In a unanimous vote, justices told a lower court to revisit a ruling that upheld reduced payments to solar panel owners for selling excess power back to utility companies. Justices did not rule on whether the changes to the solar program were legal, requiring the court of appeals to determine this.

“They basically said the lower court kind of punted on the whole substance of the [solar payments] decision,” Bernadette Del Chiaro, vice president for California at the Environmental Working Group, said. “I do think they’re clearly stating this needs to be reviewed.”

At issue is a 2022 decision by state regulators to reduce by about 75% payments to solar panel owners for excess power. The change was intended to help make bills affordable for all customers while still encouraging the adoption of renewable energy sources. Three environmental groups that brought the lawsuit — the Center for Biological Diversity, The Protect our Communities Foundation, and the Environmental Working Group — argued in the case that the state utilities commission’s decision left out crucial considerations around benefits to customers and disadvantaged communities. 

“We don’t need [to be in] an affordability crisis if we have more local generation,” Roger Lin, senior attorney fro the Center for Biological Diversity, said.

Utilities pay solar panel owners for their excess power under a program known as “net energy metering.” In previous iterations of the program – “NEM 1.0” and “NEM 2.0” – utilities paid solar customers a retail rate for their extra energy, which is the same price the utilities charge other customers when they resell that energy. This was changed under the current iteration of the program – “NEM 3.0” – which instead gives customers the “avoided cost,” which is how much utilities save by not buying that power on the wholesale market. 

Customers who joined the program after mid-April 2023 receive the new rate, while customers under the prior two versions will continue to receive the old rate for the duration of their contracts, which is typically about 20 years.

Utility commissioners ruled in favor of power companies, which argued that older versions of the program created an unfair cost burden on customers. Those without rooftop solar, utilities said, have to pay more than their peers for routine maintenance to the grid. The groups bringing the lawsuit said this idea is overblown.  A court of appeals upheld regulators’ decision, relying on a legal standard that gives significant deference to decisions made by the California Public Utilities Commission.

Thursday’s decision said the court of appeals “erred” by using this standard.

Whether or not the change in how solar panel owners are paid is legal will be left to the lower courts. But the decision this week could have farther-reaching implications for state utility regulators.

“We appreciate the Court’s careful attention to the appropriate standard of deference for reviewing CPUC decisions,” Terrie Prosper, utility commission spokesperson, said. “We are pleased that the CPUC’s decision will remain in effect as an important part of controlling electricity bills.”

Advocates said the decision reinforces that the utilities commission must ensure that its decisions fit squarely within the law.

“For too long, they really have operated in a black box behind a shroud of complexity,” Del Chiaro said. “Consumers and the planet have consistently lost out as a result of that.”

The fallout from the utilities commission’s 2022 net metering decision included an 82% drop in customers requesting connections for rooftop solar installations, and industry groups expected a loss of about 17,000 jobs during the first year of the change. 

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Under the new policy, utilities will be required to reduce the price households pay for the electricity they use every time they charge a phone or run an air conditioner. That rate cut will vary from between 8% and 18%, depending on the utility, season and time of day, according to the commission’s analysis.

To make up for the lost revenue, regulators have introduced the concept of a “fixed charge,” a break from California electric billing tradition. For decades electric bills from Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric have been the “pay as you go” variety, with households only paying for the electricity they use. 

Starting in late 2025 for SCE and SDG&E customers and in early 2026 for those with PG&E, the state’s investor-owned utilities will be able to charge customers a monthly fee regardless of how much power the customer draws from the grid. So-called fixed charges are a mainstay of electric billing across most of the country, with an average fee of roughly $11.

The new California charge will be $24 for most customers, but lower income households, who already qualify for discounted electric rates, will see fees of either $6 or $12.

The unanimous vote by the California Public Utilities Commission comes after months of heated debate that pitted Assembly and Senate Democrats and Republicans against legislative leadership and the governor’s office, advocates of rooftop solar against labor unions representing utility workers and environmental advocates against one another.

Backers of the billing change say it’s a necessary step to bring down electricity rates in California, which are among the highest in the country. California regulators want all new cars sold to be electric by 2035 and are taking steps to discourage gas-powered indoor appliances. Those goals are hard to square with sky-high electric prices.

The state’s planned “transition to all electric homes, cars and trucks is truly transformative,” said CPUC President Alice Reynolds at today’s hearing. Under the proposed change all customers “will be better off financially if they electrify — whether that’s purchasing an electric vehicle or switching out a gas appliance with an electric one.”

Opponents argue that the change in billing policy won’t move the needle for most households considering dumping their gas-powered cars and appliances, which can cost tens of thousands of dollars, but will instead needlessly discourage energy conservation efforts while punishing rooftop solar customers.

