Suing Treasury May Lead to a Counterclaim

Publication April 12, 2016

Treasury cash grant litigation carries risk to companies suing for additional payments that the government may ask for money back.

Thirty lawsuits have been filed against the US Treasury by companies that believe they should have been paid more money under the section 1603 program. Companies have up to six years after grants were paid to file suit.

Congress directed the Treasury in early 2009 to pay owners of new renewable energy projects 30% of the “bases” the owners have in such projects in place of tax credits. The tax equity market had shut down. There was concern that development of new renewable energy projects would slow. Congress directed the Treasury to act essentially as a tax equity investor of last resort. Projects had to be under construction by the end of 2011 to qualify. There were separate deadlines to be put in service depending on the type of project. For example, wind projects had until December 2012 to reach completion. Solar projects have until the end of 2016.

The 30% payments are calculated on project cost. However, many projects are financed in a way that lets the owner use the fair market value of a project rather than the actual construction cost. This has led to disputes with the Treasury about the market value. The Treasury said in a paper posted to its website in June 2011 that a 10% to 20% markup above cost may be appropriate in solar rooftop projects, but the Treasury had backed away from this by 2012.

Of the 30 lawsuits, seven have been withdrawn. Two have been decided. There is also a separate whistleblower suit by a former employee of a development company who believes no grant should have been paid on a project.

In February, the US Court of Federal Claims let the government add a counterclaim asking the owners of six wind farms in California to return $59 million in grant money. The owners sued Treasury in 2013 and early 2014 asking for an aggregate additional grant payment of $200 million. (The separate suits on the six projects have been consolidated.) The government hired an expert witness as part of its investigation of the claims. The expert produced a report in October 2015 that questioned whether three categories of indirect costs should have been included in basis. The National Renewable Energy Laboratory, which reviews grant applications under contract to the Treasury, had asked questions about the three types of costs before grants were paid on the projects. The judge said he would allow the government to reopen the case on these costs, but in an effort to reduce the burden on the owners of revisiting an issue so late in the game of which the government was aware when it paid the original grants, he will not let it introduce any new documents or testimony to prove its counterclaim that were not already furnished to the project owners.

The government asked the court for permission in late February to add a counterclaim for $9.2 million against a solar rooftop company that sued for what the solar company said was a $14.5 million underpayment on 4,200 rooftop solar systems. The suit has been pending since February 2013. The government said an expert it hired to review the case advised recently that the company was overpaid.

The government asked the court in early April for permission to revisit whether it should have allowed any part of developer fees paid on two large wind farms to be included in basis. Developer fees of 12.5% and 16% of project cost were paid by the project companies to an affiliate. The Treasury originally allowed fees of 3.8% to 3.9% to be included in basis for each project. However, the government is now questioning whether the developer fees were real. The counterclaims are for a total of $10 million. The initial owners of the projects want the Treasury to pay them an additional $21.9 million.

In other developments, an effort by the owners of 20 utility-scale solar projects in California to get a federal district court to order the Treasury to make full payment of grants on 15 of the projects came to an end with the court telling the solar company in March that the case had to be brought in the Court of Federal Claims. The solar company applied for $614.8 million in grants, but said it had received only $360.5 million. It filed suit in federal district court in July 2015.

The government amended its response in another lawsuit at the end of March involving a biomass power plant to ask the biomass company to return the grant the company was paid on grounds that the biomass plant was taken out of service less than a year after it started operating. The developer originally applied for a grant of $5.47 million. It was paid only $316,609 after the Treasury allocated the project cost between the parts of the plant that produce steam and electricity and paid a grant solely on the part allocated to electricity. The project owner filed suit in December 2014 over the shortfall.

The government has won one case and lost one to date. Both decided cases have been appealed. In early February, a US appeals court affirmed the decision for the government in the case it won. The appeals court directed the company that lost the case to pay the government’s costs.


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