Alta I-V — five phases of the giant 1.55GW Alta Wind project in the Mojave Desert, totalling 720MW — was awarded a total of $488 million in 2011 under the government’s Section 1603 stimulus programme. But in 2013 the plaintiffs, all investors affiliated with Terra-Gen Power, accused the US Treasury of underpaying the grants by more than $226 million. The federal government, for its part, responded with a counter-claim in 2015 that alleges the investors received $59 million too much and should repay it.
On 8 February, US Court of Federal Claims judge Thomas Wheeler ruled the Treasury could proceed with its counter claim. "The stakes are raised somewhat because plaintiffs have no guarantee of keeping the amounts the Treasury paid them," he said. "However, a refund always was a possibility given a proper understanding of the issues."
The cases go to trial in Washington DC on 9 May in front of judge Wheeler.
Terra-Gen, which developed the entire Alta project, operates phases I-V under a sale-leaseback arrangement. NRG Yield owns the five phases but it is not involved in the suits, a spokesman for the yieldco said. Terra-Gen could not be reached for comment. It is not involved in the suits.
Almost $13 billion was awarded to 21.6GW of wind projects under Section 1603 clean-energy development programme after Congress passed the American Recovery and Reinvestment Act in 2009 in response to the recession.
Investors were entitled to a 30% cash grant based on the "reasonable and allowable cost basis" of a development, with projects required to be online by end-2012.
At issue in the litigation is the "cost basis" on which the Alta grants, totalling $488 million for phase I-V, was calculated. The investors applied for 30% grants based on what they paid to buy the wind farms from Terra-Gen. But the Treasury based the awards on how much it had cost Terra-Gen to build the projects and has argued that the sale-leaseback arrangement can lead to an inflated purchase price, but that this should not mean an inflated grant. It also contends that the fair market value was overstated, and that there was too much of a mark-up associated with affiliated costs.
The $285 million-plus discrepancy between the amount that the government and the Alta investors are seeking is equivalent to at least $396,000/MW, a big chunk of the project’s total Capex, said Amy Grace, head of wind analysis for Bloomberg New Energy Finance. "It’s extremely significant in terms of project costs," she said, agreeing that the cases will be closely watched. "I bet others will be quaking in their boots." Google, for example, has invested in another of the Alta phases not involved in the litigation.
There have been more than 20 renewable-energy Section 1603 legal disputes so far, five of which are wind-related (see table), with Alta by far the largest. Should there be no settlement, it will be the first to go to trial.
Sale leasebacks have been accepted in investment tax credit cases for decades, said Tim Jacobs, a partner at law firm Hunton & Williams. Of the government’s counter-suit alleging $59 million overpayment, he said: "We’ve all been to this party before. The government is trying to create some leverage. They’re pretty clearly upping the stakes in the litigation. It seems pretty peculiar to me that [the government] would come up with a number that is much lower than [the one the] Treasury came up with."
He believes there is little reason for other Section 1603 recipients to be scared. "One, the grant programme has expired. Two, I don’t believe the [judge’s] decision will dictate anything other than the Alta case," said Jacobs, who has litigated Section 1603 cases but is not involved in Alta.
Wind projects involved in Section 1603 US Court of Federal Claims
|Project||Size (MW)||Developer/owner||Status of suit|
|Alta Wind I-V
||720||Terra-Gen, NRG Yield
|California Ridge Wind Energy||217.1||Invenergy, TerraForm Power||ongoing|
|Bishop Hill Energy||200||Invenergy, TerraForm Private Warehouse||ongoing|
|Fire Island Wind||17.6||Fire Island Wind||dismissed|