By: Gustav Gulmert

The California Public Utility Commission (“CPUC”) previously incentivized Californians to use rooftop solar panels by financially crediting users at a market rate for the excess power their panels sent back onto California’s electricity grid.[1] Under the Million Solar Roofs Initiative of 2006, California’s solar credit system, called “net-metering,” quintupled in participants and achieved its goal of a near 50% drop in the average operational costs of residential and non-residential solar panel systems by 2014.[2] Meanwhile, for-profit public utility companies led a multi-state organized push to end the practice because the corporations believed net-metering shifts an unfair burden of costs onto homeowners who could not afford solar.[3] Last December, the CPUC passed new metering rules changing future customer solar panel credits from market rate to “actual avoided cost,” the difference in value between the retail rate of electricity and the retail rate of solar-produced electricity.[4] The California Solar & Storage Association calculates the new rules to be a 75% reduction in the average compensation rate compared to the prior regime.[5] On May 3, 2023, three incensed environmental organizations petitioned the California Courts of Appeal to discard the decision for violating AB 327, a 2013 net-energy metering law, by failing to protect the sustainability of the solar incentive program and to recognize its total benefits.[6]

The Petitioners argue the CPUC abused their discretion in promulgating the new rules for two main reasons. First, under Section 2827.1(b)(3) of AB 327[7], the Commission is required to account for and balance all benefits and costs of distributed electricity generation in issuing new rules, but the environmental organizations claim the CPUC’s “actual avoided cost” regime fails to factor in the “quantifiable benefits of increased resiliency, avoided out-of-state methane leakage, avoided land use impacts and avoided transmission costs.”[8] The CPUC counters that the Petitioners failed to give approximately equal weight to total cost, and the Commission interprets the operative language of Section 2827.1(b)(3) as narrower and more limiting for what constitutes “fair balancing” considerations in determining net-energy metering rates.[9] The for-profit companies advocating for the new Avoided Cost Calculator (“ACC”) argue the CPUC reasonably interpreted the statute to mean the ACC accounted for tangible benefits to the grid, and the ACC does not need to encompass the Petitioners’ enumerated generalized societal benefits.[10]

Second, the Petitioners claim Section 2827.1(b)’s mandate to ensure “customer-sited renewable distributed generation continues to grow sustainabl[y]” is violated by the CPUC’s solar credit cut.[11] The CPUC and for-profit public utilities react by outlining how the CPUC balanced the need for continued sustainable growth with ensuring total benefits to all customers with or without panels by reducing the cost discrepancy between them.[12] For both contentions, the applicable deference standard and reasonableness test likely sides with the CPUC due to “the agency’s expertise, longevity of the CPUC’s interpretive position, and the contemporaneousness of that position with enactment.”[13] The CPUC’s evidence demonstrates their policies are reasonably related to the statutory purpose and language, and their interpretation of the language has lasted since enactment of the policy.[14] The ACC will probably not become one of the very few CPUC decision reversals.[15] In light of the odds, the solar panel industry must brace for the impact of the ACC.

 California’s rooftop solar industry ballooned in a last hurrah sales scramble to submit orders under the old incentive system until April 14^th, 2023.[16] If the ACC is upheld, then new solar panel providers throughout California may soon see the solar market struggle.[17] The Solar Energy Industries Association predicts these final projects will be fully built within 18-24 months, followed by a drop-off in solar installations drastic enough to shrink the national growth of solar adoption.[18] The CPUC Commissioner, John Reynolds, expects a decrease in the number of solar systems connected, and average solar-powered residential customers of the major utilities will earn around only $100 a month or $136 a month with solar batteries under the ACC.[19] The new rules incentivize the usage of battery storage for solar power captured in daylight because the ACC payment will be higher overnight during peak hours when there’s little solar energy and greater grid electricity consumption.[20] Although the solar battery industry is predicted to profit from increased demand, solar panel providers are concerned lower financial incentives will permanently reduce demand after this last batch of installations under the old rules.[21] The advent of ACC will likely permanently alter the skyrocketing solar panel adoption within California, and time will tell whether the CPUC’s equitable considerations are worth jeopardizing solar’s success.

