Dive Brief:

• California regulators on Thursday unveiled the latest version of their proposal to reform the state’s net energy metering, or NEM, tariff, which compensates customers who generate their own electricity and export the surplus back to their utility.
• The new tariff outlined by the California Public Utilities Commission is essentially an “improved version of net billing” that will include a retail export compensation rate that is based on the value that behind-the-meter systems provide to the grid, according to the agency’s proposed decision.
• In December, the commission released – and eventually shelved – its first attempt at revising the NEM framework in a proposed decision that was highly criticized by the solar industry. According to one analysis from Wood Mackenzie, that proposal, if approved, could have cut the state’s residential solar market in half by 2024.

Dive Insight:

More than 90% of behind-the-meter solar capacity sited in the service territories of Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric are on NEM tariffs that regulators approved in 2016. Under that system, customers that export energy back to the grid are compensated at the retail rate. However, regulators have raised concerns that the current system is unfair to customers who aren’t a part of the NEM framework. 

The initial proposed decision released last year concluded that export compensation should not be based on retail rates, which aren’t always reflective of the actual costs of the exports or the benefits they provide to the grid. Instead, it suggested an export compensation rate based on the avoided cost values that behind-the-meter resources provide to the grid. 

The original proposal also recommended a glide path payment to ease the transition of customers to the new tariff, as well as a grid management charge to ensure that NEM ratepayers pay their fair share of distribution system costs, Seth Hilton, partner with Stoel Rives, said in an email. 

The new proposal, on the other hand, would replace that glide path payment with a methodology that increases export compensation by a fixed amount to ease the transition to the new tariff, and drops the idea of the grid management charge, he said.

In addition, the new proposal includes electrification retail import rates with high differentials between winter off-peak and summer on-peak rates, an aspect that was not included in the previous proposed decision. This rate would help send strong price signals to customers to shift their grid energy use to the middle of the day and export electricity in the evening, according to the commission.

“These price signals also benefit customers who electrify their vehicles, home devices, and appliances. The changes will improve the reliability of electricity in California and reduce greenhouse gas emissions,” the proposal notes. 

Solar advocates, however, remained critical of the proposal. The California Solar & Storage Association estimated that based on an initial analysis, it would cut the average export rate in California from 30 cents/kW to 8 cents/kW effective in April.

“The CPUC’s new proposed decision would really hurt. It needs more work or it will replace the solar tax with a steep solar decline. An immediate 75 percent reduction of net energy metering credits does not support a growing solar market in California,” CALSSA Executive Director Bernadette Del Chiaro said in a statement. 

“While the revised proposal eliminates the solar tax and protects current solar customers, it will make transitioning to solar power more expensive,” Environment California State Director Laura Deehan agreed in a press release, stating that at a time when California needs rooftop solar to flourish, it’s risky to cut a key incentive without having a viable alternative in place. 

The proposal was also criticized by Affordable Clean Energy for All, a coalition of 120 organizations that includes California’s three investor-owned utilities. 

“It is extremely disappointing that under this proposal, low-income families and all customers without solar will continue to pay a hidden tax on their electricity bills to subsidize rooftop solar for mostly wealthier Californians,” Kathy Fairbanks, a spokesperson for the group, said in a statement.