What AB 1139 brawl means for future of rooftop solar

Editor’s update: The next month after publication, many were surprised when AB 1139 described below failed to earn majority support in the California Assembly. This punts any revisions to California’s Public Utility Commission.

Unbeknownst to most Californians, a major slugfest over rooftop solar generation culminates this week in the State Assembly. It involves Assembly Bill 1139 and the successor incentives structure for the very successful Net Energy Metering program (NEM). For more than two decades, the program has provided extra financial incentives that encouraged about 9% of the state’s electrical ratepayers to install solar systems on more than 1 million roofs.

NEM has made California the nation’s solar leader as it works to de-carbonize the world’s fifth largest economy. The current version of AB 1139, though, seems to attempt to claw back most of those incentives. If passed and signed into law, AB 1139’s provisions could significantly slow adoption of cleaner, local energy solutions just when an acceleration is needed to respond to the dangerous effects of climate change already experienced in California.

But those who have heard about AB 1139 can be forgiven if they are confused by the extreme war of words. This has clouded much of the limited news coverage of the issue and created the appearance of a binary choice. Here is a sampling of some of that rhetoric Sacto Politico heard during its own reporting:

• “They are shills for the utilities.”

• “This is the most regressive tax policy California has ever imposed.”

• “They want to turn the virtual circle of solar into a death spiral.”

• “The Teslas and SunRuns are desperate to protect their big corporate payoffs.”

Interestingly, AB 1139 isn’t the final word on whether or not most solar-rooftop incentives get eliminated. The State Senate and governor’s office will also weigh in before anything becomes law. Then the California Public Utility Commission [PUC] has to work within this framework to flesh out most program details to create the next version of NEM.

But the fight over AB 1139 demonstrates the very serious short- and long-range policy issues involved. These range from climate-change policy; to monopoly power; to union, geographical and low-income equity issues; and to the dominance of wealthy corporate donors.

Such complexity usually means the most effective solution isn’t to be found in the extremes. This doesn’t mean the “right place” is the exact middle, but it does mean heated rhetoric must be filtered out to figure where a more effective, nuanced solution lies.

“I agree the framing of this as a binary battle is an inaccurate simplification,” said Matt Freedman, a staff attorney with The Utility Reform Network (TURN), which sides with AB 1139 but not all its elements. “But it’s not just about meeting in the middle. There’s a danger if [the PUC] just mashes together elements from different proposals and you get something that is incompressible and doesn’t work.”

PRESENT STATE: NEM 2.0

There’s no denying the NEM is a complex program. There are residential ratepayers, large and small commercial customers, and public sector facilities like schools. Some ratepayers own their solar systems outright and receive bill credits for selling back (or “exporting”) to the grid the surplus energy (or “net energy”) they generate.

Most have rooftop solar systems only. Some also have a battery storage system that protects them from blackouts, provided they’ve banked enough energy during the day to last through the evening and overnight hours. Others rent their equipment for a monthly fee through leasing companies such as Tesla, Sunrun and SunPower. And some low-income ratepayers in multi-family dwellings receive assistance through programs like SOMAH.

Of the roughly 1.2 million rooftops in the NEM program, 500,000 customers joined during what’s called NEM 1.0. This was the first version of the program that passed in 1996, but didn’t really take off until 2006 when Gov. Schwarzenegger and the State Legislature launched the million rooftop initiative. NEM 1.0 allowed solar adopters to more quickly recoup their upfront costs through net-metering bill credits that let them sell back to the grid unused solar generation at the retail electrical rate for the next 20 years.

In 2016, NEM 2.0 created a slightly updated cost and bill credit structure. This version of the program covers another 700,000 who signed up also assuming 20 years of incentives.

FIGHT OVER NEM 3.0

Since the inception of NEM, various technology advances, federal and state tax credits, and the expansion of the solar market have cut typical upfront rooftop solar costs by roughly 70% to about $10,000 to $16,000. This has lowered the average time to recoup upfronts cost to 4.5 years. In turn, leasing and the outright purchase of the systems are now within the financial range of far more middle-class households.

Yet, low-income households and renters still have lower participation rates. This gives rise to claims from many AB 1139 supporters that NEM is a “reverse Robin Hood” program that largely benefits the wealthy homeowners with that cost shifted to non-solar ratepayers. To correct this, AB 1139 proponents generally favor three main changes for the program’s next version (NEM 3.0):

1. Establish a monthly charge. This would allow utilities to charge every program participant a monthly charge, in effect, for using less of their energy. For the typical residential participant, this would be roughly $70 per month. For schools with rooftop solar this could be anywhere from $950 per month in PG&E territory up to $3,400 in San Diego County for SDG&E customers.

