State Supreme Court grants review of lawsuit against NEM3 rooftop solar decision

This week, the State Supreme Court granted review of the lawsuit appealing the California Public Utilities Commission (CPUC)’s December 2022 “NEM3” decision. The lawsuit called for the CPUC’s decision to be overturned on the grounds that the CPUC’s decision violates both the law and their own rules.

This comes after the State Court of Appeal in San Francisco rejected the lawsuit on On December 20, 2023. The State Court of Appeal did not rule on whether the CPUC’s decision was right. Rather, it held that precedent requires the court to give the CPUC “a strong presumption favoring the validity of a Commission decision.” This means the court is inclined to defer to the CPUC so long as their decision fits reasonably within whatever the law says.

We believe the State Court of Appeal erred in its decision, and are glad the lawsuit is being escalated to the State Supreme Court. The real world impact of NEM3 is beginning to unfold in the form of cratering consumer adoption of solar, job losses, and business bankruptcies. Some politicians actually have to deal with voters (unlike the CPUC), and they may have to respond to that real-world effect. So rooftop solar advocates should stay focused: repeal the Utility Tax, and then build political pressure and resources to keep rooftop solar growing.

Background on the lawsuit is below:

Who filed the lawsuit

The lawsuit was filed by the Center for Biological Diversity, Environmental Working Group, and Protect Our Communities Foundation. These groups are rooftop solar allies. Last year, they worked side-by-side with nearly 200,000 Californians, Solar Rights Alliance ,and 600 other nonprofits, cities and schools to stop the utilities and CPUC from killing rooftop solar.

Why they filed the lawsuit

In December 2022, the CPUC slashed the credit that solar users get for sharing their extra solar energy with the grid by 80%. This change affects anyone who went solar after April 2023. Other states that have made similar cuts saw solar adoptions drop by half or more. There is no reason to think California will be any different. Solar will become less affordable for millions of working people just when we should be making it more affordable. Already, thanks to the CPUC, many solar companies are beginning to lay off workers due to slowing consumer interest in rooftop solar.

Details of the lawsuit

The lawsuit outlines five ways in which the CPUC’s NEM3 decision violated both the law and their own regulations, doing great harm to working communities around the state.

1. The CPUC NEM3 decision violates the law requiring the sustainable growth of rooftop solar in California.

  • California law unambiguously says that any changes to the net metering program must meet several criteria, including this one from Section 2827.1 of the Public Utilities Code:

“Ensure[] that customer-sited renewable distributed generation continues to grow sustainably…” 

  • The CPUC itself acknowledges that their decision might result in a slowdown of rooftop solar, but erroneously claims it is allowed to elevate other criteria above the continued growth of rooftop solar.
  • The NEM3 lawsuit argues that is not the CPUC’s choice to make, because the law is clear.

2. The CPUC NEM3 decision violates the law requiring them to put forward an alternative that increases solar adoptions in working class communities.

  • California law says that any changes to the net metering program must include alternatives that will grow solar in “disadvantaged communities”. Disadvantaged communities are defined by the state of California as low-income communities that face disproportionate impacts from fossil fuel energy production.
  • Yet the CPUC’s decision actually makes rooftop solar and batteries more expensive for disadvantaged communities without putting forward a viable alternative. In addition, the CPUC’s decision is based on incorrect assumptions that undercount the actual cost to install solar in low-income communities.
  • The CPUC erroneously claims that funds will be available to offset these cuts for disadvantaged communities, but those funds are actually not available unless the Legislature allocates them. In addition, those funds are only for battery storage. That’s important, but it doesn’t fulfill the requirement of the law that the CPUC must follow: getting more rooftop solar to more low-income communities.
  • The NEM3 lawsuit argues that the CPUC’s decision is “arbitrary and capricious” by ignoring evidence that was brought before them, such as the true cost of installing solar in disadvantaged communities, and proven methods to bring solar to working families such as community solar.

3. The NEM3 decision violates CPUC rules by failing to account for all of the benefits and costs of rooftop solar and batteries.

  • The Public Utilities Code requires the CPUC to follow certain rules when making changes to the rooftop solar program.
  • Any changes to net metering must be based on the total costs and benefits of rooftop solar and batteries to all ratepayers.
  • However, the CPUC decision undercounts the benefits of rooftop solar while inflating its costs.
  • The CPUC’s decision relies on one narrow method to calculate some benefits (called “the Avoided Cost Calculator”), while excluding other methods to calculate rooftop solar’s total benefits. This is a departure from the CPUC’s own practices.
  • The CPUC grossly undercounts the cost of long distance transmission lines. They also misrepresented the facts showing how rooftop solar reduces the cost of long distance transmission lines.
  • The CPUC also disregards both evidence and the CPUC’s own internal research showing how rooftop solar and batteries increase community resilience to blackouts and other public health threats.
  • The CPUC also disregards evidence showing how rooftop solar reduces the land impacts of long distance power lines on the environment, as well as reduced air pollution in urban neighborhoods.
  • The CPUC violates its own process and precedent by counting solar users’ bill savings as a direct cost to other ratepayers, while not doing this in the case of energy efficiency and conservation. If the CPUC followed its own precedent, it would have instead calculated the cost to serve solar users, which is a much smaller number than solar users’ bill savings.

4. The NEM3 decision makes it impossible to accurately measure its impact.

  • Consumers will only go solar if they can predict the value of their investment over the long term. The CPUC made this impossible by holding out the strong possibility of significant changes down the road.
  • Additional changes may include new fixed charges or solar taxes.
  • By leaving so many issues unresolved, it is impossible to measure the actual impact of the decision. That means the CPUC cannot demonstrate that their decision complies with the law.

5. The NEM3 decision violates CPUC rules by slashing the solar program for churches, schools, and businesses without basis.

  • The CPUC decision doesn’t just impact residential solar. The decision also slashed the solar credit by 80% for commercial and industrial solar projects. This includes schools, churches, farms, and businesses.
  • The CPUC’s own analysis found that there was no basis to cut the solar credit for commercial and industrial solar projects.
  • This is a violation of the CPUC’s published rules for the proceeding. CPUC rules require a reasonable basis for making such drastic changes, supported by sufficient evidence and analysis. Because the CPUC provided no evidence or analysis to support the decision to cut solar credit for commercial and industrial solar projects, they broke their own rules.

Since this is a lawsuit, the matter is currently in the hands of a small number of lawyers and judges. We are following this lawsuit very closely and will post updates as they happen, along with any actions you can take to increase the likelihood of success.

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