California: PG&E, SoCal Edison and SDG&E push drastic net metering rollback, high fixed solar charges

California's big three utilities are trying to cut net metering payments and impose heavy solar fees even as the state is working toward ever more ambitious climate goals.

California's average annual solar resource
Bryn Huxley-Reicher

Former Policy Analyst, Frontier Group

Utilities and powerful special interests are working – often out of public view – to undermine rooftop solar power across America. In this series, excerpted from our report Blocking Rooftop Solar, we tell the stories of five utility attacks on rooftop solar, shining sunlight on the tactics utilities are using to limit the growth of local renewable energy.

California is the nation’s leader in the adoption of solar power. As of the 4th quarter of 2020, the state had 31,288 MW of installed solar capacity, more than any other state, generating 22.7% of California’s electricity. California rooftops host almost 10.5 gigawatts of solar energy capacity.

Strong public policies – such as the state’s renewable electricity standard and Million Solar Roofs program – have helped spur the growth of solar energy in California. Those policies have included utility rate structures that make rooftop solar power a financially viable option for millions of Californians. California will need to ensure that public policy continues to support the growth of the rooftop solar market if it intends to reach its goal of a 100% carbon-free electricity system by 2045.

California residents increasingly recognize the value of solar power to themselves and their state. A February 2021 poll sponsored by the solar industry showed that 71% of state voters want the state to encourage more use of solar power, and another 14% want to at least maintain the status quo. The poll showed that 80% of state voters support net metering, and 64% oppose proposals to reduce net metering benefits for state solar owners.

Despite the importance of rooftop solar, California’s three investor-owned utilities (IOUs) – Pacific Gas and Electric (PG&E), Southern California Edison (SoCal Edison) and San Diego Gas & Electric (SDG&E) – recently proposed dramatic changes to the state’s net metering program that would impose mandatory fees on solar customers and slash net metering payments. The drastic changes pushed by the utilities would eliminate the economic viability of solar power for many Californians, especially those with low to moderate incomes.

California’s strong net metering rules have historically been a key factor in the state’s success in expanding solar adoption. The state put net metering in place in 1995 with Senate Bill 656, which was designed to encourage private investment in renewable energy but included a size limit on systems and a tight cap on total net metering payments. Subsequent legislation in 2001, 2002, 2006 and 2010 raised the net metering cap successively to 5% of peak load, but in 2013, a new bill directed the California Public Utility Commission (CPUC) to develop a successor program to full net metering, which would end in mid-2017.

In 2016, the CPUC issued updated net metering rules (NEM 2.0), which kept the overall system in place but cut credits to solar owners for power they sent to the grid by about 2-3 cents/kWh, in theory to make sure solar owners paid fairly for utility costs related to energy efficiency and low-income assistance programs. The update also required new solar owners to sign up for time of use billing (TOU), which allowed utilities to charge higher rates for power at certain times of the day.

The CPUC committed to review and update net metering rules again in 2019 (NEM 3.0), but this process was delayed by the bankruptcy of PG&E, and then by the COVID-19 pandemic. The CPUC’s decision to undertake a new review was timed in part to coincide with the reduction of the federal solar tax credit from 30% to 26% at the end of 2019 – the CPUC sought to examine whether rooftop solar would need fewer incentives to continue flourishing. The CPUC finally began the NEM 3.0 update process in late 2020 and laid out a timeline to complete the new rules around the end of 2021.

On March 15, 2021, PG&E, SoCal Edison and SDG&E issued their proposal for the next version of net metering. The utilities proposed to impose high solar fixed charges and severe cutbacks to net metering payments, which, combined, would make solar power prohibitively expensive for many Californians. The utilities have proposed the highest fixed charges for solar in the country – SDG&E seeks a charge of almost $91/month on average for residential solar owners, while PG&E seeks $86/month on average and SoCal Edison $56/month on average. The utilities also seek higher monthly fees for government and commercial solar installations. Schools installing solar would need to pay an estimated $3,400/month in SDG&E territory, with SoCal Edison charging $1,100/month and PG&E charging $950/month, under their proposals. In addition, the utilities seek to block solar power owners from rolling unused credits over from month to month, substantially cutting the value of solar power for owners.

Utilities argue that these dramatic changes in solar compensation are justified because net metering shifts some of the cost of maintaining the grid from solar customers to those without solar power. However, utilities typically back up this assertion with calculations that omit or undervalue the numerous benefits that rooftop solar delivers for electricity customers generally, and for society at large.

By producing electricity locally, for example, rooftop solar reduces the need for expensive investments in long-distance transmission capacity. In 2018, California’s independent grid operator, CAISO, canceled $2.6 billion in planned transmission expenditures from its long-term investment plan, citing reduced forecasts of electricity demand “strongly influenced by energy efficiency programs and increasing levels of residential, rooftop solar generation.” Yet, it was not until 2020 that the CPUC moved to ensure that avoided transmission costs are factored into utilities’ calculations of the value provided by distributed solar power.

Rooftop solar delivers an array of other benefits as well. It contributes to the development of a more flexible and resilient power system better able to withstand threats like wildfire – an important benefit in California, which has recently endured widespread power outages to reduce wildfire risks. In addition, a recent national study found that enhanced use of distributed energy technologies such as rooftop solar and energy storage is the most cost-effective route to a clean energy system, generating hundreds of billions of dollars of cost savings by 2050 compared with systems that are more reliant on delivering power long distances over the grid. Indeed, when these and other benefits are factored in, the value provided by distributed solar often exceeds the compensation provided to its owners under net metering.

Under its NEM 3.0 process timeline, the CPUC plans to collect testimony and hold hearings over the next few months as it weighs those proposals, and then plans to issue a final decision on new rates and charges – which could be its own plan, one of the proposals submitted by utilities or other stakeholders, or a combination of plans – near the end of 2021.

To learn more about the efforts of special interest groups to undermine rooftop solar, and about how the public and policymakers can support the continued growth of local renewable energy, read our report: Blocking Rooftop Solar.

Image: Annual average daily solar energy resources in California. Lighter shades indicate less solar energy available, darker shades indicate more. Map courtesy of the National Renewable Energy Laboratory.


Bryn Huxley-Reicher

Former Policy Analyst, Frontier Group

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