California Public Utilities Commission Issues Proposed Decision Revising Net Energy Metering Tariffs and Subtariffs – Net Energy Metering (NEM) 3.0

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By Benjamin L. Sheinman

On December 13, 2021, Administrative Law Judge Kelley Hymes issued a proposed decision (PD) “Revising Net Energy Metering Tariff and Subtariffs” in the California Public Utilities Commission (CPUC) ongoing rulemaking proceeding to revisit net energy metering tariffs (R.20-08-020). This PD revisits the tariffs for customers who generate their own energy, which were previously adopted by the Commission in D.16-01-044 (NEM 2.0).

“The NEM program is an electricity tariff-based billing mechanism designed to support the installation of customer-sited renewable generation.” (R.20-08-020 at 2) Currently, under NEM 2.0, customers receive full retail rate credit for energy exported to the grid up until the point they start receiving Net Surplus Compensation. Id.  In support of its PD, the Commission relies on a “Lookback Study” to evaluate NEM 2.0. The Commission finds that under NEM 2.0, “the tariff negatively impacts non-participating customers; is not cost-effective; and disproportionately harms low-income ratepayers.” (Proposed Decision at 2) The Commission further determines that the successor tariff (NEM 3.0) “should promote equity, inclusion, electrification, and paired storage and provide a glide path so that the industry can sustainably transition from the current tariff to the successor.” Id. According to the Commission, this successor tariff “ensures that all customers pay for their usage of the grid.” Id.

Nonetheless, multiple stakeholders find some fault with the Lookback Study.  The Solar Energy Industries Association notes that the “Lookback Study [is] not useful in determining the scope and degree of the needed changes and the speed at which changes are implemented because the study only looks at cost-effectiveness from a historical perspective (i.e., backwards looking) and does not look at the ‘many successes of the net energy metering program.’” (Proposed Decision at 35). The California Solar and Storage Association contends “that a number of the study’s assumptions are or appear flawed, and the source code necessary to investigate or replicate the study’s main conclusions is not provided.” Id.  Contrary to the solar industry positions, the Public Advocates Office states that “the Lookback Study shows the NEM 2.0 tariff unreasonably burdens non-participants of net energy metering” (id. at 38) and notes that the “annual cost burden generated by the NEM 1.0 and 2.0 tariffs will be approximately $3.37 billion in 2021.” Id. at 39.

As part of its new tariff structure the Commission has proposed a “Grid Participation Charge” of $8.00 per kW for NEM customers. The Commission suggests this “will lead to just and reasonable rates for all customers.” Id. at 100.  Supporting this charge, the Commission believes that NEM “customers cause costs even when not directly importing energy from the grid.” Id. The Commission is also proposing “highly differentiated” time-of-use-rates to incentivize NEM customers to divert energy use to lower-priced hours. Id. at 96. The successor tariff (as proposed) would be available to all customers and have a high time-of-use priced differential between summer weekday peak and summer weekday off-peak periods. Id. With regard to export rates, the Commission has determined that “export compensation should be based on values derived from the Avoided Cost Calculator.” Id. at 110.  The Commission “recognize[s] adoption of the revised export compensation rates will lead to less export compensation for successor tariff customers as compared to NEM 1.0 and NEM 2.0 customers.” Id. at 116.

As this is only a proposed decision, it has no legal effect unless and until it is heard by the Commission and approved by a majority of the Commissioners.  At this writing, this PD has not been placed on an agenda for an upcoming Commission meeting.  As such, the contents of this PD are subject to change and revision.

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