[00:00:12] Speaker 03: Finally, we have W.E. [00:00:13] Speaker 03: Partners. [00:00:19] Speaker 03: Now if this conversation gets heated, we can co-generate. [00:00:37] Speaker 02: May it please the court, my name is Steve Latham and I'm representing W.E. [00:00:40] Speaker 02: Partners II in this action. [00:00:42] Speaker 02: As you know, we're dealing with the federal Section 1603 program in this appeal. [00:00:46] Speaker 02: Congress enacted Section 1603 as part of the American Recovery and Reinvestment Act of 2009. [00:00:53] Speaker 02: The purpose was to incentivize investments in the country's rapidly deteriorating economy. [00:00:59] Speaker 02: Congress wanted companies to invest money in defined projects so as to create jobs and boost the economy. [00:01:05] Speaker 03: Is there any point along a scale of, say, 1% to 100% of producing electricity? [00:01:12] Speaker 03: as opposed to steam, where you'd concede that the purpose of the statute is not satisfied? [00:01:18] Speaker 02: Based upon the statutory language that Congress enacted on it, I have to say no. [00:01:23] Speaker 02: Congress defined qualifying facilities for purposes of open-loop biomass facilities as simply producing electricity. [00:01:33] Speaker 02: This one does. [00:01:34] Speaker 05: If the production of hypothetical that you had a steam facility to heat all of New York City with its steam radios, [00:01:42] Speaker 05: I was assuming that you had a massive steam production facility. [00:01:48] Speaker 05: When I used to live in New York, we had steam radiators. [00:01:51] Speaker 05: So you heated all of New York City, but you had generated enough electricity to light the CEO's office at Con Ed. [00:01:58] Speaker 05: You still would be entitled, under your view, to the 30%. [00:02:04] Speaker 05: Just to take what I think is a silly hypothetical, but you're barely producing enough electricity to light a light bulb. [00:02:11] Speaker 05: I would hope that wouldn't be the case. [00:02:13] Speaker 03: All the rest is steam, and your answer is the same. [00:02:15] Speaker 03: You win. [00:02:16] Speaker 03: Yeah, because I was going to ask you about my little motion generating electricity generating device that I carry when I walk, and it recharges the phone. [00:02:25] Speaker 03: And so you put that on top of the vibrating steam pipe, and that's enough? [00:02:30] Speaker 02: The short answer is, under the statutory language Congress created, I think the answer is yes. [00:02:34] Speaker 02: The good news here is that's not what W partners did. [00:02:37] Speaker 05: Let me ask you another question. [00:02:38] Speaker 05: When I look at 1603, the statute, [00:02:41] Speaker 05: I see that it sets up eight different categories of facilities that are going to be able to enjoy either the tax credit or the payback. [00:02:51] Speaker 05: One is qualified facilities. [00:02:53] Speaker 05: That's in one. [00:02:54] Speaker 05: That's basically electric, where you read it through 48A and 45. [00:02:59] Speaker 05: Then there's a category for a combined heat and power facility. [00:03:03] Speaker 05: That's in seven. [00:03:04] Speaker 05: That's a co-generating facility, right? [00:03:07] Speaker 02: Yes. [00:03:08] Speaker 05: So the Congress had in mind these separate categories. [00:03:11] Speaker 05: And then reading through 45 and 48, you see that a co-generating facility is one that generates at least 20% electricity, right? [00:03:21] Speaker 02: Right. [00:03:22] Speaker 05: OK. [00:03:22] Speaker 05: So if you're a co-generating facility and you generate at least 20%, you're going to get what? [00:03:28] Speaker 05: You get a 10% benefit as opposed to a 30%, right? [00:03:33] Speaker 05: What's the statutory authority that allows Treasury [00:03:38] Speaker 05: to give a 30% benefit to a co-generating facility? [00:03:43] Speaker 02: Well, as in the case of this facility, if it's a... Statutory authority. [00:03:47] Speaker 05: And the statute, where does the statute say that a co-generating facility can get 30% under any circumstances? [00:03:55] Speaker 02: If it's a co-generation facility that qualifies as an open-loop biomass facility. [00:03:59] Speaker 05: So where does the statute say that? [00:04:01] Speaker 02: Well, that's in part of 45 and 48, where it defines qualified facilities. [00:04:05] Speaker 05: And in regulation? [00:04:07] Speaker 05: No. [00:04:09] Speaker 05: Where in 45 and 48 do we say that a co-generating facility can get 30%? [00:04:18] Speaker 02: Well, a combined heat and power facility can also be an open biomass facility, can be a combined heat and power facility. [00:04:28] Speaker 05: Where does it say that in the statute? [00:04:31] Speaker 05: I don't know that it addresses... It doesn't say that in the statute. [00:04:33] Speaker 05: I'm sorry? [00:04:34] Speaker 05: It doesn't say that in the statute. [00:04:36] Speaker 02: No, it's got the definitions. [00:04:36] Speaker 05: The regulation says that, right? [00:04:38] Speaker 05: Yes. [00:04:39] Speaker 05: So your source of authority for the federal government to give you money is not in a statute, it's in a regulation. [00:04:45] Speaker 02: I think it is in the statute because this facility... You're a co-generating facility, sir. [00:04:50] Speaker 02: It is, it's a co-generation facility. [00:04:51] Speaker 05: You're admitting you're a co-generating facility. [00:04:53] Speaker 05: