Friday, March 30, 2012

Tempe-based First Solar Inc. Facing SEC Scrutiny

Tempe-based First Solar Inc. reported in a regulatory filing this week that it is being investigated by the Securities and Exchange Commission for possibly breaking fair-disclosure rules.

Companies with publicly traded stock must share information with all investors at the same time so that some investors don't have an illegal advantage over others.

Trading company stock on the basis of non-public disclosures can be a violation of insider-trading rules. New fair-disclosure rules were passed in 2000 to prevent companies from selectively disclosing information to certain investors before others.

A violation can bring civil financial penalties.

The company said in its annual filing that it commenced an internal investigation of a possible disclosure violation Sept. 23.

The company said it investigated whether anyone at the company broke the disclosure rules regarding the failure of one of First Solar's projects, the Topaz Solar Farm near San Luis Obispo, Calif., to secure a federal loan guarantee.

First Solar said that after its investigation, conducted by independent outside counsel on behalf of the board of directors, the company appointed a new vice president of investor relations.

Before that executive was hired in November, First Solar's board fired CEO Robert Gillette after two years of service and reinstated CEO Michael Ahearn, who is serving as the interim CEO.

But the SEC informed the company it was conducting its own investigation, First Solar reported.

The company did not provide any further details in its explanation of the investigation, and a spokesman declined to comment.

A day before First Solar announced the loan fell through, Jefferies and Co. Inc. analyst Jesse Pichel said in a note to investors that he did not believe the company would get the loan guarantee.

Pichel said in that note that he was basing his opinion on reports in the trade press regarding the project and a possible buyer, so it remains unclear whether the potential disclosure breach originated at First Solar or with that potential buyer.

First Solar announced on Sept. 22 that it would not receive a $1.9 billion Energy Department loan guarantee for the massive California solar-power plant.

The fair-disclosure rules state that to be in violation, a person making the disclosure "must know (or be reckless in not knowing) that he or she would be communicating information" that was important to company finances and was non-public. The rules also require the disclosure be made public as soon as possible if a violation accidentally occurs.

First Solar eventually sold the Topaz project to power company MidAmerican Energy Holdings Co. of Iowa, a subsidiary of Warren Buffett's Berkshire Hathaway Inc.

First Solar's business strategy has been to make solar panels, and it entered the power-plant development business to line up a pipeline of large power plants to sell its panels into. The company never intended to own Topaz itself.

MidAmerican will sell electricity from the Topaz project through a 25-year deal with Pacific Gas and Electric Co., and the 3,500-acre solar field is located in that utility's California service territory.

The Topaz plant will have a maximum capacity of 550 megawatts, making it the largest photovoltaic solar-power plant in the world, tied with another First Solar project under way.

In direct sunlight, the plant will generate enough electricity for about 137,500 homes, based on averages commonly used by Arizona utilities. California utilities generally estimate lower per-resident power use, and First Solar reports the plant will be able to power about 160,000 homes.

Another analyst, Satya Kumar of Credit Suisse, this week questioned why First Solar was actually building the Topaz power plant to a size of 586 megawatts, and speculated whether it was to compensate for lower-than-expected production from its panels.

The extra 36 megawatts alone could power about 9,000 homes and cover about 500 acres with solar panels.

First Solar spokesman Ted Meyer said the extra 36 megawatts was not to compensate for low power from its panels, but to handle the "parasitic load" between the inverters that change the power to alternating current, and also to compensate for power lost in transformers, power lines and other infrastructure.

He said that oversizing plants in such a manner is common.


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