California lawmakers have proposed to raise the net metering cap to 3.5 percent, a move that is sure to upset solar energy advocates.

The Senate Appropriations Committee voted for the 3.5 percent cap after getting the bill from the Senate's Energy, Utilities & Communications Committee, which voted to raise the cap to 5 percent.

The net metering program has been running for years. The latest proposed cap would only be a slight increase from the existing cap of 2.5 percent.

The Appropriations Committee didn't want to raise the cap too much until state lawmakers have a better understanding of the costs of net metering to ratepayers and the state, said Brendan McCarthy, principal consultant for the committee, on Tuesday.

The California Public Utilities Commission (PUC) is set to release a report in January examining the cost issues, including whether the program is unfairly subsidizing a small group of ratepayers, McCarthy said.

"None of the utilities are near their cap now, and we feel the 3.5 percent is appropriate until the CPUC report," McCarthy said.

The net metering program allows customers of all utilities (except the Los Angeles Department of Water and Power) to get credits on their bills for producing more renewable electricity than what they could use at home or business. The excess electricity, from sources such as solar or wind, goes to the grid.

The program presents an enticing incentive for consumers looking at installing solar energy systems on their rooftops. Systems at or under 1 megawatt in capacity can qualify for net metering. The program currently has a 2.5 percent cap. That means each utility would stop accepting new participants in the program once the overall generation capacity of its net metering customers' systems reaches 2.5 percent of the load (aggregate customer peak demand). 

The program has become so popular in Northern California that the Pacific Gas and Electric Co. could hit that upper limit as soon as this year, according to an analysis by McCarthy (another state legislative staff report said PG&E could hit the limit in 2010). As a result, lawmakers began to consider raising the cap.

The state Assembly took the first crack at the bill, AB560, and eventually voted in May to increase the cap to 10 percent.  

Utilities opposed the 10 percent proposal, calling the limit too high and would cost too much for customers, particularly those who couldn't afford or simply don't want solar panels. The utilities run the net metering program and recoup costs through rate increases, which have to be approved by the PUC.

There are concerns that net metering customers aren't paying their fair share of the fees for operating and maintaining the transmission and distribution systems, or for programs that support energy efficiency efforts and low-income utility customers, McCarthy said.

By earning and banking credits, net-metering customers who generate more than they could use consistently wouldn't need to pay their utilities for electricity, even though they do need to rely on electricity procured and provided by their utilities at night, when the solar panels aren't generating power.

Utilities calculate some of the fees based on the electricity they sell. So a net metering customer who doesn't owe the utility for electricity would not have to pay some of the fees.

Other utilities have looked at similar issues. Xcel Energy in Colorado was hoping to recoup the fees for maintaining the grid by imposing a charge on its net metering customers. But it withdrew the plan, which was submitted to state regulators for approval, after facing strong protests last month.

San Diego Gas & Electric has opposed the 10 percent or the subsequent 5 percent proposal for the net metering cap. The utility supports solar installations, but would like state lawmakers to wait for the PUC report before deciding to raise the cap significantly higher, said Jennifer Ramp, a spokeswoman for SDG&E.

SDG&E has reached just over 1 percent with its net metering program, Ramp said.

"The cap is there to protect our customers from unreasonable rate increases," Ramp said. "We are concerned about non-solar customers who might be burdened with unreasonable costs."

But solar energy advocacy groups such as the Vote Solar Initiative in San Francisco said the 3.5 percent proposal is way too low.

"The move puts stimulus projects, green jobs, the growing solar market and energy bill savings for anyone who wants to go solar at risk," wrote Rosalind Jackson, a spokeswoman for Vote Solar, via email.

The full Senate could vote on the net metering bill as early as this week, McCarthy said. After that, the bill would go to the Assembly for consideration, since the Assembly had voted on a different cap. The governor has until Oct. 11 to sign the bill for it to take effect in January.