The Congress had in mind that a co-generating facility is going to qualify here. [00:04:58] Speaker 05: And then when you read in through 48, [00:05:01] Speaker 05: The co-generating facility has to do 20% electricity to qualify. [00:05:05] Speaker 05: You don't generate 20% electricity. [00:05:07] Speaker 05: No. [00:05:09] Speaker 05: You were given a gift by the federal government. [00:05:12] Speaker 02: I don't think so. [00:05:13] Speaker 05: There's no statutory basis for it. [00:05:15] Speaker 02: Congress made the choice, apparently. [00:05:17] Speaker 05: Point to me in the statute where the statute says a co-generating facility can get something more than 20%. [00:05:23] Speaker 02: Because it qualifies as an open-loop biomass facility. [00:05:28] Speaker 02: that can qualify as that or a combined heat and power facility. [00:05:32] Speaker 05: Evidently, Congress... That was a decision that some official over in the Treasury made that said, we're going to cut some slack to cogeneration facilities that don't generate 20% electricity. [00:05:45] Speaker 05: We're going to lock them in the back door and give them not 10%, we're going to give them 30%. [00:05:49] Speaker 02: Because that's what Congress said. [00:05:51] Speaker 02: That's not what Congress... Apparently, Congress prefers biomass. [00:05:54] Speaker 05: Where in the statute? [00:05:55] Speaker 02: Where did Congress say that? [00:05:57] Speaker 02: Congress says that when it defines what an open-loop biomass facility is, and then Congress says those open-loop biomass facilities get 30%. [00:06:06] Speaker 02: That was Congress's decision, and we have to presume it was intentional. [00:06:11] Speaker 05: Show us the language. [00:06:12] Speaker 05: Run us through this language that you're talking about. [00:06:20] Speaker 05: If you know the language I'm talking about, I'm reading out of 16037, and then I'm reading out of 48C3. [00:06:27] Speaker 02: In 1603, D1. [00:06:28] Speaker 02: 1603 which? [00:06:32] Speaker 02: D1. [00:06:33] Speaker 05: D1. [00:06:34] Speaker 02: Congress states that a qualified facility is defined as, within the meaning of section 45 of the Internal Revenue Code. [00:06:41] Speaker 02: If you go to 45 of the Internal Revenue Code, it talks about open-loop biomass facilities, which is a facility using open-loop biomass to produce electricity. [00:06:51] Speaker 05: That's what we have here. [00:06:52] Speaker 05: To produce electricity, not to produce electricity in something else. [00:06:57] Speaker 02: It doesn't say to only... No, it says to produce electricity. [00:07:00] Speaker 02: It does. [00:07:01] Speaker 05: Right. [00:07:01] Speaker 05: Well, you produce electricity and something else. [00:07:04] Speaker 02: Right. [00:07:05] Speaker 05: And there are... You are a quality... You are yourself a combined heat and power system. [00:07:10] Speaker 05: There's a separate category for you, seven. [00:07:13] Speaker 05: And there's a separate statute for you, which is 48. [00:07:15] Speaker 02: I would respectfully disagree because we're in the category of open-loop biomass facilities. [00:07:21] Speaker 02: This facility fits squarely within that definition. [00:07:23] Speaker 05: Produce electricity, even though you would produce in your hypothetical [00:07:27] Speaker 05: barely enough electricity to light a light. [00:07:30] Speaker 02: I think it's important to keep in mind that this statutory program was not enacted for the purpose of maximizing the production of electricity. [00:07:39] Speaker 02: This one was to maximize investment in the economy, and that's why it was... I knew that. [00:07:44] Speaker 03: I was saying here in the ESA to maximize the spending of government money. [00:07:50] Speaker 02: Maybe if it were 100% granted, but this is... [00:07:55] Speaker 02: This was intended to spur the economy. [00:07:57] Speaker 02: The economy was going in the tank. [00:07:58] Speaker 02: They wanted to incentivize companies to make investments in defined facilities. [00:08:03] Speaker 02: Here, the defined facility that fit this project to suit the needs of the customer and the economics was an open-loop biomass facility. [00:08:11] Speaker 05: All of my facilities in 1603-1 are electric facilities. [00:08:18] Speaker 02: Well, they're open-loop biomass facilities so long as they produce electricity. [00:08:21] Speaker 05: Manufacturing electricity, not manufacturing steam. [00:08:25] Speaker 02: I don't think it's anywhere specified in the statute. [00:08:27] Speaker 02: There's nothing in the statute that says you can only produce electricity. [00:08:31] Speaker 05: It doesn't strike you as odd that Congress made it very, very clear that the maximum benefit that a cogeneration facility could get if it qualified was 10%. [00:08:41] Speaker 05: 10% is the max that you can get if you are a cogenerating facility. [00:08:48] Speaker 02: And it sets those types of percentages in various areas. [00:08:51] Speaker 05: That's what it says. [00:08:52] Speaker 05: It sets up a category. [00:08:54] Speaker 05: It says you're a co-generator. [00:08:57] Speaker 05: First place, you've got to generate at least 20% electricity. [00:09:01] Speaker 05: And then you're going to get only a 10% give back. [00:09:03] Speaker 05: Right? [00:09:04] Speaker 02: That's what it says. [00:09:05] Speaker 02: If you're a combined heat and power facility. [00:09:06] Speaker 05: And