SolarCity’s Bizarro Suit Proceeds in Federal Court

by William Yeatman on December 2, 2015

in Blog

Early in 2015, SolarCity, a solar panel merchant, filed a whopper of a complaint in federal court alleging that it had suffered antitrust violations at the hands of the Salt River Project, an Arizona electricity provider. SolarCity’s complaint is rich in Alanis Morissettean irony, given that the company’s business plan, like that of all solar power retailers, is based primarily on political favoritism. Were it not for government tilting the market in their favor at the expense of conventional energy sources, SolarCity and its ilk would not exist. The company, as such, is a function of anti-competitive behavior. In this cosmic context, SolarCity’s antitrust lawsuit is like myriad spoons when you only need a knife.

Consider the case at hand. Thanks to a federal statute, the 2005 Energy Policy Act, public utilities akin to the Salt River Project are required to offer incentives, known as “net-metering,” for producers of electricity from rooftop solar panels. As I explain here, net-metering usually entails the overpayment to owners of rooftop solar panels for their electricity in a manner that redistributes wealth from those that don’t own solar panels, to those who do. In response to this legislative command to coddle an industry favored by Congress, the Salt River Project instituted a net-metering program that was very generous. And SolarCity took advantage of this generosity to grow its market share.

However, SRP’s net-metering ratepayer subsidies were too generous, such that they threatened to lead to the under capitalization of grid infrastructure. In practice, SolarCity and its customers benefited financially from the grid without having to invest commensurately in the grid. Thus, these beneficiaries were getting a “free ride.” Taken to its logical end, if all SRP ratepayers installed rooftop solar panels and thereby enjoyed the terms of the old deal, then there would be no capital to maintain the grid, and it would fall apart. So…SRP’s incentive structure for promoting solar power resulted in both a threat to electric reliability and also a regressive wealth transfer from poorer homes that cannot afford solar panels to richer homes that can. Due to these obvious and growing problems, the utility in early 2015 changed its rate structure to one that was less generous to SolarCity, but which was more in line with the pursuit of a stable grid and ratepayer equity.

The new rate went into effect in February; the company filed its complaint the following month. I’ve reviewed the briefs, and I’m miffed by the solar panel purveyor’s legal logic.

If less favorable treatment from price regulators is an antitrust violation, then wouldn’t SolarCity’s competitors (coal, natural gas, and nuclear power producers) also have a case against SRP for previously having tilting the playing field so dramatically in the favor of solar? And wouldn’t that be ridiculous? Also, as I said above, it’s nonsensical for SolarCity, whose existence is a function of market manipulation by public officials, to claim that public officials are violating antitrust statutes merely by manipulating the market to a relatively lesser extent on behalf of SolarCity.

SRP responded by filing a motion to dismiss for failure to state a claim, which basically asks the court to end the litigation at the outset because the plaintiff’s case is so weak. (To be precise, a motion to dismiss for failure to state a claim asks the court to throw out the case because the plaintiff is unable to demonstrate a violation of the law, even assuming that all of his alleged facts are true.) In order to survive such a motion, a plaintiff’s allegations need only to be reasonably plausible. This is a very low bar, but it is one I nonetheless believed SolarCity would be incapable of clearing, given the core silliness of the solar panel purveyor’s allegations.

Alas, I was mistaken. In an order dated October 27th, U.S. District Court for the District Court of Arizona Judge Douglas Rayes permitted most of SolarCity’s charges to proceed. The case will go on. While I personally am confident that SolarCity’s allegations have no merits, the burden of litigation is great, and outcomes are uncertain. From what I can tell, federal statutory damages are out, but equitable remedies (e.g., a court order requiring that SRP revert to the old, Solar-City-friendly rate) remain on the table. The state claims also remain. The operative question is whether SRP engaged in anti-competitive conduct harmful to SolarCity. Put differently, the question is whether SRP’s rate change was motivated by business acumen (which would be legal), or a desire to destroy SolarCity’s market share (which would be illegal). As I explain above in this post, I think this question (and this case) are absurd.

N.B. I should note that I generally disagree with entire concept of setting electric rates by a centralized entity. For my thoughts on a better way than grid socialism, see this post.

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