For years, California’s solar industry and its investor-owned utilities have been fighting over the future of net metering, the state policy that requires utilities to pay residential solar system owners for the green power they send back to the grid.

Now a potential long-term solution to this conflict is finally within reach, in the form of proposed state legislation that was, until as recently as last week, being attacked as the bête noire of the solar industry.

It’s a remarkable turnaround for a bill, AB 327, which has been the subject of public protests, harsh rhetoric and a series of anti-utility press releases and cable TV ads over the past few months. Solar advocacy groups have joined forces with state politicians, environmentalists and groups representing low-income California residents, to paint the bill as an attempt by big utilities like Southern California Edison and San Diego Gas & Electric to destroy rooftop solar in the state.

What upsets these groups is AB 327’s proposals to change the state’s electricity rate structure for residential customers. Those changes would both allow utilities to flatten the higher prices per kilowatt-hour that heavy residential power users pay for marginal amounts of electricity used on a month-by-month basis, and provide the potential for them to charge flat monthly fees to all residential customers.

Those changes would undercut net-metering economics on both ends. On the high end, reducing higher-tier rates could erode the value that solar systems provide by, essentially, reducing high power bills for homeowners that regularly use larger amounts of electricity than most people each month. On the low end, monthly flat charges would add costs that no amount of self-generated solar power could reduce, since they’re fixed in place.

But in the past weeks, state legislators and Gov. Jerry Brown’s office have worked out amendments to the bill that, while leaving these rate change sections intact, would also significantly alter the state’s rules on net metering. This late-game fix has led many groups that previously opposed AB 327, including the national Solar Energy Industries Association (SEIA), The Alliance for Solar Choice (TASC), and the nonprofit group VoteSolar, to shift to supporting the bill in the past week or so.

That’s according to Bryan Miller, TASC’s president and vice president of public policy for third-party solar provider Sunrun, who said in a Friday interview that the amended AB 327 now represents “a strong bill that brings more certainty to the rooftop solar market.”

That’s largely because of the changes the bill would bring to the state’s net metering policies, including: removing the threat of seeing all net metering end by next year; setting up a specific process for determining when the current program will reach its previously ill-defined 5-percent cap; and laying the groundwork for a whole new net metering program to carry the system on through the end of the decade, at least.

With the new amendments in place, “AB 327 is going to have an enormous impact in helping the renewable industry grow,” Miller said. “It removes mountains of uncertainty in current law about how the rules going forward for net metering will work and be implemented.”

Net Metering Fixes in AB 327, By the Numbers

Here’s how Miller described the amended bill’s changes to state net metering policy:

- First, “Under existing law, net metering would be suspended completely as of next year,” he said. “This bill removes that suspension.” For more than a year now, utilities and the solar industry have been working under a deadline imposed by the California Public Utilities Commission, which would force net metering programs to cease as of the end of 2014. AB 327, as currently amended, would put that worry to rest.

- Second, “There’s a longstanding dispute about how the net metering cap should be calculated,” Miller said. “This removes all legal uncertainty, and makes clear how you calculate that cap.” Several years ago, the CPUC extended the “cap” for net metering from 2.5 percent to 5 percent of each investor-owned utility's nameplate capacity. In other words, once the total number of customers signed up for net metering exceeded that cap, in terms of their kilowatt contribution to their utility’s total power mix, new customers would have been excluded.

But just how to calculate when that 5 percent cap was reached for each utility was harder to define. AB 327, as amended, sets clear figures for when each utility will reach that cap. That will either come as of December 31, 2016, or at the following capacities, whichever come first: 607 megawatts for SDG&E; 2,240 megawatts for Southern California Edison; and 2,409 megawatts for Pacific Gas & Electric.

- Third, the amended AB 327 goes beyond the current program to provide “a process for uncapped net metering, and lays out a procedure for how the CPUC will calculate the cost of net metering,” Miller said. This gets to the heart of the conflict between the solar industry and the state’s utilities over just what impact net metering has on electricity rates, utility costs and grid operations.

Utilities have long argued that net metering doesn’t adequately compensate them for the costs they face in supplying solar-equipped customers with grid power while the sun isn’t shining. Too many net-metered customers could force utilities to raise rates on all non-solar customers, and eventually lead to a “death spiral” for utilities that end up paying out more than they’re taking in from their customer base, they say.  

