July 4, 2016

Tesla’s Solar City Acquisition Could Mean More Aggressive Net Metering Battle

By: Marc Z. Goldgrub, Cleantech Law Partners

            On Tuesday, June 21st, electric car company Tesla Motors announced its offer to buy solar power company Solar City. Tesla chief executive, Solar City chairman and “real life Iron Man” Elon Musk claims the deal makes perfect sense. Market analysts, however, saw the move as Musk hurting Tesla to save a struggling Solar City and reacted unfavorably, resulting in a significant Tesla share value drop. Less publicly, utility companies were likely also upset by the news: in the battle over net metering, going up against the company with the best customer service reputation and brand loyalty outside of Apple will be very public and very difficult.

On December 22nd last year, Nevada’s Public Utility Commission decided to triple solar customers’ fixed charges over the next four years, while at the same time reducing by three-quarters their net metering credit, by which customers get paid for excess power sold back to the grid. The decision effectively gutted the cost benefits of current home solar options in Nevada, leading three of the largest solar companies in the United States - Solar City, Vivint and Sunrun - to cease operations in the state. The Commission defended the decision as simply imposing the fair costs of solar customers’ use of the Berkshire-Hathaway-owned Nevada Energy grid. Many, however - including angry solar customers who filed a class action lawsuit against Nevada Energy - believe the state and utility company conspired to squeeze out more innovative competition on bogus grounds.

Solar City shares have since tumbled from a 52-week high of $61 to their recent home in the lows $20s. The Nevada decision not only shut down the company’s immediate prospects in the state, it also served as a bitter example of the uncertainty surrounding the political future of net metering in other states, and by proxy, solar’s financial viability in the U.S.

As the Nevada decision demonstrated, traditional utility companies wield considerable political power and will not give up entrenched positions without a fight. A fight, however, against companies like Solar City, with little popular name recognition, is a lot easier than against a behemoth like Tesla.

Tesla is already no stranger to corporate lobbying wars. In a number of states, auto dealerships successfully lobbied to block Tesla from selling its cars directly to consumers. In some though of states though, like New Jersey, Maryland, and Georgia, Tesla managed to reverse ban laws by its own lobbying efforts. Even the Federal Trade Commission was won over.

Tesla also chimed in on the Nevada net metering debate last year, sending a letter to Nevada’s Public Utility Commission arguing against the merits its decision. In that conflict, Tesla was a bit player, concerned about the decision because of its connection to Solar City and the implications it could indirectly have on Tesla Powerwall battery sales. If the Tesla-Solar City acquisition deal goes through though, the net metering debate will effectively turn into the utilities vs. Tesla. The utilities will also be going up against the thousands of Tesla loyalists just as ready to protest on behalf of the company as camp overnight to get an early order in for its latest car. Politicians will then have to decide whose side they want to be on: the side of the companies that shuffle customers through bureaucratic hell over a contested electric bill, or the company trying to sell them cool electric cars powered by the sun.

Disclosure: Marc Z. Goldgrub owns shares of Tesla and Solar City.

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