Thoughts on Solar by Run on Sun's Founder & CEO, Jim Jenal

SECOND UPDATE - Over at PVTech, Felicity Carus has written about the Sunrun lawsuit and quoted Run on Sun Founder & CEO, Jim Jenal at length.  Here’s a link to her article: Solar lease companies face criticism over calclulating energy savings.

UPDATE - The lawsuit against Sunrun was covered in the March 1, 2013 issue of California Energy Markets (an independent news service from Energy Newsdata) and Run on Sun Founder & CEO, Jim Jenal, is quoted at length.  The article, titled Lawsuit Charges Sunrun with Deceptive Marketing, begins on page 8 of the attached pdf and Jenal’s remarks begin on page 9.

Solar leasing giant Sunrun now finds itself the target of a statewide, class-action lawsuit, alleging that its business practices in marketing residential solar leases are false and deceptive. But just because a lease is a bad deal for the consumer doesn’t make Sunrun’s marketing actionable or a lawsuit justified.  Here’s our take.

Readers of this blog will know that we are far from fans of residential solar leases.  In our view, those leases are a boon to finance companies but not such a great deal for homeowners.  By luring potential customers with the enticing prospect of getting something for nothing, residential solar leases have become the driving force in the residential market - even though the customer would be far better off financially if they purchased the system and collected the rebate and tax credit for themselves.

But the lawsuit against Sunrun does not allege that the Plaintiff, Shawn Reed, got a bad deal from the company.  Instead, the Complaint claims that:

The central premise of SunRun’s [sic - misspelled throughout the Complaint] uniform marketing campaign is that increases in electricity prices will result in cost savings by installing the SunRun Solar system.  But SunRun deceptively states with certainty something that is inherently unknowable.  Those whose electricity prices are not as high as estimated by SunRun are already experiencing the cost disadvantage of the SunRun system.  Others whose electricity prices will not rise as high as estimated by SunRun will experience the cost disadvantage in the future.  But whether the cost disadvantage is experienced or not, the promise of a system sure to result in cost advantage was false when made and likely to deceive consumers into leasing a system they otherwise would not have.

Complaint, ¶ 3 (emphasis added).

To be sure, there are other allegations in the Complaint, including the claim that Sunrun acted as a contractor without a contractor’s license and that Sunrun’s contracts are less than clear about whether a customer can terminate their contract when they move without penalty.  However, for our purposes we are only going to focus on the allegations about Sunrun’s “central premise” in their “uniform marketing campaign.”

Knowing the Unknowable

The gist of Reed’s claim is that Sunrun told him that his system would save him money - “tens of thousands of dollars” according to the Complaint - based on a prediction as to what future energy prices would do, namely rise.  Sunrun claims, according to the Complaint, that “Nationwide, electricity rates have been increasing 6% per year over the last thirty years,” but this, according to the Complaint, is itself deceptive, citing data from the California Public Utilities Commission showing the increase from 1982 to 2010 was only “3.25% annually.”

Leaving aside the nit of California data (cited by Plaintiff) versus national (allegedly cited by Sunrun), the larger question arises: what is a fair basis for predicting future costs of electricity?  After all, this is an issue that affects far more than solar leasing companies.  Every seller that markets a good or service designed to reduce your usage of grid energy - whether by generation or efficiency - makes assumptions about future energy costs as a basis for predicting your return on investment.  There simply is no other way to do the calculation. Are all of these folks engaged in “deceptive” marketing tactics?  As long as the assumptions are disclosed - and without seeing the contract at issue we cannot say whether they were or not - it is hard to see how even an erroneous prediction could be deceptive.

Moreover, anyone who has looked at a graph of the cost of energy in California over the past fifteen years knows that it more closely resembles a roller-coaster ride than anything consistent - what with a trader-generated energy “crisis” followed by the greatest recession in living memory.  With that much noise in the system, what is a “fair” prediction?

We know for a fact that SCE just secured a three-year, 17.2% rate increase from the CPUC.  That works out to 5.7% per year - pretty close to the allegedly “deceptive” prediction of 6% cited in the Complaint.  As California’s cap-and-trade law begins to be felt, it is expected that there will be more upward pressure on energy prices, yielding even greater cost increases in the future.  Add-in an economy recovering from recession and suddenly a prediction of 6% annual increases doesn’t seem to be particularly unlikely, let alone deceptive.

A Better Approach

Of course, asking a potentially unsophisticated consumer - no offense intended to Mr. Reed - to push back on the assumptions made in any ROI calculation may be asking too much.  But is a lawsuit really the best way to address this problem?  Litigation is a painful process which rarely provides societal benefits, and class-action lawsuits are often the worst of the worst with no one really benefiting - except, of course, the lawyers.

A better approach would be to see some appropriate legislation passed that would standardize the disclosures provided to potential clients by all solar companies.

There are plenty of examples that could serve as a model.  Think of shopping for a major appliance - when you go to compare two different refrigerators, you will see a prominent label that reveals how much energy each one will consume in a year and how that usage compares relative to other, similar units.  You will also see an estimated cost to run that unit for a year - with all of the assumptions set out on the label so that a GE product uses the same assumptions as one made by LG.

The time is ripe to devise a system by which any seller of solar power systems in California would have to provide standardized, regulated disclosures.

You could make it more palatable to solar companies by providing a “safe harbor” against deceptive business practice lawsuits like the one facing Sunrun - as long as the solar company provides the necessary information in a standardized manner, they would be deemed to have satisfied their disclosure requirements to the potential client.  (They could always add more information as long as it didn’t obscure the meaning of the required disclosures.)

This would also be a boon to consumers since a properly designed set of disclosures would allow competing proposals to be judged as apples against apples - something that is almost impossible to do now.

So what should those disclosures include?  Here is our (non-exhaustive) list:

• Disclosure of all major system components (modules, inverters(s) and racking) including manufacturer, model, country of origin, price and warranty.
• Disclosure of total system cost, including the total added cost of any financing being provided.
• Disclosure of all assumptions included in any cost-savings projections.  For the controversial energy cost increase factor, the CPUC should provide annually updated figures based on historical data and any approved rate increases scheduled to go into effect.
• Disclosure of the actual cost of energy produced based on total lifetime cost (including component replacements not covered under warranty and other required maintenance) divided by total energy to be produced (accounting for a system performance decline factor based on the module manufacturer’s performance warranty) over the projected 25-year system lifetime.

Such a law would work no hardship on reputable solar companies as we are already providing that information to our clients.  But putting it in a standardized format would move the solar industry forward and help avoid pointless litigation like that now facing Sunrun.  As responsible members of the solar industry, it is up to us to make this happen.