[00:00:00] Speaker 04: Cases number 18, 1877, West Rock Virginia Corporation against the United States, Mr. Stuck. [00:00:09] Speaker 01: Thank you, Your Honor. [00:00:11] Speaker 01: Good morning and may it please the Court. [00:00:14] Speaker 01: I want to focus on just a few key points. [00:00:16] Speaker 03: Statutory construct... Do you dispute any of the facts recited in the Court of Federal Claims opinion? [00:00:26] Speaker 01: The underlying facts. [00:00:30] Speaker 01: Can you be more specific about which facts? [00:00:32] Speaker 03: I mean, facts that are... No, I'm asking if you dispute it. [00:00:34] Speaker 03: I'm looking for... I have a draft. [00:00:37] Speaker 03: I always have a draft, and I want to know if I can rely on those fact statements of facts. [00:00:43] Speaker 03: I don't... I can't think of a fact in the Court of Federal Claims decision that we dispute, but... If there's a point along a scale of 1 to 100 of producing steam as opposed to electricity, is there any point at which you'd concede that the purpose of the statute is not satisfied? [00:01:01] Speaker 03: Say you're producing 99% steam and 1% electricity. [00:01:04] Speaker 01: This statute does not allow for allocation of basis. [00:01:08] Speaker 01: The statutory text is clear. [00:01:10] Speaker 01: Quote, 30% of, quote, basis of, quote, specified energy property. [00:01:16] Speaker 01: And for purposes of the cross motions, there's no dispute about the basis. [00:01:22] Speaker 01: The government has conceded in a sworn, in their interrogatory response that we cite, it's in Appendix 156, we discussed it in our brief 10 to 11, the cost basis of the qualified property is $280 million. [00:01:35] Speaker 01: Application of the statute is straightforward arithmetic, 30% of that. [00:01:40] Speaker 01: Sorry? [00:01:41] Speaker 01: Those are facts. [00:01:42] Speaker 03: Those are facts that are undisputed. [00:01:44] Speaker 03: Right. [00:01:44] Speaker 03: My understanding is all the facts are undisputed. [00:01:46] Speaker 01: The material facts are undisputed, yes. [00:01:48] Speaker 01: The material facts are undisputed. [00:01:50] Speaker 01: So your beef is IRC 45. [00:01:56] Speaker 01: no your honor our beef is that there is no basis in section sixteen oh oh thirteen oh six at sixteen oh three excuse me there's no basis in the statute to limit basis to condition basis on anything to allocate basis okay in order to sixteen oh three uses definitions of qualified property [00:02:17] Speaker 03: from 45 and 48? [00:02:20] Speaker 01: Yes, it does, and the government agrees that qualified property here has a cost of $280 million. [00:02:27] Speaker 01: Okay? [00:02:29] Speaker 02: What's a qualified property according to 43 is a facility using open-loop biomass to produce electricity. [00:02:38] Speaker 01: That's the definition of a qualified facility. [00:02:41] Speaker 01: The government states over and over that there's a definition of open-loop biomass facility that conditions the grant on the production of electricity. [00:02:52] Speaker 01: There is no definition of open-loop biomass in the statute. [00:02:55] Speaker 01: The definition is a qualified [00:02:58] Speaker 01: qualified facility and it recites that just as the other subsections there was we pointed out on reply brief every subsection almost every subsection just describes the facility in case of this facility only produces electricity in part that is absolutely wrong you know this every every [00:03:19] Speaker 01: All of the steam that's produced here is used to generate electricity. [00:03:24] Speaker 01: All of the steam is used to produce electricity. [00:03:28] Speaker 02: Is no steam diverted for other purposes? [00:03:30] Speaker 01: After it goes through the turbine. [00:03:32] Speaker 01: I mean, any generation facility that uses steam, nuclear, oil, coal, biomass, there's going to be... This is a factual question. [00:03:43] Speaker 01: It's not relevant or material, Your Honor. [00:03:45] Speaker 01: We're focused on the legal issue. [00:03:47] Speaker 01: In order to affirm, in order to find that this statute allows an allocation of basis, the court would have to treat the guidance [00:03:56] Speaker 01: as law. [00:03:57] Speaker 01: They would have to treat the guidance as law. [00:03:59] Speaker 01: That's the only place allocation is mentioned. [00:04:01] Speaker 01: That's the only place