SolarCity: Bigger Cost Bases, Bigger Treasury Grants

SolarCity agreed to pay $29.5 million to resolve False Claims Act allegations of inflated cost basis in Treasury Section 1603 grants, a program under the American Recovery and Reinvestment Act. The government alleged that the company overstated solar-property cost bases in certified applications, increasing the grants paid to SolarCity and investment funds for which it submitted claims.

The Justice Department announced the settlement on September 22, 2017. Alongside the cash settlement, SolarCity agreed to give up claims seeking still more grant money. Two affiliated investment funds had sued the government on the theory that Treasury had underpaid them. The government’s allegation ran in the opposite direction.

How Cost Basis Became a Treasury Grant

Treasury paid a cash grant equal to 30% of the eligible cost basis to construct or acquire qualifying solar energy systems. A higher eligible basis meant a larger grant. The government alleged that SolarCity overstated that input and received inflated payments as a result.

This was a civilian grant fraud case. Treasury subsidized the construction or acquisition of renewable-energy property through cash grants. The transaction at issue was the request for that subsidy, tied to the property’s eligible costs.

We see the taxpayer’s problem in the formula: an inflated basis would make the public subsidize costs beyond those the program was meant to cover. The arithmetic could be immaculate. The starting number was the alleged problem.

What Is a False Certification?

A false certification misstates the facts an applicant certifies to the government. In SolarCity’s case, the alleged false statement concerned the cost basis used to calculate the grant.

Treasury required applicants to certify that each application accurately stated the system’s cost basis. Applicants also had to certify that all supporting information was true, accurate and complete. The assurance reached beyond the final number to the information supporting it.

A person who prepared the cost calculation may be able to explain a discrepancy that the signed application alone cannot. We would compare the calculation with the certified claim and the payment it produced. What changed between the underlying figures and the amount submitted is the part an insider may know best.

The same attention to certified figures matters in procurement finance. A contractor’s certificate of cost or pricing data addresses whether the pricing facts submitted to the government were accurate, complete and current at the agreed date. That is a different certificate from the solar grant application, but the practical question is familiar: what did the company tell the payer about the numbers behind its request?

Thousands of Claims and a Program Staff Referral

Beginning in 2009, SolarCity submitted thousands of grant claims on behalf of itself and affiliated investment funds. The government alleged that both SolarCity and those funds received inflated payments. SolarCity’s role included submitting the claims for the funds, so the application and the payment recipient could sit in different company files.

For an insider, that makes the connection between applicant and recipient worth understanding. An account of how a basis was prepared needs to stay attached to the application that used it and the fund that received the payment. The person preparing a claim may understand its calculations, while someone working with the fund may know what Treasury paid. We work with the insider who can explain how those parts fit together.

The investigation began after a referral from Treasury’s program staff. Treasury, its Office of Inspector General and the Justice Department Civil Division’s Commercial Litigation Branch conducted the joint investigation.

The Settlement Also Ended Claims for More Money

SolarCity agreed to dismiss the lawsuit brought by the two affiliated investment funds. That suit alleged that Treasury had underpaid certain grant applications. SolarCity also agreed to release other potential claims for additional grant payments.

We find the funds’ position remarkable: they said taxpayers owed them more, while the government alleged that inflated applications had already cost taxpayers too much. The settlement ended that demand for more money as well as resolving the government’s allegations.

Tesla Motors acquired SolarCity in November 2016, after the alleged conduct.

The Same Grant Program, a Different Allegation

Ormat Technologies’ $5.5 million settlement concerned allegations that applications sought ineligible grants for geothermal projects in Hawaii and California. Former Ormat employees brought the whistleblower case. Their allegations concerned eligibility under the same grant program. SolarCity’s settlement concerned alleged inflation of the solar-property cost bases used to calculate its grants. The distinction matters to someone who knows a project’s finances: whether a project qualified for money and whether the claimed basis overstated the amount payable are different questions about the application.

An Expired Program, a Familiar Payment Problem

The grant program had expired by the time the Justice Department announced SolarCity’s settlement. It covered qualifying solar systems placed in service before December 31, 2016.

The program’s end did not settle the argument over the money already paid. SolarCity’s settlement addressed those earlier applications even after the subsidy had ended and the company had changed owners. For someone who knows how a project’s costs were represented to the government, that is what makes the case worth understanding beyond the life of this particular grant program.

What the Cost Records Can Show

If you worked on the grant applications or the project finances, you may know where the cost number came from. You may also know who reviewed it and what they were told before the claim went to Treasury. That knowledge gives the figures a history: who prepared them, what they represented and how the company used them.

Your knowledge may concern the cost calculation or a claim submitted for an investment fund. The starting point is what you know about the number Treasury was asked to accept. A whistleblower case under the False Claims Act can pay a whistleblower reward of 15% to 30% of what the government recovers.

You Know How the Grant Number Was Built

If you know why a solar project’s claimed basis exceeded its support, talk with our whistleblower experts. We work beside you to build the case around the applications and the decisions behind them, bringing in federal grant fraud whistleblower lawyers who understand the payment at issue. From your first account through the case, you have a partner who takes both the financial detail and your decision to speak up seriously.