Part 5: Can Securities Exemptions Eliminate Community Solar Obstacles?
When I discussed community solar models and obstacles, I mentioned that the requirements for securities registrations can be a significant obstacle. However, the obstacles are not insurmountable. Recent legislative and executive actions in Oregon, Vermont, and at the federal level illustrate how involvement and advocacy from solar advocates can improve burdensome laws and regulations.
Why Community Solar is a Security
The definition of a security includes membership in a profit-sharing agreement. Any community solar model that involves financial investment with the expectation of some return on that investment (or even potentially on-bill credits or other benefits) will likely qualify as a security. Why does this matter? The Securities and Exchange Commission (SEC) requires those offering securities to make certain filings and disclosures in order to provide adequate information to potential investors. Securities registration and disclosure requirements have virtues and vices. On the one hand, they protect against fraud by providing necessary information about investment opportunities to potential investors. But on the other hand, the costs (time, money, and paperwork) can be extremely burdensome for small, community-based projects.
SB 1520: Oregon’s Securities Exemption
When Oregonians for Renewable Energy Progress (OREP), a renewable energy advocacy group in Oregon, attempted to help form a solar cooperative in Corvallis, they quickly ran up against a costly and time-consuming securities filings process. Although federal law exempts wholly in-state offerings from registration and disclosure requirements, states have their own processes (called “blue sky laws”) that involve their own fees, paperwork, and disclosure requirements. But state blue sky laws can also provide exemptions for certain types of securities. For example, Oregon’s statute provides exemptions for certain types of cooperatives. Through the efforts of community members and OREP, the Oregon State Legislature passed Senate Bill 1520 adding solar cooperatives to the listed of cooperatives exempted from the state securities filings requirements.
Yet, this picture is neither complete nor completely rosy. The amendment to the existing exemption allows the Department of Consumer and Business Services (DCBS) to essentially impose any restrictions or additional requirements it deems necessary to protect unwary investors from suspect solar scams. It remains to be seen whether these restrictions will relieve much, if any, of the major securities filings obstacles. DCBS has yet to issue its final rules, though the proposed version went through a notice and comment process. (See GEI’s comments on these proposed rules.)
Importantly, the Oregon exemption is limited to community renewable cooperatives, likely because it fit squarely within an existing exemption. In order to incentivize a broader scope of potential community solar models, though, other structures may need similar exemptions.
Vermont’s “SUN” Exemption
Vermont’s “Vermont Solar/Utilility No-Action” (charismatically abbreviated “SUN”) community solar exemption gets right what Oregon’s statute does not. Rather than exempt only solar cooperatives and impose a blanket set of restrictions on them, the SUN exemption recognizes that different groups of investors deserve different levels of consumer protection. The SUN exemption breaks down the potential groups into four sub-categories, each comprising a different set of potential investors. For example, a potential group of investors expecting to enter into long-term agreements without a termination right rightly deserves a substantial amount of information before making a decision. The SUN act therefore places significant disclosure requirements and advertising restrictions on the “Financing Exemption” group. On the other hand, a small group of neighbors, friends, or family (e.g. cooperative) wanting to invest in a community solar project may need less protection. Vermont’s “de minimis” exemption therefore provides such a group with a blanket, self-executing exemption that requires no disclosures.
Vermont is a state with a significant amount of support for, and investment in, renewable energy. If this relatively new exemption proves successful in spurring more community solar development there, its well-crafted model should serve as an example for other states.
The Proposed Federal Crowdfunding Exemption
Exemptions occur at the federal level as well. Recently, the SEC proposed rules that would flesh out securities requirements for crowdfunding under the Jumpstart Our Business Startups (“JOBS”) Act. Crowdfunding, as I discussed in Part 2 of my community solar blog series, has emerged as a potential way to fund community solar projects through small online donations or investments. Though the rules are not yet finalized, they will likely attempt to strike a balance between providing adequate investor protection and easing the burden on startups that operate through the crowdfunding mechanism. Potential ways of doing this include requiring certain disclosures to potential investors and imposing restrictions on available funding platforms.
Providing adequate investor protections while fostering the development of community solar projects is a difficult balance to strike. The regulations and statutes discussed above at the very least make attempts at doing both, with varying degrees of success. Perhaps once the community solar concept gains more traction, regulators and lawmakers will be less weary of questionable investment schemes and more willing to require less costly disclosure processes. Ideally, the SEC and states should craft exemptions similar to Vermont’s, recognizing that not all community solar models are cut from the same cloth. Until then, though, those seeking to form community solar entities will likely have to continue navigating the gnarly weeds of securities filings requirements and exemption regulations.