qualifying activity or non-qualifying activity is mentioned. [00:04:05] Speaker 01: Those terms are not in the statute. [00:04:07] Speaker 01: Those terms have no relationship to anything in the statute. [00:04:11] Speaker 01: And it's, you know, the guidance is not law. [00:04:14] Speaker 01: That's not how administrative law works. [00:04:16] Speaker 01: You can't have an agency that comes out with an informal guidance, no tether to the statute, and say that this is going to affect forty million dollars worth of [00:04:26] Speaker 01: a statutory grant where the statutory terms are clear. [00:04:30] Speaker 01: Thirty percent of basis in specified energy property. [00:04:34] Speaker 01: Okay, you know, let me just take a step back. [00:04:36] Speaker 01: The big picture here is this. [00:04:39] Speaker 01: West Rock did exactly what Congress wanted it to do after the recession. [00:04:45] Speaker 01: West Rock invested almost $300 million in a renewable energy facility in reliance on a statute that's clear, that says they're going to get 30% of their basis in specified energy property. [00:05:00] Speaker 01: That was $85 million approximately. [00:05:03] Speaker 01: Listen. [00:05:04] Speaker 01: Don't talk. [00:05:05] Speaker 01: Yes, sir? [00:05:06] Speaker 03: My understanding of the record [00:05:08] Speaker 03: may be wrong. [00:05:11] Speaker 03: I understood that a percentage of the steam was used to generate electricity and a percentage went to the paper mill. [00:05:22] Speaker 01: You're saying that 100% of the steam was used to... It goes through the turbine generator. [00:05:30] Speaker 01: I don't think that's disputed. [00:05:32] Speaker 01: I also don't think it's relevant. [00:05:34] Speaker 03: All of this... Listen, I don't care whether you think it's relevant, okay? [00:05:38] Speaker 03: I want you to answer my question. [00:05:39] Speaker 01: All of the steam goes through the electricity generating turbine, is my understanding. [00:05:44] Speaker 01: It's in the record. [00:05:45] Speaker 01: Yeah, where is that? [00:05:46] Speaker 03: Because that's my next question. [00:05:50] Speaker 01: Whether you think it relevant or not. [00:06:04] Speaker 01: A378, I have in my notes here, is one place where that is. [00:06:22] Speaker 01: This is, I believe, the, if you see, let's see, it says, [00:06:34] Speaker 01: at the bottom of paragraph five. [00:06:36] Speaker 01: The Mitsubishi steam turbine, which is the generating turbine, receives superheated steam from two boilers at high pressure. [00:06:42] Speaker 01: And in paragraph three, the Covington facility uses two boilers to provide the steam. [00:06:48] Speaker 01: And so I would also say that the purpose here, as I was starting to say, Congress's purpose was to incentivize [00:07:00] Speaker 01: renewable energy projects. [00:07:03] Speaker 01: The steam, let's say, there's no difference in our view of this between the steam and the energy. [00:07:09] Speaker 01: There's no proper basis to allocate them, but even if there were, the steam itself is generated by renewable energy. [00:07:15] Speaker 01: It's part of the statutory purpose. [00:07:17] Speaker 01: Previously, West Rock used coal and oil to create steam for this facility. [00:07:23] Speaker 01: That's in the Court of Federal Claims opinion, citing the record, I believe, at [00:07:30] Speaker 01: at 10. [00:07:31] Speaker 01: And so the entire facility is a renewable energy facility. [00:07:36] Speaker 01: And West Rock did exactly what Congress wanted. [00:07:39] Speaker 01: It invested $300 million in a renewable energy facility. [00:07:43] Speaker 01: And it did so in reliance on this statute, in reliance on an $85 million grant. [00:07:49] Speaker 01: The government says, well, we'll tell you after five years of litigation how much your grant is. [00:07:54] Speaker 01: The government admits expressly. [00:07:55] Speaker 01: They say allocation is required. [00:07:58] Speaker 01: But they say in their brief that there's no particular allocation method. [00:08:02] Speaker 01: In WE Partners, there was one allocation method. [00:08:04] Speaker 01: In GUSC, there was one allocation method. [00:08:06] Speaker 01: This is in the government's brief at, I believe, 45. [00:08:10] Speaker 01: 43. [00:08:10] Speaker 01: So the government's position is we'll tell you after five years of litigation how much your grant is and by the way it's 39 