W.E. Partners II, LLC v. United States
119 Fed. Cl. 684
| Fed. Cl. | 2015Background
- W.E. Partners II, LLC (WEP II) built an open-loop biomass cogeneration facility at a Perdue chicken-rendering plant that routes boiler steam through a 495 kW turbine to produce electricity and then supplies lower-pressure steam for rendering.
- Total facility cost claimed: $9,037,769; WEP II sought a 30% Section 1603 reimbursement ($2,711,331).
- Treasury (with NREL review) concluded only the turbine plus one-third of other costs were attributable to electricity production, yielding an eligible basis of $3,145,847 and a 30% grant of $943,754. WEP II protested and sued in the Court of Federal Claims.
- Statutory framework: Section 1603 (ARRA) authorizes cash grants in lieu of tax credits and adopts definitions from I.R.C. §§ 45 and 48; IRS Notice 2008-60 and Treasury Guidance define qualifying facilities/property and instruct reasonable allocation between qualifying and nonqualifying activities.
- Undisputed technical fact: the three boilers produce steam such that only ~2.2% of the facility’s useful energy output is electrical (97.8% is thermal), but all three boilers supply steam through the turbine.
- Procedural posture: cross-motions for summary judgment; Court reviews de novo and must interpret Section 1603 as informed by IRS Notice and Treasury Guidance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of §1603 reimbursement basis — whether a facility that "uses open‑loop biomass to produce electricity" entitles claimant to 30% of total facility cost | WEP II: statute and definitions entitle full facility basis ($9,037,769) to 30% reimbursement | Treasury: eligible basis limited to costs allocable to electricity production; costs that serve nonqualifying activity must be reasonably allocated | Court: Facility is a qualifying facility, but eligible basis is limited to costs fairly allocable to electricity production per Treasury Guidance; summary judgment for defendant |
| Deference to IRS Notice / Treasury Guidance — whether agency guidance controls interpretation | WEP II: guidance cannot override statute; full statutory reading favors claimant | Treasury: guidance reasonably interprets §§45/48 and §1603 and should be afforded deference under Skidmore | Court: Chevron inapplicable; affords Skidmore-style deference (respectful weight) to IRS Notice and Treasury Guidance as persuasive and consistent agency policy |
| What property is "qualifying property" — whether boilers that also produce thermal steam are excluded | WEP II: all facility components that send steam through the turbine are "necessary" for electricity, so are qualifying property | Treasury: some components primarily serve nonqualifying thermal processes and should be allocated out of eligible basis | Court: All components that actually contribute to electricity production qualify as property, but their costs must be allocated between qualifying (electric) and nonqualifying (thermal) uses |
| Appropriate allocation method — whether Treasury’s one‑third allocation (one boiler of three) was reasonable | WEP II: Treasury’s two‑thirds reduction is arbitrary; economic necessity of design irrelevant | Treasury: NREL analysis showed one boiler (~8.4–11.2 mmBtu) sufficient for turbine; one‑third allocation is reasonable | Court: Treasury’s allocation (turbine + one‑third of other costs) was a reasonable, non‑arbitrary allocation; denies WEP II relief |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837 (established two‑step deference framework for agency statutory interpretation)
- Skidmore v. Swift & Co., 323 U.S. 134 (informal agency interpretations entitled to weight proportional to persuasiveness)
- United States v. Mead Corp., 533 U.S. 218 (limits on Chevron; factors for Skidmore deference)
- Cathedral Candle Co. v. United States Int'l Trade Comm'n, 400 F.3d 1352 (Fed. Cir. discussion of agency deference factors)
- ARRA Energy Co. v. United States, 97 Fed. Cl. 12 (Court of Federal Claims: §1603 is money‑mandating; on Treasury’s duty to reimburse correct basis)
- LCM Energy Solutions v. United States, 107 Fed. Cl. 770 (Court of Federal Claims recognizing jurisdiction under §1603)
- D'Avanzo v. United States, 54 Fed. Cl. 183 (de novo review standard in tax/refund contexts relied on analogously)