Desert Sunlight 250, LLC v. The United States
| Decision Date | 08 October 2021 |
| Docket Number | 17-1826 T |
| Parties | DESERT SUNLIGHT 250, LLC and DESERT SUNLIGHT 300, LLC, Plaintiffs, v. THE UNITED STATES, Defendant. |
| Court | U.S. Claims Court |
Re-issued: November 2, 2021 [1]
Steven J. Rosenbaum, Covington & Burling LLP, Washington, D.C for Plaintiff. Dennis B. Auerbach, Sean M. Akins, Alexis N Dyschkant, and Seth A. Mohney, of counsel.
Matthew D. Lucey, United States Department of Justice, Tax Division, Court of Federal Claims Section, Washington, D.C., with whom were Richard E. Zuckerman, Principal Deputy Assistant Attorney General, David I. Pincus, Chief, Court of Federal Claims Section, G. Robson Stewart, Assistant Chief, Court of Federal Claims Section, and Jason S. Selmont and Katherine Powers, Trial Attorneys, of counsel, for Defendant.
To encourage investment, Section 1603 of the American Recovery and Reinvestment Act of 2009 ("Section 1603") provided cash grants to reimburse the cost of placing in service certain renewable energy properties. Here, Plaintiffs acquired and applied for Section 1603 grants for the Desert Sunlight solar energy project in California (the "Project"), which the Government largely approved and awarded the Plaintiffs $550 million in grants. But the Government did not approve $59 million of Plaintiffs' application, and Plaintiffs sued to recover this $59 million. The Parties have cross moved for summary judgment and the Government has filed a motion in limine to strike certain statements in Plaintiffs' declarations.
The Government moves for summary judgment arguing that the Plaintiffs have not produced the required allocation of the consideration they paid for Desert Sunlight among all the assets Plaintiffs acquired. While the Plaintiffs did not submit their allocation on an IRS Form 8594, whether they provided sufficient information to support their claim is a factual issue that is not amenable to resolution on summary judgment. Therefore, the Court denies the Government's motion insofar as it seeks judgment ending this case.
In the alternative, the Government seeks summary judgment on several legal questions about how assets should be categorized. Plaintiffs also seek summary judgment on these questions and several more. For the reasons explained below, these motions are granted-in-part and denied-in-part.
Finally the Government has moved to strike certain statements in Plaintiffs' witness declarations because they are either legal conclusions, hearsay, or the declarant has not laid the foundation for the challenged statements. Because none of the challenged statements are necessary for the resolution of the summary judgment motions, the Court does not consider them and denies the Government's motion in limine as moot without prejudice to raise these objections at trial.
The Desert Sunlight Facility (the "Facility") is a massive solar energy power plant located in California's Mohave Desert. Brannen Decl. ¶ 10 (ECF No. 86-3 at App'x 5).[2] Sitting on a site roughly 20% of the area of Manhattan, the Facility occupies an area approximately 3.2 miles by 2.6 miles. Id. ¶ 11. Prior to the Facility, nobody had undertaken building a solar energy facility of similar size. Id. ¶ 20. As a solar photovoltaic ("PV") electricity plant, the Facility converts sunlight into electricity. Id. ¶ 12. It does so using solar panels, or "modules," to convert sunlight into direct current ("DC") electricity. Id. ¶ 32. The Facility then uses inverters to convert the DC electricity into alternating current ("AC") electricity for delivery to the utility transmission system. Id. (at App'x 21). As designed, the Facility's DC generating capacity was projected to be 724 megawatts of DC ("MWdc"). As built, the Facility has a slightly greater 740.7 MWdc capacity. Id. ¶ 16. Its total AC generating capacity is approximately 550 megawatts of alternating current ("MWac"). Id. The Facility is comprised of two segments, a 250 MWac-capacity plant and a 300 MWac-capacity plant. Id. ¶ 17. Plaintiffs Desert Sunlight 250, LLC and Desert Sunlight 300, LLC own the 250 MWac plant and the 300 MWac plant, respectively. ECF No. 1 ¶¶ 10-11. The Facility entered service in 2014. Brannen Decl. ¶ 10.
Before the Facility's construction, Plaintiffs were owned by First Solar, Inc. ("First Solar").[3] ECF No. 1 ¶ 40. First Solar is a leading manufacturer of "thin film" solar modules, which are widely used in solar PV facilities throughout the world. Brannen Decl. ¶ 15. First Solar is also a leader in developing, financing, engineering, constructing, operating, and selling many of the world's largest grid-connected solar PV power plants. Id.; see also ECF No. 81-2 at App'x 26. Before construction begins on a solar PV facility, the developer generally "execut[es] an interconnection agreement" and "enter[s] into a power purchase agreement" ("PPA"). ECF No. 81-2 at App'x 31. An interconnection agreement "is a contract in which a utility scale electricity producer obtains the right to interconnect its facility to the electricity grid," through which it can then transport its electricity to the purchaser. Charles Decl. ¶ 9 (ECF No. 86-6 at App'x 1127).[4] "A PPA is a long-term contract in which an electricity producer agrees to sell electricity to a utility or other customer pursuant to an agreed pricing formula[] . . . ." Id. First Solar achieved both milestones as Plaintiffs' owner while developing the Facility. Id.