that's exactly what you are. [00:09:07] Speaker 05: You're a combined heat and power facility. [00:09:09] Speaker 05: And you're going to get 30%. [00:09:11] Speaker 02: Because it uses open loop biomass. [00:09:13] Speaker 05: It doesn't make any sense. [00:09:14] Speaker 02: But how do we go behind the words of the statute and try to decide? [00:09:17] Speaker 05: It's not the words of the statute. [00:09:18] Speaker 05: It's the words of a regulation. [00:09:20] Speaker 05: You haven't pointed to a single word in the statute that says that a biomass plant producing steam is a qualifying facility under the statutes you cite. [00:09:34] Speaker 05: That's an electric producing company. [00:09:36] Speaker 02: That's because, Your Honor, the definition of open-loop biomass facilities don't address what else is produced. [00:09:44] Speaker 02: It's always been the case that facilities that generate different types of energy can be qualified. [00:09:51] Speaker 02: Here, the definition that Congress pointed back to was the definition of open-loop biomass facility. [00:09:55] Speaker 05: It was qualified as a result of administrative grace. [00:10:01] Speaker 05: The distinction that the Congress made was that they said if you're a real electric company, you're going to get 30%. [00:10:08] Speaker 05: If you're a co-generating facility, the max you can get is 10%. [00:10:13] Speaker 05: But how do we... You try to explain to the ordinary person in the street, I represent, I build a co-generating facility and guess what, I got 30. [00:10:20] Speaker 05: How'd you do it? [00:10:22] Speaker 05: Because somebody over in Treasury wrote a regulation or wrote an advisory opinion of some sort that said, we're going to cut some slack. [00:10:32] Speaker 05: This is to co-generating facilities that don't even produce 20%. [00:10:37] Speaker 05: The Congress said, if you're a co-generating facility, [00:10:41] Speaker 05: You can't get a penny if you don't generate at least 20% electricity. [00:10:48] Speaker 05: You're generating less than 2% electricity, and you're claiming 30%. [00:10:53] Speaker 02: And everyone agrees here it would not qualify as a combined heat and power facility under this statute. [00:10:58] Speaker 02: Everyone also agrees, including the government and the federal government. [00:11:02] Speaker 05: And you're a combined heat and power facility. [00:11:03] Speaker 05: And if you go from where you go to paragraph 7 to 48C3, you have to be [00:11:10] Speaker 05: producing at least 20% electricity to qualify, and you weren't, so you didn't. [00:11:15] Speaker 02: Under that category. [00:11:16] Speaker 02: But you asked about a continuum, Your Honor, from 0 to 100, 1 to 100, as far as how much electricity an open-loop biomass facility might make. [00:11:25] Speaker 02: Congress didn't set that out. [00:11:27] Speaker 02: They just said you have to produce electricity, and it's undisputed that this one does, and it's been undisputed throughout that this facility is qualified. [00:11:36] Speaker 05: We have to interpret this, and we have to interpret whether or not [00:11:40] Speaker 05: regulation, the statute you cited me where it said producing biomass to produce electricity, they also meant electricity and steam. [00:11:50] Speaker 05: It doesn't say electricity and steam or electricity and anything else. [00:11:54] Speaker 05: It says electricity. [00:11:55] Speaker 02: Or it doesn't say primarily to produce electricity. [00:11:58] Speaker 05: It just says to produce electricity. [00:12:00] Speaker 05: So you say, well, did that include steam? [00:12:04] Speaker 02: It doesn't exclude it. [00:12:05] Speaker 05: Well, is it ambiguous? [00:12:07] Speaker 05: Is it clear? [00:12:08] Speaker 02: I think it's clear to any ambiguous. [00:12:10] Speaker 05: When Congress clearly spoke to how much money a cogeneration facility could get back, and it said 10% but only if you got 20% electricity, that's a clear statement by Congress. [00:12:25] Speaker 05: And now you're telling me I go back over and I have to bootstrap into where you are by reading [00:12:31] Speaker 05: into the word electricity, something else including biomass to manufacture electricity and a bunch of other things too. [00:12:39] Speaker 02: In our view, the contrary is significant because they did set forth a 20% under combined heat power, but didn't set forth that here. [00:12:47] Speaker 02: If they wanted a minimum here for open-loop biomass, Congress would have put it there. [00:12:51] Speaker 02: It was simply, are you generating some electricity? [00:12:54] Speaker 02: And again, this is not a 45 production incentive program. [00:12:58] Speaker 02: It's a put money into our economy program. [00:13:01] Speaker 02: And that's what W.E. [00:13:01] Speaker 02: Partners did here. [00:13:03] Speaker 02: So it's been, without dispute, below by the government, by the Court of Federal Claims that this is a qualified facility under... You're well under your rebuttal. [00:13:14] Speaker 03: It's up to you how much more you want units. [00:13:18] Speaker 02: Sorry, Mr. Yellow Light. [00:13:19] Speaker 02: I'll stand down. [00:13:20] Speaker 02: Thank you, Your Honor. [00:13:33] Speaker 00: Thank you, Your Honor, and may it please the Court of Kathleen Lyon for the United States. [00:13:37] Speaker 00: In Section 1603, Congress created a temporary stimulus program in the form of one-time cash payments in