California IOUs stick to their guns in seeking reforms to rooftop solar NEM program
As the California Public Utilities Commission continues consideration of a proposed net energy metering (NEM) decision, investor-owned utilities in the state also maintained their ongoing call for the commission to include reforms to California’s rooftop solar NEM program.
In fact, the newly enacted federal Inflation Reduction Act of 2022 contains heftier tax credits that will reduce both the cost of adopting solar energy and the payback period for rooftop solar customers, according to a recent joint filing by Pacific Gas & Electric, San Diego Gas & Electric, and Southern California Edison, the state’s three investor-owned utilities (IOUs).
“Rooftop solar customers will be getting a huge tax break from the federal government, a subsidy that no one expected,” Kathy Fairbanks, spokesperson for Affordable Clean Energy for All, told Daily Energy Insider. “This means there is now no excuse not to reform NEM to make it more fair for everyone and eliminate the unfair cost shift.”
Affordable Clean Energy for All is a coalition of 120 groups, including senior, consumer, low-income, social justice, and business groups, as well as California’s three IOUs. While the members support continued solar adoption in the state, they want the California Public Utilities Commission (CPUC) to reform NEM to eliminate the cost shift that they say occurs at the expense of disadvantaged communities.
Non-solar customers, especially apartment dwellers, low-income residents and seniors on fixed incomes, currently shoulder the costs for solar subsidies that flow to wealthy California property owners, according to the coalition.
“Under the current NEM program, costs toward the electric grid that used to be shared more equitably by all customers are being disproportionately paid by non-solar customers,” according to an Aug. 23 letter the coalition sent to the CPUC.
Without NEM reform, electricity bills are increasing by $12 million a day, the letter says, with non-solar customers having paid nearly $3 billion in higher electricity bills so far this year, or $250 extra per year, per customer, to cover electric grid costs that solar customers no longer pay.
“Without change, this amount will grow to more than $550 a year,” wrote the coalition.
Several other groups that are not coalition members have raised similar concerns, including the Sierra Club, the Natural Resources Defense Council, The Utility Reform Network, the CPUC’s independent Public Advocates Office, and AARP.
For instance, according to the Natural Resources Defense Council (NRDC), rates set by the CPUC for net metering were established when solar needed to be incentivized because of its high installation cost. At that time, the electric grid also needed more power at midday, so solar was more valuable, NRDC said.
But as more and more solar has come onto the grid, the value of power in the middle of the day has decreased while the retail rates — and thus, the value of the net metering credits — have doubled or tripled, NRDC says, noting that today, utilities effectively pay rooftop solar users five times what that energy is worth in California.
And now, with enactment of the Inflation Reduction Act, the rooftop solar industry is gaining more tax credits, according to California’s IOUs.
“All else equal, a 30 percent tax credit (as compared to a 22 percent credit) reduces the cost of solar adoption, thereby reducing the payback period for customers benefiting from the tax credit,” the IOUs said in their Aug. 19 filing with the CPUC, referring to the new law’s provisions reinstating the residential clean energy tax credit at 30 percent — a tax credit slated to decrease next year to 22 percent — and extending the credit through 2033.
The CPUC’s proposed NEM framework released in December 2021 uses the 22 percent tax credit, which the IOUs say are “more generous” and, “therefore, have a direct impact on the modeling of the successor to the existing net energy metering tariffs,” according to the filing by Pacific Gas & Electric, San Diego Gas & Electric, and Southern California Edison.
“The point is that the solar industry is screaming bloody murder about how reforms to reduce the NEM cost shift on non-solar customers will “kill solar.” Clearly that’s not true since the solar companies themselves are acknowledging that this federal bill will buoy the industry and drive rooftop solar adoption nationwide for years to come,” said Fairbanks with Affordable Clean Energy for All.
Grant Smith, senior energy policy advisor with the nonprofit, nonpartisan Environmental Working Group (EWG), in an email on Tuesday told Daily Energy Insider that EWG is opposed to NEM reforms because the utilities “are essentially proposing to kill the customer-owned/rooftop solar market in California.”
“The utilities claim that solar customers are not paying their fair share of electric system costs and are shifting those costs onto customers without solar,” wrote Smith. “They are attempting to use low-income customers as a divide-and-conquer strategy. However, 600 organizations… have not bought into that argument.”
At the same time, however, the enacted $737 billion Inflation Reduction Act has solar companies predicting blockbuster growth based on the bill’s hundreds of billions in subsidies for clean energy, including for rooftop solar.
For example, Mary Grace Powell, CEO and director at the San Francisco-based solar company Sunrun, noted during the company’s Aug. 3 second-quarter earnings call that passage of the bill provides a significant “opportunity for robustly quicker growth.”
So the solar industry’s claims that the IOUs are trying to kill solar are “baseless and sensationalized protests,” according to Affordable Clean Energy for All, which says the CPUC should immediately enact meaningful NEM reforms.
“It’s been 10 years since the legislature mandated the CPUC to fix the cost burden on non-solar customers, and it’s been 254 days since proposed reforms were released last December,” the coalition wrote in its recent letter to the CPUC.
“The solar industry’s claim that proposed reforms are discriminatory is not only false, but offensive to the millions of customers who have been paying an unfair and effectively regressive tax on their electric bills for years to fund the excessive subsidies mandated by this program,” wrote the coalition.
