ALTA WIND I OWNER LESSOR C v. United States

In the United States Court of Federal Claims Nos. 13-402, 13-917, 13-935, 13-972, 14-47, 14-93, 14-174, 14-175, 17-997 (Filed: 8 July 2026) * *************************************** ALTA WIND I OWNER LESSOR C, et al., * * Plaintiffs, * * v. * * THE UNITED STATES, * * Defendant. * * *************************************** Steven J. Rosenbaum, with whom were Dennis B. Auerbach, Thomas R. Brugato, Samuel R. Howe, and Maura A. Sokol, Covington & Burling LLP, all of Washington, DC, for plaintiffs. James E. Weaver, Trial Attorney, with whom were Richard J. Markel, Trial Attorney, and David I. Pincus, Chief, Court of Federal Claims Section, Tax Division, Department of Justice, all of Washington, DC, for the government. TRIAL ORDER HOLTE, Judge. Just then, they discovered thirty or forty windmills in that plain. And as soon as Don Quixote saw them, he said to his squire: “Fortune is guiding our affairs better than we could have ever hoped. Look over there, Sancho Panza, my friend, where there are thirty or more monstrous giants . . . , and with their spoils we’ll start to get rich.” . . . “Look, your worship,” said Sancho; “what we see there are not giants but windmills, and what seem to be their arms are the sails that turned by the wind make the millstone go.” 1 This retrial narrates plaintiffs’ thirteen-year saga tilting at cash grants worth almost $1 billion for their windfarm energy facilities. While plaintiffs see cash flows substantiating the windfarm valuation, the evidence supports using only the cost of windmills. * This Opinion was originally filed under seal on 2 July 2026 pursuant to the protective order in this case. The Court provided the parties an opportunity to review this Opinion for proprietary, confidential, or other protected information and submit proposed redactions by 8 July 2026 at 12:00 p.m. The parties confirmed they do not seek redaction, and the Opinion is now reissued for publication with a few minor, non-substantive corrections. 1 MIQUEL DE CERVANTES, DON QUIXOTE 30–31 (John Ormsby trans. 1885) (1605), http://public-library.uk/ebooks/29/80.pdf.  In February 2009, President Barack Obama signed the American Recovery and Reinvestment Act of 2009, which provided “a cash grant to entities that ‘place[] in service’ certain renewable energy facilities.” Alta Wind I Owner Lessor C v. United States, 897 F.3d 1367–68 (Fed. Cir. 2018). This cash grant was designed to infuse capital into and incentivize development of renewable energy projects amid the 2008 financial crisis. The cash grant amount was calculated as thirty percent of “the basis of the tangible personal property of the facility (with certain exclusions).” Id. at 1368 (citing ARRA § 1603(b)(1)). After applying for and not receiving their desired amount of cash grants, plaintiffs filed suit in this court alleging underpayment of ARRA cash grants. To calculate the basis of the tangible property of their facilities, plaintiffs used the full price for which they purchased the facilities, including the value of their anticipated cash grants, from Terra-Gen (the preceding owner and current operator). After a 2016 trial before a different judge, the court agreed with plaintiffs’ valuation, awarding them a cash grant equal to the shortfall between plaintiffs’ desired amount and the cash grants they received from Treasury. The government appealed, and the Federal Circuit disagreed with the court, vacating judgment, remanding for retrial, and ordering reassignment to a different judge. See generally id. at 1365. Noting “the purchase prices for the Alta facilities were in excess of the development and construction costs of the tangible assets,” the Federal Circuit directed the Court “to make a factual determination as to the allocation of purchase price” based on seven asset classes under IRC § 1060, making sure to distinguish between turn-key value (which is grant-eligible) and goodwill and other intangibles (which are not grant-eligible). See id. at 1377. Thus arose the parties’ present dispute: what portion of the purchase price, and whether the value of the cash grants, should be attributed to grant-eligible assets under Section 1060. Central to this dispute is the Federal Circuit’s mandate to determine the fair market value of the grant-eligible assets, including their turn-key value, under Section 1060. While plaintiffs present a discounted cash flow to calculate the fair market value of the assets, the government offers the cost approach. Plaintiffs’ discounted cash flow: (1) projects future cash flows; (2) discounts the cash flows to their present value (while also eliminating intangible asset values by using a “development-stage” discount rate); (3) subtracts operating expenses, taxes, and land value; and (4) uses a ratio of eligible costs to ineligible costs to isolate eligible assets. See Section IX.A, infra. Of note, plaintiffs include ninety-eight percent of the value of their anticipated cash grant in calculating the grant-eligible assets. While plaintiffs argue this is the most appropriate method for valuing integrated, income-producing assets, the government argues its cost approach is ideal for valuing readily replaceable assets. The cost approach identifies the costs to replace and reproduce grant-eligible assets with exact duplicates of the same assets and then applies a rate of return on capital to account for developer profit. See Section IX.B, infra. Under plaintiffs’ discounted cash flow method, plaintiffs argue they are owed $191,227,748 using a conservative estimate and $205,774,148 using a more realistic estimate, whereas under its cost approach, the government argues the Treasury overpaid plaintiffs by $58,884,366. See Section IX, infra. Eleven days of trial and one day of closing arguments later, another chapter in plaintiffs’ thirteen-year saga comes to a close. The Court finds the cost approach more suitable to value the grant-eligible assets as the cost approach more appropriately reflects the fair market value of the -2- eligible assets, avoids the questions raised by plaintiffs’ lack of corroborating evidence in their discounted cash flow methodology, and distinguishes assets between the Section 1060 classes. See Section IX, infra. Specifically, the Court concludes the cost approach (with the inclusion of certain costs the government improperly excluded—namely, Interest During Construction and the Oak Creek Development Fee and a markup for developer profits) best calculates the grant-eligible assets classified under Class V of Section 1060, pursuant to the Federal Circuit’s Remand Opinion. See Section IX.B.2, infra. The Court notes two items in declining to adopt DCF. First, plaintiffs did not adduce sufficient evidence to establish the fair market value of the grant-eligible assets includes ninety-eight percent of the value of the cash grant, as plaintiffs’ discounted cash flow implies. Second, discounted cash flow for Section 1060 valuations is not inherently defective—rather, the record evidence here tilts in favor of the cost approach over discounted cash flow. For the reasons stated below, the Court instructs the parties to apply the cost approach to value the Alta facilities: the parties shall calculate the fair market value of the grant-eligible assets by starting with grant-eligible costs noted in each KPMG cost segregation report, excluding Development Rights (but retaining Interest During Construction and the Oak Creek Development Fee), and applying developer profits of fifteen percent for Alta I, and twenty percent for Alta II–VI. The parties shall file a joint status report with the final amount owed to plaintiffs, if any. See Section IX, infra. I. Factual Background In June 2008, Oak Creek Energy Systems (“Oak Creek”) and Allco Wind Energy Management Pty. Ltd. (“Allco”) completed pre-construction development of multiple wind facilities (“the Alta Facilities”) in the Tehachapi region of California. Alta Wind I Owner Lessor C v. United States, 128 Fed. Cl. 702, 709 (2016), vacated and remanded, 897 F.3d 1365 (Fed. Cir. 2018). Terra-Gen Power LLC (“Terra-Gen”) acquired Allco’s U.S. wind energy business the same year and proceeded to “complet[e] the development and construction of the Alta Facilities” and execute Oak Creek and Allco’s individual windfarm power purchase agreement (“PPA”) contracts with Southern California Edison (“SCE”). Alta Wind I Owner Lessor C v. United States, 150 Fed. Cl. 152, 155 (2020); Alta Wind I, 897 F.3d at 1370. In February 2009, President Barack Obama signed the American Recovery and Reinvestment Act (“ARRA”) of 2009, Pub. L. No. 111-5, 123 Stat. 115, 364-66, which provided “a cash grant to entities that ‘place[] in service’ certain renewable energy facilities.” Alta Wind I, 897 F.3d at 1367–68. The grant amount was determined “using the basis of the tangible personal property of the facility (with certain exclusions).” Id. at 1368 (citing ARRA § 1603(b)(1)). “Terra-Gen itself was not qualified to receive a [S]ection 1603 payment, as [S]ection 1603(g)(4) barred a ‘pass-thru entity’ from receiving a grant if any ‘holder of an equity or profits interest’ in the entity was a nonprofit, and Terra-Gen had some nonprofit equity holders.” Alta Wind I, 897 F.3d at 1370. Unable to receive the Section 1603 grants, Terra-Gen sold six of the Alta facilities to plaintiffs between 2010 and 2012. Id. at 1371. After acquiring the six Alta facilities, “[p]laintiffs appear to have placed each facility into service within weeks” and proceeded to -3- apply for over $703 million in grants through Section 1603 “using the unallocated method to determine basis.” Id. The Treasury Department ultimately awarded plaintiffs cash grants of approximately $495 million based on the costs of the facilities’ grant-eligible construction and development, instead of plaintiffs’ unallocated method to determine basis. Alta Wind I, 150 Fed. Cl. at 156. II. Procedural History “In June 2013, plaintiffs filed separate claims against the government, which were later consolidated, ‘seeking over $206 million in additional [S]ection 1603 grants.’” Alta Wind I, 150 Fed. Cl. at 156 (quoting Alta Wind I, 897 F.3d at 1371). 