Federal Authorities To Scrutinize SolarCity Corp (SCTY)’s Books

Federal Authorities To Scrutinize SolarCity Corp (SCTY)’s Books
By BrokenSphere (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons

SolarCity Corp (NASDAQ:SCTY) has come under the scrutiny of federal investigators as it seeks another $14.6 million in federal assistance. Authorities will spend the next eight months analyzing the books of two SolarCity subsidiaries to figure out whether they overvalued sales contracts to claim millions more in federal tax incentives.

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SolarCity received $244 million in federal assistance

The federal action comes after SolarCity Corp (NASDAQ:SCTY)’s two subsidiaries, Sequoia Pacific Solar and Eiger Lease Co., filed a lawsuit. Notably, the San Mateo-based company has already received about $244 million in federal assistance. In their lawsuit, the SolarCity units claimed that the Feds shortchanged them $14.6 million.

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Both sides will scrutinize each others’ evidence. Federal investigators will review SolarCity Corp (NASDAQ:SCTY)’s 4,204 grant applications, reports Tori Richards of the California Watchdog. SolarCity is already being investigated by the IRS and U.S. Treasury over the same thing: did the company inflated the cost of products to cash in on the federal grant program? Last month, a California judge said both sides have until December to complete the discovery process.

The outcome will have a huge impact on SolarCity Corp (NASDAQ:SCTY) and other solar energy companies that benefit from the Treasury’s 1603 program. The two subsidiaries of the Elon Musk-backed company said that the Treasury doesn’t have expertise in making cost basis determinations. They also accuse the government of improperly changing rules. Under the 1603 program, owners of solar and other renewable energy projects receive a cash grant equal to 30% of their investments. Since SolarCity retains ownership of the systems it leases to homeowners, businesses and other clients, it enjoys the investment tax credit.

SolarCity accused of issuing false SEC filings and media releases

The Treasury Department and the IRS investigations began in late 2013 after a Barron’s expose on inflated contract values. Moreover, a class-action lawsuit filed March 28 has accused SolarCity Corp (NASDAQ:SCTY) and two of its executives of issuing false media releases and SEC filings. It misled shareholders into believing that the company was in a lot better financial shape than it actually was. At the heart of the complaint was the company’s decision to delay earnings due to accounting errors.

SolarCity Corp (NASDAQ:SCTY) shares plummeted 8.41% to $54.11 at 1:50 PM EDT.

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  1. Are solar leases and PPAs a ripoff ? You decide.

    First of all, the homeowner has to forfeit the opportunity to collect the 30% federal tax credit worth about $10,000 on a 6 kW solar system at the leasing company’s much higher pricing. The homeowner also gives up any cash rebate or other incentives……So much for free !

    A $0 down solar lease will typically cost the consumer up to 3 times more than the price to purchase a system. Don’t believe it? Well it’s simple math. Add up the 20 years worth of lease payment on a typical 4.7kW leased system and you’ll find that the system will cost you about $28,080. Purchase the same 4.7kW system and apply the 30% federal tax credit and that same system will cost you about $9,642.

    So $28,080 to lease (rent) or $9,642 to own. So who’s really paying for the repairs, insurance and monitoring on the leased system? Well, I’ll give you a clue; it’s not the leasing company.

    And good luck ever selling your home with a solar lease attached to it. What potential homebuyer will want to assume your lease payments on that used solar system, when they can buy a brand new solar system and keep all of the financial incentives for tens of thousands of dollars less than your remaining lease payments.

    And if you need $0 down financing, a much smarter way to go is with a $0 down FHA solar loan with tax deductible interest. (A solar lease or PPA does not offer tax deductible interest). Or how about a $0 down, low interest LightStream loan that requires no collateral whatsoever.

    Or how about one of those $0 down PACE financing programs with tax deductible interest, that are starting to sweep the nation, that allows the homeowner to make re-payments through their property tax bill.

    All three of these forms of financing require no money out of pocket and you get to keep the 30% federal tax credit and any applicable cash rebate instead of giving them away to the leasing company. And the best part is that you’ll own your solar system for a much, much better return on investment.

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