million dollars not the 85 million that you counted on when you made this investment in reliance on the statutory terms 30 percent of basis. [00:08:28] Speaker 01: That's just not how tax incentives work. [00:08:31] Speaker 01: Investors are entitled to [00:08:33] Speaker 01: to certainty. [00:08:35] Speaker 01: They're entitled to know what the tax, and this is not strictly tax, but they're entitled to know what the financial consequences of their $300 million investment are at the outset. [00:08:45] Speaker 01: And the statute says 30% of basis, and that's what they're entitled to. [00:08:49] Speaker 01: The arguments that the government makes and that the Court of Federal Claims accepted for limiting basis, allocating basis, are not in the statute. [00:09:01] Speaker 01: There's nothing about limitation. [00:09:03] Speaker 01: There's nothing about conditioning. [00:09:05] Speaker 01: There's nothing about qualifying activity, or even what a qualifying activity is. [00:09:11] Speaker 01: That's all argument by the government here in their briefs. [00:09:15] Speaker 01: And again, as I said, that is not how administrative law works. [00:09:19] Speaker 01: If the court enforces the guidance, the Treasury guidance, as law, as if it went through notice and comment rulemaking, it just is going to invite mischief in a whole range of cases where agencies [00:09:31] Speaker 01: issue informal declarations all the time. [00:09:37] Speaker 01: It's not law. [00:09:38] Speaker 01: It's not in the statute. [00:09:39] Speaker 01: It's not a construction of any term in the statute. [00:09:43] Speaker 02: What was the basis in the record for the determination that based on information provided by West Rock [00:09:54] Speaker 02: The NRL estimated that approximately 49.1% of the energy in the steam produced is used for the production of electricity. [00:10:04] Speaker 01: Yes, Your Honor. [00:10:05] Speaker 02: That's an appendix 16. [00:10:06] Speaker 02: Excuse me? [00:10:07] Speaker 02: That's an appendix 16. [00:10:08] Speaker 01: Yes, I believe that's a reference to the Treasury Award letter, which is in the appendix at 453. [00:10:17] Speaker 01: And what I'm saying is that allocation has no basis in the statute. [00:10:25] Speaker 01: There's no basis in fact. [00:10:28] Speaker 02: Pardon me? [00:10:28] Speaker 02: That's what I'm looking for. [00:10:29] Speaker 01: I don't believe it has a basis in fact either. [00:10:32] Speaker 01: All of the steam runs through this facility. [00:10:35] Speaker 02: What's the basis for that conclusion? [00:10:37] Speaker 02: That 49 point whatever percent? [00:10:41] Speaker 01: It's not stated in the Treasury's award letter. [00:10:44] Speaker 01: So what the letter says is, when we read from it, this is appendix four. [00:10:48] Speaker 02: But did you contest that as a fact matter? [00:10:53] Speaker 01: We did contest that as a fact matter. [00:10:56] Speaker 01: On what basis? [00:10:57] Speaker 01: On the basis that there's the basis that [00:11:00] Speaker 01: Look, all of the steam runs through the turbine. [00:11:02] Speaker 01: And then it comes out. [00:11:03] Speaker 03: Remember I started this questioning by asking you about contestants. [00:11:06] Speaker 01: Yes, Your Honor. [00:11:07] Speaker 01: Let me try to further answer your question. [00:11:09] Speaker 01: All of the steam runs through the turbine. [00:11:12] Speaker 01: any facility that generates electricity using steam is going to have steam coming out the other side. [00:11:18] Speaker 01: There's a question about what to do with it. [00:11:19] Speaker 01: It has to condense so that it can go back into the front of the turbine. [00:11:23] Speaker 01: You can condense it by putting in a big condenser and allowing the remaining energy in the steam to be wasted [00:11:32] Speaker 01: Or you can run it back through the facility and use it for other purposes to condense the steam. [00:11:38] Speaker 01: That's what happened here. [00:11:39] Speaker 01: But to say that there's electricity plus steam is double counting because the steam has already been counted when it goes through the turbine. [00:11:52] Speaker 01: I don't know how else to say it other than the other point that I've been making here, which is that even the steam itself is renewable energy. [00:11:59] Speaker 01: It's made from renewable energy. [00:12:01] Speaker 01: Previously, Covington, and this is