Number of words: 3,736<\/p>\n\n\n\n
On a rare rainy day early last year, my husband, Alex, and I toured what, with any luck, would become the most exciting and daunting purchase of our lives: a cream-colored bungalow-style fixer-upper, built in 1924, a few blocks from our rental in Santa Barbara, Calif. What the house lacked in curb appeal, it more than made up for in charm and utility: the original built-in cupboards in the dining room, the way the light streamed in from copious windows, the fenced backyard for our wirehaired mutt. Moldy linoleum in the bathroom would be easy to rip up. A shower head inexplicably hanging above the kitchen sink would be easy to rip out. The location was a big draw, as was, at least initially, the fact that the red pitched roof of the two-car garage was outfitted with 17 solar panels. We\u2019d get to do our bit for the planet.<\/p>\n\n\n\n
The solar array was a modern addition to a property that otherwise hadn\u2019t changed much since 1950, when the late owner, Michael \u201cJug\u201d Jogoleff, moved into the home\u2019s 948 square feet as a preschooler with his mother and aunt, transplants from Iowa. He never moved again. He grew tall and barrel-chested and remained a lifelong bachelor, becoming a neighborhood fixture who organized block parties. His d\u00e9cor reflected his obsession with all things electronic, in particular ham radio. \u201cRadios and computers were packed into every available square inch of space he could find,\u201d and \u201chis roof bristled with every form of antenna,\u201d Santa Barbara\u2019s amateur radio club wrote after he died of cancer at the age of 70 in January 2017. \u201cHe was the consummate \u2018ham\u2019 and could build anything\u2014and did! Amateur radio has lost one of the last of the \u2018real hams.\u2019\u201d<\/p>\n\n\n\n
Two days after walking through Jug\u2019s ham shack, we made an offer. A week later, just before we entered escrow, we learned the solar array hadn\u2019t belonged to Jug. It was, in the language of the industry, a third-party-owner, or TPO, system, belonging to Sunrun Inc., the largest provider of residential solar in the U.S. I started looking into the TPO model. It\u2019s used less often than it once was, but it\u2019s been important in making residential solar, once out of reach for most people, much more widespread. The reason is simple: Homeowners usually pay nothing upfront. A company like Sunrun puts solar panels on your roof, connects them to your home, and claims a tax benefit for owning the system. Going forward, you pay Sunrun to provide the bulk of your electricity needs instead of your utility.<\/p>\n\n\n\n
I\u2019d soon learn that the system was tied to the title of the house. It appeared that if we bought Jug\u2019s place, we\u2019d have to assume his lease arrangement with Sunrun. I wasn\u2019t sure how I felt about this as a buyer, but it definitely piqued my curiosity as a journalist. I set out to examine the value proposition carefully.<\/p>\n\n\n\n
A Sunrun customer service representative told me that in the year before he went solar, Jug\u2019s monthly bill to Southern California Edison averaged $115. Under the terms of his deal, he paid $75 a month to Sunrun. The panels on his garage were expected to cover 85 percent of his energy needs. That left him reliant on SoCal Edison for the remaining 15 percent, at a cost of about $17 a month. All in, his energy bills came to about $92, a savings of about $23 a month.<\/p>\n\n\n\n
I got a hold of a copy of Jug\u2019s contract, and quickly saw how Sunrun could afford to extend such an offer. It lasted 20 years. The payments escalated annually by 2.9 percent\u2014they\u2019d be 72 percent higher by 2036. The tax credit was worth at least $5,000. If Southern California Edison’s residential rates continue to rise annually by 2.2 percent, as they have on average over the last decade, Jug’s total electricity outlay having gone solar would have cost about $6,000 more over 20 years.Sunrun pitched Jug in part by telling him that SoCal Edison rates will rise by 4.75 percent annually. If that assumption held true for the next 20 years, having gone solar would have saved Jug at least $2,000.<\/p>\n\n\n\n
Alex and I were living in a condo 50 percent bigger than Jug\u2019s house (with air conditioning, which Jug didn\u2019t have), and still our energy consumption didn\u2019t come close to what Jug, with all his electronic gadgetry, had been using. We\u2019d be paying Sunrun for more capacity than we needed. A state policy called net metering meant we could sell back excess production to SoCal Edison, earning us about $7.50 a month, but even so, the utility would charge us $10 a month or more to remain connected to the grid. Accounting for all these things, taking on Jug\u2019s lease would translate to us paying at least $30 a month more. We\u2019d lose money from Day 1. Supporting renewable energy is important, and I get spending a little more to help the planet. But a for-profit company like Sunrun wasn\u2019t my idea of the right place to do it.<\/p>\n\n\n\n
