SolarCity vs. Salt River Project U.S. District Court - Arizona 2:15-CV-0037-DLR-USDC Ninth Circuit Court of Appeals - No.15-17302 U.S. Supreme Court - No. 17-368 Michael J. O’Connor Salt River Project Energy Bar Association 2018 Annual Meeting & Conference May 8, 2018 EBA 2018 Annual Meeting & Conference - Michael J. O'Connor 05-08-2018

SolarCity vs. Salt River Project Basic Allegations: SolarCity alleged that the District engaged in anticompetitive conduct when it adopted prospective rates for new distributed generation customers. Specifically, SolarCity alleged that the District rate change was “pretextual”, and that the rate change was intended to exclude SolarCity as a competitor in the SRP service territory. The new rate plan, E-27, was required for all new distributed generation customers. SolarCity claimed that the new rate plan was “anti-solar”, “anti-choice” and contrary to the District’s pricing principles, including the concept of “gradualism.” EBA 2018 Annual Meeting & Conference - Michael J. O'Connor 05-08-2018

SolarCity vs. Salt River Project In its 2015 Public Ratemaking Proceeding, SRP Management proposed to its elected Board a prospective three part rate structure for all new Distributed Generation (DG) customers (E-27). The new Distributed Generation customers would be in their own class of ratepayers. The Three Part Rate (E-27): Basic Service Charge Energy Charge Demand Charge * The Net Metering payment (for excess power exported to grid) would be compensated at wholesale not retail rates. The proposal was intended to fix a “cost shift”, i.e., the then current distributed generation customers were not covering their cost of service (and thus non-DG customers had to pay such costs). The proposed price plan would allow SRP to have a positive rate of return on the distributed generations, similar to other classes of customers. SRP, in 2015, had approximately 1,000,000 residential customers and approximately 15,000 distributed generation customers. SRP provided a grandfather date of December 8, 2014. Once E-27 was adopted in February 26, 2015, the number of new solar applications was significantly reduced. EBA 2018 Annual Meeting & Conference - Michael J. O'Connor 05-08-2018

EBA 2018 Annual Meeting & Conference - Michael J. O'Connor 05-08-2018 SolarCity vs. Salt River Project The Litigation – Federal District Court - Phoenix SolarCity Operative Complaint - 2015 Federal and State Antitrust Claims – Section 2 – Sherman Antitrust Act State Tort Claims – Interference with SolarCity prospective business relationships SRP Motion to Dismiss Local Government Antitrust Act State Action Immunity Legislative Immunity Filed Rate Doctrine Failure to Exhaust Administrative Remedies EBA 2018 Annual Meeting & Conference - Michael J. O'Connor 05-08-2018

SolarCity vs. Salt River Project District Court District Court Ruling on Motion to Dismiss Antitrust Court Granted SRP’s Motion on LGAA Regarding SolarCity Damages Claims Court Denied SRP’s Motion on State Action Immunity/Legislative Immunity/Filed Rate Doctrines Court Granted in Part and Denied in Part, SRP’s Motion Regarding Potential Antitrust Claims/Theories Case proceeded in 2015, as an injunction case – although no motion for preliminary injunction was filed. Case was set for trial on two different occasions – vacated when Ninth Circuit took the case and then vacated when U.S. Supreme Court granted Cert. Case resolved before oral argument was conducted at U.S. Supreme Court. EBA 2018 Annual Meeting & Conference - Michael J. O'Connor 05-08-2018

SolarCity vs. Salt River Project The Basics – Some Facts & Figures EBA 2018 Annual Meeting & Conference - Michael J. O'Connor 05-08-2018

SolarCity vs. Salt River Project State Action Immunity District Court Required SRP to Demonstrate: Clearly articulated State Policy to displace competition, and Since SRP is not the State, that there was “active supervision” by an arm of the State. Initially the District Court found there to be a question of fact regarding State Action Immunity, on motion for reconsideration, held as a matter of law, SRP was not entitled to State Action Immunity. SRP filed a “collateral order appeal” to Ninth Circuit. The Court allowed briefing on both the jurisdictional issue and the substantive State Action Immunity defense. Ninth Circuit ultimately declined jurisdiction. SRP petitioned and was granted cert by U.S. Supreme Court on the “collateral order appeal” issue. EBA 2018 Annual Meeting & Conference - Michael J. O'Connor 05-08-2018

SolarCity vs. Salt River Project Antitrust Standards District Court Relied Upon – Aspen Skiing vs. Aspen Highlands, 472 US 585 (1985), as the Operative Elements to Determine SolarCity Antitrust Claims. The Four Elements of the District Court Test Whether the defendant SRP had monopoly power; Whether the defendant SRP changed the market; Was SRP decision motivated by a desire to restrict competition; Did the decision have the effect of limiting competition. The Key Affirmative Defense Under District Court Test Whether SRP’s decision was based upon a legitimate business decision. EBA 2018 Annual Meeting & Conference - Michael J. O'Connor 05-08-2018

SolarCity vs. Salt River Project Antitrust Standards After the District Court Ruling, the Ninth Circuit, in Aerotec International vs. Honeywell International, No 14-1556 (September 9, 2016), Clarified Antitrust Standards. In Honeywell the Ninth Circuit Held: Aspen Skiing created a narrow exception to antitrust liability “at or near the outer boundary of liability.” An antitrust defendant need only establish that there was a legitimate business reason for the decision. “Injury must be to competition, not merely injury to a competitor.” EBA 2018 Annual Meeting & Conference - Michael J. O'Connor 05-08-2018

EBA 2018 Annual Meeting & Conference - Michael J. O'Connor 05-08-2018 A Couple of Thoughts This type of litigation was unexpected when filed; The burden of litigation was primarily carried by defendant; SRP is making procedural changes as to how it will conduct price process going forward; The litigation is used as an educational opportunity regarding document management and “common sense” regarding the creation of documents; The litigation was very expensive, very disruptive; This type of litigation requires engaging sophisticated counsel, sophisticated public relations and communications and collaboration between these groups. Constant examination and documentation of a legitimate business purpose. EBA 2018 Annual Meeting & Conference - Michael J. O'Connor 05-08-2018

EBA 2018 Annual Meeting & Conference - Michael J. O'Connor 05-08-2018 Questions? EBA 2018 Annual Meeting & Conference - Michael J. O'Connor 05-08-2018