The Senate’s top Democrat is proud of securing taxpayer backing for a green energy company accused by former employees of fraudulently obtaining federal grant money, his office said this week.
Two former employees of Ormat Technologies filed a lawsuit in 2013 claiming the company lied to the Treasury Department in order to secure more than $130 million in federal grants. The lawsuit was unsealed last year, but has garnered little attention since then.
In a series of emails, a spokeswoman for Senate Minority Leader Harry Reid (D., Nev.) defended his work on behalf of the Israeli company, which operates geothermal energy plants in Nevada and is fighting the allegations in federal court.
The allegations are "unsubstantiated," Kristen Orthman, a spokeswoman for Reid, said in an email. Asked whether the senator regrets going to bat for the company, she replied, "LOL. Of course not."
Reid has advanced Ormat’s interests in Washington, and the company has supported him financially. Its chairman, Yoram Bronicki, donated the maximum permitted amount to Reid’s 2010 reelection campaign.
The company has also donated to a nonprofit group founded by Reid’s top political operative that employs two of his former aides as lobbyists.
Reid bragged about securing Ormat a $350 million loan guarantee from the Department of Energy (DOE) and took credit for expanding the Treasury program that the former employees say illicitly provided Ormat with millions more in taxpayer funds.
Those employees say in their lawsuit that Ormat retaliated against an employee who attempted to investigate possible illegality and claim that the company threatened to revoke her health insurance while she was undergoing treatment for breast cancer.
The company denies any wrongdoing.
"The Ormat Parties continue to believe that the allegations of the lawsuit have no merit, and will continue to defend themselves vigorously," Ormat said in a filing with the Securities and Exchange Commission last year. The company did not respond to inquiries.
The lawsuit focuses on federal assistance for Ormat by way of Treasury’s section 1603 program, a stimulus-backed grant initiative that provides cash payments in lieu of investment and production tax credits for qualifying renewable energy projects.
Tina Calilung, Ormat’s former asset manager, and Jamie Kell, its former business development administrator, say that the company routinely and knowingly falsified documentation and manipulated balance sheets in order to obtain and keep 1603 financing.
"To date Ormat has received at least $136,791,964.00 in 1603 payments through fraudulent and/or false 1603 grant applications," their lawsuit claims.
"Not only did Ormat wrongfully obtain the 1603 funds, but Ormat continues to file false certifications pertaining to the success, viability and operation of the geothermal projects that received grant funds so as to prevent the funds’ recapture. Ormat additionally continues to make false public statements claiming its use of funds obtained from the Government were appropriate."
The suit seeks damages under the False Claims Act, the federal government’s foremost tool to recoup money wrongly paid to contractors and other private entities.
The Justice Department declined to intervene in the case, though it noted that federal law "allows the relators to maintain the action in the name of the United States." Neither the Justice Department nor the Treasury responded to questions about the case.
The 2009 stimulus package was designed to finance job creation. Accordingly, projects were only eligible for the 1603 program if they went online in 2009 or 2010 (Reid later took credit for inserting language into a 2010 bill that extended the window through 2011).
Ormat obtained nearly $123 million in 1603 grants for its California-based North Brawley geothermal plant, the plaintiffs claim, even though that plant began producing, selling, and delivering electricity in 2008, before the grant application window.
"In order to obtain the 1603 cash grant, Ormat falsely concocted a placed-in-service date for the North Brawley Plant of January 15, 2010. By this date, the North Brawley Plant had already been generating and selling electricity … for over a year."
The Treasury requires projects that shut down within five years of receiving a 1603 grant to return a portion of the funds. In order keep the North Brawley plant running long enough to avoid that recapture, Calilung and Kell say, Ormat poured resources into the project despite knowing that it would never be economical.
The plant’s capital-to-output ratio made it "the most inefficient geothermal power plant presently operating on the planet Earth," they say.
"The North Brawley project as a stand-alone entity was insolvent at the time Ormat … applied for the Treasury cash grant. In the absence of the Government subsidy, the North Brawley Plant project would not have sustained its operations with such massive losses."
Ormat has assured Treasury that the project is financially viable, and even applied for additional 1603 grant funds. But in Israel, the plaintiffs claim, the company has been writing down North Brawley’s value for years.
"Ormat considers the North Brawley project a failed venture, and yet, Ormat has routinely failed to inform the Government of the true value of the project," according to the lawsuit.
The goal, Calilung and Kell say, is to forestall the plant’s financial reckoning long enough to escape the five-year window in which Treasury can recapture some of its 1603 payments. The North Brawley plant received its 1603 funds in November 2010, meaning Treasury can recall some of those funds only if the plant shuts down in the next eight months.