I asked Sunrun if it would take back the system to put it on someone else\u2019s house. It wouldn\u2019t. The only way to get out from under the obligation, as far as we could tell, was to prepay the balance on the remaining 18-plus years\u2019 worth of payments and buy the hardware outright. The price: $27,300. By mid-February, we\u2019d reached a standstill. We wouldn\u2019t complete the deal if it meant taking on the obligation to Sunrun. The trust managing Jug\u2019s assets for his heirs was refusing to buy out the system. Sunrun was blocking the sale via a document called a UCC filing, which showed the company had a financial claim on the property. (Sunrun disputes how consumer advocates characterize UCC filings: \u201ceffective liens.\u201d) Our lender was refusing to fund our loan without a resolution.<\/p>\n\n\n\n
I began to grieve, and then felt like a materialistic jerk for getting so attached to a wooden box. It wasn\u2019t that simple, of course. By then, the house represented the place where Alex and I would\u2014maybe with a child or two one day\u2014build our future.<\/p>\n\n\n\n
A few months later, regulators would vote to make California the first U.S. state to require solar panels on almost all new homes starting in 2020\u2014meaning TPO solar will soon become a lot more common in California. (The shares of Sunrun and its competitors soared on the news.) That\u2019s bound to further complicate the homebuying economy as at least some buyers\u2014or the buyers after them\u2014make the same calculations Alex and I did.<\/p>\n\n\n\n
Lynn Jurich, Sunrun\u2019s CEO since 2015, is a mother of two young children and a regular on 40-under-40 and most-powerful-women-in-business lists. Harvard recruited her to play volleyball and basketball. She chose Stanford instead, and after graduation took a job in private equity that required cold-calling CEOs, because she knew it would make her uncomfortable. A few years later, while at Stanford Graduate School of Business, she met fellow student Ed Fenster, who\u2019d also been in private equity, at Blackstone Group LP, and his friend Nat Kreamer, a U.S. Navy officer who was fresh off a tour of duty in Afghanistan. The three began diving into the challenge of making solar more accessible. Fundamentally it was a math problem\u2014\u201ca business-model challenge and a financing challenge,\u201d Jurich told me when we sat down at Sunrun\u2019s San Francisco headquarters in December. She, Fenster, and Kreamer founded Sunrun in 2007.<\/p>\n\n\n\n
A company called SunEdison had used the TPO model for years on commercial-scale projects, and Solar City Corp. had beaten Sunrun to the residential market, launching in 2006 with $10 million from Elon Musk, cousin of the two brothers who founded it. For years after its founding, Sunrun watched as competitors spent wildly to gain market share and new companies crowded the field.<\/p>\n\n\n\n
Eventually, Sunrun\u2019s patience paid off. SolarCity nearly collapsed under massive debt before getting rescued by Tesla Inc. in 2016. SunEdison, Sungevity Inc., and others declared bankruptcy. Sunrun remained focused on improving margins and making use of government incentives, while speaking the languages of both environmental righteousness and Silicon Valley disruption. By early 2018 the company was deploying more residential megawatts than any of its rivals. It\u2019s gained market share every quarter but one since mid-2015, has 218,000 customers across 22 states, Washington, D.C., and Puerto Rico (California accounts for about half of them), and employs more than 4,000 people. Sunrun\u2019s shares have nearly tripled in value in the past 12 months, and the company projects that its customer base will grow 30 percent in the current fiscal year.<\/p>\n\n\n\n
And not so far down the road is the new mandate in California. Jurich sees this as normalizing solar, making it feel less risky for homeowners to adopt. More specifically, she told me, it will be good for companies using the TPO model. Builders won\u2019t want to offer solar as an owned part of the home because that will inflate the sticker price. Instead, she said, buyers will finance the systems via a separate transaction\u2014one that Sunrun is in talks with the state\u2019s 10 biggest homebuilders to provide. Sunrun relies on TPO for 85 percent of its business.<\/p>\n\n\n\n
