California Utilities Try to Destroy the State’s Rooftop Solar Progress

On behalf of three major investor-owned utilities, the California Public Utilities Commission has created a false premise to justify creating new rules that would gut rooftop solar incentives and penalize feeding owner-generated power back to the grid.

"NEM3" - Solar Nemesis 

The California Public Utilities Commission (CPUC) is planning to issue rules that would penalize owners of rooftop solar panels for feeding power back into the grid, a process known as Net Metering. If these rules, called “NEM3,” are approved they will decimate forward progress on deploying distributed renewable energy, and 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 “Lookback Study,” which they say justifies this move, but 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.

E3 Consulting, a firm specializing in energy utility operational research, used the Lookback Study results to create what is euphemistically called a “glide path” plan for enacting the NEM3 rules to achieve the utilities’ goals. Since the Verdant Lookback Study cannot be relied on due to serious validity concerns, the entire E3 “glide path” must be considered invalid. A new study must be done that addresses the failures of the current work, and a new proposal generated using complete and objectively verified data.

Otherwise, as they stand, the CPUC’s proposed rules would reverse the progress made on California’s distributed clean energy, 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 proposed NEM3 rules needs to be vigorous since the negative effects on solar adoption are projected to be devastating.

The Sierra Club told the CPUC that the rules 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.”

California Solar & Storage Association writes “the proposed decision would impose large new fees on California families. These fees would be the highest in the nation, adding up to more than $600 per year. The proposed decision would also reduce the value of solar electricity sent back to the grid on hot summer days by 80%” (https://calssa.org/blog/2022/1/4/cpucs-proposed-nem-3-decision-would-hurt-solar-adoption-among-low-income-consumers)

And, according to the Solar Rights Alliance, “We estimate the average solar user would pay between $300 and $600 per year” just in fees. In response to a proposed net metering 80% payback rate reduction to $.05/kWh, 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?” (https://solarrights.org/the-solar-tax-is-back-and-the-solar-cliff-too/)

The last time the CPUC issued rules that reduced benefits and increased costs for rooftop solar owners, there was a noticeable drop in new solar installation in California. When Nevada enacted rules similar to NEM3, 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 CPUC’s rules are 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 constructing a ruling that does exactly the opposite.

 

Lookback Study Omits a Critical Test

In August of 2020 the CPUC commissioned Verdant Associates to create the Lookback Study to assess the results of the current “NEM2” net metering system. E3 Consulting then used its incomplete results, and only those results, to support the new NEM3 “glide path” proposal for rule implementation. 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 single, 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.

The SCT 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 the CPUC and the utilities’ intention was to cherry pick data that could be used to do the bidding of the utilities. This is clear indication of bias.

Verdant says that the SCT is still in development and “the CPUC has provided guidance that the (SCT) is not approved for use in the NEM Lookback Study.” If the SCT is still unfinished, 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 (the company that conducted the study) was established just as the pandemic hit and 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, “PG&E is all the better because of our ongoing working relationship…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 worked for Itron, a large technology company that sells to the utility industry. This longstanding business involvement between Verdant and investor-owned utilities, and their dependence of a single industry benefactor, should be assumed to introduce bias. Even with the highest ethical standards, it is too easy for a researcher to arrive at conclusions she knows will please a sponsor. And, since PG&E was directly involved in the study as well, there is even more reason to question objectivity.

“Funding Bias” or “Industry Sponsorship Bias” is well documented and understood across other industries. (https://catalogofbias.org/biases/industry-sponsorship-bias) For example, 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 without independent external audit if it was 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 redone.

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 investor dollars ride on these types of analysis and when “real money” is involved the research is 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 rules based on the Lookback Study. They must 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 methodology and results.
  • Provide evidence that the models used are 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, present, and incorporate survey data from current and prospective solar and wind producing ratepayers, as to how they will respond to various changes in the NEM program. The lack of market analysis in the CPUC’s research is remarkable.
  • Once redone, review the updated Lookback Study and a new E3 proposal and adjust the CPUC NEM3 rules 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.

NEM3 is only one in a multitude of attacks against the progress we must make to mitigate climate destruction. By sending a clear and resounding message to California rule-makers that we, their constituents, insist on best following practices and performing objective and holistic analysis, other entities will take notice. What happens in California, the world’s fourth largest economy, has worldwide impact.

We need to show that it doesn’t work to dress up hidden agendas in trappings of authority using big spreadsheets, reams of jargon, and fancy presentations.

 

Contacts

To leave your comments with the CPUC, go to https://tinyurl.com/nem3cpuc or the CPUC website link here.

You can email the CPUC at  [email protected]

You can email the California State Assembly on Utilities and Energy at [email protected]

or call (916) 319-2083

Instructions for submitting position letters are at https://www.assembly.ca.gov/sites/assembly.ca.gov/files/Publications/2019_quick_ref_guide_advocacy.pdf

To contact Gavin Newsom’s office, dial (916) 445-2841 or go to https://govapps.gov.ca.gov/gov40mail