2. Reduce bill credits. Currently the bill credit for exporting surplus rooftop solar power back to the grid is close to the retail electrical rate, or roughly 25 cents per kilowatt-hour. Different proposals would cut this by upwards of 75% by tying the credit closer to the wholesale solar rate of 3 cents.

3. Cut length of benefits. Currently solar participants can receive bill credits for 20 years. Because the time it takes participants to recoup their upfront costs has shortened, critics wish to cut the length of program benefits retroactively to 10 years.

Different supporters of AB 1139 propose different levels of change to these charges. Friday, the PUC released a report analyzing the impact of these proposals, as well as proposals from opponents of the bill like California Solar & Storage Association (CALSSA), Protect Our Communities Foundation (PCF) and the Solar Energy Industry Association (SEIA). Here is the report’s estimates for how long solar buyers would need to recoup their upfront costs:

Most rooftop solar systems have a 25- to 30-year lifespan. Thus the 21-year payback period associated with the proposal from investor-owned utilities like PG&E, SDG&E and SCE (“Joint IOUs” in the chart) offers nearly no extra incentives. But note PG&E, SDG&E and SCE all said they officially have no position on AB 1139. They deferred comment to Kathy Fairbanks, spokesperson for the Affordable Clean Energy for All, a coalition of a hundred members including the utilities.

“I don’t know what 1139 allows or what it doesn’t,” said Fairbanks, whose group also takes no official position on the bill but recommends changes to NEM 2.0. “We are not saying kill all the subsidies. We’re saying make it more fair so you aren’t foisting these costs on non-solar customers who can’t afford it.”

STEADY SOLAR MARKET GROWTH

This “foisting” or cost-shift is discussed further below, but what should be a fair cost-recoupment period? For comparison, the average time it takes typical electric-vehicle buyers to recoup extra costs is about 6-7 years. Does this mean anything in the chart under this figure is too generous and anything above it not incentivizing enough? That all depends on how you value the other benefits of transitioning – or not transitioning – to cleaner energy options.

At the most fundamental level, this includes whether California should in fact prioritize growing its solar market or not. Polls regularly show most Californians highly support programs that increase the availability of clean renewable energy sources. However, Bernadette Del Chiaro of the California Solar & Storage Association (CALSSA) warned that AB 1139 would actually remove a key provision that specifies NEM must support the growth of the solar market.

“An important sentence in the 2013 bill [AB 327] was no matter what, the PUC has to make sure the solar market grows sustainably. No fits and starts, no sharp ups and downs, but nice steady, common-sense growth,” Del Chiaro said. “AB 1139 surgically deletes this requirement, and the deletion was deliberate.”

This could allow the PUC to more seriously consider more extreme proposals – such as from the utilities – even if these could stall growth of the rooftop solar market.

However at the other end, the chart also suggests the proposal by Del Chiaro’s CALSSA would barely change the solar payback period. Is this appropriate? A basic supply-and-demand case can be made that just as the growth in the solar market causes the price of solar systems to drop, the growth of exported rooftop solar could recommend a lower bill credit rate as well.

“I think everybody generally agrees that the general market will take some sort of haircut,” said Dave Rosenfeld of the Solar Rights Alliance, which opposes AB 1139.

But by how much is where that agreement ends.

COST SHIFT TO NON-SOLAR RATEPAYERS?

Great disagreement also exists about how much solar incentives push up the electricity costs to non-participants, if at all. Different utilities have estimated this could add monthly anywhere from $2 to $4 (SMUD) to $20 (SDG&E) per bill, but solar proponents say this doesn’t reflect all the savings local rooftop generation creates for everyone. Such savings include lower infrastructure wear and tear, and slowing the need for additional transmission lines and generation facilities.

Scott Wetch, a lobbyist for the International Brotherhood of Electrical Workers, strongly disagrees with this reasoning. The original version of AB 1139 was written by IBEW, and San Diego-area Asm. Lorena Gonzalez is the lead sponsor. The current bill also includes a prevailing union wage mandate, but Wetch said this was added to their bill later in committee. He said IBEW’s main goal is to look out for average ratepayers.

He believes solar users should pay at least a proportionate amount of shared costs, such as for infrastructure and wildfire mitigation. This year, these collectively will cost ratepayers $4 billion and $5 billion, respectively. He said the $70 per month charge on solar users will address the cost shift to non-solar participants.

