The U.S. Court of Federal Claims on Jan. 12 ruled for the federal government in a case involving federal financial help for a North Carolina project that uses biomass to generate steam and electricity.
This case arises under Section 1603 of the American Recovery and Reinvestment Act of 2009. Plaintiff W.E. Partners II LLC (WEP II) funded the construction of an open-loop biomass facility in Lewiston, North Carolina, next to a Perdue chicken rendering plant to which it provides steam. The facility was designed and now operates to meet Perdue’s steam needs for the chicken rendering processes. The facility includes a steam-turbine generator to produce electricity from the steam before it passes through to process the chickens. The electricity generation allows the plant to qualify for state and federal renewable energy incentives.
Section 1603 of the Recovery Act permits investors in qualifying renewable energy property to apply for a reimbursement of costs in lieu of a tax credit. Section 1603 provides for reimbursement of a portion of the costs incurred for “a facility using open-loop biomass to produce electricity.” The question presented in this case is whether WEP II is entitled to reimbursement of a percentage of the total cost of the facility ($9,037,769), or only of the lesser costs associated with the portion of the facility necessary to produce electricity. At the prescribed 30% reimbursement rate, WEP II claims entitlement to $2,711,331, whereas the U.S. Department of Treasury has allowed only $943,754. The difference, $1,767,577, is in dispute.
The issue on Jan. 12 was before the court on cross-motions for summary judgment. The question to be resolved is primarily one of statutory interpretation. While the language of the statute, if read without context or reference to agency guidance, might suggest that reimbursement based on total cost is mandatory whenever a facility uses open-loop biomass to generate electricity, the court said it does not agree with such an outcome.
“When read in conjunction with the applicable Internal Revenue Service (‘IRS’) Notice and Treasury Department Guidance, the Court finds that Section 1603 requires only reimbursement for the portion of the cost that is fairly allocable to the production of electricity,” said the Jan. 12 ruling. “Accordingly, the Court grants summary judgment in favor of Defendant.”
W.E. Partners II is a single-purpose limited liability company formed in 2010 to design, construct, and operate a biomass boiler facility at a Perdue chicken rendering plant in North Carolina. This biomass facility burns forest products waste (e.g., limbs, bark, sawdust, shavings) and agricultural residue (e.g., peanut and soybean hulls, cotton gin residue) to produce steam. The steam is then used for industrial manufacturing processes, to produce electricity, or both.
The WEP II facility uses three boilers, each with a heat input of 29.4 million Btu (mmBtu), a steam flow of 20,700 pounds per hour (pph), and a pressure of 325 pounds per square inch (psi). All steam produced by the boilers passes through a 495 kW turbine that generates electricity and releases the steam at a pressure of 135 psi. This lower pressure steam can then be used in the chicken rendering plant. In total, 2.2% of the useful energy that the WEP II facility produces is electrical energy, and 97.8% is thermal energy.