2 In December 2015, the government counterclaimed, alleging overpayment to plaintiffs in the amount of $58,884,366. Gov’t’s Mot. to Am. the Pleadings to Add Countercls. Based on Expert Op. at 10, ECF No. 75. On 31 October 2016, this court “awarded Plaintiffs damages [of $206,833,364,] . . . the amount[] equal to the shortfall between the grant amounts to which [p]laintiffs were entitled and [those] the [g]overnment awarded.” Alta Wind I, 128 Fed. Cl. at 722. The Federal Circuit vacated and remanded the case on appeal, holding the purchase prices paid for the Alta facilities should be “allocated using the residual method” under Internal Revenue Code Section 1060. Alta Wind I, 897 F.3d at 1376. On 29 July 2019, this case was reassigned to the undersigned. See Order Reassigning Case, ECF No. 197. Following discovery, on 6 September 2022, plaintiffs filed a motion for partial summary judgment “seek[ing] rulings as a matter of law that: (1) the Section 1603 cash grant is not a separate asset for purposes of applying IRC Section 1060; (2) the value of the cash grant must be included in the basis of the Section 1603-eligible property; and (3) [p]laintiffs’ eligible basis may not be reduced on account of the ‘associated indemnities.’” Pls.’ Mot. Partial Summ. J. (“Pls.’ MPSJ”) at 2, ECF No. 314-1. The Court denied plaintiffs’ Motion for Partial Summary Judgment on 20 June 2023. Alta Wind I Owner Lessor C v. United States, 166 Fed. Cl. 386, 413 (2023) (“20 June 2023 Order”). The Court held, in relevant part, “[t]he incremental consideration paid for the anticipated Section 1603 cash grants is not basis allocable to Class V tangible property . . . [and t]he portion of the purchase price pertaining to consideration for the anticipated Section 1603 cash grants is grant-ineligible intangible property.” Id. The Court therefore deemed plaintiffs’ “argument the anticipated cash grants and premiums are inherently part of the basis of the windfarm as Class V tangible property” “unavailing.” Id. The Court observed: “Plaintiffs’ argument the grant, after receipt, is then reincorporated into basis to calculate the grant defies logic, mathematics, ARRA Section 1603, IRC Section 48, Treasury Regulation Section 1.48–1(c), and IRS Notice 2014–39.” Id. at 409 (internal quotations omitted). Ultimately, the Court’s 20 June 2023 Order did not rule on the appropriate method for calculating the fair market value of the eligible tangible property, instead denying summary judgment on the basis plaintiffs did not provide any controlling law binding the Court to include cash grant value as a matter of 2 Two plaintiffs filed their initial complaints on 24 July 2017, and the cases were stayed pending an appeal to the Federal Circuit in the lead case. See Alta Wind I Owner Lessor A v. United States, Case No. 17-997, ECF No. 1 (Fed. Cl. July 24, 2017). On 19 December 2018, this Court consolidated all plaintiffs under case number 13-402. 19 Dec. 2018 Order, ECF No. 196 (Hodges, J.). -4- law. Id. at 410 (“None of the authorities raised by plaintiffs allows the Court to consider a grant to be eligible “tangible property” for the purpose of calculating itself.”), 413 (“Plaintiffs do not cite relevant, binding legal authority for the proposition the premium is includible in the value of basis attributable to the grant-eligible tangible personal property of the windfarm.”). On 18 July 2023, plaintiffs filed a motion for reconsideration of the Court’s 20 June 2023 Order, ECF No. 338. See also Corr. Mot. for Limited Reconsideration at 1, ECF No. 350. Plaintiffs sought “limited reconsideration of the Court’s 20 June 2023 Order insofar as the Order makes a determination that neither party sought that, in all circumstances, the value associated with the Section 1603 cash grants cannot be allocated to Class V tangible property, but must instead be treated as a separate intangible asset.” Id. at 1 (cleaned up). Specifically, plaintiffs requested “the Court . . . clarify” the 20 June 2023 Order to make clear plaintiffs can argue at trial “under the income method of valuation, the value of tax benefits like the cash grant” may impact “the value and allocated basis of