We note the following recent developments in the Section 1603 grant litigation:
Filed/Decided Cases. About 25 cases have been filed in the U.S. Court of Federal Claims challenging Section 1603 grant denials or reductions. At this time, only one case has gone to trial (RP1 Fuel Cell) and only two cases (RP1 Fuel Cell and W.E. Partners) have been decided on the merits—RP1 Fuel Cell was decided for the applicant and W.E. Partners was decided for the Government on summary judgment. The RP1 Fuel Cell case involves the question of whether gas conditioning equipment for anaerobic digester gas is a qualified part of a fuel cell power plant or, alternatively, a trash facility. The W.E. Partners case involves the question of whether two additional steam boilers are an integral part of a biomass facility and whether the cost basis of the facility must be reduced due to the cogeneration of steam for thermal energy. The RP1 Fuel Cell and W.E. Partners cases are now on appeal in the U.S. Court of Appeals for the Federal Circuit awaiting argument and decision. Only a handful of cases have been filed in 2015. A chart briefly describing the cases that have been filed and their current status may be found at the end of this alert.
Treasury Review Irrelevant? In the W.E. Partners case, the Court of Federal Claims held that Section 1603 cases are reviewed de novo similar to tax refund cases. Based on this holding, the government has adopted the view in recent cases arguing that Treasury’s administrative decision and review process is irrelevant. There are two immediate impacts of this development. One, the government will resist discovery of Treasury’s and NREL’s decision-making process and will not rely on and will resist testimony from Treasury or NREL personnel at trial or in depositions. This issue is playing itself out in a number of cases. Two, the court would not review Section 1603 cases on the basis of any administrative record and would not accord administrative deference to Treasury’s determination. That point favors applicants.
Is Settlement Possible? Unlike IRS disputes, the Section 1603 program provides no mechanism for independent administrative review or appeal of grant decisions. In addition, Treasury has refused to compromise, mediate, or settle cases. As a consequence, the only avenue for relief is to file a claim in the Court of Federal Claims. Until recently, the government has resisted any meaningful settlement discussions. That situation appears to be changing. The government recently settled the Windpower Partners and Vasco Winds cases, which involved assertions that the purchase price of energy equipment was not arm’s length. The details of that settlement have not been made public.
SolarCity Valuation Case. The SolarCity (Sequoia) residential solar litigation has been ongoing since early 2013. This litigation involves the proper valuation of SolarCity’s residential solar systems and the role of Treasury’s “benchmark” values for solar systems. Fact discovery in the case concluded last month and expert discovery is scheduled to conclude in February 2016. Trial will be held sometime after March 2016, likely in the summer, assuming no further delays or discovery disputes.
Alta Wind Case. In July 2014, the Court of Federal Claims determined that the government was entitled to full discovery in a case involving the sale-leaseback of wind facilities. See our prior alert at link. At the heart of the case is Treasury’s determination (similar to numerous cases) that the cost of acquiring the wind facilities did not reflect an arm’s-length price and/or that some portion of the price is allocable to an intangible asset (e.g., power purchase agreement, goodwill, going concern value, etc.) not eligible for the grant. Fact discovery in the case concluded in October and expert reports have been exchanged. Expert discovery is scheduled to close in January with trial anticipated sometime in late spring or summer 2016.
Time to File Suit? In a prior alert, we advised that applicants have six years to file suit in the Court of Federal Claims. The six-year period begins when the claim “accrues.” Applicants who received a reduced or disallowed award in the 2009-2010 timeframe should consider filing their claims in short order so as to avoid any statute of limitations problems.