NEM 2.0 To Sunset in 10 years

California's AB-942 is proposing several changes to NEM 2.0

Summary

The current NEM 2.0 tariff is valid for 20 years from Permit to Operate (PTO). AB-942 (Calderon) would change the duration to 10 years, or to the sale of the property. This post expands a bit more on what AB-942 does and explains why I am opposed to this bill.

Engage the Legislature

AB-942 is currently scheduled for a hearing on the Assembly Committee on Utilities and Energy next Wednesday, April 30, 2025. If you have an opinion on this bill reach out to your representative, particularly if they are one of the Members of the Committee. You can also reach out directly to the chair, Cottie Petrie-Norris. You can also submit a position letter although I believe the deadline for that may have passed.

If you are interested in California Energy you may want to also check my posts on Energy Bills.

Mini-Background on NEM 2.0 and NBT

NEM stands for Net Energy Metering and it describes an electrical tariff intended to compensate customers that generate energy (called customer-generators) for the excess energy they export to the grid. The first NEM tariff, NEM 1.0, started in 1996. In 2017 the CPUC started NEM 2.0. The current tariff is Net Billing Tariff (NBT) and it covers interconnect requests approved after April 2023. NBT is not as generous as NEM 2.0; to ease the transition there is an “adder” called the “glide path”.

The CPUC has good website explaining all this; from there:

Pursuant to D.14-03-041, customer-generators are allowed to remain on the NEM 2.0 tariff for 20 years from the date they interconnected, or they are permitted to switch to the current tariff.

The Cost-Shift Argument

A cost-shift occurs when a group underpays for a service, resulting in another group overpaying for that service. This happens in many situations. One example from electrical rates would be the CARE and FERA rates that provide discounts to income qualified households. Another example is a geographic cost-shift: the PG&E rates are uniform through all of its territory even though the cost of delivering energy to some areas is much higher than in other - wildfire mitigation being one of the contributors.

Cost shift is not intrinsically bad; in many cases “we” decide the benefits outweigh the disadvantages and we accept it.

Electricity cost has several components, some costs are fixed, some vary with consumption. The CPUC recently added a new fixed charge, but today’s rates are mostly volumetric, only based on consumption. This means that any program that reduces consumption on a household will “cost shift” to other households. Energy Efficiency (like better insulation) does that and so does Rooftop Solar Generation.

NEM 2.0 has two impacts: one is that it reduces consumption through self-consumption. The other is that there is a compensation for exports. The rationale behind SB-942 is that the NEM 2.0 compensation is too high for the value it provides. NBT was proposed as an alternative to NEM 2.0 to reduce this cost-shift.

NBT and the “true value of Solar” has been and continue to be a topic of discussion. The CPUC also has an active proceeding, R-20-080-20. I will not say any more on this here though I hope to cover it in a future post.

What does AB-942 say

AB-942 proposes 4 main changes:

One, starting on July 1, 2026, a customer-generator that has been on NEM 1.0 or NEM 2.0 for 10 or more years no longer can continue on that tariff. The customer-generator must switch to the current new applicable tariff (that would be NBT right now), without the glide path.

Two, starting on January 1, 2026, the same rule applies at any customer that becomes a customer-generator by purchasing a property that was under NEM 1.0 or NEM 2.0

Three, the CPUC is authorized to adopt a new tariff for the above customer-generators and to require them to use this tariff if “it results in a lower cost impact on customers who are not eligible customer-generators ...”.

Four, starting with January 1, 2026, eligible customer-generations no longer will receive the revenues from the cap-and-trade program.
Note: I will set aside this point in the rest of this post - I actually agree with it.

Discussion

I oppose this bill on several grounds

One, the contract clearly says 20 years (see sheet 31 in tariff book). There may be some escape clause somewhere that makes a change from 20 to 10 years legal - I am not a lawyer - but everybody knows that NEM 2.0 is 20 years and customers purchased solar with this understanding. Changing the rules of a contract impacts that specific contract but also any future contract with the relevant party because it is no longer trustworthy.

The change would also have real financial implications for families and entities that expected a 20 years return on investment. NEM 2.0 has been a great financial help for homeowners, increasingly low-income homeowners, and Peninsula Clean Energy (PCE) has a GovPV program where PCE invested in installing solar panels on public buildings and provided a Power Purchase Agreement, all assuming 20 years.

Two, the reason why NEM 2.0 compensation is high is because the rates are high, not the other way around. The savings estimated by parties like the PAO assume a total removal of NEM 2.0 rates, not the “phasing out” that AB-492 proposes, but even after removing NEM 2.0 compensation we, Californians, would still have very high rates.

Three, this bill will not really address the real cause for our high retail rates, which is the very high Transmission and Distribution fees that the IOUs are charging. More than 60% of our bills are T&D. Let’s stay focused on solving that problem.

My last and main reason against this bill is that rooftop solar is a great resource and we should be looking for ways to leverage that resource. We don’t want households to hoard electricity; we want them to export it at the right time, to help the grid and the planet, and this bill does nothing about that. Let’s stay focused on what we want.

We can do much better than this bill. Kill the bill and support better solutions

Next Steps

Next for AB-942 is the hearing on Wednesday, April 30. Assuming the bill stays in the agenda, I have read comments suggesting that the bill will be amended. There are different types of amendments, including during the hearing, and that is what I expect will happen here.

You can follow up on the hearing online (TV Schedule). You can also check out later at the Assembly media archive.

I will post updates on the evolution of AB-942 in follow-ups to my original Energy Bills.