California Utilities Still Seek to Destroy Rooftop Solar
Is NEM3 Dead? Really? Finally? Don't Bet On It.
The California Public Utilities Commission has created a pretext on behalf of the major investor owned utilities to gut rooftop solar incentives and penalize feeding distributed clean power back to the grid.
Vigorous activism has resulted in the CPUC delaying more action on the “Solar Tax”: Per the CPUC NEM3 web page: “On August 25, 2022, the Commission adopted a decision extending the statutory deadline in this proceeding to August 27, 2023”
But they’ll be back and next August will come sooner than you think. So read on!
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"NEM3" - Solar Nemesis
The California Public Utilities Commission (CPUC) is considering implementing a plan to penalize owners of rooftop solar panels for feeding power back into the grid in a process known as Net Metering. If this plan, titled “NEM3,” is approved it will decimate forward progress on deploying distributed renewable energy, and will punish homeowners and businesses for installing solar and wind power. This move will benefit only the investor-owned utility companies’ bottom lines and centralized business models, upon which their executive incentives depend.
The CPUC commissioned an elaborate study they say justifies this move, even though the study is incomplete and its methods susceptible to bias. The study, which was created by consulting firm Verdant Associates under the CPUC’s direction, guidance, and funding, leaves out critical measurements and had no outside vetting before it was used to drive the CPUC’s punitive proposal.
Since the study cannot be relied on due to these issues, the entire proposed plan must be considered invalid until proven otherwise.
Otherwise, the CPUC stands to reverse the progress made on distributed clean energy just when aggressive expansion and support to combat the climate crisis is getting more and more urgent.
Negative Impacts of NEM3 on Solar Adoption
Opposition to the plan needs to be vigorous since the negative effects on solar adoption are projected to be devastating.
The Sierra Club told the CPUC that the plan would “’crush the California rooftop solar market’ and its critical role in meeting the state’s climate objectives, improving local resiliency and reliability, and preserving our open spaces.”
PV Magazine writes “Payments to customers for their excess energy could be reduced by as much as 80%, reports the California Solar and Storage Association (CALSSA). Customers of PG&E, who normally would be paid about $0.224/kWh, would now be paid an estimated $0.049/kWh”
And according to the Solar Rights Alliance, “We estimate the average solar user would pay between $300 and $600 per year” and in response to the proposed $.05/kWh net metering rate, Solar Rights says “The CPUC claims this is comparable to the cost of energy from solar and wind farms. If that were true, then wouldn’t the utilities be proposing to also lower our rates to $.05/kWh?”
The last time the CPUC reduced the Net Metering rate paid in California, there was a noticeable drop in new solar installation in California, and when a change similar to the CPUC’s new proposal was made in Nevada adoption of rooftop solar installations dropped by 92% (https://www.brookings.edu/research/rooftop-solar-net-metering-is-a-net-benefit)
Even if the study behind NEM3 was valid, the proposal is in direct contradiction to the Public Utilities Code 2827.1, which says that “in developing the standard contract or tariff, the commission shall … ensure… that customer-sited renewable distributed generation continues to grow sustainably and include specific alternatives designed for growth among residential customers in disadvantaged communities.” CPUC is putting forth a proposal that does exactly the opposite.
Lookback Study Omits a Critical Test
In August of 2020 the CPUC commissioned a “Lookback Study” to assess the results of the current net metering system, “NEM2,” and then used its incomplete results, and only those results, to support the new NEM3 proposal. The study asserts that under NEM2 the utilities are paying too much back to the rooftop solar owners, compared to the benefit to other parties including other rate payers and the utilities, and that it hurt non-solar customers. This one 150-page study is the entire justification for the CPUC’s position.
But the study leaves out a “Societal Cost Test” (SCT) which is called out in CPUC decision 19-05-19, and explicitly recommended by existing law and ruling, to quantify this critical component of measuring solar energy’s benefits.
This test includes the “avoided social cost of carbon” and air quality impacts of solar, so by not including it the CPUC has deliberately ignored vital measurements of solar energy’s public benefit. Omitting this holistic analysis of the cost-benefit of distributed solar and wind power for all California residents is potent evidence that CPUC and PG&E’s intention was to cherry pick data that could be used to do the bidding of the utilities. This is clear bias.
