TREASURY CASH GRANT litigation has started moving.

The US government won the first of a number of lawsuits against the US Treasury by renewable energy companies that feel they should have received larger cash grants under the section 1603 program. There are another 20 lawsuits pending. Several raise significant issues of interest to the larger project finance community, including whether part of the purchase price paid for a power project must be allocated to the power purchase agreement in situations where the contracted electricity price is above what can be earned in the current market.

The oldest lawsuit has been pending since July 2012. All are pending in the US Court of Federal Claims. The court decided the first case in mid-January within weeks after hearing oral arguments. The others should start to move this year.

The decided case involved a new power plant in Lewiston, North Carolina that used biomass to produce steam and electricity that were sold to an adjacent Perdue chicken rendering plant. Congress directed the US Treasury, starting in 2009, to pay owners of new facilities that use renewable energy to generate electricity 30% of the eligible cost in cash as an alternative to tax credits during a period when there were concerns that the tax equity market had collapsed.

The owner of the biomass power plant applied for a cash grant of $2,711,311. The Treasury only paid $943,754. It allocated the project 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 “as a reasonable interpretation of the statute.” However, it stopped short of giving the Treasury total discretion because “there is no indication that Congress explicitly or implicitly delegated broad interpretative authority to the agency.” There was no formal rulemaking process by Treasury when it released guidelines explaining how it plans to pay grants.

The biomass plant owner said the Treasury already paid it a full grant on another, similar facility. The government lawyers told the court the earlier payment was a mistake. The judge said the Treasury is not bound by a mistake to make full payments on other plants. The case is W.E. Partners II, LLC v. United States.

Another suit filed in late December raises the same issue as the one that the court decided in January. That suit — called GUSC Energy, Inc. v. United States, involves a new power plant that GUSC Energy put in service in November 2013 at an industrial park in Rome, New York that uses wood chips to produce steam and electricity. The owner applied for a grant of $5,469,028 and was paid only $316,609. (The payment would have been $341,174 but for a 7.2% haircut due to budget sequestration.) The Treasury paid a grant solely on the equipment used to generate electricity, and it also removed costs related to site cleanup, landscaping, ornamental iron work and paving.

There is a six-year statute of limitations for companies who received grants to file suit. Any government losses in the remaining cases could lead to more lawsuits.

Meanwhile, Congress fixed a technical error in the original grant statute. Grants do not have to be reported by recipients as taxable income. The original program made this clear for companies that pay regular corporate income taxes, but not for companies that pay alternative minimum taxes. The US has two corporate income taxes. A company computes its taxes under both and pays essentially whichever amount is higher.

The IRS was starting to lose patience by last fall after waiting five years for Congress to fix the error and was starting to collect taxes from companies that received grants while they were on the alternative minimum tax. A tax extenders bill that cleared Congress in December fixed the error.

Keith Martin in Washington