Later this year, the California Public Utilities Commission expects to update the rules over how owners of rooftop solar systems are compensated. If the past is any indication, the debate will be a fierce one between the state’s utilities and the solar industry.
Monday marked the day the two sides — as well as other interested parties in the debate — had to turn in proposals to the commission concerning net energy metering.
The big three investor-owned utilities — San Diego Gas & Electric, Southern California Edison and Pacific Gas & Electric — turned in a joint proposal that looks to resolve their complaints that net energy metering results in a “cost-shift” that unfairly burdens customers who do not have solar installations at their homes and businesses. “The structure to compensate solar customers is in desperate need of reform,” said Scott Crider, SDG&E’s chief customer officer.
Advocates of solar filed their own proposals Monday, saying the changes the utilities want will undercut the industry’s growth. “The real issue at hand isn’t so much a ‘cost-shift’ as the utilities claim but a ‘power shift’ from utility to consumers and small businesses” who install solar, said a statement from the Save Solar Campaign, a group that includes the California Solar and Storage Association and the Solar Rights Alliance.
Net metering rules last updated in 2016
Under net energy metering, or NEM, when a rooftop solar system generates more energy than the homeowner or business actually consumes, customers can sell the excess back to utilities via the grid and receive credits on their bills.
Net metering has been a flashpoint that often pits utilities against the solar industry.
Solar’s backers say distributed energy from rooftop systems helps lower strain on the grid, reduces the need to buy electricity during high times of demand and assists the state’s goals to reduce greenhouse gas emissions.
Utilities in California have argued that net metering as currently written allows customers to use the grid 24/7 while effectively selling the power produced by their rooftop systems at the full retail rate.
California’s net metering system was set up by the public utilities commission in 1995 when there were only about 10,000 home-based solar systems in the state.
In 2016, the CPUC passed what has been called NEM 2.0, which modified the rules. In an indication of how much passion net metering can generate, some 130,000 petitions from solar supporters flooded the CPUC ahead of its vote. Part of the NEM 2.0 decision — which ran more than 150 pages — included the commission agreeing to keep credits tied to retail rates, rather than the less expensive wholesale rates, providing a big win for backers of solar.
Now, five years later, the CPUC plans to implement a further update to the program — NEM 3.0.
More than a million California homes, schools and businesses have installed rooftop solar. More than 210,000 customers in SDG&E’s service territory have solar — a penetration rate of 16%, which the utility says is the highest per capita in the continental United States.
The cost-shift debate
When customers look at their monthly bills, a big chunk is associated with “fixed costs” — things like the wires, substations, transformers and even customer service costs — that come with running the grid.
Under net energy metering, solar customers can offset most, if not all, of their bills. As more customers put up rooftop solar, utilities have long said that means the fixed costs are spread over a smaller number of customers who do not have solar and those non-solar customers end up paying higher bills — hence, a cost-shift.
The issue was mentioned in a recent white paper put out by the CPUC, as well as a study by the nonprofit Next 10 and UC Berkeley that looked at rising electricity rates in the state.
“Lower- and average-income households bear a greater burden,” the Next 10/Berkeley study said. “These households are increasingly having to cover fixed costs from a shrinking base as wealthier customers leave for rooftop solar.” The study said that translates into average bill increases of $230 per year for SDG&E customers and $124 for SDG&E customers on the California Alternate Rates for Energy, or CARE, program.
The California Solar and Storage Association dismissed the cost-shift argument, saying utilities have long pushed up infrastructure and transmission costs “in order to generate tremendous profits and payouts to shareholders” and cited the CPUC white paper that mentioned that under the system that guarantees power companies a rate of return, they “are inherently incentivized to make investments to drive an increase in their rate base and therefore, their profitability.”
Changing the rules for new solar customers?
The joint proposal submitted by SDG&E, Southern California Edison and PG&E calls for changes that would affect only new solar customers, not existing net metering customers.
Among the suggestions: While the existing system allows solar owners to “bank” the credits they get from producing excess solar over the course of a year, customers would “true-up” their accounts on a monthly basis instead. Also, the credits for new customers could only be used in roughly the same time period of the day that the solar was actually generated.
“We are still providing a compensation to customers if they have credits if they are over-generating,” Crider said, “but it’s much more closely tied to the actual cost of power.”
The proposal also calls for reducing fixed charges for lower-income customers who want to go solar.
The California Solar and Storage Association’s proposal to the CPUC included measures to increase the pairing of solar with battery storage systems, which allows customers to save up excess energy and release it when electricity prices are at their peak, such as the 4 p.m. to 9 p.m. period.
The group blasted a pair of other items in the utilities’ proposal. The first is a proposed Distributed Generation Successor Tariff that would work out to about $24 a month for an SDG&E customer. Plus, a proposed Residential Grid Benefits Charge that would charge an SDG&E customer about $11 per kilowatt on a solar system.
With an average 6-kilowatt system, that would work out to $66 per month, said Brad Heavner, CalSSA’s policy director.
“Sixty-six plus 24, that’s 90 bucks,” Heavner said. “We allow the room for (battery plus storage) to develop without a monthly charge. Ninety bucks a month, just to be a solar customer is going to prevent that from happening.”
Consumer groups, such as the Public Advocates Office and The Utility Reform Network, or TURN, also filed NEM 3.0 proposals Monday.
As for the timeline on a decision, workshops and hearings will be held and briefs will be filed in the coming months to debate the various proposals. A proposed decision is expected by the end of the third quarter, which will go before the CPUC’s five commissioners for a final vote.
Following a model in the Coachella and Imperial valleys
“Our proposal addresses the drawbacks with the existing NEM program and lays the groundwork for a modern and equitable distributed generation program,” the utilities’ proposal reads, pointing to their claims that lower-income ratepayers shoulder unfair costs and that net metering is a subsidy.
But for the Coachella Valley solar industry, the proposal appeared as a thinly veiled attempt to push through similar utility-friendly measures they already fought locally.
Vincent Battaglia, founder and CEO of Palm Desert-based solar company Renova Energy, lambasted the move, likening it to a program the Imperial Irrigation District rolled out in 2016. Similar to IID’s system — called net billing — the proposal unveiled Monday could lower the amount of money paid back for excess electricity that rooftop solar kicks out onto the grid.
“They’re turning to IID’s net billing, and net billing eviscerates the ratepayers’ chances of getting lower cost, competitive electricity from solar,” Battaglia said, raising concerns that the incentive shift could lead to a slowdown in new solar around California.
IID data analyzed by The Desert Sun indeed showed that the installation of new rooftop solar systems significantly slowed in IID’s service area after net billing began in mid-2016. Between 2014 and 2016, the district logged 3,274 new solar connections — meaning a home or an apartment complex, for example, added panels and linked into the grid — but that number fell to 1,259 in the three years after.
Battaglia pointed to other suggested changes he said would hurt rooftop solar. These include limiting both the size of such systems and the flexibility for when rooftop solar owners can receive credits back from utilities.
“This net metering 3.0 proposal that (utilities) are putting out for ‘modernization’ is clearly a barfight,” Battaglia said. “It’s tantamount to breaking a glass bottle and saying ‘it’s our way or the highway.’”
Desert Sun reporter Mark Olalde contributed to this report. He can be reached at molalde@gannett.com.
