The California Supreme Court May Save California Solar

The Trump Administration’s ending solar and wind subsidies Is generating criticism. It substantially discourages solar installations by making them less economical without the tax credits. However, the three large California public utilities, Southern California Edison, Pacific Gas & Electric, and San Diego Gas & Electric, through the California Public Utilities Commission two years ago, threw cold water on the California solar industry. California strongly supports solar energy, except when it doesn’t. All new residential buildings up to three stories must include solar. Developers are building four story multi-unit housing. Solar energy generated on the grid is sold and transmitted to the utility. The customer then repurchases electricity from the grid at the designated price at that time. California originally favored solar energy through a favorable credit program. California’s Net Energy Metering (NEM) plan sets the rates the three large public utilities will pay per kwh (kilowatt hour) for solar and the billing rate for energy from the grid. NEM applies to both retail and commercial customers. The first plan, NEM I, was effective in 1996. It allowed a 1:1 tradeoff. A unit of solar could be applied to any KWH drawn from the grid. For example, solar generated at 3:00pm could offset a draw from the grid at the peak time, such as 8:00pm. Consumers with positive balances at the end of the year receive a cash payment for the balance. NEM 2 from 2016-2023 partially changed the payout. The utilities will continue to purchase excess electricity at the going rate, but resell at peak time at the higher peak time rate. The 1:1 tradeoff no longer exists. This is the NEM 2 current rate schedule: Summer Weekdays Weekends Mid Peak: 4-9 PM .60 .48 Off-Peak: 9PM-8 AM .37 .37 Super Off-Peak: 8AM-4PM .37 .37 Winter Weekdays Weekends Mid-Peak: 4-9PM. .53 .53 Off-Peak: 9PM-8AM .40 .40 Super Off-Peak: 8AM-4PM .36 .36 Solar panels applied for after April 14, 2023 are placed in the new NEM 3, the “Net Billing Tariff,” under which new solar owners will no longer receive the retail price for that time, but the utilities’ avoided costs; i.e. what the utilities could pay in the wholesale market for electricity, which could be 75-80% lower than the retail price. The owners then pay the retail price for any electricity they consume during the peak period of 4-9pm offset by the discounted credit. In short, they are selling low and buying high. The result is that newer solar customers will probably owe a balance, perhaps high, to the utility at the end of the year. Consumers understand the basic economics. One goal of the new plan is to encourage solar users to install batteries to store the excess solar generated during the day, but the subsidies for batteries have also ended. Californians currently generate more energy in the warm afternoons than the utilities can store in their increasing battery capacity. Customers in NEM 1 and NEM 2 are grand parented into their existing plans. If they find their existing solar installation is inadequate, their ability to add more panels is limited. If they add 1KW or 10% or over of the original capacity, they will then be moved into NEM 3. The effect of NEM 3.0 is a substantial reduction in solar installations. Solar installations under way reached record levels before the new rates went into effect April 15, 2023. Then they plunged in the first quarter of 2024 to about 8,000/month, the lowest since May 2020. On the other hand, 60% of the new installations also installed batteries. The utilities claim the two earlier NEMs gave an unfair advantage to solar users because the non-solar customers had to pay more to cover maintenance on the grid. The PUC and the utilities ignore the fact that the solar users invested a large sum into the solar panels and set-up. The payback period has substantially increased, making solar less attractive. A spokesperson for the twice bankrupt Pacific Gas & Electric Company said PG&E is “a strong advocate for solar energy and the deployment of solar energy that uses the sun in ways that are cost-effective for all of our customers.” Solar installations are limited to 115% of peak capacity. We could only install 10 panels because we now had an empty nest and were electrically frugal. We would like to add a few more panels today, which the new rules effectively preclude. We would move into NEM3. The three utilities want consumers to install storage batteries on their residences, another still high cost to be imposed on solar owners. The Center for Biological Diversity, Environmental Working Group, and Protect Our Communities Foundation filed against the NEM 3. The California Court of Appeals tossed the lawsuit, looking to a 1911 statute which barred lawsuits so long as the PUC had “regularly pursued its authority.” It barred any further reviews of the PUC’s action. The California Supreme Court had interpreted the statute to mean the PUC’s “interpretation of the Public Utilities Code should not be disturbed unless it fails to bear a reasonable relation to statutory purposes and language.” The Court of Appeals applied a “uniquely deferential” analysis. The California Supreme Court on August 7, 2025 unanimously reversed the Court of Appeals. The Court looked to more recent enactments that adopted an abuse of discretion standard. It reversed the Court of Appeals and remanded the case. The Court of Appeals will now have to look at the merits, but may still decide for the utilities.