California PUC Proposes Net Metering Reforms To Support Storage, Social Equity

The California Public Utilities Commission (CPUC) this week issued a proposal that would reform the state’s net metering rules for investor-owned utilities and encourage their residential customers to combine energy storage with solar power systems.

The “Proposed Decision determines that NEM [Net Energy Metering] rules must be modernized to incentivize customers to install storage paired with rooftop solar to help California meet its net peak shortfall and ensure grid reliability,” the commission said in an announcement on the proposed decision.

The proposed decision also includes a grid participation charge and provisions aimed at making access to renewable energy more equitable.

While CPUC decisions apply only to investor owned electric and natural gas utilities and not public power utilities, the commission’s effort has a broad impact on the state’s electric grid.

According to the commission, its NEM policies have “enabled 1.3 million customers to install roughly 10,000 megawatts of customer-sited renewable generation, almost all of which is rooftop solar” and have resulted in a reduction of midday demand on the grid by as much as 25 percent. With a total of 25 gigawatts (GW) of installed solar power, needs have shifted. “It is now essential to address grid reliability shortfalls during ‘net peak’ hours,” the commission said.

With its high penetration of solar power, California typically has a surfeit of renewable energy in the middle of the day that falls off as the sun sets and peak demand rises in the evening, requiring sources such as gas-fired power plants to ramp up quickly to fill the peak demand shortfall.

The proposed decision would be the third reform of California’s net metering regime since it was mandated by a 2013 state law, Assembly Bill 327. The CPUC revised the original program in 2016, creating NEM 2.0.

The proposed decision would revise the CPUC’s current NEM rules and create a Net Billing Tariff that the commission says would provide more accurate price signals that would promote greater adoption of customer-sited storage with the aim of helping the state decrease its dependency on fossil fuels during the early evening hours.

Under the new system, a customer would be allowed to “oversize” their solar system to cover 150 percent of their historical load in order to enable future electrification.

Net billing customers would be required to sign up for electric rates with high differentials between peak and off-peak prices in order to incentivize energy conservation or the use of stored solar energy during the net peak window of 6 p.m. to 9 p.m.

The proposal would also move residential customers from annual billing to monthly billing in an effort to help them avoid unexpectedly large bills at the end of their 12-month billing period.

The proposed decision would also establish a Storage Evolution Fund to provide storage rebates to existing NEM 2.0 customers who transition to the Net Billing Tariff in the next four years.

And the proposal would transition residential NEM 1.0 and 2.0 customers, except for low-income customers, to the Net Billing Tariff after 15 years of being interconnected to the electric grid. The aim, the commission said, is to incentivize the adoption of energy storage and “reduce the costs paid by other ratepayers by billions of dollars.”

The proposed decision also includes a bill credit for net billing customers to ensure they can pay for a solar-plus-storage energy system in 10 years or less through electric bill savings. The monthly market transition credit would start at up to $5.25 per kilowatt (kW) for residential solar-plus-storage and solar-only systems and would step down by 25 percent a year for four years. Once locked in, the credit lasts for 10 years.

In its proposed decision, the CPUC also aims to address disparities that have come about because of earlier iterations of its NEM policies. The new net metering regime would adopt a monthly residential Grid Participation Charge of $8 per kW of installed solar in an effort to capture residential adopters’ fair share of costs to maintain the grid and fund public programs.

“An independent third-party evaluation of NEM 2.0 found that its costs substantially exceed its benefits as residential NEM 2.0 participants only pay 9 to 18 percent of what it costs their utilities to serve them, even considering the value of the energy produced by their NEM systems,” according to the CPUC. Meanwhile, ratepayers without net metered solar systems, many of whom are low income, pay “significantly higher electricity rates due to NEM.”

Households without NEM solar systems are estimated to pay $67 to $128 more per year due to the costs of the NEM programs and those costs are likely to increase without reforms, according to a report from the Public Advocates Office,

Under the new NEM regime, California’s investor-owned utilities could expect more revenue to cover grid access and maintenance costs. The commission estimates the grid participation charge less the market transition credit would net a monthly fixed charge in 2023 of $6.38 per kilowatt for customers of Pacific Gas and Electric (PG&E), $8/kW for San Diego Gas and Electric (SDG&E) customers, and $4.41/kW for Southern California Edison (SCE) customers. For a 5kW solar system that would translate into fixed monthly charges of $31.90 for PG&E residential customers, $40 for SDG&E customers, and $22.05 for SCE customers.

In further support of social equity, the proposed decision creates an equity fund with up to $600 million to improve low-income customer access to distributed clean energy programs. A stakeholder process will determine the allocation of funds, which could go toward incentives for distributed storage, community solar in low-income and disadvantaged communities, or other low-income clean energy programs with strong consumer protections. Additional measures aim to provide incentives for distributed solar-plus-storage for low-income and tribal households, including an exemption from the Grid Participation Charge.

The proposed decision will be on the CPUC’s Jan. 27, 2022, voting meeting agenda.