The massive solar array glinting on a sun-baked hillside behind the Oregon Institute of Technology's Klamath Falls campus isn't made of precious metals.

But for what it cost Oregon taxpayers, it might as well have been.

The developer, SolarCity Corp., reported to the state that the Oregon Tech array was worth $10.3 million.

That's extraordinarily expensive compared to other projects - either in Oregon or nationally. And for every dollar, Oregon taxpayers are covering half the cost through business energy tax credits given to SolarCity and its investors.

The credits won't stop there. SolarCity built five other solar arrays for the Oregon University System. The company, using what the U.S. Treasury considers the most complicated and opaque valuation methods allowed, reported the total project was worth $23.6 million.

Oregon taxpayers were handed a bill of nearly $12 million. Federal tax credits totaled another $7.1 million. And the backers will receive additional benefits through special depreciation deductions allowed for renewable energy projects.

Local and national data show that solar costs have been in steep decline for years. Yet the reported value of the university arrays was higher than comparably sized solar projects built in Oregon and elsewhere during the last three years. Moreover, The Oregonian/OregonLive has learned that the value of individual components reported to the state bore little relationship to what SolarCity paid.

The company is adamant that the valuations it reported to the state Energy Department are justified.

"SolarCity," said Jonathan Bass, a spokesman, "is not inflating values."

SolarCity has received hundreds of millions in federal tax incentives during the last five years and has long been suspected by government agencies of inflating the reported value of its systems. Federal investigators launched a probe of the company's reported costs in 2012 that is still ongoing. The U.S. Treasury has chopped millions in subsidies because the reported value exceeded federal benchmarks for such projects.

Members of Congress have gotten involved, too, pushing for investigations of not only the company's costs, but its representations to consumers about potential savings from solar.

"Overinflating value of solar products is not only detrimental to the government, but to investors as well,"

asking Treasury Secretary Jacob Lew to explain the logic of the accounting methods that SolarCity was using.

SolarCity is acutely aware of the valuation question. Its securities filings acknowledge its dependence on government subsidies and outline the financial risks if the federal government determines it has been misreporting costs. The company and its investors contend the U.S. Treasury doesn't have the authority to establish cost guidelines for solar projects, and have sued the government to restore millions in subsidies.

More recently, the Oregon Department of Justice launched criminal and civil investigations of SolarCity's university projects, and the FBI has joined in. The investigations were opened after The Oregonian/OregonLive reported last month that the arrays didn't appear to qualify for state tax credits.

That's because developers missed a key state deadline for beginning construction of the arrays. The backers of the project submitted phony and misleading documents to the Energy Department in an attempt to demonstrate that the project met the deadline.

Depending on what the investigations find, the state might seek to recoup the $12 million in state tax credits.

SolarCity and its investors receive those state subsidies, but company officials say they had no knowledge of the misleading submissions. They said those documents were the responsibility of the Oregon University System and a consultant the system hired to coordinate the projects. The company said it did not vet the documents before they were submitted to the state.

BIG MARKUPS

SolarCity is an integrated company involved in virtually every aspect of the solar business - design, installation, financing, and manufacturing.

The company popularized no-money-down solar leasing, where it finances the installation of the systems, then leases them to customers under a monthly plan or power purchase agreement. The model has made SolarCity the largest installer in the country, with massive economies of scale that drive down costs.

When it negotiated for the solar modules it installed at Oregon State University and the Oregon Institute of Technology, the company pressed hard for low prices.

Internal company emails obtained by The Oregonian/OregonLive show that it pushed its original supplier, Hillsboro-based SolarWorld, to price solar modules below 80 cents a watt.

When SolarWorld balked, countering a few cents higher, the response was blunt.

"As you know, the market is more competitive than ever and prices drive deals more than ever," SolarCity's purchasing manager emailed his counterpart at Solarworld. "As you also know, a couple of pennies per watt one way or the other makes or breaks deals every day."

SolarCity bought modules for two of the six university arrays from SolarWorld. Then it dumped the Hillsboro company in favor of another supplier that employed prisoners at the Federal Correctional Institution in Sheridan. The purchasing manager told SolarWorld in emails that it had specified exactly what it needed, and that SolarWorld's counter offer didn't "sufficiently protect the customer and satisfy our financial partners."

The module costs that SolarCity ultimately reported to the Energy Department for the six completed arrays averaged $1.71 a watt -- more than double the price it had demanded from Solarworld.

And it wasn't just the solar modules. The photovoltaic inverter pricing reported for the university arrays was up to three times higher than prevailing prices at the time, according to a 2013 report from GTM Research, which tracks price data in the industry.

SolarCity's Bass said the prices appear high because the company added to its component costs design and engineering expenses, company overhead and profit. He said SolarCity rescued the university projects after two previous developers had failed. The company said it faced unique costs, including prevailing wage requirements and high costs to connect the arrays to the grid.

