The California Public Utilities Commission issued a much-anticipated revision to its net metering rules for residential rooftop solar generation Monday, inflaming a controversy that has been growing for months over how much homeowners should be compensated for returning excess electricity to the grid.

The battle has pitted an unusual coalition of large utilities, ratepayer advocates, unions and environmentalists against the rooftop solar industry, trade groups and homeowners who receive generous billing credits for rooftop solar.

Those who want to significantly change the current net metering framework argue it unjustly benefits richer households at the cost of common ratepayers. Those who want to keep it contend changing net metering will decimate household solar adoption in California, where incentives that started in the mid-1990s led to more than a million household solar arrays.

The CPUC has been examining net energy metering (NEM) since August 2020 with extensive input from stakeholders and homeowners. Its 204-page proposed decision published Monday would make some compromises but generally favors those seeking wholesale change by cutting compensation rates, incentivizing home battery storage and promoting solar adoption across a broader socioeconomic spectrum.

“Our review of the current net energy metering tariff, referred to as NEM 2.0, found that the tariff negatively impacts nonparticipating customers; is not cost-effective; and disproportionately harms low-income ratepayers,” CPUC Administrative Law Judge Kelly Hymes wrote. “This decision determines that, to address the requirements of the guiding principles and the findings related to the NEM 2.0 tariff, the successor tariff should promote equity, inclusion, electrification and paired storage, and provide a glide path so that the industry can sustainably transition from the current tariff to the successor.”

The proposed decision is scheduled to be heard at the CPUC’s Jan. 27 voting meeting. The lead commissioner in the effort, Martha Guzman Aceves, will leave before then to become administrator of EPA’s Region 9, while CPUC President Marybel Batjer is retiring. Her replacement, Gov. Gavin Newsom’s energy adviser Alice Reynolds, is scheduled to take office at the end of this month.

Proposed Changes

The CPUC’s proposed changes would revise the structure of net metering, which credits rooftop solar owners for excess electricity they export to the grid. For years, homeowners have received the full retail value of the surplus electricity plus bonuses for producing more energy than they use in a 12-month period.

A new avoided-cost rate would consider the value of behind-the-meter generation to resource adequacy and grid reliability, potentially slashing the reimbursement rate by less than half. It would also impose an interconnection fee that does not currently exist, averaging about $40/month.

“The successor tariff ensures all customers pay for their usage of the grid,” the proposed decision says. It would apply a grid charge of $8/kW of installed solar “to capture residential adopters’ fair share of costs to maintain the grid and fund public purpose programs,” the CPUC said in a news release.

The decision proposes applying time-of-use rates to encourage solar owners to charge batteries during the day and discharge them after sunset, the net-peak hours when California has run short of electricity during heat waves the past two summers.

“More accurate price signals…will promote greater adoption of customer-sited storage, which will help California decrease its dependency on fossil fuels during the early evening hours, when the sun is down and energy demand is high,” the CPUC said.

The proposal would create an equity fund with up to $600 million to “improve low-income customer access to distributed clean energy programs with strong consumer protections,” the commission said. A stakeholder process would determine how the funds are spent, for instance on community solar projects.

One compromise in the proposed decision seeks to address concerns that slashing net metering credits would ruin the rooftop solar industry. A proposed four-year “glide path” for the industry would pay a monthly market transition credit of up to $5.25/kW for new residential solar-plus-storage and solar-only systems.

“Customers will lock this amount in for 10 years,” the CPUC said in its news release. “During the four-year glide path, the credit will step down 25% a year for prospective customers, who will also lock in their amount for 10 years.”

To soften the blow to homeowners, the decision proposes a “storage evolution fund” to provide rebates for existing net-metering customers who add storage systems to their homes and switch to the new net-metering structure in the next four years. Otherwise, it would transition current customers to the new compensation structure after 15 years of continuous interconnection.

Opponents React

Reaction from the solar industry was swift and angry.

“Today the California Public Utilities Commission issued a proposal that will create the highest solar tax in the country and tarnish the state’s clean energy legacy,” the Solar Energy Industries Association said in a statement. “The proposal imposes fees on solar and storage customers, making solar and storage more expensive and less accessible to all Californians. The new program will rapidly reduce the bill credit solar customers get for selling electricity back to the grid, adding unpredictability and instability for customers that already have solar.”

SEIA said the proposed decision would deter residents from installing rooftop solar, “leaving the state’s grid vulnerable to blackouts and power outages and harming California’s ability to reach its clean energy goals.”

“Before today’s decision, about 40% of all rooftop solar installations in California were going to low- or middle-income homes in California, but the new costs and fixed fees are going take away the value proposition for virtually all Californians,” it said. “This will slow the massive momentum the state was building toward a grid powered by clean energy.”

Cutting net metering payments is mainly about boosting utility profits, critics argued.

Main proponents included the state’s three large investor-owned utilities, ratepayer advocates such as The Utility Reform Network (TURN) and environmental groups including the Natural Resources Defense Council.

Pacific Gas and Electric, the state’s largest utility, said the proposal “is a step in the right direction to modernize California’s outdated rooftop solar program. Over time, NEM has resulted in deep inequities between customers with rooftop solar and those without, who are often lower-income customers. Sensible reform is necessary to support customer equity and help continue California’s success toward a clean energy future.”

Independent research firm ClearView Energy Partners said the proposed decision seemed to strike a balance.

“We are still reviewing the 204-page document but think [it] may provide a reasonable middle ground between the different proposals offered by stakeholders earlier this year,” the firm said in a note to clients. “While the [proposed decision] would reduce export compensation, it would also include a 10-year transition credit for customers that deploy distributed generation such as rooftop solar within the next four years.

“That said, a proposal to impose a comparatively high monthly charge on rooftop solar customers may prove very contentious,” ClearView said.

Fights over net metering have occurred in other states, with utilities set against the solar industry.

In July 2020, FERC rejected a challenge to net metering by a purported ratepayer group called New England Ratepayers Association, which argued that the commission had exclusive jurisdiction over sales of rooftop solar power. (See FERC Rejects Net Metering Challenge.)

Hawaii, Indiana, Maine, Michigan and North Carolina have struggled with net metering policies, which were introduced to promote solar when it was rarer and rates were higher. Solar has since become far more common and inexpensive. (See Net Metering Reform Means Asking New Questions.)