Offering rooftop solar setups worth tens of thousands of dollars for no money down requires weaving an intricate financial web. The monthly payments in 20-year contracts provide Sunrun with future streams of cash flow, but acquiring customers, procuring hardware, and paying installers (and executives) require money today. Government incentives are key, especially the federal Investment Tax Credit, which allows owners to deduct 30 percent of the cost of a rooftop system from their federal taxes.<\/p>\n\n\n\n
The structure of tax incentives in the U.S. also helps explain why it\u2019s the only country where the TPO model has thrived. Homeowners elsewhere buy systems rooftop solar outright, and for much cheaper; Americans pay twice as much as their global peers. Australia and other countries offer substantial upfront subsidies or rebates\u2014at one point, the Australian subsidies covered some 80 percent of the cost of a typical system. (They now cover about a third of the cost, which is falling.) In the U.S., by contrast, homeowners who buy systems outright can\u2019t claim the credits until the next time they file their taxes, and then only if they owe the government at least as much as the value of the credit. (Currently the credit can be spread over multiple years.) That and other factors play to the strengths of Sunrun.<\/p>\n\n\n\n
Sunrun finances its initial costs by taking on debt and raising capital from what are called tax equity investors. Only a few dozen companies have the appetite for tax credits and financial sophistication to be in this pool, including Google, JPMorgan Chase, and General Electric, says Joe Osha, an analyst who covers energy technology at JMP Securities LLC. They invest in Sunrun not to generate significant cash returns but to reap tax benefits: By assuming ownership of thousands of solar systems they can claim the credits and thus lower their tax bills from other economic activities. Hugh Bromley, a solar analyst at Bloomberg NEF, says Sunrun and its competitors offer solar, sure, but can be better understood as having created \u201cone of the most sophisticated financial engineering industries of any sector of the U.S. economy.\u201d<\/p>\n\n\n\n
Just 1 percent of U.S. single-family homes\u20141.8 million\u2014are equipped with solar, and the real estate industry\u2019s general understanding of TPO systems remains limited. Our real estate agent, a 35-year veteran, had never encountered one. The listing agents for Jug\u2019s property also seemed uncertain. Initially they didn\u2019t mention the system at all. Then they told us it was owned by Sunrun and that if we didn\u2019t want to assume the lease they\u2019d remove it. Then, apparently because they\u2019d learned the full cost of that, they backtracked.<\/p>\n\n\n\n
Aided by a local attorney and my father-in-law, a retired contract attorney, I drafted a letter to Jug\u2019s trust accusing the listing agents of failing to deliver title to the property free of any third-party claims as the agents had said they could. I threatened legal action. It was a last-ditch effort that none of us expected to work. Then it did.<\/p>\n\n\n\n
On March 1, a representative for Jug\u2019s trust emailed Sunrun saying it would purchase the system. On March 22, we got the keys to the house and I stood beaming in the empty dining room and took a selfie. On March 30, we moved in.<\/p>\n\n\n\n
Sunrun calls our insistence that Jug\u2019s trust buy out and remove the system \u201cincredibly unique and rare.\u201d It\u2019s far more common for home sellers to transfer the lease to the buyer\u2014Sunrun says 94 percent of customers do this\u2014or to prepay the lease and leave the hardware on the roof for the next owner to use. I\u2019ve been kicking myself ever since I learned about this latter option. It would have saved the estate around $12,000 and allowed us to support solar and get \u201cfree\u201d electricity, even as Sunrun remained responsible for maintenance and repairs.<\/p>\n\n\n\n
It would have been fine from Sunrun\u2019s perspective, too. The $27,300 full buyout price is explained by the necessities of TPO accounting. The federal credits and accelerated depreciation taken by Sunrun and its tax equity investors are dependent on systems remaining in operation for five years; if a system is removed from service before then, the value claimed can be clawed back by the IRS. Sunrun\u2019s buyout price accounted for not only the remaining 18 years of lease payments but also the lost tax credits and depreciation.<\/p>\n\n\n\n