The study’s authors, Verdant Associates LLC, say that the Societal Cost Test (SCT) is still “in testing,” and “the CPUC has provided guidance that the (SCT) is not approved for use in the NEM Lookback Study.” If the SCT is still in testing, then the Lookback Study is incomplete and the NEM3 proposal premature. It must be considered whether the CPUC is rushing NEM3 to end-run the SCT and avoiding reporting data that could show solar energy’s wide benefit to the public.
Since the CPUC is accountable to the voters and citizens of California, its guidance to ignore the Social Cost Test is indefensible as well as a failure to follow legislative guidance.
Sources of Study Bias
Verdant Associates, LLC was started when the pandemic hit and it owes its very existence to one single client, PG&E. PG&E funding is what allowed Verdant to hire staff and stay afloat during the pandemic, presumably working on the Lookback Study.
According to PG&E, “Without PG&E, Buege [Verdant’s founder] said she wouldn’t have been able to hire her former team and grow the company to seven clients. ‘They would’ve faced an uncertain future at the start of the pandemic,” she said. “I was really happy to provide some stability to them and their families.” (https://www.pgecurrents.com/2021/09/23/worth-the-risk-starting-a-business-during-a-pandemic-to-help-pge-achieve-its-sustainability-goals/)
Before Verdant, Buege and her team were with Itron, a large technology company that sells to the utility industry. This longstanding business involvement with investor-owned utilities, and the dependence of a single industry benefactor should be assumed to introduce bias. Even assuming the highest ethical standards, it is too easy for a researcher to arrive at conclusions she knows will please a benefactor. And, since PG&E was directly involved in the study as well, there is even more reason to question objectivity.
There’s solid evidence of this tendency to bias. Clinical drug trials funded by drug manufacturers have been shown to produce more favorable outcomes for the manufacturers (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC156458.) No fiduciary would be allowed to publish a quantitative financial analysis like the Lookback Study if written by a team with business ties to the subject of the analysis. Why should California voters accept a process known to introduce bias, and that doesn’t meet the analysis standards of peer industries like medicine and finance?
CPUC Ignores Challenges
When CALSSA filed comments raising questions about the study’s validity, the CPUC merely said “CALSSA’s contention that the study ‘assumptions are or appear flawed’ does not persuade us; CALSSA and all stakeholders have been given several opportunities to weigh in on the development and drafting of the study. A disagreement on an assumption does not equate to a flaw in the assumption.”
This response is inadequate – “several opportunities” does not mean “sufficient time” and “a disagreement on an assumption” means there are important unanswered issues, and the challenges must be investigated. Assumptions must be vetted by all stakeholders, and CPUC’s dismissive response is unacceptable.
A New Impartial Study Is Needed
If the intention of the CPUC with NEM3 is to use evidence-based objective cost-benefit analysis and refine the net metering program to truly benefit all constituents, the Verdant study cannot be used as the only foundation. But it was used, and the resulting NEM3 proposal authored by E3 Consulting must be thrown out.
To see what a study should look like, this (https://www.impactprinciples.org/sites/default/files/2022-03/Impact%20Performance_Climate%20Change%20Mitigation.pdf) is how the financial industry conducts an analysis for environmental impact investing. Billions if not trillions of dollars ride on these types of analysis and the homework gets done correctly. There’s no excuse for the CPUC doing any less.
Call to Action
Californians’ response to the CPUC, the Governor, and the utilities should be unanimous in rejecting the very basis of the NEM3 proposal based on the Lookback Study and insist on the following changes going forward:
Incorporate the completed full Social Cost Test model
Commission an independent party from academic or federal resources to participate and collaborate directly with the study and analysis designers and implementers (Verdant and E3) to review the methodology and results.
Provide evidence that the models used are reasonably valid (the evidence cited says only that “results were consistent with a sampling of customer bills” which is a meaningless test in this context.)
Throughout the study revision process, hold regular meetings with representatives from all interested stakeholders to discuss the evolution of the model assumptions and parameters.
Obtain and present survey data from both current and prospective solar-equipped ratepayers, as to how they will respond to various changes in the NEM program.
Review the updated Lookback Study and adjust the CPUC NEM3 proposal accordingly.
Contact the CPUC and Governor
It is urgent to make it clear to the CPUC that its proposals cannot go forward based on a flawed study, given the potential for a disastrous impact on solar adoption and climate mitigation. The CPUC needs to come back only after producing an acceptable candidate proposal that relies on properly conducted and validated research.
You can email the CPUC at Public.firstname.lastname@example.org
To contact Gavin Newsom’s office, dial (916) 445-2841 or go to https://govapps.gov.ca.gov/gov40mail