While the commission voted down investment in a proposed utility solar affiliate, the California Public Utilities Commission appears poised to apply affiliate transaction rules to a variety of PG&E Corp. subsidiaries that have invested $298 million to finance solar power purchase agreements. These are offered by two major solar installers, SunRun and SolarCity. Regulators also are proposing a compliance audit. The CPUC’s proposed resolution on applying the affiliate transaction rules to the subsidiaries comes after organizations protested what were routine advice letters notifying the commission of the financial relationships. “PG&E is trying to game the [solar] market by being on both sides of the solar industry,” said Michael Boyd, executive director of Californians for Renewable Energy--one of the organizations contesting the relationships. “Basically, the utility is on both sides of the meter making money.” The commission’s proposed resolution finds that both SunRun and SolarCity are affiliates of PG&E Corp. The rules require PG&E, the utility, and those companies to remain at arm’s length. They also require the utility to be financially protected from any losses the solar installers may suffer through a procedure known as “ring fencing.” PG&E Corp. has backed SolarCity--through various affiliated companies--with $198 million since 2010, according to the CPUC. It’s provided $120 million in backing for SunRun over the same time period. SunRun describes itself as “the nation’s largest home solar company.” SolarCity announced April 30 that it plans to go public with an initial public offering of common stock. Both companies specialize in signing power purchase arrangements with homeowners under which the residents do not own the solar systems placed on their roofs, but just pay for the power they generate. The installers and affiliated financial partners own and operate the systems and share in the proceeds collected from homeowners. The associations are not supposed to continue. Once the parent company funding from PG&E Corp. for financing power purchase agreements is committed, the utility holding company does not plan to commit any further funding, said spokesperson Brian Hertzog. Hertzog explained, when Tony Earley became the chief executive officer of the utility’s parent company, PG&E Corp. disbanded the unit that had been investing in solar installers as part of his “back to basics” approach in the wake of the San Bruno gas pipeline disaster in 2010. Critic Boyd charges that to gain market power in the solar industry SunRun and SolarCity lobbied federal home loan agencies to get a ruling that stopped the spread of Property Assessed Clean Energy financing. Under PACE programs, local governments loan money to homeowners to install solar systems, who then pay it back gradually each year when they pay their property taxes. PACE, notes Boyd, is a financing model that competes directly with power purchase agreements. He said the companies used a white paper written by Hennigan, Bennett, & Dorman attorney Michael Swartz dated February 18, 2010, to argue that PACE programs were unconstitutional. A copy of the paper by Swartz concluded that because PACE loans were collected through property taxes, they effectively moved first mortgages out of their “priority position,” something courts have repeatedly found “unconstitutional over the past 85 years.” According to Boyd, shortly after he released his paper, Fannie Mae and Freddie Mac barred lenders from writing mortgages for PACE homes. The Federal Housing Finance Agency issued a ruling that effectively stopped the spread of PACE programs. Swartz told Current that he did write the paper, but could not comment on who he was representing in doing so. He cited the doctrine of attorney-client privilege. In its proposed resolution the CPUC declined to comment on any potential PACE lobbying. Regulators did admit that because PG&E Corp.’s regulated utility administers the California Solar Initiative incentive program in its service territory there is the potential for a conflict of interest. PG&E utility employees administering the incentive program, states a proposed commission resolution, “know” the two solar installation companies have “a corporate relationship with PG&E Corporation subsidiaries, and thus are in a position to grant preferential treatment.” To prevent the utility from discriminating, the resolution orders an audit to make sure the utility is treating other installers fairly. The CPUC’s proposed resolution also would require PG&E the utility to revise “the California Solar Initiative Program Handbook to clearly articulate a first-come, first-served policy applicable to all procedural steps,” when it comes to processing incentive payments. Such a process should insure equal treatment of installers competing against SunRun and SolarCity. It further calls for an audit to investigate whether the companies have the wherewithal to exercise undue power in California’s solar installation market.