in the Court of Federal Claims opinion, and this is in the record, used oil and gas to create steam to run this facility. [00:12:10] Speaker 01: Now they're using biomass. [00:12:11] Speaker 01: That's what Congress wanted. [00:12:13] Speaker 01: Congress wanted investment. [00:12:14] Speaker 01: It wanted jobs after 2008. [00:12:16] Speaker 01: It wanted renewable energy facilities. [00:12:19] Speaker 01: That's what it got. [00:12:20] Speaker 01: $286 million of a renewable energy facility. [00:12:25] Speaker 01: The electricity is made from renewable energy. [00:12:27] Speaker 01: The steam is made from renewable energy. [00:12:30] Speaker 01: And West Rock invested that money in reliance on the terms of the statute, which are not ambiguous, 30% of basis in specified energy property. [00:12:41] Speaker 03: There's some little amount that isn't made from renewable energy, isn't that correct? [00:12:46] Speaker 01: Startup. [00:12:47] Speaker 01: It's a little bit of fossil fuel that's used to start up the turbines, is my non-technical understanding. [00:12:55] Speaker 01: This was also a very minor thing disputed below. [00:13:00] Speaker 01: We say that is biomass, and I can give you a site for that when I come back with my remaining time. [00:13:06] Speaker 04: Okay, now let's hear from the government. [00:13:12] Speaker 04: Mr. Weiner. [00:13:14] Speaker 00: Good morning, and may it please the Court? [00:13:16] Speaker 00: Andy Wiener for the United States. [00:13:18] Speaker 00: If I can, I'd like to start with the factual point on page 11 that I believe the court was asking about before. [00:13:23] Speaker 00: The second full paragraph on appendix page 11 is the court's opinion, and it says, [00:13:32] Speaker 00: The co-mingle steam then passes through a steam turbine generator. [00:13:36] Speaker 00: Westrock extracts a portion of the steam from the steam turbine generator prior to exhaustion and diverts the steam to the paper mill to be used in its industrial process. [00:13:48] Speaker 00: And the court uses the Stockwell Declarations, paragraph three and five. [00:13:53] Speaker 00: In addition, the government's expert report on pages 897 to 899 goes into some detail as to what extraction occurs, how much energy is diverted from the turbine to the paper mill and does not pass all the way through the electricity turbine generator. [00:14:14] Speaker 00: It enters [00:14:16] Speaker 00: but does not exit because it is diverted at three stages in the course of the turbine. [00:14:22] Speaker 04: You're saying that none of that in any way contributes thereafter to the production of electricity? [00:14:30] Speaker 00: Correct. [00:14:31] Speaker 00: Then it is seen to be used in the industrial process. [00:14:35] Speaker 03: Now, that's a factual question. [00:14:39] Speaker 03: That's why I started out asking that question in your opposing counsel. [00:14:45] Speaker 04: But it's not disputed. [00:14:49] Speaker 03: This doesn't seem to be disputed. [00:14:51] Speaker 00: Correct. [00:14:53] Speaker 00: That's the government's position. [00:14:54] Speaker 00: First of all, not disputed. [00:14:57] Speaker 03: Your opposing counsel keeps telling me it's irrelevant. [00:15:00] Speaker 03: But it seems to me that his argument is, oh, no, we're using the steam to 100% of its kinetic capacity in order to generate electricity. [00:15:12] Speaker 03: And then there's trickle-off. [00:15:15] Speaker 03: which you would have either sent to a condenser or we happen to take it and use it. [00:15:23] Speaker 03: But that doesn't square with what the findings are. [00:15:27] Speaker 00: Correct. [00:15:28] Speaker 00: Yes, and that's something that we addressed in the end of our brief. [00:15:30] Speaker 00: And the question then that I also want to address that was something of a factual related question that this court asked in opening argument was, well, how did the Treasury make the allocation? [00:15:42] Speaker 00: And that allocation is made on the, there's something called a checklist, an application checklist. [00:15:49] Speaker 03: Doesn't the National Energy Lab go in and audit this stuff? [00:15:53] Speaker 00: Yes, so what happens is when an application comes in, then it goes to NREL, [00:15:58] Speaker 00: which is a scientific laboratory body that reviews the substance of the application. [00:16:06] Speaker 00: And in this case, the application claimed that 