[1] See Nichola Groom, California Reduces Rooftop Solar Incentive It Says Favored the Rich, Reuters, (Dec. 16, 2022, 1:02 AM), https://www.reuters.com/world/us/california-vote-hotly-debated-change-rooftop-solar-policy-2022-12-15/ (stating solar panel credits for excess power were “at or near the full retail electricity rate.”).

[2] Lindsey Hallock & Michelle Kinman, California’s Solar Success Story: How the Million Solar Roofs Initiative Transformed the State’s Solar Energy Landscape, Env’t Cal. Rsch. & Pol’y Center Ed., Frontier Grp. 5-6 (2015), https://publicinterestnetwork.org/wp-content/uploads/2015/07/CA_Solar_Success_scrn_FINAL_7-7-2015.pdf.

[3] See Clark Mindock, Greens Sue California Over Changes to Rooftop Solar Incentives, Reuters, (May, 4 2023, 7:30 PM), https://www.reuters.com/legal/greens-sue-california-over-changes-rooftop-solar-incentives-2023-05-04/#:~:text=(Reuters)%20%2D%20Environmental%20groups%20have,in%20violation%20of%20state%20law.

[4] See Rob Nikolewski, Environmental Groups Look to Overturn Changes to California Solar Rules, San Diego Trib., (May 4, 2023, 3:20 PM), https://www.sandiegouniontribune.com/business/story/2023-05-04/environmental-groups-look-to-overturn-changes-to-california-solar-rules (mentioning that the CPUC’s policy reasoning for its net-metering policy change is to ensure monopoly utilities are no longer forced to charge more to lower-income customers who can’t afford solar).

[5] CALSSA Statement on CPUC’s Revised Proposed Decision on Solar Net Metering, Cal. Solar and Storage Ass’n (Nov. 10, 2022), https://calssa.org/press-releases/2022/11/10/calssa-statement-on-cpucs-revised-proposed-decision-on-solar-net-metering.

[6] Sammy Roth, Environmentalists Sue California Over Reduced Solar Incentives, L.A. Times, (May 4, 2023, 6:00 AM), https://www.latimes.com/environment/newsletter/2023-05-04/environmentalists-sue-california-over-reduced-solar-incentives-boiling-point; Petition for Writ of Review; Memorandum of Points and Authorities at 1, Center for Biological Diversity v. Pub. Utils. Comm’n (Cal. Ct. Ap. 1 Dist. 2023), https://www.biologicaldiversity.org/programs/energy-justice/pdfs/CA-Public-Utilities-Commission-Petition-Rooftop-Solar-05-03-2023.pdf (naming the environmental organizations as The Center for Biological Diversity, Environmental Working Group and the Protect Our Communities Foundation).

[7] Cal. Pub. Util. Code § 2827.1 (West).

[8] See Id.; Pet. Writ Review; Mem. P. & A., Center for Biological Diversity, 23, 42, 45, (2023).

[9] See Answer of Respondent to Petition for Writ of Review at 18, 21, Center for Biological Diversity v. Pub. Utils. Comm’n (Cal. Ct. Ap. 1 Dist. 2023), (No. A167721), 2023 WL 4422787 (emphasizing Petitioners central support cases, Center for Biological Diversity v. National Highway Traffic Safety Administration and Citizens for Clean Air v. EPA, are both distinguished since the balancing is under a reasonable, approximate, and sustainable standard).

[10] See Answer Real Parties in Interest to Petition for Writ of Review at 36-37, Center for Biological Diversity v. Pub. Utils. Comm’n (Cal. Ct. Ap. 1 Dist. 2023) (No. A167721), 2023 WL 4422786.

[11] See Petition for Writ of Review; Memorandum of Points and Authorities, supra note 6, at 69-73 (recognizing sustainably growing the rate of rooftop solar adoption requires CPUC to not reduce the financial incentive to adopt solar).