In 2010, Plaintiffs entered into a Standard Large Generator Interconnection Agreement ("LGIA") with the Southern California Edison Company ("SCE") and the California Independent System Operator Corporation ("CAISO"). ECF No. 81-29 at App'x 2650, 2718-20. Under the LGIA, Plaintiffs secured the right to interconnect the Facility to CAISO's electricity grid by way of SCE's transmission system once the Facility became operational. Id. at App'x 2650, 2656-57, 2661-62. Also, Plaintiffs were responsible for building everything necessary to connect the Facility to a substation that SCE was responsible for building. Id. at App'x 2722-23. In other words, the SCE substation served as the handoff point of the Facility's electricity to the power grid; Plaintiffs were responsible for delivering electricity to the substation and SCE was responsible for transporting it to the grid.
Plaintiffs also executed two PPAs for the output of the Facility. In 2009, Plaintiffs executed a PPA with SCE. ECF No. 81-21; ECF No. 81-20 at App'x 2030. Under this PPA, SCE agreed to purchase the total electrical output from DS 250 for 20 years. ECF No. 81-21 at App'x 2062, 2071. And in 2010, Plaintiffs executed a PPA with Pacific Gas and Electric Company ("PG&E"). ECF No. 81-22 at App'x 2299. Here, PG&E agreed to purchase the total electrical output from DS 300 for 25 years. Id. at App'x 2324.
In 2011, First Solar began negotiating with NextEra Energy Resources, LLC ("NextEra") and GE Energy Financial Services ("GE") to sell First Solar's interest in Plaintiffs. Brannen Decl. ¶ 13. NextEra builds and operates solar power facilities. Id. ¶¶ 7-8. GE is a financial services provider with experience investing in the renewable energy industry. Id. ¶ 13.
On September 29, 2011, First Solar, NextEra, and GE executed several agreements, including: (1) three Engineering, Procurement, and Construction ("EPC") Agreements; (2) three Operating and Maintenance ("O&M") Agreements; (3) financing agreements; (4) a Department of Energy ("DOE") Loan Guarantee; and (5) a Membership Interest Purchase and Sale Agreement ("MIPSA").
The three fixed-price EPC Agreements are contracts to engineer, procure, and construct the Facility. Id. ¶ 14. The first EPC Agreement is between Plaintiff DS 250 and First Solar. ECF No. 81-12. In this agreement, Plaintiff DS 250 hired First Solar to develop and construct the 250 MWac portion of the Facility for a fixed price of $807, 932, 028. Id. at App'x 858, 904. The second agreement is between Plaintiff DS 300 and First Solar, in which Plaintiff DS 300 hired First Solar to develop and construct the 300 MWac portion of the Facility for a fixed price of $967, 742, 759. ECF No. 81-13 at App'x 1011, 1056. The third agreement is between both Plaintiffs and First Solar, in which Plaintiffs hired First Solar to develop and construct the common areas of the Facility for a fixed price of $175, 132, 299. ECF No. 81-15 at App'x 1666, 1702. The total price of all three EPC Agreements is $1, 950, 807, 086. Plaintiffs contend that this total includes approximately $104 million in sales tax. Brannen Decl. ¶¶ 21, 62.
The EPC Agreements' terms underwent changes over the course of negotiations between First Solar, NextEra, and GE, according to both NextEra's lead negotiator, William Brannen Id. ¶¶ 22-23, and First Solar's Kent Draper, Draper Dep. Tr. at 28:7-8, 29:1-7, 265:13-17 (ECF No. 81-63 at App'x 4149, 4208). In the beginning of the negotiations, First Solar sought a total price of over $2.36 billion for all three EPC Agreements, but NextEra and GE negotiated the final price down by over $400 million to reach the final $1, 950, 807, 086 total price. Brannen Decl. ¶ 22; see also Draper Dep. Tr. 264:21-265:12. NextEra and GE also convinced First Solar to take on greater risk than it originally accepted, such as the risk of increased cost of equipment, material, and labor during the construction period, even though acceptance of greater risk typically results in higher prices. Brannen Decl. ¶ 23; Draper Dep. Tr. 270:25-271:19, 273:1-7, 274:10-15. Mr. Brannen attributes the final deal to "the hard bargain that NextEra and GE...
To continue reading
Request your trial