CPUC Proposes Big Changes to Rooftop Solar Payments and Charges

A firestorm of controversy followed the just-released proposed decision from the California Public Utilities Commission that would make big revisions to the compensation paid to rooftop solar owners under Net Energy Metering.

The “enormous” charges and reduced payment are “a big hatchet job to rooftop solar,” said Brattle Group Principal and nationally recognized rate design expert Ahmad Faruqui.

NRDC Climate and Clean Energy Program Senior Scientist Mohit Chhabra countered that the proposed revisions released Dec. 13 balance solar growth with non-solar owners’ costs. He said it gives customers incentives to pair solar and batteries and increases access for lower-income customers.

NEM is the payment credited to rooftop solar owners for generation their systems export to the grid. The proposed “successor tariff” makes seven changes to balance mandates in Assembly Bill 327, rooftop solar compensation’s enabling law.

The PD revises an existing plan that “negatively impacts non-participant ratepayers,” is “not cost-effective” for most customer classes, and “disproportionately harms low-income customers,” Administrative Law Judge Kelly Hymes concluded. A CPUC-ordered study showed a shift of costs to low-income customers and a January 2021’s Lookback Study showed cost shifts in all customer classes, Hymes said.

But those studies were flawed, solar defenders responded. Standard regulatory metrics show retail rate NEM shifts costs unjustly, but better approaches that recognize solar’s reliability value may alter those conclusions. That means the PD may not meet AB 327’s requirement to allow distributed solar “to grow sustainably,” they added.

The Seven Key Changes

The PD’s net billing plan separates import and export charges, phases out the existing NEM plan while protecting the ongoing emergence of a solar-storage market, and provides a 10-year payback to protect the solar industry, Hymes ruling said. It specifically does the following:

• Reduces the export compensation credit from electricity’s retail rate to the annually updated hourly avoided cost, as calculated by the commission, and its netting will be instantaneous;
• Adds 10-year dollar/kW Market Transition Credits for existing residential customers, with higher credits for low-income customers, available over the first four years of the transition of the new tariff and dropping 25% each year to drive adoption, as a “glide path;”
• Imposes Grid Participation Charges of $8/kW on solar owners to cover costs otherwise potentially shifted to non-solar owners for system infrastructure, low-income discounts, and wildfire mitigations;
• Provides more highly differentiated time-of-use rates and allows “oversized” systems of up to 150% of load as incentives to adopt batteries and support transportation and building electrification by shifting usage to reduce demand peaks;
• Introduces an Equity Fund of $150 million per year for four years to finance low-income customers’ access to solar and other clean energy resources;
• Requires rebates over the next four years, declining 25% per year, for customers that include battery storage in their systems, and creates a Storage Evolution Fund financed through utilities’ forecasted savings from the new plan; and,
• Changes the current “grandfathering” of the 20-year NEM compensation agreement for existing customers and new customers to 15 years.

A commission fact sheet showed that NEM payments have enabled an estimated 10 GW of rooftop solar that now provides up to 25% of the state’s midday electricity. But California’s “needs have shifted” and more than the current 10% of customers with solar-storage systems is necessary to support system reliability and reduce peak demand when the sun is setting.

The new NEM shows the current NEM does not have price signals or incentives rewarding customers for adding storage, but costs ratepayers over $3 billion, the commission said. It also fulfills AB 327’s requirement to address evidence that solar owners’ reduced bills allow them to pay no more than 18% of what it costs to serve them, it added.

Reactions and considerations

The “outdated” NEM “has resulted in deep inequities” and this revision’s “more sustainable structure” will allow rooftop solar “to play a significant role in California’s clean energy future,” said Ari Vanrenen, Pacific Gas and Electric spokesperson. PG&E has an estimated 11% solar customer penetration.

The PD’s “focus on low-income customers,” and its effort to reduce “the financial burden on non-solar customers,” are welcome, added Ron Gales, spokesperson for Southern California Edison. SCE has an estimated 10% solar customer penetration.

But for Sunrun, the proposed NEM overhaul “represents California politics at its worst.” It would “decimate the market for solar” and “discourage solar and batteries customers,” according to Sunrun co-Founder and co-Chair Edward Fenster, one of the top U.S. solar and battery services providers.

The “solar-customer fixed fees of on average $700 per year” violate 1978’s Public Utility Regulatory Policies Act and will “cost tens of thousands of jobs,” he added.

PD is full of complexity

“The proposal includes a raft of complex changes which, if approved, would put rooftop solar far out of reach for millions of Californians,” said Susannah Churchill, Vote Solar’s Western Senior Regional Director. The reduced compensation and “discriminatory” solar-only fees “drastically” reduce savings for customers and the system and “move us backward on clean energy.”

“The solar industry will tell you the ‘sky is falling,’” but continued drops in solar and battery costs will sustain it, responded Kathy Fairbanks, spokesperson for consumer coalition Affordable Clean Energy for All.

The central problem with the proposed decision is that to produce the significant benefits it seeks, “the TOU rate time periods should be adjusted to better match customer usage and the daytime rates should be lower,” said Regulatory Assistance Project (RAP) Associate Mark LeBel.

The commission’s calculations and data are unclear, but if the TOU rates are effective, the Grid Participation Charge and Market Transition Credit could potentially be workable, “though there are other options I would consider first,” LeBel added.

Some solar advocates said the Equity Fund was a ruse to make an objectionable PD look compassionate, but LeBel and other rate analysts said it and rebates for adding storage are reasonable steps.

“California faces the impossible problem of balancing competing interests,” said former RAP Senior Advisor Jim Lazar, author of Electricity Regulation in the US: A Guide.

Almost everywhere in the U.S., retail rate NEM “is a reasonable solution,” but California utilities have “fewer and fewer kWh” to pay for infrastructure through variable rates and must use fixed charges, he said. “That will push customers to disconnect from the grid, which happened in Hawaii, and encourages using solar-storage systems in ways that will not support the power system.”

The CPUC will take comments on the PD until Jan. 3, 2022. The commission’s vote is scheduled for Jan. 27, 2022.