the property to which such benefits relate.” Id. at 2. In finding plaintiffs’ Motion for Reconsideration moot, the Court held the 20 June 2023 “Order did not address valuation methods, meaning the parties are free to offer any valuation evidence and argue in favor of any valuation method at trial.” Alta Wind I Owner Lessor C v. United States, 169 Fed. Cl. 1, 11 (2023). The Court further held “while plaintiffs are permitted to argue in favor of any valuation method at trial, including one allegedly necessitating treating the cash grant value as one cash inflow that goes into the discounted cash flow analysis of the eligible tangible property, the 20 June 2023 Order prohibits plaintiffs from treating cash grants as Class V tangible property inherently part of the basis of the windfarms.” Id. (cleaned up). On 15 July 2024, the parties filed a post-discovery joint status report (“JSR”), noting “the parties agree that the case should proceed to trial as expeditiously as feasible, subject to the resolution of motions in limine . . . and completion of post-discovery proceedings.” See 15 July 2024 JSR at 2, ECF No. 380. The Court held a telephonic status conference and shortly thereafter issued a scheduling order on 10 September 2024 outlining the deadlines for exchange of contentions of facts and law, exhibit and witness lists, and motions in limine. See 10 Sept. 2024 Order at 1–2, ECF No. 382. Pursuant to the Court’s 10 September 2024 Order, the parties filed five Motions in limine on 31 October 2024—plaintiffs filed one, and the government filed four. See Pls.’ Mot. in Limine to Exclude Substantial Portions of the Gov’t’s Suppl. Rebuttal Expert Rpts., ECF No. 391; Gov’t’s Mot. in Limine to Exclude Pls.’ Expert Dr. Matthew G. Osborn’s Testimony, ECF No. 393; Gov’t’s Mot. in Limine to Limit Pls.’ Expert Professor Maydew’s Testimony, ECF No. 394; Gov’t’s Mot. in Limine to Exclude Testimonies of Messrs. James Pagano, George Revock, Damon Huplosky, and Anthony Johnston, ECF No. 395; Gov’t’s Mot. in Limine to Exclude Pagano Ex., ECF No. 396. On 23 January 2025, the Court held an in-person oral argument regarding the parties’ Motions in limine. See 16 Dec. 2024 Order, ECF No. 403. During the oral argument, the Court found as moot plaintiffs’ Motion in limine because the parties agreed to submit supplemental sur-rebuttal and sur-sur-rebuttal expert reports, and if necessary, conduct supplemental expert depositions. See 27 Jan. 2025 Order at 2–3, ECF No. 409. The parties further agreed to stay the government’s four Motions in limine [until after trial] given the lack of any prejudice if the Court -5- were to hear all the evidence. See id. at 3. The Court commenced an eleven-day retrial on 14 July 2025. During retrial, the government filed two evidentiary motions. On 6 October 2025, the parties filed their post-trial Proposed Findings of Fact and Conclusions of Law (“PFFCL”). See Pls.’ PFFCL, ECF No. 463; Gov’t’s PFFCL, ECF No. 466. The Court held closing arguments on 17 February 2026. 23 Dec. 2025 Order, ECF No. 482. III. The Federal Circuit’s Remand Instructions for Retrial In the Federal Circuit’s Opinion vacating the first trial decision prior to reassignment, it laid out a clear framework, noting the “Court [of Federal Claims] will have to make a factual determination as to the allocation of purchase price.” Alta Wind I, 897 F.3d at 1377. Specifically, the Federal Circuit ruled plaintiffs’ acquisitions of the Alta facilities were “applicable asset acquisitions” under I.R.C. § 1060, so a determination of basis for a cash grant under ARRA § 1603 requires an allocation of purchase price to seven asset classes according to the regulations implementing I.R.C. § 338: The regulations implementing I.R.C. § 338 set out a method of allocation—the residual method—in which the consideration is distributed among seven asset classes, some classes for tangible assets and others for intangible assets. Those asset classes include: Class I: Cash and general deposit accounts. Class II: Actively traded personal property, certificates of deposits, U.S. government securities and publicly traded stock. Class III: Debt instruments. Class IV: Inventory and other property held for sale to customers. Class V: Assets that do not fit within any other class, including tangible property. Class VI: I.R.C. § 197 intangibles, including contract rights, but not goodwill and going concern value. Class VII: Goodwill and going concern value. See Treas. Reg. § 1.338-6(b). The consideration is allocated among these classes in the order they are listed in a “waterfall” fashion, using the fair market value of the assets within each class. See id. The parties agree that none of the assets at issue in this case fits within Class I, II, III, or IV. As noted above, the Alta