United States: Court Awards $206 Million To Alta Wind Projects In Section 1603 Grant Litigation; Smaller Award To Biomass Facility


The US Court of Federal Claims awarded damages of more than $206 million to Plaintiffs/applicants in a case with respect to the cash grant under Section 1603 of the American Recovery and Reinvestment Act of 2009 (Public Law 111-5). In its opinion, which was unsealed on Monday, October 31, the court held that the US Department of the Treasury had underpaid the Section 1603 Grants arising from projects in the Alta Wind Energy Center because it had incorrectly reduced Plaintiffs' eligible basis in the projects. In a separate case in the Section 1603 Grant context, the court awarded $450,000 to GUSC Energy, Inc. in connection with a combined heat and power biomass facility.

In Depth

The US Court of Federal Claims awarded damages of more than $206 million to Plaintiffs/applicants in a case with respect to the cash grant (the Section 1603 Grant) under Section 1603 of the American Recovery and Reinvestment Act of 2009 (the ARRA). In its opinion, which was unsealed on Monday, October 31, the court held that the US Department of the Treasury (Treasury) had underpaid the Section 1603 Grants arising from projects in the Alta Wind Energy Center because it had incorrectly reduced Plaintiffs' eligible basis in the projects. The court rejected the Treasury's argument that the applicants' basis in the facilities was limited to development and construction costs, and accepted Plaintiffs' position that the arm's-length purchase price of the projects prior to their placed-in-service date was a reasonable starting place for the projects' value. Importantly, the court also held that the power purchase agreements (PPAs) relating to the facilities should not be treated as ineligible intangible property for purposes of the Section 1603 Grant. This significant decision is welcomed by the renewable energy industry and an affirmation of a long held view by taxpayers as to an appropriate measure of cost basis in both the context of the Section 1603 Grant and the Investment Tax Credit (ITC) under Section 48 of the Internal Revenue Code of 1986, as amended (the Code).


The ARRA was signed into law by President Barack Obama on February 17, 2009. The purpose of the ARRA was to create jobs and promote economic recovery in the wake of the 2008 financial crisis. Section 1603 of the ARRA appropriated funds for payments to persons who place in service certain renewable energy projects during 2009, 2010 or 2011, or after 2011 if construction began during one of those years and the project was subsequently placed in service by a certain date. The Section 1603 Grant amount was based on a percentage of the "basis" of the project (30 percent, in the case of wind, biomass, solar, landfill gas and fuel cells, and 10 percent in the case of microturbines, combined heat and power and certain geothermal applications). The Section 1603 Grant was available in lieu of the ITC or the production tax credit (PTC) under Code Section 45, and had the added benefit of being a cash grant (compared with a non-refundable tax credit, like the ITC and PTC).

Pursuant to Treasury guidance released in 2009, the basis of property for purposes of the Section 1603 Grant is determined in accordance with the general rules for determining the basis of property for federal income tax purposes. Thus, the basis of property generally is its cost, and includes all items properly included by the taxpayer in the depreciable basis of the property, such as installation costs and the cost for freight incurred in construction of the specified energy property. The eligible basis of a qualified facility only includes costs relating to qualified property, and does not include the portion of the cost of the facility that is attributable to a non-qualifying activity. For example, for a biomass facility that burns fuel other than open-loop biomass or closed-loop biomass, the eligible cost basis is the percentage of total eligible costs that is equal to the percentage of the electricity produced at the facility that is attributable to the open-loop biomass and closed-loop biomass. In the case of costs that relate to both a non-qualifying activity and a qualifying activity, the costs must be reasonably allocated between the non-qualifying and qualifying activities. In subsequent guidance released in 2011, the Treasury indicated that power purchase agreements were ineligible assets for purposes of the Section 1603 Grant.

Background of the Alta Wind Case

Alta Wind is the owner of 11 wind farm facilities (Altas I through XI) near Los Angeles, California, which together comprise the largest wind center in North America. The wind projects at the center of the lawsuit were developed in two stages. In the first stage, Oak Creek Energy Systems (Oak Creek) and Allco Wind Energy Management Pty. Ltd. (Allco) financed the projects' development. During this stage, a subsidiary of Oak Creek and Allco entered into a Master PPA, which provided that all output would be sold to Southern California Edison (SCE) for a period of 24 years. The second stage commenced in July 2008, when Terra-Gen Power LLC (Terra-Gen) acquired Allco's US wind energy business, including the Alta Wind projects. Terra-Gen acquired the projects from Allco in mid-development, and thereafter sold the finished products to Plaintiffs prior to their placed-in-service dates. Of the 11 Alta facilities, Alta I through Alta VI are the subject of the lawsuit.

