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Two years after slashing compensation for rooftop solar owners who send power back to the grid, California policymakers are once again looking for ways to contain high and rising electricity rates — which means the accusation that rooftop solar pushes costs onto other utility customers is once again rearing its head.
Last month, representatives of the California Public Utilities Commission testified in a state legislative hearing that California’s system for compensating owners of rooftop solar is a primary cause of the state’s rapidly rising utility rates.
That testimony is backed by a CPUC report, issued last month in response to an October order from Democratic Gov. Gavin Newsom to find ways to reduce utility-rate increases. Among other potential cost savings, the report proposes further reductions to rooftop solar compensation that the CPUC has already cut for homes, businesses, farms, and schools in the past two years.
The CPUC’s rationale is that solar programs shift costs onto customers who don’t have solar. Linda Serizawa, director of the CPUC’s Public Advocates Office, which is tasked with protecting utility customers, told lawmakers that the state’s rooftop solar regime has led to non-solar-equipped customers of Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric paying $8.5 billion more than they otherwise would have in 2024. That increase accounts for up to a quarter of those customers’ monthly bills, on average, according to the Public Advocates Office.
Solar advocates and environmental justice groups have long said this “cost-shift” argument is false. In fact, they say, California utility customers would be paying even higher electric rates if the state hadn’t launched policies back in 2006 that have incentivized California homes, businesses, schools, and other utility customers to install more than 2 million rooftop solar systems since then.
Last week, several pro-solar groups shared new analysis, expanding on research released last year by energy and environmental consulting firm M.Cubed Consulting.
The latest round in the “cost-shift” debate comes as the CPUC’s December 2022 decision to cut compensation for newly installed rooftop solar systems has decimated the country’s leading rooftop solar market, potentially putting the state’s carbon-cutting goals out of reach. About 45% of the state’s solar power now comes from rooftop and distributed sources rather than utility-scale projects, but new rooftop solar installations have fallen dramatically since the CPUC’s new compensation system went into effect in mid-2023.
Without more rooftop solar, “we’re going to have increasing electricity costs, and we’re going to fall short of our clean energy goals,” said Ken Cook, president of the nonprofit Environmental Working Group. The challenge, he said, is to agree on regulatory structures that allow the state to “harness rooftop solar and distributed energy to solve both of these problems.”
But the cost-shift argument has short-circuited that kind of policy discussion, said Brad Heavner, policy director for the California Solar and Storage Association, a solar-industry trade group that funded M.Cubed’s cost-shift analyses. “It was devised by the utilities as a way to reframe what rooftop solar is and to put a negative light on it. And it has worked.”
Now, with mounting pressure to reduce utility rates, rooftop solar advocates fear the argument will be used once again to justify further cuts to an industry they view as crucial not only to climate goals but as a net benefit — not cost — to utility customers.
The cost-shift argument was initially put forward by the Edison Electric Institute, a trade group representing U.S. electric utilities. Utilities pay for building and maintaining the power grid through the rates they charge customers. The cost-shift thesis argues that paying some customers for their rooftop solar power unfairly shifts the burden of covering the costs of keeping utilities running onto other customers.
But Richard McCann, a founding partner at M.Cubed, argues that California’s nation-leading rooftop solar resource has saved customers as much as $1.5 billion in 2024 through savings accrued over the past two decades. The reason, in his view, is simple: More rooftop solar means utilities need to buy less energy from other resources and build less power lines and other grid infrastructure to meet customers’ power demand.
Back in 2005, the California Energy Commission forecasted that the state’s peak demand for electricity — the primary driver of utility costs for generation and grid capacity that are passed on to customers — would grow from about 45 gigawatts to more than 60 GW by 2022 or so, McCann said.
But peak electricity demand on the statewide grid operated by the California Independent System Operator (CAISO) has grown far more slowly. The system has instead topped out at a record-setting peak of 52 GW in September 2022 — only about 2 GW over the previous record set in 2006.
Over that same time, the state’s net-metering policies have incentivized millions of customers of the state’s three big utilities to install solar panels, he said. Much of the state’s peak grid demand coincides with hot summer afternoons — the same time that rooftop solar produces the most electricity.
CAISO does not directly track how much power rooftop solar generates across millions of California homes and businesses, McCann noted. But the simultaneous trends of lower-than-forecasted peak demand and growing rooftop solar resource indicate that “rooftop solar has displaced the peak load demand in the CAISO system and kept the CAISO load flat over that same time period,” he argued.
