How much will I save each month by putting solar panels on my roof? What’s the payback period for my system? How long is my lease?
These are questions even the greenest consumers are likely to ask, and they are at the core of new efforts to enhance consumer protections in the solar industry.
The industry has been grappling with the issue since last year, when a group of lawmakers from Texas and Arizona sent letters to the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) claiming that solar leasing companies may be engaged in deceptive sales tactics that merit federal investigation.
“As a very new industry with a limited track record and little regulator oversight, the solar leasing market may pose a considerable risk to the increasingly large numbers of American consumers that commit to the leasing product (not to mention the American taxpayer, who heavily subsidizes each rooftop solar project),” reads one of the letters.
The letters claim that multiple customers have signed zero-down solar leases without fully understanding the terms of their 20- to 30-year lease commitment, and are now having trouble selling their homes. They also reference class-action lawsuits brought against solar companies in California and Louisiana.
The solar industry has called foul.
These allegations completely overlook the steps the industry has already taken to self-regulate, according to Chet McGensy, regulatory counsel at SolarCity, the nation’s leading residential solar installer. And where customers have had bad experiences, relevant government agencies have stepped in and taken action under existing laws and regulations.
Many believe the allegations are disingenuous, stemming from a deceptive utility-led effort to stymie third-party solar companies, whose exponential growth threatens the long-term business model of traditional utilities.
According to the Arizona Center for Investigative Reporting, one of the letters filed by several lawmakers with both the FTC and the CFPB was originally authored by an employee of Arizona Public Service, the state’s largest utility and a prominent election campaign donor.
“Why are we talking about consumer protection? Because utilities are pushing this issue,” said McGensy. “It’s part of the larger campaign they’re waging to attack the credibility of the solar industry.”
The launch of national guidelines
Since the letters were sent, solar industry leaders have been in discussions with the FTC and the CFPB, which recently led to the first set of national guidelines addressing interactions between solar companies and consumers.
The Solar Energy Industries Association (SEIA) released the Solar Business Code last week at the industry’s largest trade show. The code covers several aspects of the standard solar transaction, including guidance on system production calculations, consumer privacy, terms of solar contracts, and compliance with existing laws.
All SEIA members are expected to abide by the code immediately, according to Nicholas Mack, general counsel for Clean Power Finance and a member of SEIA’s Consumer Protection Committee. At the same time, the committee is moving forward on rigorous enforcement mechanisms for the rules, which should be in place by the new year.
These new measures are part of an ongoing debate around consumer protection in the solar industry.
On the one hand, solar companies say it should be sufficient for them to self-regulate, because consumer protection is in their best interest -- they rely on good customer reviews and stable project portfolios to attract investors. SolarCity points to its A+ rating by the Better Business Bureau as proof of a strong track record.
On the other hand, critics say additional regulation is needed to prevent solar companies from making false claims in their marketing pitches, which put consumers at financial risk.
New rules in Arizona
Arizona, the home of ongoing battles between utilities and solar companies, has been at the center of the consumer protection controversy this year.
Last December, shortly after lawmakers contacted the federal agencies, the Arizona Corporation Commission voted to open its own docket to address consumer complaints about solar companies. The investigation uncovered very few grievances, however. A total of nine complaints have been filed to date.
In February, Arizona State Sen. Debbie Lesko took action and filed legislation (SB 1465) to impose new rules on the solar industry. Lesko said that she and another legislator have received nearly 50 letters and dozens of phone calls this year from consumers who have complaints about their solar leases. The bill passed in July, and will come into effect on January 1, 2016.
The law requires solar companies to disclose the total cost of the solar array over the lifetime of the contract, which could be 20 years or more. It requires companies to identify all tax incentives and subsidies associated with the agreement. It also allows consumers to rescind the sale or lease within three days of signing a contract, among other things.
“No solar installer should be opposed to this bill or to consumer protection,” said Donald Brandt, chairman and CEO of Pinnacle West Capital Corp., the parent company of APS, in a statement. “We suspect the issue for some rooftop leasing companies is to avoid scrutiny of their leasing model and the complexity of these consumer leases.”
Solar industry groups say the legislation is redundant, and that it’s solely intended to defame installers and create red tape that makes it harder for solar companies to do business.
"There isn't an industry-wide problem"
The solar sector is already governed by several existing laws, Mack explained. Leases are governed by the FTC’s Regulation M for all consumer leasing; loans are covered by Regulation Z, the Truth in Lending Act. Power-purchase agreements fall under similar regulations and concepts, as well as unfair and deceptive practices acts and laws. There are also rules that apply to manufacturing, construction and technology.
Requiring solar companies to file additional paperwork increases administrative costs, or soft costs, which continue to remain high even as technology costs fall. The problem can worsen over time, as new laws in one area can come info conflict with existing laws in another area, such as conflicts between state and federal levels.
The legislatures in Nevada, Louisiana, Indiana and Washington state considered solar consumer protection bills this year, but none of the measures passed.
The introduction of these bills is further proof that special interest groups are working against the solar industry, according to McGensy. Not only did consumer protection legislation crop up without any prior engagement with the solar industry, but the language in these bills mirrored the legislation introduced in Arizona, he said. He singled out Nevada bill AB 330 for its similarity to Arizona’s SB 1465.
“Like any industry, there are a couple of bad actors,” said McGensy. “But when we’re talking about creating legislation…it really has to be an industry-wide issue, and our position is that there isn’t an industry-wide problem.”