100% of the energy produced was used to generate electricity. [00:16:14] Speaker 00: It was not true. [00:16:16] Speaker 00: But NREL did its investigation and based on the schematics of how the facility was set up, it determined that [00:16:25] Speaker 00: I want to make sure I get the percentages right, that 0.22% of the energy was generated by fossil fuel, based on startup and flame stabilization. [00:16:38] Speaker 00: And then another 49.1% of the energy [00:16:44] Speaker 00: I'm sorry, 51.2% was diverted to the paper mill, and only 48.8% was actually dedicated to the production of electricity. [00:17:00] Speaker 04: But the issue is the cost basis of the facility, which I assume the argument is that that would be the same whether or not there was some diversion. [00:17:10] Speaker 04: to the paper mill or some other non-electricity-generating use. [00:17:15] Speaker 00: I understand, Your Honor. [00:17:16] Speaker 00: And so, to bring that back to the statute, the statute says, look, we're going to give you a payment in lieu of a production or an investment tax credit based on placing in service a facility that does two things. [00:17:30] Speaker 00: Plane is day in the statute under 45T3. [00:17:32] Speaker 00: The facility must use open-loop biomass to produce electricity. [00:17:38] Speaker 00: to the extent that it does something else. [00:17:40] Speaker 00: If it uses fossil fuel, it's not eligible for the payment. [00:17:43] Speaker 00: If it doesn't produce electricity, it is also not eligible for the payment. [00:17:48] Speaker 00: And so when you have a facility that is producing kinetic energy, that is producing steam, that both powers a generator to produce electricity and does something else, [00:18:02] Speaker 00: You have to allocate. [00:18:03] Speaker 00: Now, you have to allocate under Section 48, and you have to allocate under 1603. [00:18:09] Speaker 00: Now, the statute in the government's view is plain. [00:18:12] Speaker 00: First of all, you have the plain language of the statute. [00:18:15] Speaker 00: And then you have the fact that you're supposed to construe credits narrowly, and so therefore, if you're doing something that's not the activity as required by the statute, then that is not a credible [00:18:26] Speaker 00: then you do not get credit for that. [00:18:28] Speaker 00: In addition to that, as I said, Section 45 only gives you a credit if you produce electricity. [00:18:35] Speaker 00: So if you don't produce any electricity, then you don't get any credit whatsoever. [00:18:42] Speaker 00: Under 48, 48 says, look, because at the same time that Congress created the stimulus package, Congress allowed taxpayers to claim the basis, their investment in a 45 facility as an investment credit under 48. [00:19:02] Speaker 00: And by doing that, however, there are certain rules that the Treasury regulations under 48 require you to allocate when there is an activity that doesn't meet with the terms of a statute. [00:19:16] Speaker 00: The regulations address solar facilities because solar facilities have been in 48 for decades. [00:19:24] Speaker 00: This is relatively new. [00:19:25] Speaker 00: There's no specific [00:19:27] Speaker 00: There's no specific regulation that speaks to open-loop biomass facilities because that is a recent addition to 48 in 2008, but the same principle applies. [00:19:38] Speaker 00: It says, look, if you're doing something that is both within the confines of what Congress deems credible and outside of what Congress deems credible, then you have to allocate [00:19:50] Speaker 00: as between those two activities. [00:19:52] Speaker 02: Mr. Weiner, you referred to page 11 in the appendix. [00:19:56] Speaker 02: Yes. [00:19:57] Speaker 02: And you read the sentence, West Rock extracts a portion of the steam from the steam turbine generator prior to exhaustion and diverts the steam to the paper mill to be used in its industrial process. [00:20:10] Speaker 02: That cites the Stockwell Declaration, paragraphs three and five. [00:20:15] Speaker 02: Look in the appendix 379. [00:20:18] Speaker 02: 378 and 379. [00:20:21] Speaker 02: That's the Stockwell Declaration. [00:20:26] Speaker 02: And on 379 at the top of the page it talks about the steam going through the turbine and [00:20:40] Speaker 02: portion of the steam is extracted to power the biomass facility itself only after the steam's pressure, this is I think the