Arizona Court Ruling Opens New Front In Rooftop Solar War With Utilities

Elon Musk, developer of PayPal, Tesla Motors and SpaceX, prides himself in disrupting business models of market incumbents.1 With his investment in SolarCity, an installer of rooftop solar systems, he is challenging the electric utility industry, which has been fighting back (in many cases successfully) in state legislatures and before utility commissions across the country.2 Earlier this year, when an Arizona utility raised fees on customers that install rooftop solar, SolarCity filed an antitrust suit in federal court alleging that the fees amounted to unlawful monopolization of (or attempt to monopolize) the market for providing electric power to end-use customers. With the string of Supreme Court decisions narrowing the scope of liability for monopolization, the legal prospects for SolarCity's Complaint were highly uncertain.3

On October 27, 2015, the Arizona District Court issued a 26-page Order that removes some of that uncertainty.4 While paring some of SolarCity's other claims, the Court declined to dismiss counts relating to unlawful monopolization, holding that SolarCity had alleged a cognizable claim under Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985)("Aspen Skiing"), a case that the Supreme Court subsequently characterized as "at or near the outer boundary" of unlawful monopolization doctrine under Section 2 of the Sherman Act.5 With this ruling, SolarCity may get the opportunity to prove that antitrust law trumps utilities' claims that their tactics are justified to protect against unfair cost-shifting. If so, SolarCity may have opened a new front in its "war" with utilities.6

Arizona's sunny climate makes the state an attractive market for SolarCity. Until its rate dispute, the company was installing almost 400 systems per month in the service territory of the Salt River Project ("SRP"), which operates in the Phoenix-metro area.7 SRP comprises two entities: the Salt River Valley Water Users' Association ("Association") and the Salt River Project Agricultural Improvement and Power District ("District"). The former is a private, for-profit corporation formed to arrange for irrigation of Salt River Valley landowners' land, while the latter generates power and sells it at retail to Phoenix-area customers. The District operates much like a municipal utility, in that its rates and service are overseen by its elected Board and Council and not by the state public utility commission.

Before SolarCity's rapid growth in the Phoenix area, the District had provided incentives for customers to install rooftop solar. In 2011, the District introduced its own "Community Solar" program, allowing customers to buy solar-generated electricity that the District acquired from solar farms. In late 2013, the District lowered pricing under the Community Solar program and subsequently eliminated incentives for customers to install their own solar systems. In February 2015, following public hearings, the District's Board approved new Standard Electric Price Plans ("SEPPs") that included dramatic rate increases for customers that generate their own electricity, including additional charges applicable only to those customers and reductions in bill credits for excess power sold back to the grid by those customers. That triggered SolarCity's filing of a Complaint in March 2015.

Solar City's Complaint included counts alleging monopolization and attempted monopolization, in violation of Section 2 of the Sherman Act; unreasonable restraints of trade and exclusive dealing arrangements in violation of Section 1 of the Sherman Act and Section 3 of the Clayton Act, respectively; violations of state antitrust law; and interference with prospective economic advantage and contract. The Association and the District moved to dismiss all counts.

The Court granted the Association's motion in full on the...

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