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California Ends Retail Rate Net Metering for Distributed Generation; Adopts Lower Compensation through New “Net Billing” Program

Client Updates

By a 5-0 vote on December 15, 2022, the California Public Utilities Commission ended retail rate net metering for Californians with distributed generation (including residential solar systems) and replaced it with a new program referred to as “Net Billing” or “NEM 3.0.”  Under the prior programs, customers received credits from their investor-owned utility equal to the full retail rate of electric service for any energy put onto the grid.  Under Net Billing, the credits will now be reduced to the avoided cost rate, resulting in an approximately 75% reduction in credit value, from a range of $0.23-0.30 per kW to $0.05-0.08 per kW.  The order adopting these changes, Decision 22-12-056, was issued in the Rulemaking 20-08-020 docket.1 

The new reduced rate will apply to any customer who does not have a fully completed and signed interconnection application for its distributed generation system on file before to April 15, 2023.  Customers who are able to file their interconnection applications before this deadline will be under NEM 2.0, provided that they also complete the installation within 3 years of the date of their application.  

In addition to the avoided cost credit, customers located outside of the San Diego area will also receive a transition adder of 2.2-4.0 cents, subject to an annual 20% step-down.  The adder is available for 5 years and only to customers interconnecting by the end of 2027.  No adder is available for systems installed on new homes covered by the California Energy Commission’s solar installation requirements.  For customers that enroll in Net Billing during this five-year transition period, the avoided cost credit plus the adder will be set for a 9-year period based on a set table of values (i.e., there is a 9-year period of certainty for the value of the net credit).  Only the original system owner or user enrolled in Net Billing is entitled to the 9-year legacy period.  

Further, customers are also now allowed to overbuild systems by 50% compared to their 12-month historical demand, in part to encourage future deployment of electric vehicle charging.  Prior to this order, overbuilding was not permitted under the net metering rules.  Additionally, customers may build larger systems than permitted by historical usage if they attest that they expect to increase their usage next year by that amount.

The order also provides for the following:

  • Utilities are required to offer highly differential time-of-use rates to net billing customers that are designed to encourage consumption mid-day and export later in the day.

  • Net Billing customers will not be subject to a program-specific fixed charge, which had been under consideration.  Instead, Net Billing customers will pay the fixed charge required by their rate schedule for service from the utility.

We note that there is potential for customer confusion over whether NEM 2.0 or Net Billing applies.  If the customer’s interconnection application is not filed before the April 15, 2023 sunset date, but the system is placed into service before the utilities receive approval for the new Net Billing tariff, that customer will be under NEM 2.0 on an interim basis and then be switched to Net Billing once the tariffs become effective.  Thus, a customer may see NEM 2.0 benefits initially, but have them end shortly later.

The Commission’s order is subject to rehearing, with rehearing requests filed by Californians for Renewable Energy, Center for Biological Diversity, Environmental Working Group, and Protect Our Communities Foundation.


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