“While [Tesla’s] Elon Musk and SunRun are soaking 91% of all ratepayers in California for their gross windfall profits, rates are getting so high that we are reaching a breaking point,” Wetch said. “We totally support rooftop solar, but since the beginning of net metering, we knew that huge windfall profits to the rooftop solar folks was unsustainable. That it would end up hurting ratepayers.”

But even if one accepts some of the cost-shift argument, should all “shared” costs be equally shared? Take wildfire mitigation and infrastructure investments. These are very different animals. A stronger case can be made that wildfire mitigation costs should be shouldered more proportionately among solar and non-solar customers given the equally shared benefits.

However, should rooftop solar owners who invested to lower their bills and stress the grid less pay the same proportion of infrastructure investments as a non-solar neighbor who draws 100% of their energy from that infrastructure? The answer would seem no.

Del Chiaro also pointed out that other energy efficiency programs have actually reduced system load more than rooftop solar. These programs include energy-efficient building construction rules and encouraging the use of energy efficient appliances and HVAC systems. Thus, she said if AB 1139 supporters were truly concerned about unfair cost shifts resulting from load-reduction efforts, they should be seeking to penalize beneficiaries of those other programs even more than rooftop solar users. But they are not.

DISINCENTIVIZING INCENTIVES

Wetch said he’s not overly concerned if NEM participants end up paying more than their fair share moving forward. He said this would just make up for past unfair cost-shifts. AB 1139 formally reflects this in wording that calls for benefits to non-solar ratepayers to “exceed” or “approximately equal” the benefits to solar participants.

This seems problematic for two reasons. First, an incentives program that provides more or equal benefits to non-participants is not an incentives program any more. It’s a disincentive program.

Second, lowering NEM 3.0 incentives wouldn’t claw back any “unfair” past benefits that Wetch claims NEM 1.0 and NEM 2.0 participants enjoyed. In fact, the ratepayers who would be most penalized by a NEM 3.0 under AB 1139 would be current non-participants who later switch to solar. According to Wetch’s view, they are among the ordinary ratepayers who have unfairly shouldered the cost-shift burden, but going forward as NEM 3.0 participants, they would be paying the same corrective costs NEM 1.0 and 2.0 participants, but without accruing any of the past benefits.

To rooftop solar supporters, this provides evidence that the real goal of AB 1139 isn’t ratepayer fairness, but to just slow down the growth of the rooftop solar market. “And ‘slow down’ is a generic term that could mean ‘slow to a grinding halt’ or cut it half,” said Del Chiaro.

QUESTIONABLE AMENDMENTS

Adding further evidence of this were Friday’s amendments to AB 1139 that actually benefit richer, bigger solar ratepayers over poorer, smaller NEM participants.

Asm. Gonzalez’s original bill called for retroactively shortening the length of time all NEM participants can benefit from the program from 20 years to 10. Her Friday amendments now allow any participants who own their rooftop system to be grandfathered in for 20 years. But anyone who leases their solar systems would be shortened retroactively to 10 years.

“They are the most ham-handed amendments you can imagine,” Rosenfeld said. “By reinstituting the 20-year grandfathering only for people who own their solar systems, it actually protects the wealthiest people and screws the poorer people who lease. So it shows you their true intentions here. This isn’t about equity.”

Likewise, Del Chiaro added larger commercial solar customers would also be grandfathered in for 20 years, but not more than 11,000 smaller commercial customers. This includes two-thirds of the 2,000 schools in California who would be switched to 10 years.

“The latest amendments are just ridiculous,” she said. “I think it is due to two things. One, [Gonzalez’s team] doesn’t know what they are doing and doesn’t really understand the complexities of energy policy. So they are mucking with a pretty complex thing.

Two, she seems to have a personal vendetta against Elon Musk, who she goes after all the time on social media.”

“I think others may know what they are doing but don’t care,” Del Chiaro added. “The intention is to bring the otherwise growing rooftop solar market to its knees, and that’s what the utilities are aiming for.”

Gonzalez’s office would not comment on AB 1139 or the Friday amendments.

What this week brings in terms of final amendments before the bill heads over to the Senate will be interesting to watch. But everyone from Del Chiaro to IBEW’s Wetch believe supporters of AB 1139 have largely won this round.

“Look, I’ve been doing this a long time,” Wetch said. “I don’t introduce bills that I don’t think I can pass and get signed.”