The Alta Wind Section 1603 grant case was a multi-year fight over how much federal cash the owners of the Alta Wind Energy Center should receive under the Treasury’s renewable energy grant program. The developers claimed grants based on the full price paid in sale-leaseback deals after the wind farms were built. The government said that number was inflated and that a large share of the price belonged to contracts and other intangible rights that the program does not cover. A trial court sided with the owners and awarded more than $206 million in additional grant funds. The Federal Circuit reversed and sent the case back for a new allocation.1Justia. Alta Wind I, Owner-Lessor C v. United States
What the Section 1603 Program Pays For
Section 1603 of the American Recovery and Reinvestment Act of 2009 let owners of qualifying energy property receive a cash grant from the Treasury instead of claiming tax credits. The grant equals 30% of the basis of the property once it is placed in service. Eligible property is the physical, depreciable equipment used to generate energy, such as turbines, towers, and transformers.1Justia. Alta Wind I, Owner-Lessor C v. United States Real estate and intangible rights are not covered. Because the payment is a fixed percentage of basis, the basis figure controls the size of the check.
The Core Dispute Over Cost Basis
The Alta projects were sold in sale-leaseback transactions after the wind farms were already built. The owners applied for grants using the sale prices, which totaled roughly $2.5 billion and were well above the original construction costs.1Justia. Alta Wind I, Owner-Lessor C v. United States Grant claims in the case exceeded $1 billion.
The tax code says the basis of property is generally its cost.2GovInfo. 26 U.S.C. § 1012 The developers argued that the negotiated purchase price was that cost. The Treasury took the position that using the purchase price artificially inflated the grant, and that the eligible basis was much closer to what it cost to build the facilities. The gap between the two figures was worth hundreds of millions of dollars.
Turbines Versus Contracts: The Intangibles Problem
Section 1603 covers tangible energy property and excludes intangible assets. The government argued that a large portion of the $2.5 billion purchase price was really payment for the long-term power purchase agreements and other contractual rights that came with the projects, not for the equipment itself. To divide the price, the government relied on the residual method, which assigns value first to the physical assets and treats the leftover amount as intangible value such as goodwill.1Justia. Alta Wind I, Owner-Lessor C v. United States
The developers countered that the turbines and the contracts to sell their power could not be pulled apart. Without those contracts, they argued, the equipment would be worth far less, so the entire purchase price reflected the value of the physical plant. Treating the power contracts as separate assets shrinks the grant, because contracts are not physical energy property.
How the Courts Ruled
The United States Court of Federal Claims ruled for the owners. It accepted the sale-leaseback purchase price as the correct measure of basis and ordered the government to pay more than $206 million in additional Section 1603 funds.3Justia. Alta Wind I, Owner-Lessor C v. United States The trial judge treated the sale-leasebacks as genuine transactions that established market value.
On appeal, the United States Court of Appeals for the Federal Circuit reversed. It held that the lower court should have applied the residual method under Section 1060 of the tax code to split the purchase price between tangible and intangible assets.1Justia. Alta Wind I, Owner-Lessor C v. United States The court also observed that the Treasury is not bound by the labels the parties put on an agreement when it finds the allocation of the price inappropriate.4GovInfo. 26 U.S.C. § 1060 The case was sent back to the Court of Federal Claims to redo the allocation between physical equipment and intangible business assets.