Policy & Regulation

California NEM 3.0: Appeals court rejects lawsuit, upholds new rooftop solar policy

California NEM 3.0: Appeals court rejects lawsuit, upholds new rooftop solar policy
FILE—Solar panels sit on rooftops at a housing development in Folsom, Calif., Wednesday, Feb. 12, 2020. California regulators on Thursday, Nov 10, 2022 proposed changes to the state's residential solar market aimed at encouraging more at-home battery systems that can help the electrical grid rely less on fossil fuels in the evenings, especially during heat waves. The state has the nation's largest rooftop solar market with panels on about 1.5 million nomes, according to the California Public Utilities Commission. . (AP Photo/Rich Pedroncelli, File)

A California appeals court has rejected a lawsuit that sought to throw out the state’s new rooftop solar policy. The net metering rules, approved by the California Public Utilities Commission (CPUC) and effective April 15, reduce the credit new solar panel users receive for exporting energy to the grid.

After listening to oral arguments Wednesday, the three judges on California’s First Appellate District Court determined the scope of their review was limited, and that the CPUC had no obligation to figure out the best solution- only to uphold the law.

Section VII of the appeal filed by Center for Biological Diversity et. al against California Public Utilities Commission. Courtesy: California filing A167721

According to the environmental groups filing the appeal, California’s new net metering policy violates legal requirements that say the state must consider the benefits and value of customer-sided generation. However, the CPUC considers itself under no such obligation, and nor did the appeals court.

“We find no error in the Commission’s decision to restrict the calculator to economic benefits conferred on the grid by exported power,” the court concluded. “Because two of the specific benefits cited by petitioners are manifestly social – the avoidance of methane leakage in other states that occurs when the utilites’ need for out-of-state natural gas is reduced by the export of excess power and the reduced use of land for utility infrastructure made possible by distributed generation – they need not be discussed further.”

The appeal filing said the commission ignored a host of rooftop solar benefits, including reducing greenhouse gas emissions, resilience to extreme weather and power outages, and decreasing the need for utility transmission lines. It also said for-profit utilities nationwide are trying to gut rooftop solar programs because distributed energy resources, like rooftop solar, threaten the utility business model.

California’s NEM 3.0 policy slashes customer credits by up to 80% for electricity generated on rooftops and sold back to the grid. Opponents said this has stymied efforts to expand rooftop solar in the state and led to layoffs in the solar industry. Supporters of the policy believe the new incentive structure is more in line with that of the state’s publicly owned utilities.

On Dec. 15, 2022, the CPUC adopted a draft decision that would revise the state’s net energy metering tariff to improve price signals by better aligning them with the electric grid’s conditions, both day and night. The tariff’s updated billing structure is designed to optimize grid use by the tariff’s customers and incentivize the adoption of combined solar and storage systems.

In its NEM 3.0 decision, the CPUC opted for an “improved version of net billing” with a retail export compensation rate aligned with the “value that behind-the-meter energy generation systems provide to the grid” and retail import rates that “encourage electrification and adoption of solar systems paired with storage.”

In May 2023, the Center for Biological Diversity, The Protect Our Communities Foundation, and the Environmental Working Group petitioned the California Court of Appeal to review the policy after the commission rejected the group’s appeal.

The tariff applies to electrification retail import rates, with what it said would be “high differentials between winter off-peak and summer on-peak rates” to new residential solar and storage customers instead of the time-of-use rates in the current tariff. It also replaced retail rate compensation for exported energy with Avoided Cost Calculator values that vary according to grid needs.