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Biomass Corporation Sues Federal Gov’t for $47 Million

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- by Jacob Fischler, April 9, 2015, Law 360

MeadWestvaco Virginia Corp. slapped the federal government with a $47 million suit in the Court of Federal Claims on Thursday, alleging the U.S. Department of Treasury underpaid the company for the construction of a biomass energy generator.

Under Section 1603 of the American Recovery and Reinvestment Act, the government was obligated to pay 30 percent of the qualified cost to MeadWestvaco of building an open-loop biomass energy facility at its Covington, Virginia, paper mill in 2013, or about $85.9 million, the company says.

But the government paid only about $38.9 million. Most of the power produced at the facility was sold to Virginia Electric & Power Co., but the government made the reduction on the grounds that the company was reusing some of the excess low-pressure steam from the biomass facility to heat the facility itself and the nearby paper mill, the company says.

MeadWestvaco argues it was actually being more efficient in its use of the low-pressure steam and said the government’s logic was completely off-base.

“The government's determination is so erroneous and uninformed that it is entitled to no deference and should be discarded completely,” the complaint says.

Because Section 1603 is a money-mandating statute, qualifying projects automatically earn reimbursement of 30 percent of their costs for the necessary parts of the projects, MeadWestvaco says. The total cost to the company of building the biomass facility was $291 million, with $286 million used on qualifying portions.

The government never argued the facility was not qualified to receive the Section 1603 grant money, just that the award should be less than it had requested. MeadWestvaco’s complaint says the government’s admission the facility qualified was an admission it was entitled to 30 percent.

In the first of a couple of dozen similar cases to be decided on the merits, the U.S. Court of Federal Claims indicated last week that the U.S. Department of the Treasury may have overstepped its authority by disallowing $1.5 million in alternative energy grants to a fuel cell company, a move experts say could portend similar outcomes in similar cases involving billions of dollars in disputed grants.

The court said in RP1 Fuel Cell v. U.S. that the department wrongly withheld $1.5 million worth of the grants from the developers of two fuel cell plants in California that helped convert wastewater residue into electricity.

The plaintiffs alleged that Treasury was obligated to provide the full amount of the grant it was claiming under the statute and that the department unexpectedly reduced the award by leaving the gas-conditioning equipment out of their reimbursement calculation.

A representative for MeadWestvaco declined to comment Thursday.

Efforts to reach the U.S. Department of Treasury were unsuccessful.

MeadWestvaco is represented by Pamela J. Marple, Jerry Stouck and Michael Pusateri of Greenberg Traurig LLP.

Counsel information for the government was unavailable Thursday.

The case is MeadWestvaco Virginia Corp. v. U.S., case number 1:15-cv-00355-LB, in the U.S. Court of Federal Claims.