On January 28, 2016, the California Public Utilities Commission (CPUC) voted in a 3-2 decision to approve a new tariff that preserves net energy metering (successor tariff). In retaining net metering, the successor tariff will continue to provide net-metered solar customers an important retail-rate credit for the production of surplus solar energy at modified retail rates. The successor tariff is a big win for the solar industry in California, but uncertainty still exists surrounding the implementation and future of some of the successor tariff’s policies, including the imposition of new time-of-use rates for net-metered customers.

Net-Metering Policy Continues and Expands

The CPUC’s decision to uphold the retail-rate credit for new net-metered customers offers a significant financial incentive to solar customers and industry participants in California. Under net metering, a solar customer pays only for the net amount of electricity used from a utility, over-and-above the amount of power generated by the customer’s solar system. If the customer produces more power than it consumes (under both the existing tariff and the successor tariff), the customer is paid for the surplus power at the utility’s full retail rate, regardless of the time of day the energy is produced and consumed. Thus, net-metering customers can avoid paying most fixed costs for the electricity they consume. While the successor tariff continues to assess basic minimum charges on net-metering customers (covering such costs as supporting subsidized rates for low-income customers, energy efficiency and research programs and nuclear decommissioning), the tariff declines to impose on net-metered residential customers any additional fixed charges, such as demand charges, grid access charges or installed capacity fees. However, customers will pay non-bypassable charges on the energy they consume, rather than having those charges netted against the surplus power sold to the utility. Currently, net metering is limited to customers with up to 1MW of load; the successor tariff removes the size limit, as long as the customer pays the interconnection costs.

Time-Of-Use Rates

In addition to the preservation of net-metering, the CPUC’s successor tariff also imposes time-of-use rates (TOU rates) for the first time on net-metered solar customers. TOU rates charge different prices for electricity usage at different times of the day. Once the successor tariff goes into effect, solar net-metered customers will be the first residential customers in California to be subject to mandatory TOU rates. The successor tariff will go into effect by the date that each investor-owned utility reaches its net energy metering program limit of 5 percent of aggregate customer peak demand or July 1, 2017, whichever is earlier. The investor-owned utilities have nearly all reached their limits.

TOU rates are part of an effort to better align the costs of generating and transmitting energy across the electric grid with economic signals. In its decision adopting the successor tariff, CPUC suggests that such an alignment will better encourage residential customers to adjust their electricity use so as to minimize the burden on the grid during times of high demand. However, there is uncertainty over how TOU rates will be implemented and what type of cost impact such rates will have once the successor tariff is in effect. To address this uncertainty, the CPUC opened a rulemaking proceeding to consider technical issues such as peak usage patterns and time period analysis for the future implementation of TOU rates.

The Successor Tariff is Controversial

In voting against the adoption of the successor tariff, CPUC Commissioners Michel Florio and Catherine Sandoval expressed their concerns about a last-minute change in the successor tariff that excluded transmission costs from the list of non-bypassable charges for which solar customers would be responsible. Commissioner Florio suggested that by incorporating such last-minute additional cost savings to solar customers, the proposed tariff failed to take advantage of an opportunity to balance the extra benefits that solar customers receive through net metering and will result in cost shifting to non-solar customers from the typically wealthier solar customers.

Future of Net Metering Policies

The CPUC’s decision to continue net metering in California arrives at a time when public utility commissions in other states are considering the reduction or elimination of generous net-metering benefits. For instance, in October 2015, Hawaii eliminated retail-rate net metering for residential solar customers. Similarly, in December 2015, Nevada enacted a deep reduction in net-metering rates, retroactively applied to existing solar customers—although the retroactivity portion of that decision may be revisited.

In these state utility proceedings, as well as in California, utilities and other stakeholders have argued that net-metering policies penalize non-solar customers by shifting costs away from typically wealthier solar customers onto non-solar customers’ bills. The balance and spread of costs and benefits among solar and non-solar customers will continue to be an important policy issue for the CPUC, especially since the CPUC intends to revisit the successor tariff in 2019.