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California issues long-awaited NEM 3.0 tariff

The proposed tariff’s updated billing structure is designed to optimize grid use by the tariff’s customers and incentivize adoption of combined solar and storage systems.

The California Public Utilities Commission released a draft decision that would revise the state’s net energy metering tariff in a bid to improve price signals by better aligning them with the electric grid’s conditions, both day and night. 

The proposed tariff’s updated billing structure is designed to optimize grid use by the tariff’s customers and incentivize adoption of combined solar and storage systems. The draft said the proposed changes would help meet California’s climate goals and increase reliability, while promoting affordability across all income levels.

The draft said that since implementing net energy metering over 20 years ago, California has witnessed the evolution of the customer-sited rooftop solar industry, resulting in the installation of over 12 GW of clean distributed energy resources. 

It said the needs of the electric grid in California “require additional evolution of the industry.” In particular, the state’s electric grid is “significantly powered by clean energy during daytime hours,” but peak electricity demands in the late afternoon and continuing into the night lead to a greater reliance on greenhouse gas-emitting resources.

The draft decision said a review of the current net energy metering tariff, known as NEM 2.0, found that the tariff negatively impacts non-participating ratepayers; disproportionately harms low-income ratepayers; and is not cost-effective. 

This decision proposes that the new tariff should move from a predominantly stand-alone solar system tariff to one that promotes the adoption of solar systems paired with storage.

The draft decision is the regulatory body’s second attempt at revising what has been a closely followed model to help the state adopt more solar energy paired with storage as it moves toward achieving its aggressive decarbonization goals. A draft issued in December 2021 was widely panned, forcing regulators to pull the proposal and send it back to staff for more work.

The revised proposal was issued November 10 and was drafted by Administrative Law Judge Kelly A. Hymes. The proposal may be heard, at the earliest, at the Commission’s December 15 business meeting.

New and improved

The proposed revised tariff would be what the draft called an “improved version of net billing” with a retail export compensation rate aligned with the “value that behind-the-meter energy generation systems provide to the grid” and retail import rates that “encourage electrification and adoption of solar systems paired with storage.”

The proposed tariff would apply electrification retail import rates, with what it said would be “high differentials between winter off-peak and summer on-peak rates” to new residential solar and storage customers instead of the time-of-use rates in the current tariff. 

It also would replace retail rate compensation for exported energy with Avoided Cost Calculator values that vary according to grid needs. It said that the high differential electrification retail import rates in combination with the variable retail export compensation rates provided by the Avoided Cost Calculator would send “strong price signals to customers” to shift their use of energy from the grid to mid-day and export electricity during the evening hours, which promotes the installation of storage with the solar systems. 

The price signals also would potentially benefit customers who electrify their vehicles, home devices, and appliances.

The all-new GridTECH Connect Forum will examine California’s 2022 heatwave and what’s next for demand response programs in the state. Register to attend the inaugural GridTECH Connect Forum event in San Diego on Feb. 6, 2023. The GridTECH Connect Forum is bringing together DER developers, utilities, and regulators together around the critical issues of DER interconnection integration.

In an effort to ensure the sustainable growth of customer-sited renewable distributed generation, the new tariff would provide a “glide path” in the form of an adder based on the values in the Avoided Cost Calculator. The glide path would allow for a transition period for the solar industry to adapt to a solar paired with storage marketplace.

The proposed decision also adopts revisions intended to offer customers in low-income households more access to distributed generation systems, including solar systems paired with storage. 

To make that happen, the draft decision provides a higher adder to ensure eligible customers achieve the same nine-year payback target for stand-alone solar systems that all other residential customers receive. It also would direct an evaluation of these elements preceded by a three-year data collection period.


Affordability was addressed as being “front and center” in the NEM 3.0 proceeding, given the finding that a “significant and growing cost shift” exists in the NEM 2.0 tariff and, to a lesser extent, in the proposed new tariff. 

It said this cost shift is created by the ability of distributed generation customers to avoid fixed costs, including grid costs and public purpose program costs, which then become the responsibility of non-participating ratepayers, including low-income customers. 

The new tariff would compensate customers for the value of their exports to the grid based on the Avoided Cost Calculator. It said this “improved valuation” would “significantly reduce the cost shift” and improve affordability for nonparticipating ratepayers, particularly low-income ratepayers. 

It noted that the Commission had initiated a rulemaking (Rulemaking 22-07-005, the Rulemaking to Advance Demand Flexibility Through Electric Rates) to restructure the way fixed costs are collected, moving from volumetric charges to an income-graduated fixed charge on all residential customers. It said this fixed charge would “further reduce cost shifts through an equitable approach to the distribution of electric costs.”

The draft decision proposed that eligible customers would have the opportunity to take advantage of new funding for up-front incentive payments for solar paired with storage systems and stand-alone storage. The proposed funding would allow the Commission to offer a total of $900 million, with $630 million set aside for low-income customers, to reduce the cost of these systems. Funding would provide the financials means for eligible customers to access these systems while further supporting the sustainable growth of customer-sited renewable generation.

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