Terra-Gen thereafter continued development and construction work on the projects, at a total cost of more than $2 billion relating to Altas I through VI. Because Terra-Gen was ineligible for the Section 1603 Grant (because certain of its indirect owners were disqualified persons under the Section 1603 Grant rules), it sold the projects. Alta VI was sold in an outright sale in 2012 to EverPower. Altas I through V were sold in sale-leaseback transactions between December 2010 and June 2011 to Citi, GE, UBOC and additional investors. The projects were held by the purchasers through trusts and other special purpose vehicles, which entities are the plaintiffs in the litigation. In the case of Altas II through V, the purchase prices reflected only property that the parties deemed eligible for the Section 1603 Grant, and ineligible property was acquired pursuant to separate agreements. Under the purchase agreements, Terra-Gen agreed to indemnify the purchasers for the anticipated Section 1603 Grant amount based on the foregoing purchase prices (the Purchase Prices).

In their Section 1603 Grant applications, the Plaintiffs claimed pro rata allocations of eligible property among the Purchase Prices of Altas I and VI (93.1 percent and 96.9 percent, respectively). In particular, Plaintiffs calculated the percentage of construction and development costs related to eligible property at each facility, and then applied those percentages to each facility's Purchase Price to determine the eligible basis for those two facilities. Plaintiffs claimed basis in the amount of the entire Purchase Prices of Altas II through V, since the parties intended that those Purchase Prices reflected only eligible property. Thus, Plaintiffs' Section 1603 Grant applications were for amounts equal to 30 percent of the Purchase Prices, adjusted in Altas I and VI by pro rata allocations of eligible property. However, the Treasury only paid cash grants equal to 30 percent of Terra-Gen's construction and development costs for each facility. Plaintiff's filed their lawsuit in 2013 seeking reimbursement for the difference between those amounts.

Court of Federal Claims Decision

As discussed above, the Treasury had taken the position that, for purposes of the Section 1603 Grant, basis only includes development and construction costs of each facility. Plaintiff's position was that basis was equal to the Purchase Prices, minus reasonable allocations for ineligible property.  

In its opinion, the court noted that both parties agreed that the Purchase Prices were higher than the mere costs of developing and assembling the facilities. It therefore focused the first half of its analysis on whether such excess reflected an eligible versus ineligible cost for purposes of the Section 1603 Grant. The court first considered whether some portion of the Purchase Prices constituted "goodwill" or "going concern value," in which case Code Section 1060 and the accompanying "residual method" under Code Section 338(b)(5) would apply in valuing the assets. Under the residual method, value is allocated on a waterfall basis among several categories of tangible and intangible assets, and the Treasury argued that much of the value in Altas I through VI would be allocated to ineligible intangible assets (such as goodwill or going concern value) if such method applied. The court noted that, at the time of the sale of the projects, (1) the facilities were not yet operational, (2) had lined up only one long-term customer (SCE) to buy the entirety of their electricity output for the foreseeable future and (3) were not capable of taking on any other customers, so that goodwill could not have yet attached. The court also rejected the Treasury's argument that goodwill attached because of the facilities' prime location. Likewise, the court held that there was no going concern value at the time of the sales because there was not yet a going concern as the facilities were not yet operational. Because there was neither goodwill nor going concern value at the time of the sales, neither Code Section 1060 nor the residual method applied to the sales of the transactions.

The court instead characterized the excess of the Purchase Prices over the sum of construction and development costs as "turnkey value," which it said "essentially describes value a facility has when it is ready for immediate use after purchase." Where a property has turnkey value, the court noted, its tangible assets are more valuable than they would have been if the facilities were not ready to operate.

