Invention & Design:
A.C. Rich Module B

Rich began working with the Sacramento Municipal District in 1991. Subsidies available through this program enabled him to reduce the price of his system to $500 apiece. Collaboration with SMUD spurred an increase in sales and revenues (see Exhibit III, ASN's Business Plan, page 9).In January of 1993, Al Rich moved his company to Sacramento.

Unfortunately, the program was shut down twice, once in 1992 for restructuring and again in 1993 to train the energy auditors sent out by SMUD. It was these auditors who provided the leads that Rich and other solar contractors depended on. Rich estimated that ASN lost over $150,000 as a consequence of these shutdowns. Furthermore, sales were far lower than he had hoped--an average of 1.5 per week, insufficient to maintain ASN. He had to sell an 80% stake in his other company, A.C. Rich & Sun (ACRS), for $25,000 to pay off debts.

On February 15, 1995, the Sacramento Municipal District Utility Manager accused ACRS of serious ethical abuses. ACRS did installations and repairs of a number of solar heating systems, not just ASN's. One of ACRS's salespeople had recommended replacement of at least two systems that were functioning well. The SMUD program provided insurance for faulty systems, and that insurance allowed ACRS to file a claim with SMUD for replacing the systems.

ACRS was allowed to continue in the SMUD program, but was put on probation. This meant that their next ten installations could not be paid for until they were inspected by SMUD, a slow process. Furthermore, ACRS was not allowed to replace any damaged systems for six months. More importantly, word was spread that ACRS was not a reliable, ethical company, and the small trickle of leads for ASN systems dried up--sales went from $108,509 in February to $55,169 in April. The two companies shrank from 22 employees to 10.

After looking into the problem, A.C. Rich concluded that his salesman was not acting unethically, he had simply made a mistake. This salesman saw evidence of leaking and assumed this meant that the two systems in question were freeze-damaged. In fact, both of these systems used a drainback design similar to Rich's and so could not have sustained freeze damage. In Rich's opinion, and the opinion of his attorney, it was all an honest mistake for which ACRS and ASN should not be penalized. Rich estimated the losses from this incident alone as about $50,000.

Rich now faces bankruptcy. He has asked for a $75,000 loan from SMUD's Board of Directors, to cover $50,000 in debt and give him a small amount of working capital. Terms would include no loan payments for three months, interest only for six months and a ten-year loan period, with no penalties if part or all can be repaid earlier. Rich's future plans include expansion overseas.

Do you think that SMUD should provide this funding? Keep in mind that there are at least two other companies providing systems for SMUD's customers, but that SMUD also has a national responsibility as a flagship program, illustrating how utilities can save consumers money and create jobs by encouraging environmentally-friendly technologies. Should the market be allowed to decide which companies survive, or is Rich's design so promising and SMUD's manager's treatment so unfair that the SMUD Board ought to bail him out?

Exhibit III: ASN Business Plan