The complexities of these arrangements got me thinking about Jug. When he signed the contract with Sunrun, eight months before his death, he\u2019d been battling cancer for years. Did he understand the implications?All financing options but one would have been less expensive for Jug than his Sunrun contract over the long term.<\/p>\n\n\n\n
Jug\u2019s saleswoman was part of a vast network of commission-based salespeople that includes both direct employees and third-party contractors. Sunrun has developed sales leads by deploying people to canvass at football games and stores (Costco is a gold mine, former salespeople tell me) and by going door-to-door and cold-calling. The basic sales pitch is savings of up to 20 percent, a hedge against unpredictable utility rates, and the emotional rewards of doing right by the environment.<\/p>\n\n\n\n
On consumer review sites and in local news reports, rueful customers warn others to stay away from TPO solar offered by Sunrun and other companies. State attorneys general and politicians have fielded complaints from people who say they were sold expensive systems they can\u2019t afford after signing contracts they didn\u2019t understand; or are paying more now on their electricity bills, not less as promised; or are having trouble selling their homes because potential buyers are turned off, just as I was. (Customers of Sunrun and other companies must sign binding arbitration clauses, barring them from suing or joining in class actions.)<\/p>\n\n\n\n
I brought this up with Jurich, who pointed to Sunrun\u2019s A+ rating by the Better Business Bureau and said \u201cmassive edge cases\u201d seized on by journalists don\u2019t fairly represent the typical customer experience. She pushed back hard against the idea that her company contributes to the industry\u2019s negative reputation. To the contrary, \u201cI think it helps us stand out,\u201d she said. \u201cFor any long-term success in a business like this, it\u2019s going to be your reputation first and foremost, so the customer experience is critical. … If I wanted to do something to just make money I would have stayed in investing. I want to do something that makes a big impact.\u201d<\/p>\n\n\n\n
I spoke with eight current and former Sunrun employees, some of whom praised the sales culture and said bad behavior wasn\u2019t condoned. Others said unethical tactics went unpunished when discovered. \u201cWhen your paycheck depends on getting the yes, it\u2019s like love and war: All is fair,\u201d said Tank Hanna, a salesman-turned-trainer from Arizona. \u201cIt can be done correctly, but it takes a skill level and patience level and understanding that most reps don\u2019t have and managers don\u2019t want.\u201d Salespeople would cherry-pick data, skim over crucial details, and prioritize speed above all, he told me. A trainer from California who listened in on hundreds of sales calls for quality control estimated that 60 percent of customers knew no more than half of what they were signing up for and 10 percent had no clue.<\/p>\n\n\n\n
Potential customers often ask what will happen when they try to sell their homes. The salespeople I spoke with said they allayed such concerns by saying solar adds value by lowering carrying costs. Jurich said the same thing during our interview. For TPO systems, however, there\u2019s no data or reputable study to back that up. The Lawrence Berkeley National Laboratory, a publicly funded research organization in California, has found that an owned system is an asset. TPO systems weren\u2019t shown to provide any net gain\u2014they\u2019re neither assets nor liabilities. (Although, tell that to Jug\u2019s trust.)<\/p>\n\n\n\n
One former Bay Area employee sent me a Sunrun training manual he said was current when he resigned in April 2017. It\u2019s called \u201cPower Play 2.0: The Guide to Successfully Sell Sunrun.\u201d (The company confirmed its authenticity.) It instructs salespeople to sow distrust in and disdain for traditional utilities and appeal to customers\u2019 emotions. Over 61 pages, pain is cited at least 31 times and fear at least a dozen. When reviewing a customer\u2019s traditional utility bill, the trainee is told, \u201camplify the pain significantly.\u201d Among \u201ccomponents of success\u201d: \u201ccreating pain and fear.\u201d Among the \u201cfive fatal flaws\u201d to avoid: \u201cfailing to build pain or fear.\u201d<\/p>\n\n\n\n
