The Treasury

The Treasury

April 24, 2015 | By Keith Martin in Washington, DC

THE TREASURY has now won one and lost one lawsuit against it for shortfalls in Treasury cash grants.

The next trial is scheduled for May 23, and another 23 cases are in line behind it. Two new suits were filed in March and April.

All the cases were filed in the US Court of Federal Claims by owners of renewable energy projects who were paid smaller grants under the section 1603 program than the amounts for which they applied. Congress directed the Treasury to pay 30% of eligible basis in new wind, solar, geothermal, fuel cell and other renewable energy projects starting in 2009. The program has largely expired. However, solar projects that were under construction by December 2011 still qualify for grants if completed by the end of 2016. Many developers ended up being paid less than they thought they were entitled. Companies have up to six years after a grant was paid to file suit.

The government won the first case in January involving a biomass power plant whose owner applied for a cash grant of $2,711,311, but received only $943,754. The Treasury allocated the plant cost between the parts of the project that produce steam and electricity and paid a grant only on the part that produces electricity. The court gave “considerable weight” to the Treasury’s view of how to administer the program, but stopped short of giving the Treasury total discretion. (For earlier coverage, see the February 2015 NewsWire article on this topic).

The case that the taxpayer won involved two fuel cell projects at municipal wastewater treatment facilities. The fuel cells use methane gas produced by putting sewage sludge through anaerobic digesters. The gas must be cleaned before it can be used in the fuel cells. The municipalities own the digesters and supply the methane to the fuel cell owners. The fuel owners own gas conditioning equipment. The Treasury paid grants on the fuel cell assemblies, but not the gas conditioning equipment. The issue was what the US tax code means by “fuel cell power plant” — the equipment on which an investment tax credit can be claimed and on which, by extension, a Treasury cash grant would be paid. The tax code defines it as “an integrated system comprised of a fuel cell stack assembly and associated balance of plant components which converts a fuel into electricity using electrochemical means.”

The court said the gas conditioning equipment is integral to the fuel cell and, as such, should be treated as part of the power plant. The court took 117 pages to explain its decision. The case is RP1 Fuel Cell, LLC and UTS SJ-1, LLC v. United States. The opinion was released on March 31.

Edward Settle, a National Renewable Energy Laboratory official involved with reviewing grant applications, testified at trial that the Treasury has processed 100,000 grant applications, but has another 100,000 to go.

Two new suits were filed in the last month. The owner of a large solar parabolic trough power plant filed suit in March over a $5.87 million grant shortfall. The dispute centers around whether various types of spending on the project qualify as basis in the solar equipment or in other assets that are not part of the solar generating equipment. For example, the Treasury was unwilling to treat as part of the solar equipment two natural gas-fired auxiliary boilers that supply steam to the heat exchangers to prevent the heat exchange fluid from freezing at night, a 16-foot high wind wall that protects the solar mirrors and tubes from high winds and a groundwater well whose water is used to wash the mirrors and also to supply water to plant staff for drinking, showers, sinks and toilets.

In early April, MeadWestvaco, a paper company, filed suit over a grant paid on a new biomass boiler and 74-megawatt steam turbine that it put in service at a paper mill in Covington, Virginia in November 2013. The company treated 98.4% of the plant cost as eligible spending and applied for a grant of $85.9 million, but was paid only $38.9 million. The Treasury divided the project cost between the parts of the project that produce steam and electricity and paid a grant on the 48.8% of the project that it said was the cost of the electric generating equipment. Some of the steam is used to heat feedwater to make the power cycle more efficient. Other steam is sent to the mill for use in drying paper and other applications. The company argues that since all the steam is distilled into water in condensers and fed back into the boiler, the steam is an intermediate step to generating electricity.

Meanwhile, the Treasury inspector general is still writing up results from Treasury cash grant audits in 2010 and recommending that amounts be repaid to the Treasury. One recent report dealt with a grant paid in 2009. The inspector general recommended in it that a wind developer repay the Treasury roughly $1.5 million of a $114 million grant, or about 1.3% of the total grant paid.

The inspector general visited some grant recipients in the period after grants first started being paid as a check on how well Treasury officials were administering the program. The inspector general team were not tax experts. The grant office is free to accept or reject the recommendations.

by Keith Martin in Washington