U.S. v. Commonwealth Energy System, 97-11722-JLT.

• Decision Date: 18 May 1999
• Docket Number: No. 97-11722-JLT.,97-11722-JLT.
• Parties: UNITED STATES of America, Plaintiff, v. COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES, Defendants.
• Court: U.S. District Court — District of Massachusetts

49 F.Supp.2d 57

UNITED STATES of America, Plaintiff, v. COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES, Defendants.

No. 97-11722-JLT.

United States District Court, D. Massachusetts.

May 18, 1999.

George P. Eliopoulos, U.S. Department of Justice, Tax Division, Washington, DC, for USA, plaintiff.

Richard P. Swanson, Susan Logan Bedford, Reid & Priest, New York City, Michael K. Callahan, Commonwealth Energy Services Co., Cambridge, MA, for Commonwealth Energy System, Commonwealth Energy Systems and Subsidiary Companies, defendant.

MEMORANDUM

TAURO, District Judge.

Plaintiff United States of America ("USA") claims that Defendants Commonwealth Energy System and subsidiary companies ("Commonwealth") owe roughly $600,000, plus interest, for tax refunds erroneously given to Commonwealth for the 1990 and 1991 tax years. The parties have filed cross motions for summary judgment.

I. ANALYSIS

This dispute turns on whether Commonwealth was entitled to the tax credit it received for capital additions it made to its power plant on the Cape Cod Canal. A brief history of the statutory provision at issue helps guide the analysis.

Before 1986, to encourage investment, the Internal Revenue Code gave qualifying businesses an investment tax credit ("ITC") for various types of tangible personal property that the businesses placed in service during the tax year. See Illinois Cereal Mills, Inc. v. C.I.R., 789 F.2d 1234, 1236 (7th Cir.1986). The Tax Reform Act of 1986 ("Reform Act") reversed course by eliminating the ITC for most property acquisitions. 26 U.S.C. § 49.

The Reform Act did not completely obliterate the ITC, however. Under one of the Reform Act's "transition provisions," businesses can claim an ITC for property that is "readily identifiable with and necessary to carry out a written supply or service contract ... which was binding on [December 31, 1985]." Reform Act § 204(a)(3) (emphasis added). Commonwealth claimed the now-contested credit under this transition provision. Plaintiff USA does not dispute that the supply contract under which Commonwealth claimed the credit was a binding agreement as of December 31, 1985. The meaning of the phrase "readily identifiable with" is at the heart of this dispute.

The phrase "readily identifiable with" is ambiguous. Both parties cite to dictionary definitions of the individual words to support different interpretations.¹ The language alone thus does not resolve the dispute.

Plaintiff USA urges a narrow interpretation that would bar Commonwealth's ITCs. In support, Plaintiff refers to the congressional conference committee report, which states that the transition provision "is applicable only where the specifications and amount of the property are readily ascertainable from the terms of the contract, or from related documents." H.R.Rep. No. 99-841, pt. 2, at 60 (1986), reprinted in 1986 U.S.C.C.A.N. 4075, 4148. Plaintiff argues that this conference committee report language means that the transition provision only applies where the contract or related documents explicitly refer to the property that forms the basis for the credit claim. From that interpretation, Plaintiff argues that Defendants did not qualify for the "readily identifiable" transition provision exception, because Defendants' power supply contracts did not explicitly set forth the specifications and amount of any of the property on which Defendants claimed the credit and obtained the refund.

Plaintiff's interpretation is unduly narrow. This court does not interpret the conference report as a manifestation of congressional intent to limit the transition tax credit provision to property explicitly designated in a supply contract. For example, where a contract requires a taxpayer to supply a specific amount of power in a specific manner, one could arguably "readily ascertain from" the contract that the taxpayer/supplier would have to purchase and install a certain type of generator to supply the required power, even if the contract did not mention generators at all.