transactions included both tangible property and intangible property (including PPAs). The purchase price must therefore be allocated to Class V, then to Class VI, and finally to Class VII, if any value remains. See id. at 1376. Central to this process is “the issue of turn-key value and its relationship to § 1060.” Id. at 1377. The Federal Circuit held the court’s trial decision prior to reassignment improperly attributed all purchase price in excess of the development and construction costs to turn-key value of the tangible assets. See id. Noting turn-key must be distinguished from -6- goodwill and going concern value, the Federal Circuit narrowed the issues for this Court at retrial significantly: “In applying the § 1060 residual method, the [Court of Federal Claims] must distinguish between turn-key value and goodwill and other intangibles.” Id. The Federal Circuit adopted the definition of “turn-key value” from Miami Valley Broad. Corp. v. United States, 499 F.2d 677, 680 (Ct. Cl. 1974), leaving this Court to determine “the incremental value ‘a buyer would pay . . . for such an assurance that the plant and equipment [of the Alta facilities] would all work together without need of costly and time-consuming adjustments and coordination.’” See Alta Wind I, 897 F.3d at 1377 (quoting Miami Valley, 499 F.2d at 680). At retrial, the process of determining the fair market value of the eligible assets, including a turn-key premium, largely came down to the parties’ dispute over valuation methods—plaintiffs advocate a discounted cash flow valuation methodology (“DCF” or “income approach”), while the government advocates a “replacement cost” methodology (“cost approach”). See Section IX, infra. IV. Fact Witnesses At retrial, the Court heard testimony from the following fact witnesses: James Pagano, George Revock, Damon Huplosky, and Anthony Johnston. The parties further designated portions of the transcripts from the first trial to be used in the retrial, including testimony from the following fact witnesses from the first trial who did not testify at the retrial: Lance Markowitz, James Spencer, Donald Settle, and Ellen Neubauer. 3 See 1 Apr. 2025 Order at 5, ECF No. 423. A. Testimony of Mr. James Pagano James Pagano, a fact witness for plaintiffs, served as Chief Executive Officer of Terra-Gen, the developer of the Alta facilities, for about 17 years. See Tr. at 2547:11–2549:19; Pls.’ Suppl. Ex. List, Witness List, Test. Designations, and Expert Rpt. Designation, ECF No. 386. At retrial, Mr. Pagano testified to Terra-Gen’s development of the Alta facilities in the Tehachapi Pass, an “attractive” and “productive” region for wind resources due to the “unidirectional” wind that “blows basically one direction from the Pacific to the Mojave.” Tr. at 2565:21–2566:13; see also PX-0227 (National Renewable Energy Laboratory (“NREL”) Wind Power Map). In addition, according to Mr. Pagano, SCE, a utility company servicing the Los Angeles energy market, had made little progress to meet California’s renewable energy portfolio standard, which provided another “high mark” making “Alta both unique and valuable.” See Tr. at 2572:23–2578:6. Further benefitting Terra-Gen, Mr. Pagano stated during rebuttal SCE ratepayers would fund the system upgrades necessary to accommodate the Alta facilities. See Tr. at 5128:21–24; see also Tr. at 2958:11–2959:11 (Mr. Pagano agreeing with the government’s characterization of SCE covering network upgrade costs not normally picked up by a utility company). Mr. Pagano testified Terra-Gen bought out Allco (the entity with the right to invest in and own the Alta facilities) and Oak Creek (the original developer), thus taking over development of 3 The parties also designated excerpts from the transcript of the first trial in 2016 for each of the testifying fact witnesses at the 2025 retrial. See Gov’t’s Trial Witness List, ECF No. 389; Pls.’ Supplemental Exhibit List, Witness List, Testimony Designations, and Expert Report Designation, ECF No. 386. -7- the project. See Tr. at 2589:7–18. According to Mr. Pagano, the Alta facilities cost Terra-Gen about 2.3 billion dollars in total, with the buyout of Allco representing less than ten percent of that cost. See Tr. at 2596:14–2597:1. Regarding the subsequent Alta sales to plaintiffs, Mr. Pagano stated Terra-Gen had a “turnkey obligation” “[t]o oversee the construction and make sure it all came together properly and then essentially guarantee that it was going to come together properly based upon our equity at risk.” Tr. at 2599:15–20, 2606:13–16. As part of this turn-key contract, Mr. Pagano testified Terra-Gen bore the risk of labor strikes, delays, obtaining Federal Aviation Administration (“FAA”) approvals and building permits, the presence of endangered species, and any