Installation and labor costs accounted for 8 percent of the SolarCity's reported costs on the systems and since all solar projects in Oregon are required to use licensed electricians, and many use union labor, prevailing wages were unlikely a significant driver of higher costs. Moreover, PacifiCorp says the interconnection costs for the arrays were "run of the mill," no more expensive than other comparable projects.

Bass also said SolarCity's "third party ownership" model, in which it retains ownership of the arrays and leases them to customers, piled on additional legal, financing and operating costs.

FAIR MARKET VALUE, NOT COST

That's also where the accounting gets complex. The arrays are owned by investment funds set up and partly owned by SolarCity. The company doesn't record the value of the solar projects based on its installation costs or a sales price. Instead, it uses "fair market value" -- a more complicated way of accounting for income flowing into its investment funds from a functioning system. As in most renewable energy projects, tax incentives make up the bulk of that income.

Galen Barbose, a research scientist at Lawrence Berkeley National Laboratory,

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issues an annual study of industry pricing trends. He said he excludes projects listing fair market values because they distort the results.

"They're not actual transaction prices for the systems," he said. "They're just someone's calculation of 'Here's what we think the system is worth.' We exclude them on principle."

Federal rules do allow developers to report the fair market value of their systems when filing taxes or applying for subsidies as long as it's supported by an independent appraisal. The Internal Revenue Service has audited two of SolarCity's investment funds to examine the fair market value of solar systems that received subsidies, according to company filings, but no results have been made public.

The U.S. Treasury has warned developers that it considers the income-based approach the least reliable method of valuation. The agency says it will scrutinize those valuations closely because they are based on assumptions and variables that are open to speculation and debate.

In SolarCity's case, the Treasury Department's Office of Inspector General has subpoenaed records to determine whether the company's fair market values were misrepresented.

Academics, industry experts and and media reports, too, have zeroed in on SolarCity's use of fair market valuation methods and the high reported cost of its systems in Arizona and California.

In a

, Molly Podolefsky, a doctorate candidate in economics at the University of Colorado, called the federal tax investment tax credit "an ideal vehicle for tax evasion" by third party solar firms because of "non-transparent reporting mechanisms and a lax enforcement regime."

If the federal enforcement is lax, Oregon's is nonexistent.

State officials said Oregon's tax credit rules don't mention fair market value. They call for applicants to report the "actual capital costs and expenses needed to acquire, erect, design, build, modify, or install a facility."

"Fair market value, as it relates to the construction of an energy project, is not considered," said Anthony Buckley, the Energy Department's chief financial officer. "In the case of OUS, it is our understanding that the costs represented ... were those costs incurred in developing and constructing the projects."

SolarCity said it relied on independent appraisals to support the value of the completed Oregon arrays.

The Energy Department, however, did not receive or review the appraisals. It did receive from SolarCity's outside accountants a five-line summary of "final costs." The accountant's letter to the state explained it prepared the numbers using information from the company and didn't audit them.

State officials did nothing to verify those numbers before approving $12 million in tax credits.

SolarCity's Bass insists that the reported costs of the arrays met state rules. And he said the independent appraisals compared similar projects completed in Oregon during the prior six months.

The company declined to provide those appraisals or identify the comparable projects.

COMPARING COSTS

Public information, however, allowed The Oregonian/OregonLive to make some comparisons. The six solar arrays that SolarCity built for the Oregon University System are of varying sizes and spread over four different university campuses.

The two largest were in Corvallis and Klamath Falls. The average cost of the systems reported to the Energy Department in early 2014 was $4.89 a watt.

That's 22 percent higher than the benchmarks the U.S. Treasury was using three years earlier to evaluate subsidy applications, during a period when industry pricing was in a free fall. It's 40 percent higher than average cost reported for three jumbo solar arrays built in Oregon in 2012. And it's about 75 percent higher than the national median cost reported by the Lawrence Berkeley National Laboratory for systems of similar size installed in 2013. Industry pricing has continued to fall since then.

David Brown, who owns one of the state's largest solar developers, Obsidian Renewables, testified to the Oregon Legislature in early 2014 about the cost of solar projects in the region.

Brown told lawmakers that the cost to build large-scale solar systems installed in Oregon had tumbled. Not only had solar module pricing fallen as low as 63 cents per watt in 2013, he said, but the cost of installation, grid connections, permitting, legal fees and developer profits had plummeted.

The costs of developing a large-scale solar project that his company was studying near Klamath Falls, Brown estimated, would be $2.40 cents a watt. That project was much larger than the university arrays, but Brown said the cost of developing a 2 megawatt system at the time would have been about $2.50 a watt.

SolarCity, meanwhile, was reporting the cost of the university arrays to the Oregon Department of Energy to calculate its tax credits. The cost of its 2 megawatt array at Oregon Tech's Klamath Falls campus was more than double - $5.14 cents a watt - translating to millions of dollars in extra costs, and millions in extra subsidies.

- Ted Sickinger

tsickinger@oregonian.com

503-221-8505; @tedsickinger