The policy is a departure from 50 years of regulatory precedent in California, which is “if you use more you pay more and that encourages conservation,“ said Loretta Lynch, a former CPUC president and critic of what she sees as a “pro-utility” bias on the current body. Reducing the penalty on high energy use will also have “huge cost consequences down the road” for a grid that already struggles to keep up with summer-time demand, she said.

The ultimate impact of the policy change may be more muted than either side wants to admit, said Merideth Fowlie, a UC Berkeley economist and one of a handful of researchers to initially float the idea in 2021 of an income-graduated fixed charge as one way to pay for reduced electricity rates. 

The three-tiered CPUC-approved change doesn’t vary much by income and its promised rate reductions are relatively modest, said Fowlie.

“Clearly, I’m disappointed, because I don’t think it comes close to where I think we should be in terms of reductions,” she said. “If this forces another conversation — which is, ‘Why are we paying for wildfire risk mitigation, which is essentially climate change adaptation, or some of these major investments in decarbonisation, on bills?’ — I think that’s an important conversation to have.”

Winner and losers in new California utility fee

Though utilities won’t earn any more revenue or profit as a direct result of the change, there will be winners and losers under the new billing program.

The reduced price of electricity will likely save money for people who use a lot of electricity, such as a large household in an AC-dependent part of the state or the owner of an electric SUV, a heat pump and an induction stove. That reduction will be more than enough to offset the cost of the new fee. Many, if not most, low-income households who qualify for the discounted fixed charge will also emerge as financial winners.

But there are sure to be plenty of losers, too. Smaller households, Californians living along the temperate coast, energy conscious customers and people with solar panels on their rooftops are all more likely to see their total utility bills rise. 

That group makes for a powerful political bloc that has fiercely rallied against the regulatory change for months. Many showed up or called in at the commission hearing. 

“The big utility tax will increase monthly utility bills on four million households while doing nothing to encourage electrification,” said Yvette DeCarlo, speaking on behalf of a coalition of environmental nonprofits, tenant rights groups, liberal advocacy organizations and anti-tax activists. 

Severin Borenstein, another Berkeley economist who co-authored the 2021 study with Fowlie, said modeling suggests that the lower electricity rates under the policy will only increase electric vehicle purchases by roughly 5% above what they would otherwise be. 

“It’s in the right direction, though, and I think that we can’t get to where we need to go unless we start,” he said.

The fixed charge policy was included in a budget proposal by Gov. Gavin Newsom’s administration in 2022, but it wasn’t until last year that many state legislators woke up to it. Twenty-one coastal Democrats, led by Thousand Oaks Assemblymember Jacqui Irwin, introduced a bill ordering the CPUC to reverse course. So too did Senate Republican leader Brian Jones. Both efforts were quietly put on ice at the behest of legislative leadership.  

In a letter Jones and the rest of the Senate GOP caucus sent to CPUC president Reynolds earlier this week, the San Diego Republican expressed some skepticism that the state regulatory body could be trusted to keep the fixed charge at its current level.

“We are particularly concerned that this will only be the beginning,” the letter said. “The CPUC has been granted unchecked power to increase this new charge at any time. If the $24.15 plan is approved, the next proposal may see the fixed charge hiked to $50, $100, or even higher!”

More shade directed at the rooftop solar industry

For California’s residential solar industry, the vote is just the latest regulatory broadside. 

Over the last two years, the CPUC has slashed the payments that utilities are required to give to single family homeowners, apartment buildings, schools and businesses that install solar panels. 

That’s based on the argument, advanced by the commission, the regulated utilities and many energy economists, that relatively well-to-do solar customers have been overcompensated in California since the early 2000s, which has had the effect of off-loading the costs of running the grid onto non-solar households.

Advocates for the fixed charge say assigning solar customers an unavoidable monthly charge is yet another way to balance out who pays for major utility line items like wildfire prevention, subsidies for low income households, EV charging networks and distribution system upkeep. 

“What the fixed charge does is ensure that we’re no longer going to have freeloaders,” Scott Wetch, a lobbyist who represents many unionized workers employed by California’s for-profit utility companies, told CalMatters earlier this month.

Outraged homeowners with solar panels were well represented among those who called in to give public comment.

“I have solar panels on the home, which we got right away to cooperate with California’s move to have 100% renewable energy. But yet we’re getting hit with this unfair tax,” Joy Frew, a self-described senior citizen from San Diego County, told the commission over the phone.

“People that really invested in solar trying to do the right thing for the planet — all of a sudden we’re being slapped in the face for doing it,” said a caller named Steve Randall from San Clemente.

Not that every Californian with a solar panel above their head is opposed to the fixed charge. Fowlie, one of architects behind the idea, said her family hopped on the solar bandwagon as a way to bring down their monthly utility bill. 

“I’m gonna be the biggest loser under this proposal,” she said, prior to today’s vote. “I would be in that higher income bracket and I have solar, so my bills would go up. But I think it’s a win for California, so I’m a big supporter.”

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