lieu of federal tax credits to incentivize certain investments in specified energy property. [00:13:48] Speaker 00: Congress's generosity was not unlimited, however, and it relied on established terms in the tax code that either explicitly or implicitly limit the reach of the stimulus program to specified energy property. [00:14:00] Speaker 00: And these limiting terms provided the framework in which Treasury examined WE Partners application here and the grounds on which the requested payment was reduced to exclude the costs of steam production at the facility in excess of that needed for the production of electricity. [00:14:16] Speaker 05: What statutory authority do you see for the Treasury giving out a 30% reward here, payback, to a cogeneration facility? [00:14:29] Speaker 00: Statutory. [00:14:33] Speaker 00: Under section 45 for the qualified open-loop biomass facilities, well, if you look at the 45 credits we've been with, it is limited to simply the amount of electricity that's being produced. [00:14:47] Speaker 00: And if you have a qualified facility, then you get the credit for just as much as it's produced. [00:14:52] Speaker 00: So we believe there's something, and because of the notice, it's long been treated [00:14:58] Speaker 00: that if property under 45 has long been treated, that if you're making another kind of, if you're using another kind of energy source or making another kind of energy, you can, as long as you qualify as a qualified facility, you can get the kilowatt per hour. [00:15:16] Speaker 05: A qualified facility to produce electricity, right? [00:15:18] Speaker 00: Correct, correct. [00:15:19] Speaker 00: And the allocation here was based on that. [00:15:21] Speaker 00: It was sort of limited to saying, look. [00:15:23] Speaker 05: That's a decision was not made in the statute, right? [00:15:29] Speaker 05: I'm not going to suggest that somebody over in Frasier ought to go to jail for handing out money to WEP partners. [00:15:36] Speaker 05: I'm just saying I didn't see any statutory authority. [00:15:40] Speaker 05: When I read the statute to say, as you heard me to say, that under 16037, you can have a cogeneration facility. [00:15:50] Speaker 05: If you look at the title, the tax code at 48C3, you see what the definition is. [00:15:58] Speaker 05: And it's 20%. [00:15:59] Speaker 05: And then we look at the payback and we say, well, you don't get paid. [00:16:03] Speaker 05: If you get paid at all, you get paid 10%. [00:16:05] Speaker 05: Correct. [00:16:07] Speaker 05: So what's the rationale for giving 30% to a co-generating facility that doesn't even produce 20% electricity? [00:16:15] Speaker 00: Right. [00:16:16] Speaker 00: There's certainly, we would say that since WE Partners is seeking compensation based on the basis of all of its property, it does create that tension. [00:16:27] Speaker 00: with section 1603D7, which says, look, you can get 10% of all of your property if you're making 20% thermal, 20% electricity, which they're not. [00:16:37] Speaker 05: And you're a co-generating facility, right? [00:16:40] Speaker 05: That's how you get it. [00:16:41] Speaker 05: Right. [00:16:42] Speaker 05: Because you're not a pure power play, which is what 16031 is all about. [00:16:47] Speaker 00: Right. [00:16:51] Speaker 00: The notice is what the practice has been under 45, which is that cogeneration facilities can qualify as an open-loop biomass facility, but only the property that is necessary to the production of electricity is going to be part of that facility. [00:17:11] Speaker 00: So we haven't disputed here that there is a qualified facility. [00:17:14] Speaker 05: You haven't cited me any statutory authority for that point of view. [00:17:18] Speaker 00: Well, this is the way that Section 45 has worked for a long time. [00:17:22] Speaker 05: We have statutes that the Congress passes, and we ordinarily try to enforce what the statute said. [00:17:29] Speaker 05: And we have regulatory bodies who write regulations to interpret statutes, where the statute has an ambiguity. [00:17:37] Speaker 05: But what I was looking for, I didn't see any ambiguities here. [00:17:41] Speaker 00: Well, certainly when Congress passed 1603 and when it added the 4885 election, [00:17:47] Speaker 00: to Section 48, I mean, it knew that this was the practice, that the notice, you know, pre-existed this statute and that cogeneration facilities have been treated as such. [00:18:03] Speaker 00: I'm sorry? [00:18:04] Speaker 03: Reference the IRS code. [00:18:08] Speaker 05: You're saying previous to 1603 when you were talking about tax credits, right, for cogeneration facilities, [00:18:17] Speaker 05: The treasury had created an out for cogeneration facilities that didn't otherwise qualify for the tax credit under 45 and 48. [00:18:30] Speaker 05: They found a way to slip some tax credit in the past to the cogenerating facility that wasn't producing 20%. [00:18:40] Speaker 00: Right. [00:18:41] Speaker 00: Because that was based on a kilowatt per hour basis. [00:18:45] Speaker 05: And that tax credit was 30% pre-existing before 1603. [00:18:52] Speaker 05: When did the 30%, 10% come in? [00:18:53] Speaker 00: In 2009, I think the election was also the election under 48A5, which 16... I'm just talking about the amount of money they're getting back here. [00:19:06] Speaker 00: Right, that was added as part of the Recovery Act. [00:19:09] Speaker 05: Right. [00:19:10] Speaker 00: Right. [00:19:11] Speaker 05: So what happened before? [00:19:12] Speaker 05: What was going on before the Recovery Act? [00:19:15] Speaker 05: Before 1603. [00:19:16] Speaker 00: Before 1603, cogeneration facilities were treated as, they could be qualified facilities. [00:19:25] Speaker 00: Whether they were, you know, so long as they, the property that was, so long as they had property that was necessary to the production of electricity. [00:19:32] Speaker 05: The portion of the property that was going to electricity they would treat for the tax credit, right? [00:19:36] Speaker 05: Correct. [00:19:37] Speaker 00: Correct. [00:19:37] Speaker 05: So they weren't disqualified. [00:19:38] Speaker 05: How much was the credit? [00:19:39] Speaker 00: The credit was based on the kilowatt per hour. [00:19:43] Speaker 00: of the production of electricity. [00:19:44] Speaker 05: It wasn't like where the incentives were created in 1603 to say the tax credit or the payback will be 30%. [00:19:55] Speaker 05: The 30%, 10% is a change from the previous way of giving benefits, right? [00:20:02] Speaker 00: For 45 facilities, yes. [00:20:04] Speaker 05: But we do know that Congress did the 30-10 on purpose in the Recovery Act. [00:20:11] Speaker 00: Yeah. [00:20:11] Speaker 00: I mean, what it was doing was... Electrics get 30. [00:20:14] Speaker 05: Right. [00:20:15] Speaker 05: And the max that a co-generating facility can get is 10. [00:20:19] Speaker 05: Right. [00:20:20] Speaker 05: Now isn't the Congress telling you when they say that, that if you had a previous practice that gave a disproportionate amount in the same way to the co-generating facility, you can't do that anymore? [00:20:35] Speaker 05: Because Congress set in the Recovery Act these amounts that could be given to the maximum amount that a co-generating facility could get. [00:20:43] Speaker 00: Yeah, well, I think the combined heat and power section of the code pre-existed 1603 as well. [00:20:50] Speaker 05: But you wouldn't say that after the Recovery Act was passed, there was Congress had specified the maximum amount that a co-generating facility could get. [00:20:59] Speaker 00: Yes, if it was making the 20%. [00:21:01] Speaker 05: If it made 20%. [00:21:04] Speaker 05: So doesn't it seem to you a little crazy that if a co-generating facility made less than 20%, it would get more than 10? [00:21:13] Speaker 00: Yes. [00:21:14] Speaker 00: Well, Your Honor, I think that... How would you explain that? [00:21:17] Speaker 00: Well, we agree that you can't read... We agree that there is a potential conflict in the statute if you read it the way WBP wants you to. [00:21:28] Speaker 00: The way that we have seen it is that combined heat and power facility [00:21:32] Speaker 00: can get 10% of all of its basis, regardless of the necessity of the property to that process, if it makes at least 20%. [00:21:41] Speaker 05: Let me let you come back to your argument because I spent too much time. [00:21:45] Speaker 05: You say in your brief at page 48, if this court were to agree with our position in this regard, there'd be no need to proceed further. [00:21:55] Speaker 05: This is at page 48 of your brief. [00:21:58] Speaker 05: But I had trouble understanding what that position was because he had to go back about nine pages to get a heading in the argument. [00:22:06] Speaker 05: Could you just give me, please, give the court, please, in a nutshell, four or five sentences that explain what this position is that would have no need for us to proceed from it? [00:22:19] Speaker 00: Correct. [00:22:19] Speaker 00: We think that there's a statutory basis that would support the allocation here because [00:22:24] Speaker 00: Qualified property has to be tangible property that's an integral part of the qualified facility here. [00:22:30] Speaker 00: An integral part means that the property has to be used directly in and it has to be essential to the completeness of the activity. [00:22:35] Speaker 05: Is the integral part in the statute? [00:22:37] Speaker 00: I'm sorry? [00:22:38] Speaker 05: The integral part language is in the statute? [00:22:40] Speaker 00: Yes, 48A5D little i2. [00:22:43] Speaker 00: It has to be an integral part of a qualified facility. [00:22:48] Speaker 01: And what we don't need to go on to decide would be the reasonable allocation [00:22:55] Speaker 01: idea which comes from, I forget whether that's a regulation or the note, that's from the guidance. [00:23:02] Speaker 01: What was the date of the guidance by the way? [00:23:04] Speaker 01: I see a revised April 2011 but I didn't see it. [00:23:08] Speaker 00: Yeah, I think it was first issued in 2009. [00:23:12] Speaker 01: Was that before or after this investment was made? [00:23:16] Speaker 00: That was before. [00:23:16] Speaker 00: I believe the construction started here... [00:23:23] Speaker 00: I'm going to say 2010 or 2011. [00:23:26] Speaker 00: But I don't think that the actual application in this case was filed until December 2012. [00:23:30] Speaker 05: But the integral partly only applies to other tangible property, not to tangible personal property. [00:23:37] Speaker 00: Isn't that correct? [00:23:40] Speaker 05: Your Honor... I'm looking at the statute. [00:23:47] Speaker 05: Qualified property, which is tangible personal property or [00:23:52] Speaker 05: something else, which is other tangible property, but