be well underway by then. It wasn’t.

The groundbreaking was a “symbolic event,” Davies said. “Everybody turned over a shovel of dirt. It’s very safe to assume construction was not underway.”

Four months after that, Redco was bankrupt.

Chapter 2: A fraud to get millions

Redco’s bankruptcy should have killed the project. It meant there was little hope of completing it in time to legally claim $11.8 million in state tax credits. Instead, project backers submitted phony and misleading Redco documents to keep the project alive.

By summer of 2011, the business energy tax credit program had become a budget-busting nightmare. Costs were out of control. Applicants were blatantly abusing the rules. Fed up, lawmakers created two new cutoff dates to bring the scandalized program to a close. The primary deadline was that projects had to be done by January 2013.

Projects could get an 18-month extension if they could prove construction started by April 15, 2011. At the end of 2011, there still were no design plans or building permits for the university project. That didn’t deter university officials from trying to establish that construction on the project in fact started in early 2011.

Robert Simonton, then a university vice chancellor, wrote the state Energy Department on June 22, 2012, requesting the extension for the solar array project. He said Shain, the state consultant, would provide the required documentation.

Energy Department records show that a week later, Shain alerted state officials that he had sent the material via email. When Energy Department officials alerted him they didn’t have it, Shain promised to follow up. Two months later, he e-mailed Evan Elias, an Energy Department analyst, saying he was “under heavy pressure” to get the extensions, and would get the documents “in your hands, some way, ASAP so we can move forward.”

Without the extension, the solar project would die.

Shain said in an interview he then hand delivered the documents.

But the Energy Department project files reviewed by The Oregonian/OregonLive contain far less documentation than the agency typically required. Agency officials recently confirmed they acted on insufficient documentation.

Instead, they relied on two documents offered as proof construction on the solar arrays had started in time beat the state deadline.

One was an invoice to Redco for construction work. The Energy Department released it The Oregonian/OregonLive under a public records request.

The date on the invoice is key: Feb, 25, 2011 – or two months ahead of the state’s cutoff to qualify for the $11.8 million in tax credits.

The invoice purports to be from a Redco subcontractor, Solar Foundations Systems. The $14,200 bill itemizes the installation of foundations and fittings at multiple sites on each of the seven university campuses in Oregon.

It was stamped “PAID” on March 10, 2011, authorized by R. Davies, and paid with check number 1091.

Neither Utah nor Oregon has any record of Solar Foundations Systems. The Utah address on the receipt doesn’t exist, and the phone number at one time was a Redco listing. Utah state officials say they have no record of an engineering firm with the state licensing number shown on the invoice.

Redco’s bankruptcy filings do list a check number 1091. But that was written to Capital One, paying a personal debt of Ryan Davies.

Davies, now chief executive of a startup drug company, said in an interview that he has never heard of Solar Foundation Systems and that Redco never owned a stamp like the one used on the invoice.

Moreover, he said he had never before seen the second piece of crucial evidence that higher education officials submitted to the state – a Dec. 20, 2011, letter bearing Davies’ signature.

The letter urged Simonton, the vice chancellor, to seek an extension of the tax credit because of the “complex and tedious construction progress we encountered during Q1 and Q2 of this year.”

The letter stated that Redco’s “direct site and engineering and permitting expenses have exceeded $210,000…the initial construction, racking preparation and foundation work at each of the OUS locations…created additional costs.” Shain was copied on the letter.

Davies said Friday that he resigned from Redco five days before the letter was written. He claims he didn’t write the letter and the signature on it is nothing like his own. He also said Redco didn’t spend anywhere near $200,000 on the project.

“This is obviously some fraudulent behavior on somebody’s part,” he said, adding that he was making his own call to the state Justice Department.

Davies said the project was under the supervision of another Redco manager, Ryan Lambert. Davies said Lambert was friends with Shain and brought the Oregon project to Redco.

Contacted in Utah, Lambert told The Oregonian/OregonLive that any receipts and letters “were a Davies thing.” He also said he never heard of Solar Foundation Systems.

Shain, who provided the document to the state, said he doesn’t recall what was required by the rules or what he delivered to Elias. He said he can no longer locate any salient files. He has since refused to respond to questions.

The letter’s authenticity is also called into question by Redco’s bankruptcy filings. They show no payments at the end of 2011 on construction, permitting or other expenses. The only payment that appears directly related is a November 2011 check for $1,803 to the Energy Department. The agency returned the check because it didn’t know what it was for, according to a letter released as part of a public records request.

Even a cursory review of the submissions by Elias or his supervisors at the Energy Department would have detected problems. Agency files contain no record of any due diligence by Elias.

Instead, the agency sent university officials what they prized most – the extension that kept the $11.8 million in their grasp.

Kaplan said that approval of the tax credit was not driven by pressure to approve a politically popular project. He also said it wasn’t the act of a single employee.