The court then analyzed whether the Purchase Prices were an appropriate measure of the fair market value of the properties, noting that the Tax Court may look to other measures where the transaction was not conducted at arm's length by two economically self-interested parties or where a transaction is based on "peculiar circumstances" which influence the purchaser to agree to a price in excess of fair market value. "Peculiar circumstances" exist if the parties appear to be unduly manipulating the purchase price by entering into separate agreements at or near the time of purchase, causing the purchase price to be highly inflated. The court found that all of the Alta transactions occurred at arm's-length between sophisticated and self-interested parties, so it then considered whether there were any peculiar circumstances that resulted in a highly inflated purchase price. It concluded that no peculiar circumstances arose from the sale-leaseback transactions or related prepayments, the Section 1603 indemnities provided by Terra-Gen, or any of the other various side agreements to the transactions.

In the absence of peculiar circumstances that highly inflated the purchase prices, the court determined that the Purchase Prices were the appropriate starting place for determining basis for the Section 1603 Grant. With respect to Altas I and VI, the court had to determine if the pro rata allocation between eligible and ineligible property, as described above, was reasonable. The court noted that pro rata allocations are permissible in certain situations, and the percentages here appeared reasonable given that they were certified by a large accounting firm and were within industry standards (as testified to by Plaintiffs' expert witness).

The court also rejected the Treasury's argument that PPAs are intangible, ineligible property and should be classified as "customer-based intangibles" within the meaning of Code Section 197(d)(2)(A)(iii). If PPAs were so treated, their value would be excluded from the facilities' cost basis for determining the Section 1603 Grant amount. The court held that PPAs were more like land leases which should not be viewed as separate assets from the underlying facilities, and are thus eligible property for purposes of the Section 1603 Grant.

Based on the foregoing analysis, the court awarded damages to Plaintiffs of $206,833,364. The case, Alta Wind I Owner-Lessor C, Alta Wind I Owner-Lessor D, et al v. United States is available here. The US Department of Justice can appeal the case to the Federal Court.

GUSC Energy Decision

On November 8, 2016, the court issued another favorable decision in the Section 1603 Grant context. In GUSC Energy, Inc. v. United States, Plaintiff is the owner and operator of an open-loop biomass facility in New York state. The facility is a combined heat and power plant, and produces both steam heat and electricity for use at an associated business and technology park.  Plaintiff had argued that the entire cost basis of the facility was eligible for the Section 1603 Grant. Although the Treasury agreed that all of the property in the facility was integral to the production of electricity, it reduced Plaintiff's Section 1603 Grant because the facility produced both electricity and heat, the latter of which is not eligible for the Section 1603 Grant. Specifically, the Treasury determined that only 6.6 percent of the cost basis of the facility was eligible for the Section 1603 Grant, because only 6.6 percent of the facility's total steam energy was converted to electricity. The court rejected both parties' positions, and applied the "efficiency method" of allocation, which looks at the electricity generated by the facility relative to the electricity it would generate if it only generated electricity. Accordingly, the court determined that 15.24 percent of the cost basis of the facility was eligible for the Section 1603 Grant. The resulting grant amount was significantly less than the amount claimed by Plaintiff, but more than the initial award from the Treasury. The court awarded an additional $450,000 to Plaintiff based on this allocation method.

Significance of the Decisions The decision in Alta Wind has obvious significance for the many renewable energy projects that received lower-than-expected payments under the Section 1603 Grant program, and is a welcomed result by the renewable energy industry in general. The court's decision is a strong rebuke to the Treasury's position on what constitutes eligible property basis, which left many Section 1603 Grant applicants with unexpectedly small payouts. The decision is also noteworthy because the court held that PPAs should not be treated as ineligible intangible property for purposes of the Section 1603 Grant. This decision is a welcomed affirmation of a long-held view by many in the renewable energy sector and is consistent with the basic economics of a renewable energy project. The decision may also serve as much-needed support for purposes of determining cost basis for purposes of the ITC under Code Section 48, where taxpayers have been concerned that the Internal Revenue Service could take a similarly limited view as to what costs and valuations will be taken into account for determining cost basis of renewable projects. The Alta Wind and GUSC Energy decisions also suggest a cautiously optimistic climate with respect to the Treasury's earlier hair-cutting decisions in the Section 1603 Grant context.

Court Awards $206 Million to Alta Wind Projects in Section 1603 Grant Litigation; Smaller Award to Biomass Facility

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.