"Once Ormat Technologies is no longer in danger of being required to return the [initial] $108 million cash grant, rather than operating the North Brawley Plant at a loss for 30 years, Ormat will likely shut the plant down," they claim.
Reid has shrugged off questions regarding his backing for Ormat and other Nevada geothermal companies by noting the jobs created by those companies.
Ethics watchdogs question whether Ormat’s donations to the Clean Energy Project (CEP), a group founded and run by former Reid staffers, served as an inducement or a reward for the senator’s legislative support. Ormat is one of a number of CEP donors that have received federal taxpayer backing thanks to Reid’s advocacy.
Far from denying his role in helping CEP donors, Reid’s office brags about securing them taxpayer backing.
The Nevada-based law firm McDonald Carano Wilson, a CEP donor with a partner on the group’s board, is representing Ormat in its 1603 litigation. One of the attorneys working on the company’s behalf, John Frankovich, a managing partner at McDonald Carano Wilson, has donated $4,500 to Reid. In 2011, Reid, then the Senate majority leader, praised Frankovich on the Senate floor, calling him "an outstanding lawyer."
Ormat’s DOE award came a year after investors sued the company for allegedly inflating its stock price through "fraudulent accounting and overstated financial results." Ormat settled the allegations in 2012 for $3.1 million.
Asked about that case and the ongoing litigation regarding the company’s 1603 grants, Orthman touted the senator’s efforts "to ensure tax incentives for clean energy include the geothermal sector."
Ormat has "created jobs across many counties in the state" and has helped "create Nevada’s new energy economy," Orthman said of the company.
"When the right-wing activists who work at and back your ‘news’ organization are willing to stretch this far, it may be time to seek greener pastures (pun intended)," she added.
Instead of funding construction or operation activities that would create additional employment, Nevada Geothermal used its loan guarantee to refinance an existing line of credit, leading congressional investigators to suggest that the loan guarantee violated DOE guidelines.
Reid pushed to extend the 1603 program in 2010 to make it available to projects initiated the following year. "Senator Reid personally inserted the additional funding for this grant program," his office boasted when the language made it into a tax deal at the end of the year.
Ormat took advantage of that extension by applying for 1603 funds for its Puna geothermal plant in Hawaii. Like North Brawley’s 1603 application, Calilung and Kell say, the company’s request for grant funds for Puna "purposefully excluded relevant material information and included material false information."
The plaintiffs say Kell that confronted Cathy Tsaniff, a tax manager at Ormat, about the issue. Tsaniff was in charge of drafting Ormat’s application for 1603 grant funds for the Puna project.
According to the lawsuit, Tsaniff "acknowledged that she knew the information was incorrect and admitted that she was aware of the legal implications of submitting a false 1603 application, but told Ms. Kell that Ormat Technologies’s CEO, Dita Bronicki, had made the changes herself and, accordingly, Ms. Tsaniff feared retaliation if she were to raise the issue."
Later that year, days before she signed a severance agreement with Ormat, Kell filed a Freedom of Information Act request with Treasury for the company’s Puna grant application.
As part of the severance agreement, Ormat continued to provide to provide Kell with health insurance. However, after it got wind of the FOIA request, she and Calilung says that it threatened to revoke that insurance—even as Kell was undergoing treatment for breast cancer—unless she withdrew the request.
"Because Ms. Kell was being treated for cancer (and therefore required health insurance), she had no choice but to rescind her FOIA request on November 20, 2012," the complaint says.
The Puna project eventually received a $13 million grant through the 1603 program. Ormat lobbyist Paul Thomsen insisted later that year that the company "never took a dime from the federal government" for the Puna plant.
Congressional investigators have questioned whether Reid’s ties to the company helped it secure federal financial support.
"When only 7 percent of [DOE loan guarantee] applicants actually get the prize, you have to wonder, as an average American sitting in my home, sitting in my business, how did these guys get there and all the rest didn't?" said Rep. Mike Kelly (R., Penn.) at a 2012 hearing of the Oversight and Government Reform Committee.
"There is a way to navigate the waters. There is a way to be successful, and the idea is you better be tied in to somebody who is influential," Kelly said.
That hearing came in the wake of an Oversight Committee report that noted the risky credit ratings of a number of DOE loan guarantee recipients.
When Ormat landed its loan guarantee, it had a BB rating from Fitch, which the agency says denotes "elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions."
"The strong ties between the company and the Senate Majority leader raise questions about whether the DOE acted in the best interests of the American people when it approved the loan guarantee," the committee wrote.
Ormat is currently asking a federal judge to dismiss the suit on procedural grounds, but "it appears likely that the complaint will survive the motion to dismiss," according to a summary of the case by David Burton, a partner at Akin Gump, a DC law firm.