consequential damages. See Tr. at 2609:17–2626:17. Mr. Pagano stated a gas plant he worked on at a previous employer required him to pay “a minimum of 20 percent of the contract price” to secure a turn-key premium for a “full wrap” turn-key facility wherein the contractor assumes all turn-key risks. Tr. at 2600:20–2601:11. While Mr. Pagano conceded “[t]he description for what ultimately needs to be delivered in a BOP contract, balance of plant contract, is similar to what needs to be delivered in a turnkey contract, in that we’re contracting for them to build our facility and deliver it to us as a completed facility,” he distinguished between the two by noting differences in allocation of risk, responsibilities in coordinating various contractors, and exposure to monetary damages. See Tr. at 5123:10–5126:20. Mr. Pagano then discussed Terra-Gen’s acquisition of queue positions, see Tr. at 2641:19–2678:7, 2960:7–15, lease agreements, see Tr. at 3136:25–3148:20, power purchase agreements (“PPAs”), see Tr. at 2713:18–2718:15, 2831:19–2875:15, wake impact agreements, see Tr. at 2721:19–2724:3, and Balance-of-Plant (“BOP”) contracts, see, e.g., Tr. at 3073:10–3086:14. Terra-Gen did not originally intend to sell the Alta facilities upon their completion, as it planned to operate them to “construct and build an entity that has a substantial asset base.” Tr. at 2678:13–16. Mr. Pagano explained Terra-Gen had to sell the Alta facilities for anyone to collect a cash grant, however, because some of Terra-Gen’s owners were tax-exempt and, despite lobbying Congress to remove the bar to Section 1603 grants for non-profits, Terra-Gen’s efforts were unsuccessful. See Tr. at 2680:20–2681:7; see also Tr. at 2679:19–23 (explaining Section 1603’s prohibition of a recipient having any tax-exempt ownership and Terra-Gen having ten percent tax-exempt ownership), 2682:7–10 (“[W]e were not able to apply for a cash grant.”). Mr. Pagano noted, however, Terra-Gen was not under a compulsion to sell, “other than the fact that it couldn’t qualify for a cash grant itself.” Tr. at 2687:17–20; see also Tr. at 2711:21–23. To ensure the Alta facilities could qualify for a cash grant, Terra-Gen “had to sell” to grant-eligible owners before the facilities went into service. See Tr. at 2689:7–19. At the time the cash grant applications were filed, Terra-Gen had already sold the Alta facilities. See Tr. at 2689:20–23. While Terra-Gen sold Alta VI outright to EverPower, Mr. Pagano testified Terra-Gen entered into a sale-leaseback transaction with General Electric and Union Bank of California for Alta I and with Citibank for Alta II through V. See Tr. at 2690:10–13. Under the sale-leaseback transactions, Mr. Pagano explained Terra-Gen sold each Alta facility to its respective buyer, but the buyer would immediately lease the facility back to Terra-Gen for it to operate. See Tr. at 2690:22–2691:5; see also Tr. at 2691:13–23 (explaining Terra-Gen preferred a sale-leaseback transaction structure on the older Alta facilities to maintain an operating role while still receiving residual cash flows from the project). While Terra-Gen operates the facility, Mr. Pagano continued, the buyers would “own the facility and take the tax benefits, receive rent on [the] lease and own the facility indefinitely.” Tr. at 2691:2–4. Relying on Treasury guidance, -8- Mr. Pagano stated the sale-leaseback transaction “was an appropriate method . . . to [resolve] the tax-exempt ownership issue” preventing Terra-Gen from applying for the cash grant. Tr. at 2691:24–2692:19 (citing JX-0126 (Treasury Guidance on “Payments for Specified Energy Property in Lieu of Tax Credits under the American Recovery and Reinvestment Act of 2009”)). Mr. Pagano later summarized as follows: Terra-Gen “entered into a sale-leaseback transaction and an outright sale on the facilities because the economics associated with the grant were substantial enough that we needed to assure that we could receive that, and to do that required a sale.” Tr. at 2766:7–11. To clarify how Terra-Gen could “receive” a cash grant through a sale, Mr. Pagano explained the purchase price Terra-Gen received would include the financial benefit of a cash grant “because we were selling the stream of cash flows . . . [and] one of those cash flows was the grant proceeds”—with the caveat Terra-Gen still had to pay taxes on any gain from the sale of the Alta facilities. See Tr. at 2783:24–2784:3. According to Mr. Pagano, even though Terra-Gen charged a sale price reflecting the value of the cash grants plaintiffs anticipated (and a premium for “derisk[ing]” the assets), Terra-Gen would have been better off financially if it could have applied for the grants itself because the sale of the Alta facilities triggered tax liability. See Tr. at 2766:18–2767:4, 