PPA value

Author: Keith Martin Publication | December 2017

Two lawsuits that test whether the amount paid to buy a power project must be allocated partly to the power purchase agreement are moving forward.

The issue is important because an investment tax credit and accelerated depreciation can only be claimed on the cost of electric generating equipment and not the cost of a power contract, site lease or other intangible assets. Therefore, buyers try to allocate as much of the purchase price as possible to the power plant.

Oral arguments are scheduled in one of the cases on January 12. The case, called Alta Wind I Owner v. United States, is before the US appeals court for the federal circuit.

The Court of Federal Claims held in the case on October 2016 that a power contract that requires electricity to be supplied from a particular power plant has no value independently of the power plant. It is like a lease encumbering a building. Nothing is allocated separately to tenant leases when someone buys the building. (For more details, see “Treasury Loses Key Case” in the December 2016 NewsWire.)

The government appealed. Briefs were filed in the case over the summer.

Separately, the owners of a 550-megawatt solar project in California filed suit before the claims court in December over a similar issue. The project cost $2.129 billion to build. First Solar was the original developer. It sold the development rights to a joint venture of two other companies, who then hired First Solar to build the project for them. The owners eventually applied for a section 1603 payment from the US Treasury for 30% of the $2.049 billion they said was their basis in the generating equipment, for a grant of $614.8 million. They say the Treasury paid $59.3 million less than the amount for which they applied.

The Treasury said part of the basis claimed should have been allocated to two power contacts to sell the electricity from the project to the Southern California Edison Company and Pacific Gas & Electric Company.

According to the complaint, the Treasury also argued that the owners paid more than they would otherwise for the project because the project came with rights to a federal loan guarantee from the US Department of Energy.

Lawsuits against the Treasury complaining about the amount of grants paid have been taking at least two years to be decided. More than 30 suits have been filed in total. The Treasury has been filing counterclaims in some cases to discourage more litigation. Companies who feel they were shortchanged have up to six years to file suit.


Contacts

Keith  Martin

Keith Martin

Washington, DC