SolarCity becomes focus of US Treasury investigation


In an initial public offering (IPO) filing last week, San Mateo, California-based SolarCity may have gone more public than originally intended. In Form S-1 documents submitted to the U.S. Securities and Exchange Commission, the six-year-old company revealed that it had been subpoenaed in July 2012 – along with "a significant [number of other] participants in the rooftop solar energy installation industry" – to deliver documents to the Office of the Inspector General of the U.S. Department of Treasury, which is investigating the companies’ participation in the Section 1603 grant program.

The names of the other solar companies have not been divulged and are not likely to be, according to Rich Delmar, counsel to the Inspector General at the U.S. Department of the Treasury.

Delmar told pv magazine in an exclusive interview, "We have done a number of audits on the application process and have looked at recipients of money. Since SolarCity has disclosed that our office issued subpoenas, the news [about them] is out there." But, he said, the Inspector General’s office does not discuss details of pending investigations and audits.

Regarding its involvement, SolarCity said, "Our subpoena requested, among other things, documents dated … since January 1, 2007 that relate to our applications for U.S. Treasury grants, or communications with certain other solar development companies or certain firms that appraise solar energy property for U.S. Treasury grant application purposes."

The company went on to explain, "The Inspector General is working with the Civil Division of the U.S. Department of Justice to investigate the administration and implementation of the U.S. Treasury grant program, including possible misrepresentations concerning the fair market value of the solar power systems submitted for grant under that program made in grant applications by companies in the solar industry, including us."

Making a case

Congress created the Section 1603 grant program as part of the American Recovery and Reinvestment Act of 2009. The program, administered by the U.S. Department of the Treasury, provides cash grant incentives for renewable energy projects in lieu of tax credits, to reimburse eligible applicants for 30% of the cost of installing energy property used in a trade or business or for the production of income. A 1603 payment is made after the energy property is placed in service; a 1603 payment is not made prior to or during construction of the energy property.

All applicants must submit documentation demonstrating that:

  • The property is eligible;
  • The property has been placed in service; and
  • The amount requested is accurate.

To show eligibility, design plans stamped by a licensed professional engineer are required for all properties. To establish that a property has been placed in service, a commissioning report is required. For properties interconnected with a utility, an interconnection agreement must be provided. To establish that the amount requested is accurate, a detailed breakdown of all costs included in the cost basis is required.

It is likely that most of this paperwork has been requested by the Inspector General’s office. If any impropriety were discovered, the office would have latitude to take disciplinary steps.

When asked what the steps would be if costs for a project were found to be ineligible for a grant at this point, Delmar commented, "In such a case, we could – theoretically – make a recommendation that the department should recoup the funding."

Take back

SolarCity has stated, "We are not aware of … any specific allegations of misconduct or misrepresentation by us or our officers, directors or employees, and no such assertions have been made by the Inspector General or the Department of Justice. However, if at the conclusion of the investigation the Inspector General concludes that misrepresentations were made, the Department of Justice could decide to bring a civil action to recover amounts it believes were improperly paid to us.

"If it were successful in asserting this action, we could then be required to pay damages and penalties for any funds received based on such misrepresentations (which, in turn, could require us to make indemnity payments to certain of our fund investors)."

According to Delmar, there is no way to know how long an investigation will take, but such an inquiry could go on for some months. For its part, SolarCity has said that it plans to fully cooperate.

As of July 2012, the 1603 program had awarded a total of nearly $2.8 billion to more than 44,000 solar projects, representing about 3.3 GW of solar capacity. To be eligible to receive 1603 grants, project construction must have begun in 2009, 2010 or 2011.

Edited by Becky Beetz.

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