2770:14–2771:15, 2782:24–2783:14, 2784:11–15, PX-0900 (Pagano Exhibit). To substantiate this claim, Mr. Pagano presented the so-called “Pagano Exhibit”—comparing cash grants for scenarios in which Terra-Gen retained ownership—and concluded Terra-Gen would have received about 40 million dollars more had it been able to apply for the cash grants itself. See Tr. at 2782:13–20; PX-0900 (Pagano Exhibit); see generally Tr. at 2771:16–2792:22 (walking through the contents of the Pagano Exhibit). Mr. Pagano testified the Pagano Exhibit demonstrates Terra-Gen did not seek to inflate the cash grants through the sale of the Alta facilities because Terra-Gen ultimately received lower financial benefits from the cash grant after a sale (due to tax liability) compared to if Terra-Gen were allowed to apply for the grant itself with no sale. See Tr. at 2784:4–15. Mr. Pagano further emphasized his view the parties to the transaction were shortchanged because the government not only properly taxed Terra-Gen on the proceeds of the sale, but also improperly disregarded purchase prices in determining plaintiffs’ eligible basis for the cash grants. See Tr. at 2800:3–2806:1 (“We’re essentially paying taxes on grant proceeds in the form of the gain on sale, but then that basis is being ignored in determining the grant that we’re entitled to.”). Plaintiffs designated portions of Mr. Pagano’s testimony from the first trial, including testimony discussing royalty rates under the land leases Terra-Gen conveyed to the purchasers of the Alta facilities, see Tr. at 612:13–621:5, Terra-Gen’s valuation of a small number of parcels of land Terra-Gen conveyed to plaintiffs at no separate charge, see Tr. at 406:13–414:25, and subsequent facts Mr. Pagano learned concerning curtailment and liquidated damages allegedly demonstrating the Alta PPAs were not favorable to Terra-Gen or plaintiffs, see Tr. at 245:6–253:23. The government also designated portions of Mr. Pagano’s testimony from the first trial, including testimony discussing the DCF valuation model employed by plaintiffs, see Tr. at 186:17–204:17, the sale-leaseback structure of the transactions for Alta I–V, see Tr. at 184:23–185:19, and comparable land lease royalty rates in August 2010, see Tr. at 560:9–562:22. B. Testimony of Mr. George Revock -9-  Mr. George Revock, a fact witness for plaintiffs and the government, is a former Citibank employee who negotiated Citibank’s purchase of Alta facilities II–V. See Tr. at 3198:4–3199:15; Pls.’ Suppl. Ex. List, Witness List, Test. Designations, & Expert Rpt. Designation. Mr. Revock testified Citibank, a sophisticated and well-informed buyer, see Tr. at 3248:1–7, used a DCF model to determine purchase prices because DCF best reflected “the actuality of the revenues and experiences associated to a particular project,” 4 Tr. at 3223:25–3224:5; see also Tr. at 3230:20–25, 3237:23–3238:5. Mr. Revock testified Citibank also employed appraisals from DAI Management Consultants (“DAI”) to estimate anticipated cash grant values. See Tr. at 3249:1–5, 3250:12–14. DAI’s final appraisal identified ninety-three percent of the Alta facilities as grant-eligible. See Tr. at 3253:2–4; Tr. at 3207:15–18. Mr. Revock noted DAI based its final appraisal on projected construction costs associated with the eligible property, and Citibank found the eligibility percentage reasonable. See Tr. at 3253:5–8, 19–22, 3256:3–5. According to Mr. Revock, DAI’s appraisal value also reflected the turn-key value of Alta II through V, as Citibank believed it was “purchasing an operating asset, an integrated facility, [meaning it] is completed for its intended use, placed in service, generating power.” Tr. at 3258:14–16. Mr. Revock noted Citibank saw turn-key value as important because property eligible for a cash grant “must be installed, tested, and [] ready and capable of being used for its intended purpose.” Tr. at 3259:4–16. According to Mr. Revock, turn-key value is inherent in the DCF valuation method because revenues begin “coming in from day one.” See Tr. at 3260:19–23. As such, Mr. Revock testified Citibank did not treat: (1) the wind resource at the Alta site, see Tr. at 3275:12–16, (2) locational value, see Tr. at 3275:21–3276:5, or (3) tax benefits as a separate intangible or a component of goodwill, see Tr. at 3276:22–3277:3, and denied receiving any brand names, patents, or customer lists through the Alta transactions, see Tr. at 3278:23–3279:7. Mr. Revock also testified he did not believe a replacement cost valuation would capture turn-key value as completely as a DCF model because replacement cost may not capture all the variables associated with making the asset operational—namely, the associated integration of all the components generating power. See Tr. at 3260:24–3261:9. Mr. Revock