The Section 1603 cash-grant program, established under the American Recovery and Reinvestment Act of 2009, was one of the stimulus measures enacted to combat the economic crisis of 2008.
More than $14 billion of funds have been disbursed under the program, including more than $9 billion – representing nearly 15.3 GW of installed capacity – for wind projects.
The program was successful, in part, because of its nimble features. However, by avoiding a cumbersome administrative process, the program opened itself up to other issues.
The Section 1603 program's application deadline was Sept. 30. However, there are still questions pertaining to the program's implementation over the past three years.
Beginning in 2009, applicants began to do what they were supposed to do: secure capital, start projects and begin to increase renewable energy capacity. The applicants wanted what the statute had promised, and their applications for cash payments began to pour into the Treasury Department.
Over time, however, an increasing number of applicants became confused or disappointed by the process. Some applicants did not understand the rules, and some did not believe that the Treasury Department was following the correct rules or the appropriate tax principles.
One example involved wind energy developer Western Wind Energy Corp., which, through its subsidiary Windstar Energy, was awarded a Section 1603 cash grant in the amount of $78.3 million for its 120 MW Windstar wind farm, located in Tehachapi, Calif. However, the company said the grant it received from the Treasury was $13.2 million less than the amount for which it had applied.
Western Wind Energy is not alone; there are other developers claiming to have had a similar experience.
The Treasury Department did hold meetings and provide information in an attempt to resolve disputes, and encouraged applicants to provide additional information if they objected to the amount of their grant awards.
But without a formal administrative process – such as the right to an opinion or to appeal to higher decision makers – the bottom line was that applicants who could not reach or convince the small group inside the Treasury had little choice but to accept the awards provided.
Litigation claims
In February 2010, a solar cash-grant applicant named ARRA Energy Co. sued the Treasury Department for its refusal to award ARRA Energy a cash grant.
Over two years later, in July 2012, the Treasury Department filed its own claim against ARRA Energy, alleging that ARRA Energy had committed fraud in its grant application.
The Treasury Department alleges, in essence, that ARRA Energy's projects involved only two people that sold themselves projects for significantly inflated value and then applied for grants relying on the false sale prices. ARRA Energy is scheduled to file its answer to these allegations this month.
Meanwhile, two other cash-grant applicants – one solar company and one biofuel company – also filed complaints against the Treasury, alleging that their reduced grant awards were contrary to the mandate of the cash-grant statute. Those cases are in their early stages.
A potentially important part of the litigation is that the applicants and the Treasury Department are conducting discovery (i.e., getting documents and taking depositions) of each other. It will be interesting if the documents and depositions of Treasury decision makers are ever made public, potentially revealing currently unknown and internal information about the Treasury's cash-grant process determinations.
Another important aspect of the litigation is that a court has already issued an opinion favorable to applicants who believe that the Treasury's decision making was flawed.
In a preliminary ruling in the ARRA Energy case, the court held that under the cash-grant statute, the Treasury was mandated to pay the cash grant, as long as the applicant qualified.
Litigation related to cash-grant payments is likely to increase, and the fallout is likely far-reaching, particularly for wind energy developers who received Section 1603 funds for less than the amount for which they applied. Applicants should know they have six years from the cash-grant award date to file a court complaint.
Pamela J. Marple is a partner at Chadbourne & Parke's litigation and government investigations practice. She can be reached at (202) 974-5657 or pmarple@chadbourne.com.
