In California, large-scale investor-owned utilities and residential solar installers have clashed over rulemaking decisions related to billing structures and regulations for rooftop solar.
Utilities have generally been successful in their campaign to propose rulemaking changes and gain approval from state regulators to make cuts to rooftop residential solar electricity export rates and assess fixed charges on rooftop solar customers.
The state approved about 75% cuts to rooftop solar export rates, known as net energy metering (NEM), which occurred while interest rates rose precipitously. In 2024, rooftop solar installations declined sharply, falling 45%, according to Wood Mackenzie.
Residential solar now appears to be facing a crisis, and policy turmoil in California, which once represented about 50% of the national market, is not helping. Some major residential installers did not survive 2024. This included the bankruptcy of SunPower and Titan Solar Power. Sunnova Energy is now another major player in the market facing turmoil and potential bankruptcy.
Cost shift or net benefit?
The state’s investor-owned utilities have justified the cut to NEM based on the argument that rooftop solar creates a cost-shift, with non-solar customers picking up a bill of about $8.5 billion in 2024 to pay for NEM exports. However, a report from M.Cubed Consulting and the California Solar and Storage Association (CALSSA) found that rooftop solar provided a $1.5 billion net benefit to all California ratepayers.
The California Public Utilities Commission (CPUC) Public Advocates Office (PAO) released a report on how it arrived at the $8.5 billion price tag for rooftop solar. CALSSA and M.Cubed said this analysis was flawed on several fronts.
Four flaws
First, the PAO analysis considers rooftop solar self-generation and consumption a “cost” to the utilities. Generating and consuming electricity onsite in real time results in purchasing less electricity from the utilities. A utility does not incur any additional generation or transmission costs to serve rooftop solar customers, said CALSSA.
“Utilities do not own a customer’s electricity usage,” said CALSSA. “Their monopoly status does not extend behind the meter to cover the electricity a customer doesn’t buy.”
CALSSA argues that the current PAO analysis essentially ensures guaranteed revenue from consumers not buying their product.
By removing these “phantom costs” for self-consumed rooftop solar, $4 billion of the proposed $8.5 billion cost shift is removed.
Another $2.5 billion in costs can be removed from the PAO analysis based on electricity rate calculation errors. The rate errors include underreported solar capacity factors, issues with time-of-use rate reporting and more, which can be read in detail the CALSSA’s report.
Between these two calculation errors, the $8.5 billion cost shift is reduced to $2 billion.
The third major issue in the cost shift calculation is related to errors with assessing a full and accurate accounting of historic benefits of rooftop solar.
Utilities set their customer electricity rates based on how much they expect to spend on transmission and generation assets in the future.
CALSSA said the PAO analysis also ignores the infrastructure cost savings caused by having distributed solar resources on the grid.
The PAO in its analysis uses the “avoided cost calculator” to estimate future cost savings to measure the benefits of rooftop solar that has been built in the past, which CALSSA said is a flawed approach.
“If the first 17 GW of rooftop solar had not been built, utilities would have had to build more grid infrastructure […] ratepayers would still be paying for those expenses in today’s rates,” said CALSSA.
Rather than using the one-year value of solar in the forward-looking Avoided Cost Calculator for the value of previously installed solar, the M.Cubed analysis uses the historic costs of the investments that would have been made if the solar had not been installed. This leads to another $2.2 billion in net savings as compared to the PAO fact sheet. This brings the total to a net grid benefit of $150 million.
The final major flaw of the PAO analysis, according to the report, is ignoring the average of $80 to $160 per month that customers continue to pay after installing solar. PAO’s analysis said that these customers do not cover the utilities’ fixed costs.
“Utility fixed costs are per customer, not per kilowatt-hour of electricity delivered. PAO’s analysis is limited to the kWh of customer generation, ignoring the additional amount of electricity consumed by solar customers, the impact of time-of-use rates, the minimum bill, and the fixed charges,” said the report. “This mismatch undermines the PAO analysis by leaving out perhaps the most important financial contribution of these customers to the utilities’ current costs.”
The PAO analysis ignores the $10 minimum that bill customers pay to utilities, the newly approved $24 per month fixed charge paid by all customers, substantial rates paid by solar customers via time-of-use rates, and the fact that most solar customers generate less electricity than they consumer. All combined, this adds up to an $80 to $160 average monthly bill still paid by solar customers to the utility, depending on utility and net metering regime.
Correcting this error leads to another $1.2 billion in net savings as compared to the PAO analysis, said M.Cubed.
These four major calculation corrections, plus another $160 million correction related avoided subsidies for the CARE program, brings the grand total “cost shift” to a net benefit of $1.5 billion to all ratepayers.
Why are electricity rates high?
Over the last 20 years, despite relatively flat electricity usage, transmission and distribution spending by utilities has increased 300%.
Far outpacing inflation, electricity rates have ballooned in California. CALSSA argues that the fundamental structure of private utilities in the state has created a perverse inventive to spend inefficiently. The more capital that utilities spend on infrastructure, the more they can get electricity rate increases approved. The more rates are increased, the larger the profits.
In a follow-up report, pv magazine USA will continue coverage of this analysis, examining what M.Cubed and CALSSA say are the fundamental reasons electricity rates are sharply on the rise in California.
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