A fairer future for Net Energy Metering

In response to AB 327 (2013 legislation) and as part of a proceeding before the California Public Utilities Commission (CPUC), SDG&E submitted to the CPUC on Monday a “Proposal for Successor Net Energy Metering Tariff.” In the simplest terms, this important filing deals with distributed generation, principally solar-on-rooftops and energy storage.

SDG&E’s 202-page highly footnoted NEM Proposal is publicly available and provides a wealth of information. However, it is but one of several going-forward proposals offered by various groups.

SDG&E’s proposal explains, “NEM is a tariff billing mechanism that allows eligible customer-generators to rely on an on-site distributed generation (“DG”) system to serve a portion of their energy needs, and to receive compensation for generation exported to the utility grid. NEM was originally adopted in California in 1995 pursuant to Senate Bill (“SB”) 656.”

By way of background, SDG&E’s NEM Proposal observes that “supporters of [Senate Bill 656] claimed that it would provide electric costs savings to customer-generators, incent installation of solar photovoltaic (“PV”) – which at that time was a nascent technology — positively impact economic growth, and provide diversification of the State's energy resource mix.

“In the two decades since SB 656 was adopted, the rate of solar adoption has grown significantly with the support of numerous state and federal incentive programs … [and] expansion of the NEM program. Today, California leads the nation with 247,041 solar installations resulting in approximately 2,407 megawatts (“MW”) installed.”

“The San Diego region is one of the fastest growing areas for deployment of rooftop solar, with nearly 60,000 rooftop solar installations. This translates into more than 400 MW of clean power for homes and businesses in Southern California.

“While the cost-shift in the early days of the program was relatively minor, the dramatic growth in the number of customer-sited solar PV systems that has occurred more recently has significantly increased the cost-shift to non-NEM customers. The Commission’s own study determined that NEM will cost the State $1.1 billion in 2020.

“In SDG&E’s service territory, the cost-shift to non-NEM [other SDG&E] customers is estimated to be in excess of $100 million annually and growing. […] For every new residential NEM customer, there is an associated cost-shift of over $1,600 per year to those customers who have not elected to or do not have the resources and/ or necessary access to install solar on their rooftop.”

The actual annual cost-shift is $130 million as of June and, if not remedied, is expected to nearly quadruple to over $500 million by 2025. Again, the current NEM system shifts the costs to other SDG&E customers, it does not eliminate them.

Fundamentally centered on achieving fairness for all ratepayers and providing sustainable business growth for the solar industry, SDG&E’s approach addresses the outsized cost-shifting under the current NEM program and “a retail rate design that fails to reflect accurate prices.”

Accurate pricing? What does this mean? SDG&E explains, “a significant percentage of [the] costs of providing service are fixed, i.e., they do not vary based on a customer’s energy use. Nevertheless, all of the utility’s costs of providing service (including fixed costs) are recovered from residential customers through a per-kWh [bundled] volumetric [electricity price]...”

“Thus, under the current NEM program, residential customer-generators contribute very little toward the infrastructure costs of serving them. There is generally little if any corresponding reduction in the utility’s cost of providing service to NEM participants, however. These costs are simply shifted to other non-NEM customers.”

Moreover, “since the residential retail [electricity price] is fully bundled and includes more than just the cost of wholesale electricity, the credit provided to retail NEM customers is unreasonably high.”

In sum, the current NEM approach is fundamentally unfair.

“SDG&E’s proposal for a successor NEM tariff is intended to ensure equitable recovery of infrastructure costs needed to support continued [distributed energy resource] growth and adoption, as well as the elimination of rate distortions caused by hidden indirect subsidies — treating all customers fairly and equally," according to the SDG&E report.

For those NEM customers not grandfathered into the current NEM system, “SDG&E proposes a default successor tariff that includes: (i) a System Access Fee for the recovery of curb-to-meter infrastructure and customer services, as well as public purpose programs; (ii) a Grid Use Charge for the recovery of distribution infrastructure costs; (iii) a Time-of-Use rate charged for energy delivered; and (iv) a wholesale rate for energy exported.”

As a parallel, mutually exclusive alternative, “SDG&E also proposes a Sun Credits tariff option for NEM customers who elect to sell all of their [energy] generation to the utility.”

Each of these approaches reduces both unfairness and the overall cost to ratepayers.

SDG&E proposal deserves support as it assures sustainable growth within the solar industry and greater fairness for all ratepayers.

Coffey is an attorney based in San Diego. He can be reached at

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1 UserComments
vincent Michel 12:00am August 7, 2015

" The Commission’s own study determined that NEM will cost the State $1.1 billion in 2020" Where do you factor in the value of the electricity "fed in" to the grid by these NEM customers? "For every new residential NEM customer, there is an associated cost-shift of over $1,600 per year to those customers who have not elected to or do not have the resources and/ or necessary access to install solar on their rooftop.” Doesn't this $1,600 represent, more or less, the cost of electricity these NEM customers did not purchase from the utility company. Where do you account for the value of the excess electricity produced by the solar panels all over the state, without having to build a power generation plant? Thank you in advance for helping me clarifying theses details, berst regards, Vincent Michel