CPUC expected to make changes to net energy metering program

The California Public Utilities Commission (CPUC) opened its proposed Net Energy Metering (NEM) 3.0 program to comments in June and is now working on a revised proposed decision.

Once the decision is made, it will initiate the process to finalize the NEM 3.0 program, which is anticipated to happen – at the latest – by the end of 4Q22.

Seth Hilton, partner in the San Francisco office for the Stoel Rives law firm, told NPM that once a revised proposed decision is reached, which could be at any time, it will go on to the commission for a vote.

However, if approved, he said it is likely to have some impact on development of behind-the-meter solar.

“It will be a significant change to the existing NEM program,” he said.

The impetus behind the revised tariff program surrounded equity concerns. Hilton, and Sage Energy Consulting, explained that California already had net energy metering in place, giving solar facilities a direct discount off their consumption for any energy they pushed back onto the grid.

But the CPUC began looking at NEM 3.0 a year ago after concerns were raised about potential cost shifting. This meant the cost of maintaining the distribution system might be moved from those who could take advantage of net metering to those who could not.

“Customers who are more affluent are able to shift to use solar energy to provide for some or most needs, while low-income residents don’t have that option,” Hilton said, adding that low-income residents may see more non-bypassable charges.

Because of this, the CPUC came out with the proposed NEM 3.0 in 2021 that radically changed the compensation system for solar facilities behind the meter, including what was paid exporting energy back to the grid. According to Hilton, the proposal compensated at the utility wholesale rate rather than what amounted to the retail rate.

The CPUC also proposed a grid management charge that people would have to pay for using, which would go towards maintenance of the distribution system.

“Because that raised so much resistance, that was withdrawn and not voted on,” Hilton said of the initial proposed NEM 3.0.

But then a ruling was made in May asking for an additional round of comments on three issues. The first asked if the CPUC should use an Avoided Cost Calculator (ACC) as an alternative to the Market Transition Credit (MTC). This dealt with the transition path between NEM 2.0 and NEM 3.0.

Hilton said the CPUC contemplated if there would be an MTC paid for a certain period of time under the new tariff. The May ruling also proposed a second option of increasing the wholesale rate of exports rather than providing a straight credit.

“The issue was how to handle the transition from the current NEM tariff, for what it pays for exports, to this new NEM 3.0 which will provide a lot less,” he said. “One of the concerns tied into that is how would this impact the motivation to use behind-the-meter energy storage and what structure might be best to encourage energy storage.”

Comments from the California Energy Storage Alliance (CESA) showed support for the current proposed MTC approach instead of the ACC glidepath.

CESA stated that the transition to include storage with new solar installations relies on a solid glidepath and ensure that behind the meter solar and storage grows to help meet state climate and reliability goals. Given the recent energy storage supply shortages and price increases, which have worsened since the proposed decision was first issued in 2021, CESA pointed out that a fixed MTC approach would “better minimize market and customer disruption and encourage greater adoption of energy storage.”

The second issue opened for comment was regarding the grid management charge and if there would be an imposed non-bypassable charge for rate payers.

However, Hilton pointed out one key question: does the CPUC have authority to propose those charges on self-generation? That is still to be determined.

Enphase Energy submitted comments urging the CPUC to refrain from imposing “economically debilitating grid participation charge (GPC)” and stated that the charge could lead California into a “protracted legal proceeding that will further destabilize an already unstable energy market.”

“Moreover, by disincentivizing solar adoption, this fee would significantly set California back in its ability to achieve its clean energy goals,” Enphase stated, adding that the CPUC should also dispense with the corresponding MTC.

Enphase pointed to the Governor’s Office recognition for new behind-the-meter storage funding in its new revised budget proposal. That proposal recommended USD 970m in new non-ratepayer funded residential incentives. Enphase argued these incentives “should include an adder for low income and disadvantaged community customers” and be allocated to a streamlined program design.

Finally, the third topic for comment surrounded the potential creation of a community solar program based on the new tariff.

“I would suspect it unlikely the commission would develop that in the new proposed decision coming out,” Hilton said, explaining that utilities argued that developing a community solar program based on the NEM tariff would be beyond the scope of the proceeding. Comments from utilities encouraged the CPUC to take up a new community solar program in a separate proceeding.

In a joint filing from San Diego Gas & Electric (SDG&E), Pacific Gas & Electric (PG&E), and Southern California Edison Company (SCE), stated that a new community solar program would more appropriately be dealt with as a policy matter in the Green Access Program Application proceeding.

The filing stated that “the legal impediments to providing community solar projects with net metering arrangements, the insufficient record upon which the commission can develop a community solar program in this proceeding, and the lack of commonality on the attributes and objectives of any such program, demonstrate” that it should be addressed outside of the NEM 3.0 proceeding.

Some of the comments and positions did not change from what parties said about the initial proposed NEM 3.0, according to Hilton.

“Solar companies are concerned about the impact of the program on businesses,” he said. “Others, rate payer programs, are concerned about the impacts of existing and future structure on rate payers generally.”

When asked about the impacts the proposed NEM 3.0 might have on residential and commercial solar, Hilton said it changes the compensation mechanism but that the structure remains to be seen, as well as the ultimate implications of that finalized structure.

“One of the topics addressed a fair amount in comments submitted was how the commission should potentially encourage meter energy storage in addition to solar,” he said. “One argument is we need more storage to make more efficient use of solar and structure should be geared to encourage behind-the-meter energy storage.”

Once the CPUC makes its proposed decision, companies in the state will have a better understanding of where the NEM 3.0 is headed, Hilton said.

*This story was originally published exclusively for NPM subscribers last month.


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