This broader interpretation of the "readily ascertainable" conference report language (which language elaborates on the "readily identifiable with" statutory language at issue) is supported by the following colloquy that occurred during Senate debate on the transitional rule:

MR. MATSUNAGA: I would like to ask the bill managers to clarify another point. The supply or service contract transition rule requires that the property be readily identifiable with and necessary to carry out the contract. The committee report explains that the specifications and the amount of the property must be readily ascertainable from the terms of the contract or from related documents. Is this Senator's understanding correct that the requirement is met when a binding power purchase contract specifies the type of generating equipment in terms of primary energy source and specifies the amount of generating equipment in terms of total generating capacity of the turbines necessary to produce the contracted power? In other words, the rule does not require the technical details of the generating property to be spelled out.

MR. PACKWOOD: The Senator from Hawaii is correct.

MR. LONG: The Senator's understanding is correct.

132 Cong. Rec. S8241 (daily ed. June 24, 1986).

The facts in Senator Matsunaga's hypothetical are the facts in this case. Commonwealth's power supply contract specifies both (1) the type of generating equipment in terms of primary energy source; and (2) the amount of generating equipment in terms of total generating power. See Supply Contracts, Joint Exhibit 1 at 1-2 (stating that Commonwealth "agree[d] to cause to be built a new conventional steam plant ... of an expected net economic capability of approximately 560 megawatts, on the so-called `Canal Site' in Sandwich, Massachusetts").²

In addition, Congress's use of the ambiguous phrase "readily identifiable with" undercuts Plaintiff's interpretation. Had Congress intended to impose a requirement that the property be explicitly listed in the supply contract, Congress likely would have used any of a number of readily available phrases to establish the requirement (e.g. "property explicitly listed in a supply contract" or "property specifically mentioned in a supply contract").

Plaintiff unpersuasively urges the court to disregard the Senatorial colloquy as unreliable evidence of legislative intent. Plaintiff relies on Supreme Court cases that favor committee reports over "casual" floor statements from one house. See, e.g, Garcia et al. v. United States, 469 U.S. 70, 76, 105 S.Ct. 479, 83 L.Ed.2d 472 (1984) ("[W]e have repeatedly stated that the authoritative source for finding the Legislature's intent lies in the Committee Reports on the bill.... We have eschewed reliance on the passing statements of one Member ... and casual statements from the floor debates.") (citations omitted).

Garcia and similar Supreme Court cases do not require that the court disregard all highly probative floor statements. To begin with, Garcia and like cases disapprove of "casual statements" from floor debates. The colloquy in this case involved anything but "casual statements." The colloquy directly addressed the issue in this case, with a focused question and answers from two Senator-managers of the bill. Cf. id. at 78, 105 S.Ct. 479 (stating that floor statement was less probative of legislative intent because (1) the statement was in response to question unrelated to statutory language that Court was interpreting; and (2) floor statements supporting opposite interpretation were in record).

In addition, the context surrounding the floor statements in Garcia distinguishes it from this case. In Garcia, criminal defendants sought to use what they called "snippets" from floor debates to read into a criminal statute a requirement that essentially contradicted the committee report's explanation of the statutory language at issue. Id. at 76-77, 105 S.Ct. 479. Here, the floor statements do not contradict the committee report. Indeed, they explain it. To ignore such probative evidence is to ignore legislative intent. See Norman J. Singer, 2A Sutherland Statutory Construction § 48.08 (5th ed. 1992) ("A colloquy between two House or Senate members cannot change the content of the conference report used to interpret the meaning of a statute, but it can be of assistance in interpreting the conference report.").

Plaintiff argues that adopting a broader interpretation of the phrase "readily identifiable with" will eat up that transition rule requirement entirely. Plaintiff's argument lacks merit. Commonwealth does not argue that any and all necessary property purchased pursuant to a supply contract should qualify the purchaser for an ITC. Rather, Commonwealth urges that the court read the "readily identifiable with" limitation to allow an ITC for property that is "innately or uniquely connected or associated with a supply or service contract."

Although Commonwealth's proffered interpretation is useful to show that a broader reading of the language at issue would not necessarily swallow transition rule's limitations, the court need not adopt its interpretation to decide this case. The language of the statute and the legislative history — both committee report and Senate debate — indicate, in the power supply context, that generating equipment/property is "readily identifiable with" the written supply contract where the contract specifies (1) the primary energy source; and (2) the total generating capacity....