only if the other tangible property is used in integral part, which would suggest that tangible personal property is not subject to that limitation, correct? [00:24:06] Speaker 00: Well, Your Honor, tangible personal property. [00:24:08] Speaker 05: Correct as a matter of statutory interpretation. [00:24:11] Speaker 00: Statutory interpretation, I think you could say that. [00:24:14] Speaker 05: That's correct. [00:24:14] Speaker 00: I think you could say that, yes. [00:24:16] Speaker 05: That is correct, not that I could say it, but it's correct. [00:24:18] Speaker 05: We're trying to be correct here, ma'am, not that you could say. [00:24:24] Speaker 05: Understood. [00:24:24] Speaker 05: Right. [00:24:25] Speaker 05: So then we go look at the definition and the regulations of what tangible personal property is as opposed to other tangible property. [00:24:33] Speaker 05: And it sure looks like these facilities are tangible personal property, not other tangible property. [00:24:38] Speaker 00: Well, a few things to say on that. [00:24:39] Speaker 00: The tangible personal property is generally a property that you can sort of pick up and move away. [00:24:45] Speaker 00: facility as these boilers and this whole system is a permanent structure here. [00:24:50] Speaker 05: And we also... You went through the regulations the same way I did, didn't you? [00:24:55] Speaker 00: Yes, I did. [00:24:56] Speaker 00: Yes, I did. [00:24:57] Speaker 05: Is it your position that the facilities here are other tangible property? [00:25:01] Speaker 00: Well, first, WEP in its reply... Yes or no? [00:25:04] Speaker 00: I mean... We think it's other tangible property. [00:25:09] Speaker 00: This is more like a permanent structure. [00:25:11] Speaker 00: And it's also, we should say that [00:25:14] Speaker 00: The regulations in Section 48 are not a perfect fit here because they were written for the previous version of Section 48, which was a general business investment credit. [00:25:25] Speaker 00: And so the types of things that you can get credit for and do the old 48 are a little bit different now because Section 48 now is limited to energy property. [00:25:35] Speaker 00: And so the types of, not every piece of tangible personal property would get credit under 48. [00:25:42] Speaker 00: because it's just not related to energy production. [00:25:45] Speaker 00: In the past, with the general business investment credit, you might have gotten credit for the Xerox machine or the shelving on the walls and whatnot. [00:25:55] Speaker 00: But you can't say that that's energy. [00:25:56] Speaker 03: There's only two kinds of property, real and personal. [00:26:00] Speaker 03: And the intersection is when you have, for example, when you're fighting about fixtures in the store, and are they permanently affixed to the [00:26:12] Speaker 03: the real property. [00:26:13] Speaker 03: Right. [00:26:14] Speaker 03: And when you're saying tangible personal property, you're saying it's not something that is real property and is not a fixed in a permanent fashion. [00:26:24] Speaker 00: Right, right. [00:26:26] Speaker 01: And... So what do the boilers, where do the boilers fit into that? [00:26:31] Speaker 01: We think that these boilers are... Are they room size and... It's a sort of a building size. [00:26:36] Speaker 01: So what's that? [00:26:37] Speaker 00: It's a building, there's these [00:26:40] Speaker 00: large boilers and it's just, that's it. [00:26:43] Speaker 00: That's in the building. [00:26:44] Speaker 00: That's what the building is. [00:26:46] Speaker 00: That's what the structure is. [00:26:47] Speaker 01: And it's a permanent... Was there a dispute in the proceedings below in this case about which of these two I or II, tangible personal property or other tangible property, the boilers fit into? [00:27:01] Speaker 00: There's never been a dispute in this case that this property was property to which the interval part test applied. [00:27:09] Speaker 00: It was not addressed [00:27:10] Speaker 00: is this other tangible property, is this tangible property. [00:27:13] Speaker 00: But if you go back, all the way back to the complaint, WBP was citing the integral part test, and on pages 18 and 20 of the record, which is paragraphs 16 and 22 of its complaint, it cites the integral part test and it lays out the elements, and then in paragraph 22 of the complaint it says, we meet all these requirements, it's essential, it's used in it, and then [00:27:35] Speaker 00: We cited to the integral part test in section 48 in our opening brief. [00:27:39] Speaker 00: They said nothing about it. [00:27:40] Speaker 00: The court of federal claims believed it applied. [00:27:43] Speaker 00: They said nothing in their opening brief. [00:27:45] Speaker 00: It's only in their reply brief that they're suddenly saying, wait, this is not tangible, or this is not other tangible property, and the integral part test doesn't apply. [00:27:52] Speaker 00: I mean, it's never been disputed here that the integral part test doesn't apply. [00:27:55] Speaker 05: What's the bottom line on how we leave this issue? [00:27:57] Speaker 05: I'm sorry? [00:27:58] Speaker 05: What's the bottom line on how we leave this issue? [00:28:01] Speaker 05: I mean, do we just assume that although your adversary is now complaining that his property here doesn't qualify for the integral part, we're going to stick him with