important sentence, only after the steam's pressure and temperature is reduced even further is a portion of the even less efficient steam extracted and sent by an outgoing pipe to the adjacent paper mill. [00:21:03] Speaker 02: So it sounds to me that what he is saying is entirely consistent with what your adversary just argued, that the steam that goes to the paper mill is steam that comes out of the turbine at some point. [00:21:20] Speaker 02: So all of this steam is powering the turbine. [00:21:24] Speaker 00: Well, Your Honor, we're not disputing that all the steam enters the turbine, and then there are, I believe, three extraction points. [00:21:32] Speaker 02: Well, if all the steam enters the turbine, [00:21:37] Speaker 02: And the turbine is generating electricity, then isn't the entire facility there to generate electricity? [00:21:44] Speaker 02: And the diverted steam is simply steam that would otherwise be wasted. [00:21:49] Speaker 00: No, Your Honor, but that part we respectfully disagree with. [00:21:55] Speaker 03: All right, tell me why. [00:21:55] Speaker 03: Tell us the facts on this. [00:21:59] Speaker 00: Yeah, so the turbine generator is not a single point in time. [00:22:06] Speaker 00: There is a path by which the steam travels all the way through. [00:22:11] Speaker 00: And the generator, by virtue of extracting... I don't mean to interrupt, but I'm going to interrupt. [00:22:17] Speaker 02: Is there any steam that is produced that is not first fed to the generator? [00:22:24] Speaker 00: No. [00:22:25] Speaker 00: My understanding is no. [00:22:26] Speaker 02: It all enters the generator and it is... All of the steam is helping to motivate the turbine, which is a source of generating electricity, right? [00:22:39] Speaker 00: Correct, but the energy that is in that steam [00:22:45] Speaker 00: is not used to its full capacity to generate electricity. [00:22:50] Speaker 02: Is that a deliberate choice or is that just a matter of inefficiency? [00:22:55] Speaker 00: Oh no, that is a deliberate choice because it is extracted at three different points. [00:22:59] Speaker 00: There is a high, the steam is high pressure, medium pressure, and low pressure. [00:23:03] Speaker 00: At all points the steam is still usable to generate electricity. [00:23:10] Speaker 00: And it is extracted and it is diverted to the paper mill for an industrial purpose, which is a non-creditable activity. [00:23:17] Speaker 03: Well, Congress... Where is that in the record? [00:23:20] Speaker 03: I mean, you know, what we see is citations to Stockwell, I think it's named. [00:23:25] Speaker 03: What tells us those numbers? [00:23:27] Speaker 03: I would think that the audit wouldn't do that. [00:23:29] Speaker 00: Well a portion of the steam, well first of all it says a portion of the stream is extracted to the power biomass facility itself. [00:23:36] Speaker 00: So that is the high pressure steam that is diverted back into the [00:23:46] Speaker 00: the boiler, and then at a lower point, this is the middle and the low pressure, it is then extracted, it still is very useful for the generation of electricity, but it is extracted and sent to the paper mill. [00:23:58] Speaker 02: So you're saying that these extractions are part of the design, it's all part and parcel of what was intended, and that therefore there is legitimacy in saying that [00:24:14] Speaker 02: 51% or whatever the percentage is, is used for electricity and the other 49% was designed to produce a different result. [00:24:25] Speaker 02: Correct. [00:24:26] Speaker 02: But again, where is all of this in the record? [00:24:30] Speaker 00: So can I direct you to the government's expert report? [00:24:36] Speaker 00: Where? [00:24:37] Speaker 00: 896 to 899. [00:24:45] Speaker 00: Good. [00:24:46] Speaker 00: So the figure that you see there is very similar to the one that we included in our brief, which is also in the government's experts opening report. [00:24:59] Speaker 00: But what it expresses to you over the course of four pages, and then if you look at the last page, I think to be as efficient as possible in explaining this, if you look at table number four, [00:25:13] Speaker 00: There is steam extracted at various points. [00:25:17] Speaker 00: And the extraction initially does not cost, does not have a great effect on the amount of electricity that is produced. [00:25:29] Speaker 00: But as to the