Groups head to California Supreme Court, seeking to upend solar rules

In a few days, three environmental groups — including one from San Diego — get their chance to try to persuade the California Supreme Court to overturn a controversial rooftop solar policy issued by the California Public Utilities Commission nearly three years ago.

“We’ve been working on this for a long time and we hope the court makes the right decision,” said Roger Lin, senior attorney for the Center for Biological Diversity.

The hearing is scheduled for Wednesday in Los Angeles.

The case centers on whether the utilities commission, known as the CPUC, made the legally correct call when it changed the rules regarding how the estimated 2 million rooftop solar customers in California get compensated when their systems generate more electricity than they consume.

In December 2022, the CPUC’s five commissioners unanimously voted to approve the third iteration of the state’s Net Energy Metering program, dubbed NEM 3.0.

The complex 260-page decision included incentives to encourage customers to pair their solar installations with battery storage systems.

But the portion of the decision that raised the most hackles revised the rules so that new rooftop solar customers would no longer be credited at the retail rate of electricity when their systems generated surplus energy. Instead, they get paid at the “actual avoided cost,” which is lower.

The CPUC’s decision, which went into effect in April 2023, said the change sends “more accurate price signals that encourage electrification” across the state.

The commission determined that changes need to be made, agreeing in large part with California utilities who said the earlier NEM rules were too generous.

They argued that the growing number of rooftop installations leads to a “cost shift” that leaves customers who don’t have solar paying an unfair share of the fixed costs that come with maintaining the electric system — substations, transformers, poles and wires, etc.

But opponents of the CPUC decision have long disputed the cost-shift argument, saying that it does not properly take into account the benefits of rooftop solar, such as reducing the need for utilities to spend ratepayer dollars on building more infrastructure.

They also argue that the lower compensation rate undercuts the incentive for potential customers to put solar on their roofs because it will take longer for new customers to recoup the cost of spending thousands of dollars on their installations.

Shortly after the CPUC decision, the Center for Biological Diversity, the Environmental Working Group and San Diego-based Protect Our Communities Foundation tried to overturn NEM 3.0’s rules.

After the CPUC rebuffed the groups’ request for a rehearing, the trio took their case to the California Court of Appeals. But in a 40-page ruling in December 2023, Associate Justice Victor Rodríguez authored a 3-0 decision upholding the CPUC’s decision, saying, “We must give ‘great weight’ to the Commission’s interpretation of the provisions of the Public Utilities Code.”

Rodríguez went on to write, “This uniquely deferential standard of review is accorded the Commission because of its status as ‘a constitutional body with broad legislative and judicial powers.’ “

Undeterred, the three groups petitioned the California Supreme Court to hear their case, and last year the high court agreed. It’s on the docket for oral arguments before all seven justices during Wednesday’s morning session.

“This case revolves around whether the Public Utilities Commission actually looked at the cost and benefits of rooftop solar, specifically,” said Lin of the Center for Biological Diversity, citing a statute passed by the state Legislature that calls on the CPUC to promote the growth of renewable power in the state.

The petitioners also argue the appeals court gave too much deference to the CPUC and the ruling did not go far enough to help disadvantaged communities.

A spokesperson for the CPUC declined to comment on the commission’s defense of its NEM 3.0 ruling, citing the “ongoing litigation,” but referred to the arguments made in the appeals court ruling.

Court observers say it’s very unlikely the California Supreme Court will issue a ruling on Wednesday; rather, a decision is expected in about month or so.

With more than 2 million solar systems atop homes, businesses and other locations, California has more rooftop installations than any state in the nation.

As the new rules are currently written, solar customers who had their systems installed under earlier iterations of NEM still get compensated at the retail rate for 20 years from the time their systems were installed before they are switched to the new rules.

For example, a customer who had a system installed in 2018 gets credited at the retail rate until 2038. But after that, the customer will be credited at the lower NEM 3.0 rate.