Jurich didn\u2019t hesitate to defend the tactics when I brought them up in our interview. She called pain a \u201cfair characterization of the experience that people have\u201d paying their utility bills. \u201cWe are selling a substitute for traditional electricity, so you would want to demonstrate why your product is a superior product.\u201d Spokeswoman Georgia Dempsey later followed up in an email: \u201c\u2018Uncovering Pain\u2019 is widely attributed to David Sandler, who introduced the Sandler Selling System,\u201d she wrote. \u201cSandler defines Pain as \u2018finding the prospect\u2019s reason to buy and gaining a commitment to resolve any issues keeping the prospect from greater success.\u2019 Our growing customer base is evidence of households\u2019 desire for the superior energy service offered by home solar and batteries.\u201d<\/p>\n\n\n\n
Consumers want to go green, but above all, as Sunrun underscores in company filings, they want to save money. The company promises to produce these savings by offering initial rates that undercut the prevailing electricity costs in a given area and then increasing its rates more slowly than those for traditional electricity. This is premised on claims that traditional energy prices have \u201cskyrocketed\u201d in the past and predictions they\u2019ll continue to. Sunrun works from the assumption that electricity costs will rise 3.76 percent annually. That\u2019s more than double the average increase over the past decade nationally, according to U.S. Energy Information Administration figures. (Average consumption has also been falling, as household appliances have become more efficient.) Sunrun argues rates will rise faster in the future than in the past, in part because utilities need to spend on grid upgrades in coming years.<\/p>\n\n\n\n
Regardless of what energy costs end up doing, a well-designed, fairly priced rooftop system should lower the power bill of most Americans. Buying one outright is a better deal for people with the means to do so, but that isn\u2019t everyone. TPO solar, with its simplicity and convenience, can be alluring.<\/p>\n\n\n\n
There\u2019s one more twist in this tale. Months after all the drama had played out, I came upon a surprise.When I originally called Sunrun, I was told that Jug\u2019s SoCal Edison bill in the year before he went solar averaged $115 a month. That turned out not to be true. His file, a second Sunrun rep told me, indicated that it averaged $79. Remember that his solar panels were designed to meet only 85 percent of his electricity needs, making his actual total monthly outlay in the first year with solar $87. That\u2019s $8 more than he\u2019d been paying. When I asked Sunrun about these new figures, Dempsey, the company spokeswoman, said Jug was \u201ca happy and satisfied customer\u201d who \u201cvalued the peace of mind\u201d the system provided.<\/p>\n\n\n\n
I hadn\u2019t wanted to bother Jug\u2019s family or friends, but now I had to learn what I could about his motivations for signing up with Sunrun. I tracked down two cousins from Iowa and two close friends here in Santa Barbara to ask whether Jug had been a gray green\u2014an older person committed to saving the planet. They all scoffed\u2014he did things to save money. He lived by his mother\u2019s doctrine to buy everything in cash and had the means to do so, they said. They all wondered aloud whether he\u2019d been misled. \u201cWhy would he sign a 20-year contract when he knew he wouldn\u2019t live that long?\u201d said Kathy Backus, a fellow ham who met Jug through the Amateur Radio Club two decades ago and stood vigil as cancer ate away at his physical and mental well-being. \u201cSomething stinks. It smells like three-day-old fish.\u201d<\/p>\n\n\n\n
There\u2019s more to the story, including the fact that Jug\u2019s solar panels never worked at full efficiency. This was because of what Sunrun characterized as \u201csevere shading\u201d caused by the next-door neighbor\u2019s tree. That\u2019s right: Sunrun installed the system beneath a big old tree. This makes me again question the judgment of Jug\u2019s salesperson. Sunrun has a production guarantee\u2014if the system underperforms, you get a credit. In Jug\u2019s case, $203 was credited to his account on July 17, 2017, half a year after his death.<\/p>\n\n\n\n
As I write this I\u2019m pregnant. The life Alex and I pictured the first time we walked through Jug\u2019s house, now our house, is taking shape. And let me tell you about our electricity bill. Had we assumed Jug\u2019s lease, we\u2019d be paying $79 a month to Sunrun (the second escalator would have kicked in) plus at least $10 to SoCal Edison to stay on the grid, minus $7.50 for net metering. We\u2019ve been in the house 10 months, and our average SoCal Edison bill is $30. Compared with becoming Sunrun customers, we\u2019re saving $50 a month. We\u2019re going to give some of that to help protect the environment<\/p>\n\n\n\n