Federal investigations of SolarCity lead GOP to attack Buffalo Billion

The Buffalo News

By Jerry Zremski
on October 2, 2014 – 6:23 PM

WASHINGTON – SolarCity, the solar energy systems installer that’s aiming to bring nearly 3,000 jobs to Western New York with the help of the state’s Buffalo Billion initiative, finds itself square in the middle of two political campaigns.

Gov. Andrew M. Cuomo touts the economic-development effort as a success story for Buffalo as he seeks re-election.

Republicans, meanwhile, cite SolarCity as the centerpiece of its contention that “the Buffalo Billion is a sham.”

The state GOP – which is pushing Republican Rob Astorino’s campaign against Cuomo – made that accusation in an email blast that cited recent media coverage of two federal investigations into the California company.

When asked why the state GOP was using such harsh words against the Buffalo Billion, State Republican Chairman Edward D. Cox said it was because SolarCity is the money’s main beneficiary – “and SolarCity is, as a legal matter, in serious trouble.”

Cox was referring to an investigation by the Inspector General of the Treasury Department and the Justice Department into whether SolarCity and other recipients of federal stimulus funds inflated the value of their solar products, as well as a separate Labor Department probe that has determined some of the company’s employee positions were not properly classified.

In the email, the state GOP cited the words of the 2010 Republican candidate for governor, Buffalo developer Carl P. Paladino, who said of the Buffalo Billion last week: “This is as crooked as the day is long.”

When asked about the Republican accusations, both the Cuomo administration and officials at SolarCity brushed them off, saying the investigations will have no impact on the company’s plans to operate the largest solar panel factory in the Western Hemisphere at the planned RiverBend complex in South Buffalo.

“With all due respect to the election season, this is not a sham,” said Alain E. Kaloyeros, CEO at SUNY Polytechnic Institute in Albany and one of the key players behind RiverBend. “It’s the real deal.”

Kaloyeros noted that many major companies have been investigated by the federal government over the years and that investors don’t seem to be worried about the SolarCity probes, given that the stock price has risen from $9.25 in December 2012 to more than $57 today.

“We did our due diligence” before striking the deal with SolarCity, Kaloyeros said. “It seems to us a great deal.”

Meanwhile, SolarCity’s founder and CEO, Lyndon R. Rive, called the GOP’s news release “an emphatic lie.”

“It’s making something dramatic out of something which is not,” he said.

Asked if the Treasury/Justice investigation could have a serious financial impact on his company, Rive said: “Not at all.”

The company made the investigations sound much more serious, though, in the quarterly report it issued in August.

If the inspector general and Justice Department find the company overcharged for its product, “we may have to pay significant amounts to our financing funds or to our fund investors and such determinations could have a material adverse effect on our business, financial condition and prospects,” the company said.

That probe started with subpoenas that the Treasury inspector general issued to SolarCity and two other installers of solar panel systems in July 2012. The three companies were asked to justify their use of more than $500 million in federal funding they received under the Obama administration’s stimulus bill to deal with the Great Recession.

At issue in the probe is whether SolarCity and the other companies charged more than they should have for the solar energy installation jobs they completed under the program. And that question could be important because the Justice Department’s Civil Division later joined the probe, and it has the power to fine companies if they misused any stimulus funds.

As for the Labor Department probe, Rive portrayed it as routine. But, again, the company made that probe into its wage-and-hour practices sound more serious in its August quarterly report.

“If the DOL were to conclusively determine that the company violated labor laws and regulations, the company would be required to make the appropriate payments of back wages and other amounts to employees, and the company might be subject to fines or penalties,” SolarCity said in its quarterly report. “The company is currently unable to estimate the maximum potential exposure that may arise from this investigation based on the information currently available.”

The SolarCity facility at RiverBend, which is set to open in early 2016, is by far the biggest beneficiary of the Buffalo Billion. The state has committed $750 million to build and equip a 1.2-million-square-foot facility for the company at RiverBend and to also make the necessary infrastructure improvements.

State officials stressed, though, that no state money will go directly to SolarCity. In fact, SolarCity has committed $5 billion to the project over the next decade, and would be subject to penalties of up to $41 million a year if it does not live up to its commitments.

Still, Cox, the state GOP chairman, said the federal investigations brought to mind Solyndra, the California solar cell manufacturer that collapsed after receiving $500 million in federal stimulus funds.

“This has the potential to become one giant Solyndra,” Cox said. “It has the potential for crashing just like Solyndra did,