later stages where the steam is extracted, you see that there is a pretty significant delta. [00:25:36] Speaker 00: There is 8.4. [00:25:40] Speaker 00: versus 15.2 megawatts if the steam had passed all the way through. [00:25:46] Speaker 00: So by extracting steam at stage three, you're basically eliminating the energy that's in that steam. [00:25:56] Speaker 00: You're taking seven megawatts off the table. [00:26:00] Speaker 00: And then at stages... You're choosing to produce less electricity. [00:26:03] Speaker 00: Correct. [00:26:04] Speaker 00: And then in stage four, [00:26:07] Speaker 00: you have a really significant delta as between those two numbers. [00:26:12] Speaker 00: You have 28 megawatts of electricity that is not being generated by virtue of the extraction of the steam. [00:26:19] Speaker 00: And so Stockwell, I believe his declaration sets forth that the steam is extracted and this gives you exactly what the effect of that is. [00:26:31] Speaker 00: And that is the design of the facility. [00:26:34] Speaker 02: and that's your argument then is that that ties back into section forty five d three because the facility is designed so that only portion of it [00:26:48] Speaker 02: produces electricity. [00:26:49] Speaker 00: 1603 was a stimulus program that was created because nobody wanted credits in 2008, because credits are only useful if you have income that generates income tax. [00:27:01] Speaker 00: If everybody's got losses, credits are not useful. [00:27:04] Speaker 00: They just carry forward. [00:27:06] Speaker 00: And so what did the Congress do? [00:27:08] Speaker 00: It said, look, instead of credits, we'll give you cash. [00:27:11] Speaker 00: Everybody loves cash. [00:27:13] Speaker 00: And so that will create an incentive when credits aren't creating an incentive to invest in these renewable resources. [00:27:24] Speaker 00: What Congress wasn't doing, though, wasn't creating a new incentive. [00:27:28] Speaker 00: It was creating a different form by which it had already incentivized through credits. [00:27:34] Speaker 00: And so therefore, instead of getting a production credit under 45, which is how much electricity you produced, or instead of getting an investment credit under 48, which would require an allocation between electricity production and non-electricity production, because [00:27:52] Speaker 00: it too borrowed the definition under 45. [00:27:54] Speaker 00: It's saying, look, we'll give you a payment from the Treasury, but that is designed to be [00:28:03] Speaker 00: in lieu of, it's not a new subsidy. [00:28:08] Speaker 00: And so what's really going on here is they're trying to say, look, all we got to produce is produce like one watt of electricity, or maybe even no watts of electricity. [00:28:18] Speaker 00: They say the operation of the facility has no bearing on the 1603 payment. [00:28:24] Speaker 00: And so therefore, you could build the thing and then let it sit idle. [00:28:28] Speaker 00: And presumably, under their theory, you'd be entitled to the credit. [00:28:33] Speaker 00: And that's an absurd result. [00:28:37] Speaker 00: That is incorrect. [00:28:38] Speaker 00: That is contrary to what Congress is intending to do, which was to incentivize the construction of a facility that uses open-loop biomass to produce electricity, unless there are any other questions. [00:28:50] Speaker 00: Government asked it. [00:28:51] Speaker 04: Any more questions, Mr. Weiner? [00:28:55] Speaker 04: Thank you, Mr. Weiner. [00:28:56] Speaker 00: Thank you. [00:28:59] Speaker 01: Yes, thank you, Your Honors. [00:29:01] Speaker 01: First of all, the effect of the extraction on the production of electricity was hotly disputed below. [00:29:07] Speaker 01: Our expert evidence was that if the steam was not extracted at all, there'd be only 4% more electricity. [00:29:16] Speaker 01: There were no findings that were ever made on that by the lower court. [00:29:19] Speaker 01: What the lower court did was it affirmed the allocation in the Treasury Award letter, the 48.2 percent I believe it is and 52.2 percent. [00:29:29] Speaker 01: It knocked down our 30 percent of basis grant by 52.2 percent. [00:29:37] Speaker 01: For reasons not explained by the Court of Federal Claims, okay, that's what happens. [00:29:43] Speaker 01: So the grant of summary judgment to the government was improper even if allocation is proper because there was