The California Supreme Court on Wednesday heard arguments for and against overturning a controversial decision made almost three years ago by the California Public Utilities Commission that reduced the compensation new rooftop solar customers receive when their systems generate excess electricity.
The high court’s justices peppered attorneys on both sides with questions during the 58-minute hearing, giving few clues where the seven-member may be leaning. There is no specific timeline for a ruling, though some court observers expect it to come in a matter of weeks.
The utilities commission — known as the UC — used “an erroneous legal standard” when it issued its 2022 decision, Malinda Dickenson, attorney for three environmental groups that want the decision overturned, told the justices.
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But her counterpart, Mica Moore with the Office of the California Attorney General, said the UC made its decision after “extensive proceedings” that included comments from a wide variety of stakeholders and “issued a thoroughly reasoned decision” that should stand.
In December 2022, the UC’s five commissioners unanimously voted to approve the third iteration of the state’s net energy metering program, colloquially known as NEM 3.0. The 260-page decision included incentives to encourage customers to pair their solar installations with battery storage systems.
But the decision also included a revision 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 UC’s decision, which went into effect in April 2023, said the change sends “more accurate price signals that encourage electrification” across the state.
But opponents said reducing the rate of compensation undercuts the incentive for potential customers to put solar on their roofs because it will take longer for new customers to recoup the thousands of dollars they spend to install the systems.
The Center for Biological Diversity, the Environmental Working Group and San Diego-based Protect Our Communities Foundation filed suit, challenging the UC’s new rules.
One of the issues before the California Supreme Court is how much deference the UC should be given when it makes changes to net energy metering rules.
An earlier attempt by the three environmental groups to throw out the UC decision failed when the California Court of Appeals in a 40-page ruling cited what it called a “uniquely deferential standard of review (that) is accorded the Commission because of its status as ‘a constitutional body with broad legislative and judicial powers.’”
But the environmental groups have pointed to a statute in the Public Utilities Code that includes a provision that “ensures that customer-sited renewable distributed generation continues to grow sustainably.” They say the UC’s revision violates the statute.
“What degree of deference do we owe to the commission’s view in the abstract">Associate Justice Leondra Kruger asked.
“No deference is owed to the commission’s legal interpretations,” Dickenson said. “The court decides what is required by law.” She later told the court the UC “has no wiggle room at all.”
Moore countered, saying the UC should be granted deference because of its “relevant expertise” and that it “has been tasked with developing tariffs in this area for a decade.” She added, “there was nothing arbitrary here about the commission continuing to adhere to its longstanding approach.”
The UC’s NEM 3.0 decision applies only to customers who had their systems installed in April 2023 or later.
Solar customers who had their systems installed under earlier iterations of the tariff still get compensated at the retail rate for 20 years from the time their systems became operational before the new rules affect them.
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.
With an estimated 2 million solar systems atop homes, businesses and other locations, California has more rooftop installations than any other state in the nation.
Wednesday’s hearing was held in Los Angeles at the Ronald Reagan State Office Building.
