Wind power companies suing the United States for $226 million in renewable-energy tax credits must allow Uncle Sam to determine rebate amounts through discovery, a federal judge held.
Twenty Alta Wind farms owned by nonparty Terra-Gen Power, LLC have sued the United States since last year over unpaid tax credits and cash grants allegedly promised under the American Recovery and Reinvestment Act of 2009.
The wind farms claims that the Treasury Department rejected their project appraisals in favor of its own “greatly reduced valuation, arrived at through the disregard or misapplication of established rules for determining value of the investment tax credits,” according to the original complaint.
After the lawsuits were consolidated into a single action last month, the wind farms asked U.S. Court of Federal Claims Judge Thomas Wheeler for summary judgment. They argued that a pillar of tax law is that a buyer’s cost equals the purchase price unless “peculiar circumstances” exist – and there is nothing peculiar about the wind farm projects or their tax-credit applications.
But the Treasury Department argued that the wind farms’ sale-leaseback agreements involve multiple related transactions where the developer is both seller and lessee, which creates an opportunity for the wind farms to adjust terms across the transactions to inflate the purchase price while still maintaining their return on investment.
So the Treasury Department asked Wheeler to order further discovery into whether the sale-leaseback agreements were conducted at arms-length. The government also asked for a full accounting of the wind farms’ eligible and ineligible assets and an explanation as to why their appraisers used different methodologies to value their assets than other wind farms typically use.
Despite over 10,000 pages of documentation that the wind farms provided to the Treasury Department for their initial applications, Wheeler said the government offered specific reasons as to why more discovery is needed in the case.
“The government has proffered specific reasons why it requires discovery to address the potential peculiarity of the sale-leaseback agreements at issue,” Wheeler wrote. “Each agreement comprises multiple related transactions between the parties where the developer is both the seller and lessee. This arrangement provides the opportunity to adjust terms to yield a higher purchase price without lowering the buyer’s targeted return on investment. However, during application evaluations, Treasury did not review the complete set of transaction documents associated with each sale-leaseback agreement. As a result, the government needs discovery to evaluate the evolution of terms and to determine whether the final terms reflect an inflated purchase price above arm’s length amounts. Additionally, the government properly desires access to evidence regarding the appraiser’s methods, conclusions, and influences on setting the purchase prices. The facts strongly suggest that the appraisal values dictated purchase price amounts, as some purchase prices are exactly equal to the appraised values. Indeed, stilted appraisal methods that comport with other evidence of value shifting would engender a genuine issue of material fact, and thus preclude a grant of summary judgment.”
Wheeler also noted that questions exist as to whether the wind farms properly separated eligible and ineligible assets in their valuation paperwork. And regardless of the reams of documents already provided by the wind farms, the Treasury Department made its case for further discovery, the judge added.
“Even though Treasury did receive over 10,000 pages in support of plaintiffs’ applications, the government has identified more documents essential to its response to plaintiffs’ motions,” Wheeler wrote. “For example, Treasury did not review detailed records created in producing the facilities’ cost schedules. Moreover, Treasury’s representatives undoubtedly were constrained during the review process. Although Treasury received more than 12,000 other applications at the time that plaintiffs filed their applications, the Recovery Act required Treasury to make payments within 60 days of the finalization of applications. Thus, Treasury’s review, while sufficient to issue payments, was not exhaustive or done in contemplation of future litigation.”