On October 28, 2016, the United States Court of Federal Claims issued the landmark decision of Alta Wind V Owner Lessor v. United States, opening the door for renewable energy companies to recover their full share of 1603 grant awards. This case signified a monumental victory for the renewable energy industry, as it found the Government’s reduction in 1603 grant awards to be improper in a common tax equity transaction.
As a part of the 2009 Recovery Act, Treasury implemented the 1603 grant program, under which it made payments to applicants for a portion of the cost of installing specified energy property used in a trade or business or for the production of income, in lieu of claiming the popular Production Tax Credit and Investment Tax Credit. The 1603 program offered renewable energy project developers 30% of the project’s total eligible cost basis as an alternative to renewable tax credits. As of July 31, 2016, the program had awarded $24.9 billion in grants.
However, in most situations, Treasury has not awarded applicants with their full share of grant money, often times slashing each applicant’s grant award by millions. The purpose of Treasury’s reduction in grant awards is two-fold: 1) a 6.9% slash due to sequestration and 2) an improper definition of basis.
In Alta, the fundamental issue as to whether Treasury’s reduction of Alta’s 1603 grant was proper hinged on the proper meaning of basis. The Plaintiffs argued that basis meant the purchase price of the wind farm facilities, minus small allocations for ineligible property, whereas the Government argued that basis needed to be calculated based on the value of each project’s grant-eligible constituent parts and their development and construction costs.
In the end, the Court sided with the Plaintiffs, holding that the Government’s approach improperly excludes value from the basis of the facilities in a manner that is not supported by the 1603 program. The Court held that for 1603 purposes, basis must be calculated according to the project’s purchase prices, minus reasonable allocations for land and other grant-ineligible property.
This decision has already resonated throughout the renewable energy sector, as the transaction at issue represents a common arrangement utilized by many applicants. The sale-leaseback and structure of the EPC, operations agreements, and PPA were considered by the Court to not create any peculiar circumstances and instead were viewed as valid, arm’s length transactions.
Such a sweeping Court decision has created an important precedent for all future 1603 grant litigation. Alta has paved the way for applicants who were improperly denied full 1603 awards to claim the remainder of the grants that were withheld.
The Statute of Limitations to file suit for these awards expires six years after the award was granted. With many of these Statutes of Limitations expiring July, 2017, it is imperative to file immediately.
If you have any questions about his case and its impact on your grant award, or have questions about filing suit, please contact alliantgroup at (713) 877-9600.