- Special Projects
Ormat Technologies Inc., the Nevada-based owner of the Big Island’s geothermal power plant, is trying to fend off a whistleblower lawsuit that could cost the company hundreds of millions of dollars in penalties.
The lawsuit, filed under seal in 2013, alleges that Ormat and its subsidiaries — including Puna Geothermal Ventures, which operates the Big Island plant — lied to the U.S. Treasury Department to secure about $136 million in federal grants.
Unsealed in 2014, the case has been making its way slowly through the courts under little public scrutiny. But, in March, Ormat’s attempt to have the case tossed on technical grounds was rebuffed by a federal judge in Nevada, and it now has until April 28 to respond to the allegations.
The case focuses on federal assistance that Ormat received through the U.S. Treasury Department’s 1603 grant program, an initiative created under the so-called federal stimulus package, the American Recovery and Reinvestment Act of 2009, that provides cash payments to qualifying renewable energy projects.
Two former Ormat employees who brought the lawsuit allege that the company “knowingly and purposefully exploited” the program to “perpetuate and sustain a financial fraud of unprecedented proportions.”
“Ormat carried out this scheme by … submitting false or fraudulent grant applications, certifications of compliance, reports and claims to the federal government under 1603, thereby obtaining hundreds of millions of dollars in payments to which it was never entitled,” the plaintiffs’ lawsuit says.
An Ormat spokesman declined to comment for this story. But, in its filing with the U.S. Securities and Exchange Commission, the company said: “The Ormat parties continue to believe that the allegations of the lawsuit have no merit and will continue to defend themselves vigorously.”
The lawsuit was brought by Tina Calilung, Ormat’s former asset manager, and Jamie Kell, its former business development administrator, under the False Claims Act, which was enacted by the federal government in 1863 and has become its leading tool to recoup money wrongly paid to its contractors and other private entities.
The statute motivates whistleblowers by allowing them to bring lawsuits claiming fraud on behalf of the government and share in the monetary recovery — up to 30 percent in some cases.
In 2010, the statute received widespread attention when professional bicycle racer Floyd Landis used it to sue Lance Armstrong, alleging that his former teammate defrauded the government by accepting sponsorship money from the U.S. Postal Service while taking performance-enhancing drugs.
The payoff for such lawsuits can be substantial. The statute imposes penalties amounting to triple the government’s damages and an additional penalty of up to $11,000 for each false claim.
If Ormat were found to have received all of its grant money as a result of false claims, it could be liable for roughly $408 million — an amount far exceeding the $382 million that the company made from its electricity operations in 2014. With a “commission” at 30 percent, Calilung and Kell could receive as much as $122 million.
At the center of Calilung and Kell’s allegations are Ormat’s two geothermal power plants, the North Browley project in California’s Imperial Valley and the Puna project on the Big Island.
The plaintiffs allege that Ormat “purposefully excluded relevant material information and included material false information” about both projects to land the 1603 grants — which were meant for new projects started between 2009 and 2011.
For the Brawley project, Ormat received grants worth $122 million, even though the plant was “placed in service” in 2008 and therefore ineligible for the stimulus program, the plaintiffs say.
The issue with the Puna project boils down to the fact that Ormat’s application included the costs of two “expansions” at the plant that the plaintiffs say should not have qualified as “new.”
“The Ormat parties continue to believe that the allegations of the lawsuit have no merit and will continue to defend themselves vigorously.” — Ormat Technologies Inc.
One expansion involved what Ormat calls “state-of-the-art binary” equipment designed to bring 8 megawatts of expanded capacity to the plant by utilizing the heat from the geothermal brine that gets pumped out of the ground by an existing facility.
In its grant application, Ormat stated that the equipment “can operate without the existing facility,” but the plaintiffs say that the claim was “gross misrepresentation” because it requires the existing facility’s “byproduct to operate.”
The other expansion involved a well, known as KS-14, that the plaintiffs say was drilled by Ormat to ramp up the capacity of its existing facility that was supposed to be producing 30 megawatts of electricity but generating only about 17 megawatts. The plaintiffs say Ormat described the KS-14 as an expansion project and included 100 percent of its cost in its grant application.
The Puna project was eventually awarded $13 million.
According to the plaintiffs’ complaint, Cathy Tsaniff, Ormat’s tax manager, admitted to Kell that “she was aware of the legal implications of submitting a false 1603 application but told Ms. Kell that Ormat Technologies’ CEO, Dita Bronicki, had made the changes herself and, accordingly, Ms. Tsaniff feared retaliation if she were to raise the issue.”
When Kell tried to investigate the issue by filing a Freedom of Information Act request to obtain the copy of Ormat’s grant application, the plaintiffs say the company tried to retaliate against her by threatening to take away her insurance that had been offered as part of a severance agreement she had signed in 2012.
In the end, Kell, who was undergoing treatment for breast cancer at the time, rescinded her FOIA request, according to the complaint.
Under the False Claims Act, the U.S. Justice Department has an option to take over the lawsuit once a whistleblower brings the case to the court. That’s how it went with Landis’ pending case against Armstrong.
But the Justice Department elected not to intervene in the Ormat case.
David K. Burton, a New York-based lawyer who has been closely following the case, says the department’s decision can be viewed as a setback for the plaintiffs — but not a fatal one.
“It would’ve been better if the Justice Department had intervened, but there’s been whistleblowers in the past who have successfully gone forward without the government’s help,” Burton said.
So far, at least, the plaintiffs seem to be doing fine on their own. On March 24, Chief Judge Robert C. Jones of the U.S. District Court in Nevada sided with them and rejected Ormat’s motion to dismiss the case.
Jones found that the plaintiffs demonstrated “the plausibility” that Ormat made “false or intentionally misleading statements to the Treasury [Department] and was awarded grant money because of those statements.”
But Jones also noted that the plaintiffs still have several legal hoops to jump through.
“A finding of plausibility says nothing about the merits of [the plaintiffs’] claims,” Jones wrote. The plaintiffs “will need proof that Ormat was actually ineligible for the funds it received under the Section 1603 program in order to survive a motion for summary judgment.”