California Supreme Court Demands New Review of Solar Credit Cuts

The California Supreme Court ruled that a lower court gave too much deference to regulators on solar credit changes. The decision does not decide the legality of the cuts. Instead, it sends the case back to the Court of Appeal for further review.

Justice Leondra Kruger wrote that the lower court wrongly relied on a very deferential standard. For decades, lawmakers allowed wide latitude to the California Public Utilities Commission (CPUC). But recent laws give courts more room to question regulatory decisions.

The ruling means state judges must take a harder look at whether CPUC acted within the law when approving steep cuts. This legal shift could affect not just rooftop solar but many future energy cases.

The Policy at the Center of the Dispute

The fight centers on a CPUC decision made in 2022. Regulators slashed the value of credits given to rooftop solar owners who send extra power to the grid. Payments dropped by about 75 percent under a program called “NEM 3.0.”

Before NEM 3.0, solar owners received credits equal to the retail electricity rate. This system existed under earlier programs known as NEM 1.0 and NEM 2.0. Those rates matched what utilities charged other customers.

Under NEM 3.0, however, customers only receive credits based on the “avoided cost.” That is the amount utilities save by not buying electricity elsewhere. This change was designed to ease costs for non-solar customers who pay grid maintenance fees.

The cuts applied to customers who installed solar after April 2023. Those under older agreements still receive the more generous retail rates for about 20 years.

Environmental Groups Challenge the Cuts

Three environmental groups filed the lawsuit that led to the Supreme Court’s ruling. These were the Center for Biological Diversity, the Protect Our Communities Foundation, and the Environmental Working Group.

They argued that CPUC ignored key benefits of rooftop solar. According to them, the commission failed to account for reduced pollution, customer savings, and benefits to disadvantaged communities.

The groups also stressed that affordable local generation could reduce reliance on costly power plants. In their view, slashing solar credits hurts California’s clean energy goals.

Bernadette Del Chiaro of the Environmental Working Group said the lower court avoided a real review of the case. She noted that the justices made clear the decision requires closer scrutiny.

Utilities Defend the New Policy

California’s major utilities supported the CPUC decision. They argued that prior solar credit systems unfairly shifted costs. Under NEM 1.0 and NEM 2.0, non-solar customers often paid more for grid maintenance. Utilities said these costs fell unevenly, creating a burden on low-income households.

They claimed the new avoided cost rate balances the need for solar adoption with fairness for all customers. Regulators agreed, saying the new system prevents unfair subsidies while still rewarding rooftop solar.

A CPUC spokesperson welcomed the Supreme Court’s ruling, emphasizing that the decision keeps NEM 3.0 in place while legal review continues. Regulators believe it is an important tool for controlling bills.

Impacts on Solar Growth and Jobs

The fallout from the CPUC’s decision has been dramatic. After the 2022 change, requests for new solar connections dropped by 82 percent. Industry groups warned of significant job losses, with estimates of 17,000 jobs disappearing in the first year.

Many installers reported canceled contracts as customers reconsidered the financial value of solar panels. The sharp drop threatened progress toward California’s renewable energy targets.

Solar advocates believe the Supreme Court ruling offers hope. If the Court of Appeal finds the CPUC overstepped, payments could be adjusted again. That could revive demand for rooftop solar and restore industry stability.