[12] See Answer of Respondent to Petition for Writ of Review, supra note 9, at 37; See also Answer Real Parties in Interest to Petition for Writ of Review, supra note 9, at 51 (arguing that the “shrinking pool of nonparticipants” in the solar panel program who deal with the “financial burden” of subsidies is another sign of the current programs unsustainability).

[13] New Cingular Wireless PCS, LLC v. Pub. Utilities Com., 246 Cal. App. 4th 784, 812 (Cal. Ct. App. 1 Dist. 2016) (citing Yamaha Corp. of Am. v. State Bd. of Equalization, 19 Cal. 4th 1, 11-13 (Cal. 1998)); See generally Clean Energy Fuels Corp. v. Pub. Utilities Com., 227 Cal. App. 4th 641, 649 (Cal. Ct. App. 4 Dist. 2014), Ames v. Pub. Utilities Com., 197 Cal. App. 4th 1411, 1418 (Cal. Ct. App. 1 Dist. 2011) (creating the fails to bear a reasonable relation test), S. California Edison Co. v. Pub. Utilities Comm’n, 85 Cal. App. 4th 1086, 1096 (Cal. Ct. App. 2 Dist. 2000).

[14] See Answer of Respondent to Petition for Writ of Review, supra note 9, at 17, 21, 25, 27, 37, 42 (emphasizing CPUC’s decision making process was rooted in reasonable relation to the statute and long-held interpretations of the statute).

[15] See Thomas J. McBride, Summary of California Supreme Court and Court of Appeal Opinions Reviewing Decisions of the California Public Utilities Commission, Downey Brand LLP (Apr. 18, 2022), https://www.downeybrand.com/publications/summary-of-california-supreme-court-and-court-of-appeal-opinions-reviewing-decisions-of-the-california-public-utilities-commission/ (recognizing less than twenty Court of Appeal reviews of CPUC’s decisions have been successful among countless petitions).

[16] See Sammy Roth, Two Weeks Until California Slashes Rooftop Solar Incentives, L.A. Times, (Mar. 30, 2023, 6:00 AM), https://www.latimes.com/environment/newsletter/2023-03-30/two-weeks-until-california-slashes-rooftop-solar-incentives-boiling-point; Julian Spector, How the Rooftop Solar Industry is Adapting to California’s New Rulebook,Canary Media, (Apr. 26, 2023), https://www.canarymedia.com/articles/solar/how-the-rooftop-solar-industry-is-adapting-to-californias-new-rulebook (“Some installers quadrupled the number of quotes they generated for customers.”).

[17] New NEM 3.0 provisions ‘will cut California solar market in half by 2024, Wood Mackenzie, (Jan. 25, 2022), https://www.woodmac.com/press-releases/nem-3.0-pd-will-cut-california-solar-market-in-half-by-2024/ (predicting the solar residential market to shrink to half of its current size).

[18] Solar Market Insight Report Q2 2023, Wood Mackenzie & Solar Energy industries Association, (July 8, 2023), https://www.seia.org/research-resources/solar-market-insight-report-q2-2023.

[19] Ivan Penn, California Reduces Subsidies for Homes With Rooftop Solar, N.Y. Times, Dec. 15, 2022), https://www.nytimes.com/2022/12/15/business/energy-environment/california-rooftop-solar-subsidy.html (stating the new compensation rates under the ACC as a 75% reduction in compensation).

[20] Faith Foushee, Net Metering Changes in California: How Will They Impact You?, CNET (Feb. 18, 2023, 6:00 AM), https://www.cnet.com/home/energy-and-utilities/net-metering-changes-in-california-how-will-they-impact-you/; see also Sammy Roth, Two Weeks Until California Slashes Rooftop Solar Incentives, L.A. Times, (Mar. 30, 2023, 6:00 AM) (“[S]olar companies … expect the number of customers who install a battery alongside their rooftop panels to rise form 19% to 71%.”), https://www.latimes.com/environment/newsletter/2023-03-30/two-weeks-until-california-slashes-rooftop-solar-incentives-boiling-point.

[21] See Roth, supra note 16 (noting the 90% of the solar industry expects some type of harm from the new rules, but some solar companies expect the 71% of new customers will add solar batteries to new installations).