On March 2, 2015, SolarCity Corporation (“SolarCity”) filed suit in the federal District Court for the District of Arizona against the Salt River Project Agricultural Improvement and Power District (“SRP”) alleging that SRP had violated federal and state antitrust laws and tortuously interfered with SolarCity’s business expectations by imposing a new pricing structure on customers intending to install rooftop solar systems.

SRP is a quasi-governmental entity that provides water and electrical power to significant portions of Arizona. Unlike private utilities, SRP’s rates are not subject to approval by the Arizona Corporation Commission. On February 26, 2015, SRP’s board of directors approved the imposition of a new rate structure and fees on retail customers that install rooftop solar after December 8, 2014. The approximately 15,000 existing SRP customers with distributed solar already installed are not subject to the new rates and fees. SRP based its decision on its determination that its average residential customer used approximately 1,545 kilowatt hours of electricity per month before installing solar and 491 kilowatt hours per month after installing solar. However, those customer’s peak demands did not similarly decline according to SRP. SRP found that its solar customers’ peak demand only decreased 0.4 kilowatts (from 8.9 to 8.5 kilowatts) after installing solar. As a result, SRP determined that its solar customers were paying much less for electricity on an annual basis, but were not substantially reducing the peak demands (and fixed costs) experienced by SRP, and that its non-solar customers were subsidizing the distributed solar customers. Based on that determination, SRP instituted a demand based fee for new solar customers based on the maximum amount of electricity the customer uses during any 30-minute peak period in a month. SRP also increased its base service fee for new solar customers and reduced the bill credits it will provide for power the distributed solar customers send to SRP’s grid. The new pricing structure is expected to add about $50 per month to a new solar customer’s electric bill, substantially more than the fees the Arizona Corporation Commission previously approved to address this issue for Arizona’s other large electrical utility.

SolarCity’s lawsuit challenges SRP’s new rate structure on antitrust and common law grounds. SolarCity alleges SRP’s new pricing scheme is an improper effort by SRP to eliminate potential competition to maintain SRP’s monopoly in the retail electric market in its service territory, to slow or reverse the gains made by the distributed solar industry and to force consumers residing within SRP’s service territory to purchase all of their electricity from SRP by making self-generation economically unfeasible. In support of its claims, SolarCity alleges that SRP’s new pricing plan imposes a 65% increase on new distributed solar customer’s bills while only imposing a 3.9% increase on non-solar customers. It further alleges that SRP’s decision has resulted in a 96% decrease in the number of applications for new solar systems from customers residing in SRP’s service territory since the effective date of SRP’s new pricing plan. SolarCity also alleges that SRP receives a net benefit from the adoption of distributed solar and that SRP’s rational for the new pricing plan is flawed. SolarCity seeks to have the Court enjoin SRP’s allegedly anticompetitive actions, compensate SolarCity for its lost profits and award SolarCity trebled damages under the antitrust laws.

SRP has vowed to vigorously defend the lawsuit. As distributed solar becomes more common, expect to see similar disputes across the country.

The suit is titled SolarCity Corporation v. Salt River Project Agricultural Improvement and Power District, CV15-0374-PHX-DLR.