no [00:29:50] Speaker 01: finding that the allocation that led to the award that Treasury made was supported by, there's just nothing in the lower court decision about that. [00:29:59] Speaker 02: But I want to go back to... But did you challenge that as a fact finding? [00:30:03] Speaker 01: Yes, we did. [00:30:03] Speaker 01: Of course we did. [00:30:04] Speaker 01: Yes, there was expert testimony going. [00:30:06] Speaker 01: The expert report that my friend just quoted from, as I said, was disputed by our expert in terms of what the effect of the extraction of steam was. [00:30:16] Speaker 01: But Judge Walakhan, your question, I hope we've cleared it up, that the steam goes into the generator. [00:30:21] Speaker 01: But I'm standing by our position here that it's not relevant to the statutory text. [00:30:29] Speaker 01: My friend said a couple of times when he was up here that if the facility produces electricity, it's a qualified facility if it produces electricity. [00:30:41] Speaker 01: This facility produces electricity. [00:30:44] Speaker 01: There is nothing in any statutory text about conditioning, limiting, allocating, [00:30:51] Speaker 01: Qualifying activities, non-qualifying activities. [00:30:54] Speaker 01: There is nothing in any statutory text about conditioning, allocating, or limiting. [00:31:00] Speaker 01: Or running it, so you could just leave it. [00:31:02] Speaker 01: No, we have to produce electricity, which it does. [00:31:05] Speaker 01: 74 megawatts of electricity. [00:31:06] Speaker 01: This is the ninth largest biomass electricity generating facility in the country. [00:31:12] Speaker 01: 74 megawatts is a lot of megawatts. [00:31:15] Speaker 01: I mean, a nuclear power plant, two unit nuclear power plant is 1,200 megawatts. [00:31:19] Speaker 01: So 74 megawatts is a lot of megawatts. [00:31:21] Speaker 01: This is an electricity generating facility. [00:31:25] Speaker 01: It's a qualified facility. [00:31:26] Speaker 01: The government doesn't dispute that. [00:31:28] Speaker 01: The basis of the qualified property is $280 million. [00:31:31] Speaker 01: The government acknowledges that. [00:31:33] Speaker 01: We're entitled to 30% of the basis. [00:31:35] Speaker 01: But it's also a steam generating facility. [00:31:39] Speaker 01: The steam is used to generate electricity. [00:31:41] Speaker 02: It's also used for other purposes in the public. [00:31:46] Speaker 01: Yes, it is, Your Honor. [00:31:47] Speaker 01: Yes, it is. [00:31:48] Speaker 02: Doesn't that count? [00:31:51] Speaker 02: It doesn't count under the statute. [00:32:02] Speaker 01: Where does it say that? [00:32:03] Speaker 01: It doesn't say that in the statute. [00:32:07] Speaker 01: You know, it doesn't say that in the statute. [00:32:10] Speaker 01: It defines qualified facility as a facility using open-loop biomass to generate, to produce electricity. [00:32:17] Speaker 01: That's what this does. [00:32:19] Speaker 01: There's another subsection that says a facility using solar to produce electricity is a qualified facility. [00:32:25] Speaker 01: There's another subsection, this is in our reply brief, that says a facility using [00:32:30] Speaker 01: Hydroelectric power to produce electricity is a qualified facility. [00:32:34] Speaker 01: Congress wanted to incentivize renewable energy. [00:32:38] Speaker 01: What they really wanted to incentivize was investment after the recession. [00:32:41] Speaker 01: $300 million was invested here in a renewable energy facility. [00:32:46] Speaker 01: It produces electricity. [00:32:48] Speaker 01: It meets the statutory terms. [00:32:50] Speaker 01: And the only place you will find anything about allocation is in the Treasury guidance, which is not law. [00:32:56] Speaker 01: It's not law. [00:32:58] Speaker 01: It's an agency's informal [00:33:02] Speaker 01: guidance. [00:33:04] Speaker 01: There's no explanation of how it relates to the statutory text. [00:33:08] Speaker 01: There's no explanation of what a qualified or unqualified facility is. [00:33:11] Speaker 01: These are all arguments that the Justice Department has made in its litigation presentation. [00:33:20] Speaker 04: Any more questions? [00:33:21] Speaker 04: Thank you. [00:33:21] Speaker 04: Thank you both. [00:33:22] Speaker 04: The case is taken under submission. [00:33:24] Speaker 04: That concludes this panel's arguments for this morning afternoon.