Cracking down on bad actors
As part of the legislative proceeding in Arizona, Sen. Lesko asked Attorney General Mark Brnovich’s Office to share all of the solar-related complaints they had received. According to spokesperson Ryan Anderson, the office found roughly 600 viable complaints filed since 2009.
The attorney general is prohibited from sharing the details of those complaints, but Anderson pointed out that the office’s actions to date based on those complaints have all been related to what he described as “smaller actors and fly-by-night companies that come into the market and attempt…to capitalize on the popularity of solar in the state.”
In 2014, the attorney general filed a consumer fraud lawsuit against Stealth Solar for illegal sales and marketing practices, which resulted in more than $110,000 in penalties. Brnovich also filed recent lawsuits against Going Green, the similarly-named Go Green, and Epcon Solar, all of which now face steep charges.
In one of the most high-profile solar crackdowns, Michael Allen Fricker, a principal at Phoenix-based Salt River & Wind, was indicted on multiple felony charges in January 2014 for a solar rebate scam. This spring, a judge sentenced Fricker to five years in jail and voided hundreds of solar leases. Affected consumers are now eligible for restitution.
This series of legal actions is evidence that the existing laws and regulations are working to catch bad actors, said SolarCity’s McGensy. “The attorney general identified those individuals, took action against those companies, and they no longer exist today,” he said.
The Arizona attorney general has yet to take action against any of the top national solar installers. “The major companies, for the most part, are professional companies,” said Anderson. “They certainly have a larger share of the marketplace and processes and standards in place.”
That doesn’t mean the attorney general’s office doesn’t receive complaints about SolarCity and others, he added. But so far, the issues have not been egregious.
With respect to the Arizona consumer protection bill, Brnovich chose not to testify after submitting the 600 complaints to Lesko’s office. But that doesn’t mean the attorney general is against the policy objective, said Anderson
“From a consumer-protection point of view, which is what our office is focused on, disclosure is never a bad thing,” said Anderson. “Our office is focused on going after the bad guys and helping victims, and we will continue to do that. Whether or not this legislation will give us more tools or examples of complaints our office could act on remains to be seen.”
As any industry grows, companies are naturally bound to receive more complaints. In the solar industry’s case, there’s a concern that special-interest groups are trying to drum up more targeted opposition while the issue of consumer protection is at the fore.
Adding another layer to the story, SolarCity customers in Arizona have complained that representatives of the Taxpayer Protection Alliance have been traveling door-to-door asking consumers if they have any complaints to report with their solar system or if they were made false promises. Customers are left with a form that reads: “Many Arizonans experience unforeseen problems when it comes to solar. This includes safety risks in times of an emergency, or higher rates when it comes to monthly fees.”
“This just seemed odd,” one SolarCity customer wrote in an email.
“This raises a red flag that [special-interest groups] are actively seeking negative feedback,” said McGensy.
The Taxpayer Protection Alliance (TPA) is a conservative Washington, D.C.-based nonprofit with ties to the fossil-fuel industry. TPA did not respond to a request for comment, but the group’s recent work shows that it’s highly critical of the solar industry. The group released a report in July that concluded “handouts at the federal and state level are creating a solar bubble that taxpayers are propping up, and it will be the taxpayers and investors who take the hit when the industry comes crashing down.”
Vice President Joe Biden criticized groups with ties to the fossil-fuel industry last week for opposing growth in the solar sector.
In March, the Arizona Capitol Times reported on a link between TPA and a former APS consultant, but any direct ties could not be substantiated. APS spokesperson Jim McDonald told the Capitol Times that the utility does not discuss affiliations with or donations to 501(c)(4) organizations. In addition, APS does not provide information on solar customers to TPA or anyone else.
“This particular approach strikes us as a poor way to engage customers,” APS said in a statement regarding the door-to-door campaign. “At the same time, there is no question that customers should be well-informed before entering into any long-term financial agreement, and we support the spirit of efforts to bring that about.”
The education piece
The solar industry was required to disclose the total costs and payments over the lifetime of a rooftop solar system prior to any legislation passed in Arizona, said McGensy.
Solar companies guarantee customers a certain rate for solar electricity over the lifetime of their contract, such as 15 cents per kilowatt-hour versus their historical payments of 20 cents per kilowatt-hour. On average, this results in $10 to $15 reduction in a customer’s monthly energy bill.
Guaranteeing savings for solar customers is tricky, McGensy admitted. That’s because consumer energy use varies, and in some cases, customers experience the “solar effect,” where consumers start using more electricity after going solar, which ultimately erodes their savings.
“You are getting the same savings we told you you were going to get, but you’re using more electricity, so your bill is going to go up,” McGensy said. “So part of it is an education piece, and not really a customer fraud issue or customers not getting what they bargained for.”
Multiple stakeholders have already taken action to that end. APS has published a guidebook for consumers who want to go solar. The FTC, SEIA and the Solar Energy Finance Association (SEFA) have also released consumer guidance documents. In 2013, stakeholders developed transparent standardized contracts in collaboration with the National Renewable Energy Laboratory that are used by many of the major solar players.
Today, the solar industry continues to engage with the FTC and CFPB as SEIA’s Consumer Protection Committee shifts its focus to creating enforcement mechanisms. If serious transgressions emerge as the solar industry continues to grow, oversight groups could decide to take further action.
“Indications we got from those agency discussions are that they’re aware the solar industry exists, but that they currently don’t view it as a problematic industry,” said Mack. “They welcomed us taking self-regulation seriously, and they’re looking forward to seeing how we create a self-regulation framework.”