SEC Probes SolarCity For Allegedly Hiding Records About Customer Cancellations

Chris White | Energy Reporter

Federal officials are investigating SolarCity for allegedly hiding information about the number of customers who nixed solar panel contracts, sources told The Wall Street Journal.

The Securities and Exchange Commission (SEC) is probing whether solar panel provider SolarCity has done enough to disclose to investors the number of customers who canceled contracts for solar energy systems, the report said Wednesday. California-based Sunrun is also being investigated.

SolarCity has sought to tamp down concerns that might prop up as a result of the investigation. The company “has remained focused on reporting the quality of our installed assets, not pre-install cancellation rates,” a spokeswoman told reporters. “Our growth projections have always been based on actual deployments.”

SEC’s investigation places the company squarely in the hairs of the financial regulators who have grown increasingly concerned about SolarCity’s bizarre business model.

The solar panel provider, which leases its panels to customers, has reached long-term lease agreements with homeowners before they defaulted on the mortgages, according to a report from The New York Times in February. There could be even more default cases, the report notes.

Mohammed Ahmed Gangat, a lawyer for the beleaguered company, argued in September 2016 that the company needed to file a document late to a New York court because it had been “inundated” with thousands of lawsuits across the country, all of which named SolarCity as a defendant in foreclosure actions.

Investors typically use the number of cancellations to gauge the companies’ financial well-being. Solar panel providers give customers several days to back out of a deal once the contract has been signed.

Large public and private solar companies have seen tremendous grown during the past several years – the once bedraggled industry generates electricity for more than 1.5 million homes nationwide.

An increasing number of state regulations and competition from the likes of natural gas providers have eaten into the industry’s fortunes. SolarCity lost nearly half of its customers in early 2016, the sources told WSJ.

SolarCity salespeople knock on doors, make hundreds of cold calls and follow people at retailers like Home Depot to drum up business for the stumbling solar company, according to salespeople, executives and homeowners. Sunrun and others rely on similar tactics.

Hundreds of solar panel customers have complained to attorneys general in Texas, Oregon, California and Florida that their utility bills have increased, not decreased as promised, according to Freedom of Information Act requests filed by watchdog group Campaign for Accountability.

Customers also complained solar panel companies threatened to sue them if they didn’t proceed with solar panel purchases. Still others say representatives threatened so-called mechanic’s lien on their homes — a measure used to force a homeowner to pay for a home-improvement project.

“We strongly encourage our sales team to pursue only customers who are truly interested in moving forward, and they earn commissions only on systems that are actually installed,” SolarCity said earlier this month in a statement addressing the complaints.

Electric vehicle maker Tesla brokered a merger with SolarCity last year. The move was widely considered a boon for the solar company and a bane for the car company – tech entrepreneur Elon Musk chairs both companies.

SolarCity spent nearly $800 million on operating expenses in 2015, The Wall Street Journal reported Monday, essentially dwarfing its total revenue by more than half. The solar panel maker is an albatross on shareholders’ necks: It currently has more than $3 billion in long-term debt on its books; and its expenses hit $265 million by June.

Tesla said earlier this month that it would stop making door-to-door solicitations. The electric automaker believes the change reflects “what most of our prospective customers prefer, and will result in a better experience for them.”

SEC’s probe will not help Musk’s auto company. Analysts believe the solar company is already dragging down Tesla’s financial situation.

The company has done good work, but “our concerns are more near-term oriented with respect to operational execution on the Model 3 launch, an unproven solar business, and cash needs,” David Tamberrino, an analyst with Goldman Sachs, wrote in a memo in February.

Tamberrino was also worried the company would have to sell stock to raise $1.7 billion to make room for a possible loss if the Model 3 doesn’t make the grade. The financial institution ultimately downgraded the company from “neutral” to “sell.”

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Tags : elon musk energy securities and exchange commission solarcity tesla
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