it? [00:28:12] Speaker 00: No. [00:28:12] Speaker 00: Well, Your Honor, even if WEP is correct that this is tangible personal property, I don't see how it helps their argument any. [00:28:20] Speaker 00: Because under the statute, if that would make them qualified property, they still have to be qualified property of a qualified facility. [00:28:27] Speaker 00: And as we've said, to be a qualified facility that only the property necessary to the production of electricity comprises the qualified facility in the first place under section 45. [00:28:41] Speaker 00: And so whether you look at it as is this property essential to the activity at the qualified facility or is it other tangible property to which the integral part test doesn't apply, you're still going to have to look at whether [00:28:53] Speaker 00: its property that's necessary to the production of electricity under 40%. [00:28:56] Speaker 05: That's very interesting, because you apply that test to a cogeneration facility, but you don't apply it to a cogeneration facility that's making 20% electricity. [00:29:05] Speaker 05: This whole notion that only the proportion of the product that's for production of electricity is not qualified. [00:29:13] Speaker 05: You're having a special limitation before you hand out a 30% check to a cogenerating facility. [00:29:23] Speaker 05: but if it was applying just as a co-generating facility, you wouldn't be applying that test. [00:29:28] Speaker 05: Correct, I mean, that's what the statute... Well, this seems strange to me. [00:29:32] Speaker 05: Again, why would you have different tests for a co-generating facility, whether it's applying as a pure co-generating facility or whether you've by regulation backdoored it into a pure electric facility? [00:29:47] Speaker 00: Well, I think there is a potential difference between 16-0 [00:29:52] Speaker 00: 1603D1, which is, again, you can get all of your system property at 10%, regardless of whether it's necessary or not. [00:30:04] Speaker 00: But under 1603D1, if you're cogeneration, you can get potentially 30% of the property that's truly necessary to the process. [00:30:14] Speaker 05: I can understand why they narrowed it down. [00:30:17] Speaker 05: I mean, the notion that the Treasury would have bought the position of your adversary up front, which is that you've got a steam plant that's got enough steam to heat New York City but enough electricity to light a light bulb, then you still get 30%. [00:30:32] Speaker 05: Treasury wasn't going to go for that. [00:30:34] Speaker 05: So you had to find a way to whittle something back. [00:30:37] Speaker 00: Right. [00:30:37] Speaker 00: Well, the allocation here we think was reasonable in light of the fact that you have [00:30:43] Speaker 05: all of this property that is overwhelmingly used for something that's not covered in the statute, but some of it is used for... My question still is, why are you given the co-generating facility that doesn't make 20% a penny of the taxpayer's money? [00:30:58] Speaker 00: Your Honor, I guess that's... We read 1603D1 or perhaps section 45 a bit differently. [00:31:05] Speaker 00: I mean, we're looking at the notice that says co-generation facilities can be qualified facilities. [00:31:11] Speaker 00: And we're just saying that [00:31:13] Speaker 00: not all of the property here was part of that qualifying. [00:31:17] Speaker 05: It can be a qualifying because it uses biomass to make electricity as well as steam. [00:31:22] Speaker 01: Can I ask you a question? [00:31:23] Speaker 01: I think you said a few moments ago that if one puts aside the word integral in the section 48 where there's the two different tangible property subsections, one of which has that word and one of which at least as printed in the appendix doesn't, I can't quite tell. [00:31:43] Speaker 01: what the proper paragraphing would be. [00:31:45] Speaker 01: But putting that aside, you said something about the statute, I think maybe section 45, already requires that the facility be necessary to the production. [00:31:55] Speaker 01: Where's the word necessary? [00:31:57] Speaker 00: That's in the notice. [00:31:59] Speaker 01: Right, that's what I thought. [00:32:00] Speaker 00: That's not statute. [00:32:01] Speaker 01: I didn't... Okay, that... Correct. [00:32:02] Speaker 00: I mean, that's the way it has been treated. [00:32:04] Speaker 01: But that's not statutory. [00:32:05] Speaker 00: Correct. [00:32:06] Speaker 00: Correct. [00:32:07] Speaker 00: But that is how we're looking at it. [00:32:08] Speaker 01: Wrap up, counsel. [00:32:09] Speaker 00: Okay. [00:32:13] Speaker 00: And I think their chief argument against the allocation here is giving any difference to the guidance here. [00:32:19] Speaker 00: And I would just say on the qualifying and non-qualifying activity distinction, we think that the notion of qualifying and non-qualifying is built into the statute of 48. [00:32:31] Speaker 00: The word qualified or qualifying appears 30 times in section 45, which presumes that some things won't qualify. [00:32:37] Speaker 00: I think what they're really arguing about here is this notion of activity. [00:32:41] Speaker 00: of non-qualifying activity and qualifying activity. [00:32:43] Speaker 00: The fact is the specified energy property that's listed in 1603D is a discrete list of property that focuses on particular property used for a particular purpose. [00:32:55] Speaker 