also noted a replacement cost valuation “does not incorporate the value of any tax credits that were eligible for these projects,” nor does it capture the quality of the wind resource because wind drives revenues. See Tr. at 3263:1–4, 8–12; see also Tr. at 3274:21– 25, 3275:10–15 (indicating Citibank did not separate wind resource from DCF or treat it as an intangible). Conversely, Mr. Revock testified to his belief DCF is the best approach to capture all those variables. See Tr. at 3263:13–19. To further support DCF as the proper valuation model, Mr. Revock testified the PPA with SCE made cash flow more predictable because it provided stable revenues for the first twenty-five years of operation, driving eighty to eighty-five percent of the value. See Tr. at 3265:8–12, 18–20, 3267:1–7. 4 According to Mr. Revock, in conducting due diligence, Citibank consulted with the consulting firm Garrad Hassan for technical analysis regarding the strength of wind power to support projected cash flow. See Tr. at 3243:15–3244:1, 3244:6–20. Mr. Revock later conceded Garrad Hassan’s analysis may have been flawed. See Tr. at 3288:18–3290:16 (discussing an email Mr. Revock wrote, see JX-0623, criticizing Garrad Hassan as having “been wrong more than most”). - 10 -  Mr. Revock recalled Citibank and Terra-Gen agreed to a tax indemnity provision meant to protect Citibank in the event the Treasury’s cash grant payments were less than expected. See Tr. at 3268:11–14, 3269:20–25. In Mr. Revock’s experience, such a provision is common. See Tr. at 3268:19–20 (“I am unfamiliar with any transaction that does not have a tax indemnity agreement.”). Mr. Revock testified Citibank would not have moved forward with the Alta transactions without a tax indemnity. See Tr. at 3317:18–19. Mr. Revock later explained on cross-examination Terra-Gen and Citibank structured the transactions to ensure Citibank always received cash flow, putting the burden of low power output on Terra-Gen. See Tr. at 3299:3–8, 3303:9–13, 3304:17–21, 3306:16–20 (“If the project doesn’t do well, it’s Terra-Gen’s problem, as long as you can meet the lease payments.”). Mr. Revock stated this cash flow did not include the cash grant because only Citibank is eligible for the cash grant. See Tr. at 3336:22–23; Tr. at 3337:4–16. C. Testimony of Mr. Damon Huplosky Mr. Huplosky is Terra-Gen’s tax director and has thirty years of experience in tax and accounting. See Pls.’ Trial Witness List, ECF No. 110, at 1; Pls.’ Suppl. Ex. List, Witness List, Test. Designations, & Expert Rpt. Designation at 11; Tr. at 3340:15–18. Mr. Huplosky was the principal drafter of the cost segregation reports separating grant-eligible from grant-ineligible property for the Alta transactions. See Tr. at 3340:23–3341:1. In drafting the cost segregation reports, Mr. Huplosky recalled he relied heavily on an appraisal from Duff & Phelps, a valuation firm, dividing the purchase price for the assets purchased from Allco and separating development rights and transition costs. See Tr. at 3392:21–3393:6. Mr. Huplosky also stated a Terra-Gen accountant, Joe Krol, performed several significant markups based on certain excluded costs and additional turbine payments. See Tr. at 3447:7–3451:19. When distinguishing grant-eligible from grant-ineligible property, Mr. Huplosky stated he looked for which property produced energy, based on guidance from the Department of the Treasury. See Tr. at 3348:1–4. Mr. Huplosky explained grant-eligible property included anything integral to the construction, operation, or maintenance of the windfarm. See Tr. at 3348:25–3349:22. Mr. Huplosky distinguished electrical transmission equipment, transmission rights, and buildings as ineligible but identified wind turbines, turbine foundations, met towers, 5 and roadways leading to the turbines as eligible. See Tr. at 3349:9–3350:8, 3353:11–17, 3354:6–18. While Mr. Huplosky initially identified grant-eligible and grant-ineligible property, KPMG had the final say. See Tr. at 3384:4–6 (“[THE GOVERNMENT:] Did KPMG always have the last word on what was eligible and ineligible? [MR. HUPLOSKY:] Yes.”). Mr. Huplosky further distinguished direct costs from indirect costs. See Tr. at 3350:25–3351:4. Direct costs, according to Mr. Huplosky, are “the actual equipment purchased as well as the labor that goes into installing that equipment.” Tr. at 3351:6–8. Direct costs could be grant-eligible, like wind turbine or substation equipment, or grant-ineligible, like the actual transmission lines. See Tr. at 3351:13–3355:6. Indirect costs are all other costs of construction, such as permitting costs, interest on construction, property taxes, and insurance. See Tr. at 5 Met towers “help measure the wind speed at various heights and the wind direction” and are “integ