Solar advocates, by contrast, point to studies that show that net metering of distributed solar power is a net asset, rather than a liability, to the grid at large. Those benefits can stretch from lowering the average cost of electricity for all users, to helping meet the state’s aggressive goals to supply more and more of its power from renewable resources in the coming years.

Right now, the CPUC is working on a study to calculate the costs and benefits of net metering, which is expected to be complete in the next few months. UPDATE: AB 327, as amended, calls for the CPUC to create a new study to serve as the basis for the state’s big three investor-owned utilities to develop brand-new net metering programs by the end of 2015, and instructs them to put those new programs in place in 2017.

As for lifting any caps on this new net metering regime, that’s laid out in this section:

“2827.1. (c) Beginning January 1, 2017, or when ordered to do so by the commission because the large electrical corporation has reached its capacity limitation […] all new eligible customer-generators shall be subject to the standard contract or tariff developed by the commission and any rules, terms, and rates developed pursuant to subdivision (b) of this section, and shall not be eligible to receive net energy metering pursuant to Section 2827. There shall be no limitation on the number of new eligible customer-generators entitled to receive service pursuant to the standard contract or tariff after January 1, 2017" [emphasis added].

All in all, putting these processes in place to settle the future of net metering for years to come has made AB 327 worth supporting, despite the uncertainty of how the bill’s changes to rate-making policy could impact solar economics, Miller said.

“I don’t think you can put a price on certainty,” he said. “I don’t think there’s a way you can quantify the value of removing the looming threat of suspension, of providing a path towards uncapped net metering.”

A Poison Pill Amidst the Good News?

But not all of the questions about net metering are solved with these recent amendments to AB 327, some solar advocates say. In fact, the amendments that would create a next-generation net metering regime also include language that could undercut today’s net metering customers, according to Bernadette Del Chiaro, executive director of the California Solar Energy Industries Association (CalSEIA).

“The big give that went too far is the language that directs the PUC to sunset the existing 5 percent net metering contracts,” Del Chiaro said in a Friday interview. Specifically, she pointed to a section of the bill that appeared to give utilities the option of ending existing net metering contracts after 2020, or of altering them as of 2017 if they change ownership -- and that’s “a huge, huge problem,” she said.

UPDATED: As of Friday, the language of AB 327 had been further amended to remove the possibility of actually ending existing net metering contracts. Instead, the bill would require the CPUC to establish a transition period in which existing contract holders "shall be eligible to continue service under the previously applicable net energy metering tariff for a length of time determined by the commission."

However, this new language also appears to give the CPUC the ability to change those contracts to fit whatever new regime is set up, with this sentence: 

Any rules adopted by the commission shall consider a reasonable expected payback period based on the year the customer initially took service under the tariff or contract authorized by Section 2827."

That's problematic on a number of levels, Del Chiaro said. First off, “There’s a precedent of a state government retroactively changing the terms of a contract already signed. That’s going to send major chills through the market, and the finance market in particular,” she said.

Secondly, "Nobody knows what 'reasonable payback period' means," she said. For example, there's the possibility that regulators could decide that this means simply creating contracts that allow customers to pay off the costs of their solar system over its lifespan, rather than allowing them to reap financial rewards beyond that payback.

These are the concerns that have CalSEIA still set on opposing the current version of AB 327, unless it’s amended to remove this possibility, she said. The same issues could leave the bill open to more amendments as it heads back to the California Senate’s energy committee, she said.

With the current legislative session ending on Sept. 13, state lawmakers have a limited amount of time to make further changes to the bill and put it up for a vote this year. That means that the next week and a half will likely bring a lot of frantic activity to alter the bill’s final form -- not just from solar advocates, but also energy-efficiency advocates, ratepayer advocates, and the broad spectrum of interests that stand to lose or gain from AB 327’s rewriting of state energy policies.

Of course, there’s a lot more to AB 327 that the solar industry still isn’t happy about -- including the original rate change language that has had solar advocates up in arms against the bill for the past few months. Stay tuned for an in-depth discussion of these issues -- including the potential impacts of rate changes to the burgeoning third-party ownership solar business model, pioneered by SolarCity and Sunrun, which now accounts for a majority of the rooftop solar installed in the state -- in a story coming soon from Greentech Media.