00: And every piece of property that qualifies under 48 is engaged in a particular activity. [00:33:01] Speaker 00: And so the activity here at a 45 facility is the production of electricity. [00:33:05] Speaker 00: And we think that Treasury made sensible rules here that said, look, we're going to allocate [00:33:10] Speaker 00: in some reasonable way to reflect the basis of the property that was used in the activity that was covered by the statute and not otherwise. [00:33:20] Speaker 00: Do you have any further questions? [00:33:36] Speaker 02: It's noteworthy that Treasury chose to give W.E. [00:33:38] Speaker 02: Partners 100% of the grant sought for a substantially similar project, the only real difference being it used two boilers instead of three. [00:33:46] Speaker 01: Or in their view, the real difference is it was mistaken the first time and then it woke up to the proper treatment the second time. [00:33:53] Speaker 01: That is their view. [00:33:56] Speaker 01: What is your view about whether this is other tangible property or tangible personal property under 48 point, I don't know, [00:34:05] Speaker 02: We think it is clearly tangible personal property rather than other tangible property. [00:34:11] Speaker 02: Spoilers are fixed. [00:34:14] Speaker 03: I'd hate to have OSHA inspect it and find out they're not. [00:34:18] Speaker 02: No, but what's important is that there is testimony in the record about why this particular design was chosen. [00:34:22] Speaker 03: Wait a minute, you said no, so they're not a fixed. [00:34:27] Speaker 03: Let me repeat what you said, no. [00:34:29] Speaker 03: But what's important is [00:34:31] Speaker 02: I'm sure they're fixed for now, but what is important is that they're removable. [00:34:35] Speaker 02: Why they use these three packaged boilers was because they could be disassembled and taken from the site. [00:34:40] Speaker 01: Is it your view that if they are indeed movable and they are 48A5D1, tangible personal property, that this phrase [00:34:55] Speaker 01: But only if such property is used as an integral part does not apply or that it does apply? [00:35:01] Speaker 01: That phrase does not apply to tangible personal property. [00:35:04] Speaker 01: Did you argue that either in the Court of Federal Claims or here? [00:35:08] Speaker 02: It was not raised because there wasn't a contention that this was not qualified property. [00:35:13] Speaker 02: The contention was this other stuff about qualifying activities. [00:35:18] Speaker 02: And so it wasn't really an issue down below. [00:35:20] Speaker 02: It was undisputed that this was a quality. [00:35:22] Speaker 01: It was certainly an issue here. [00:35:24] Speaker 02: It is on appeal, definitely. [00:35:26] Speaker 01: Right. [00:35:26] Speaker 01: And on the appeal, did you say integral? [00:35:30] Speaker 01: Why are we talking about integral? [00:35:31] Speaker 01: It's just not applicable to this? [00:35:34] Speaker 02: We did when we replied to the government's brief. [00:35:38] Speaker 02: That was one of our key points, is that the integral aspect doesn't deal with any of this property because it's all tangible personal property. [00:35:48] Speaker 02: I have to be quick. [00:35:51] Speaker 02: You do. [00:35:52] Speaker 02: I have to be really quick. [00:35:54] Speaker 02: May I wrap up or do? [00:35:55] Speaker 02: Wrap up. [00:35:56] Speaker 02: Thank you. [00:35:59] Speaker 02: It was substantially undisputed down below that this is a qualified facility. [00:36:04] Speaker 02: It meets the statutory definition as a qualified facility. [00:36:07] Speaker 02: Everything used in the facility is tangible personal property, and that's qualified property or specified energy property for the statute. [00:36:15] Speaker 02: And under the language of the statute, that's the end of the story. [00:36:18] Speaker 02: Congress chose because you use open-loop biomass, you get 30%. [00:36:22] Speaker 02: And that's the end of the story. [00:36:23] Speaker 02: There's nothing about qualifying or non-qualifying activities. [00:36:26] Speaker 02: As the CFC Judge Horn found in the RP-1 case, tracery just made that up. [00:36:32] Speaker 02: There's nothing about it happening. [00:36:34] Speaker 05: When we started the argument and asked you a silly hypothetical, you answered yes indeed. [00:36:40] Speaker 05: Congress intended to have an absurd result. [00:36:46] Speaker 02: The answer is, it says what it says, but that's not the case you have before you. [00:36:50] Speaker 05: It's absurd. [00:36:51] Speaker 05: It just is borderline absurd. [00:36:52] Speaker 02: I think that would be absurd if somebody actually built something like that. [00:36:56] Speaker 02: But we don't have that here. [00:36:58] Speaker 05: We have a soundly engineered... If you can tell somebody you're going to get 30% of the investment back from the federal government, I'm sure the boys in Wall Street would have been happy to finance the steam facility to heat New York City. [00:37:08] Speaker 02: The customer wouldn't have been very thrilled that they had to pay for all those hundreds of [00:37:12] Speaker 05: of living in shock when they were met with a tree we've got a big bill about it thank you counsel thank you that includes the oral arguments on it and these matters will be taken under submission all right the honorable court is adjourned until tomorrow morning at ten o'clock a.m.