“As far as making any one person accountable for a series of decisions related to the BETC, I don’t think that’s fair. We share that responsibility.  These are organizational issues,” he said.

Chapter 3: And about those green jobs…

Though they saved the tax credits, state university officials didn’t show the same ambition to save the new jobs promised by Kitzhaber.

After the Redco debacle, the university system quickly hired its third developer in the spring of 2012.  SolarCity was no solar rookie. It had been around for five years and billed itself as the largest installer of solar systems in the world.

Under the new contract, SolarCity would do all the engineering, site prep and installation for Oregon. The company would own the project, selling power to the universities to recoup its investment.

Their partner was another seeming solid name in green energy – SolarWorld. The company arrived in Hillsboro in 2007, investing hundreds of millions of dollars in a state-of-the-art solar panel factory. Potential new jobs for the company were part of the lure of the university project.

Kitzhaber, taken with the buy-local strategy, authorized a $60,000 state study to assess the project’s impact on the local economy. The study concluded that buying the solar panels in Oregon would generate $10 million in local wages.

It was common knowledge in the solar industry, though, that SolarCity and SolarWorld were bitter rivals in an international trade war.

SolarWorld was building solar panels in the U.S. and took the lead in defending American manufacturing from perceived illegal trade by the Chinese. SolarWorld complained to U.S. and European Union entities that Chinese companies were dumping solar panels in the U.S. below cost to kill competitors.

SolarCity, meanwhile, depended on those low-cost panels for its own business success. Any effort to stanch their flow into the U.S. was a threat. SolarCity and others in the industry mobilized against SolarWorld.

The U.S. Commerce Department stunned the industry when it sided with SolarWorld and imposed stiff tariffs on solar panels from China. It was the first of 10 such wins for SolarWorld, and came just two months after SolarCity started working on the Oregon project.

Despite such victories, SolarWorld struggled in 2011-2012. The solar panel business had become a bloodbath as Chinese firms dominated the industry. At least 14 American solar companies failed or shuttered manufacturing plants.

The company’s $5 million share of the university project was a rare bright spot.

“We were really excited,” said Mukesh Dulani, CEO of SolarWorld Oregon. “A five-megawatt project like this was crucial to us. We weren’t producing big volumes at the time.”

SolarCity quickly took the shine off the contract, telling state officials that they were troubled by SolarWorld’s shaky financial condition. Shain, the state’s project consultant, echoed that view.

“Deep concerns in the financial community about their liquidity are creating very difficult project finance issues,” he said in a Feb. 26, 2013, email to Maureen Bock, the Energy Department incentives program manager.

Industry analysts at the time predicted SolarWorld was headed for insolvency and questioned its decision to manufacture solar panels in the West.

SolarCity also claimed SolarWorld was backing away from its product warranties and wanted an additional $250,000.

Dulani vigorously denied his company demanded revised terms or that it was stepping away from its warranties.

Faced with the threat of cancellation, SolarWorld beseeched state officials to intervene to keep the contract alive.

“This is a travesty and there truly is no good reasons for this, contrary to what you may have been told by SolarCity,” said SolarWorld salesman Matthew Lind in an April 2013 email to OSU Sustainability Director Brandon Trelstad. “We have the industry-leading premium product coming out of Hillsboro and we can meet the price that SolarCity wants to pay, delivery capacity, volume, timing, etc.”

OSU did nothing.

“There was a lot of tension between the two companies,” Trelstad said in an interview. “I expressed interest in staying out of it. I didn’t think it was OSU’s place.”

Trelstad wasn’t the only state official in the loop. Managers of the Energy Department’s incentive programs, including Anthony Buckley, Bock and Elias, also knew SolarWorld was losing the contract.

There is no record anyone in either agency lifted a finger to help.

Layoffs followed at SolarWorld.

“We had to make some hard decisions,” Dulani said. “You have to do that when you lose five megawatts of production. This affected our people and their families. SolarCity screwed us.”

Firing SolarWorld was just business, said Will Craven, SolarCity spokesman.

But if workers in Hillsboro weren’t going to make the state’s panels, who would?

Shain assured state officials that SolarCity had found “alternative modules of U.S. manufacture, and very possible Oregon manufacture.”

SolarCity’s alternative: Prison labor.

Under a subcontractor, Norcross, Georgia-based Suniva, the panel work went behind the walls at the Federal Correctional Institute in Sheridan. Inmates paid 93 cents an hour assembled the panels. That was in contrast to SolarWorld factory pay — $11 an hour to start.

Craven acknowledged that using inmate labor “may not have been in the spirit” of the tax credit program. He said state officials knew prisoners were involved.

State officials said they were unaware of the inmate component until questioned recently by The Oregonian/OregonLive.

“They used inmates?” Simonton asked. “That’s unfortunate.”

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[Ted Sickinger: tsickinger@oregonian.com | 503-221-8505 | @tedsickinger]

[Jeff Manning: jmanning@oregonian.com | 503-294-7606 | @JeffmanningOre]