If that’s the case, customers investing in rooftop solar have helped the state’s utilities avoid investing in new generation, transmission, and distribution, potentially saving ratepayers billions of dollars, he said. “Rates would be even higher than what they are now if rooftop solar had not been present.”
McCann’s view, supported by most environmental advocates, the solar industry, and some energy analysts, is hotly contested by utilities as well as independent analysts who have championed the cost-shift thesis.
In the latter group’s view, rooftop solar is a more expensive and less efficient alternative to building utility-scale solar power plants and transmission grids. Shifting money from those larger-scale alternatives not only pulls money from customers without solar to those with solar, they argue, but represents a lost opportunity for utilities to invest in more cost-effective clean power.
Severin Borenstein, head of the Energy Institute at the University of California, Berkeley’s Haas School of Business, is a key proponent of the cost-shift theory. In January, Borenstein published a paper challenging McCann’s take on the value of rooftop solar, citing “fundamental conceptual errors that undermine most of its points.”
Borenstein said that a proper analysis finds that in 2024 solar net-metering pushed about $4 billion in costs onto utility customers who don’t have solar. That’s not nearly as high as the $8.5 billion figure from the CPUC’s Public Advocates Office, but it’s still a net cost rather than a benefit to customers at large.
In February, McCann published a reply to Borenstein’s critique, delving into his point-by-point differences of opinion on how these costs should be calculated. Much of the dispute is highly technical in nature. And because these analyses rely on heavily varied assumptions — including what would have happened if the past 20 years of rooftop solar policy hadn’t played out the way they have — many of the conflicts between the two sides on precise numbers can’t be answered definitively.
That uncertainty has led both sides to accuse the other of using intentionally misleading data and methods. McCann acknowledged that his initial analysis last year miscalculated the benefits that he believes rooftop solar has delivered to customers of the state’s three big utilities. He originally calculated $2.3 billion worth of benefits in 2024, rather than the $1.5 billion that emerged from his latest analysis.
The in-the-weeds exchange between McCann and Borenstein reveals a deeper disagreement at the heart of their vastly different estimates — one that cost-shift foes say California regulators have failed to fully acknowledge. It centers on a simple question: When a household generates solar power at the same time as it’s using electricity from the grid, who owns that solar?
According to McCann, who cited legal precedents and the fundamental physics that determine the flow of electrons, solar power that customers generate and consume at their own homes and buildings is theirs by right. They paid for the solar systems, and they’re directly using the electricity those systems generate.
But according to both Borenstein and the Public Advocates Office’s analysis, solar power simultaneously generated at the time that power is being consumed on site should be considered as a cost to other utility customers.
As Borenstein states in his January rebuttal, “So long as a solar system is connected to the grid, there is no real distinction between self-consumption and grid supply. Despite this fact, if a customer’s aggregate rooftop solar production during an hour is equal to the household’s consumption, then some argue that the customer is ‘self-consuming’ and their consumption in that hour should not be obligated to make any contribution to grid costs or other costs that are part of the retail price.”
In other words, according to this logic, allowing solar-equipped customers to count the power they generate as offsetting their use of grid power undermines the fundamental structure of utility rates, which recover the costs of electricity delivery by charging customers for their hour-by-hour energy use.
These two different interpretations go a long way in explaining the chasm between McCann’s analysis and those from Borenstein and the Public Advocates Office. According to McCann’s analysis, this category of “cost” — self-generated solar power considered as the property of the utility and ratepayers at large, rather than belonging to the individual households using it — accounts for nearly $4 billion of the Public Advocates Office’s $8.5 billion cost-shift calculation.
But McCann believes that Borenstein and the Public Advocates Office’s perspective runs afoul of standing legal and regulatory precedent on such matters.
He cited a 2015 paper in which Jon Wellinghoff, former chairman of the Federal Energy Regulatory Commission, and Steven Weissman, a former CPUC administrative law judge and a founder of the energy law program at the UC Berkeley School of Law, state that “[p]roperty owners in the United States have the right to generate electricity onsite, for their own use. This understanding is so fundamental that legislatures have not bothered to spell it out.”
FERC has dismissed arguments that solar generated at homes and other buildings should be regulated by the federal authorities governing the bulk-electricity grid.
The bigger problem with the cost-shift numbers from CPUC and the Public Advocates Office is that they have never been subjected to the kind of regulatory process that could allow regulators, lawmakers, and the public at large to fully grasp and argue over the validity of the assumptions that have gone into them, Loretta Lynch, an attorney and energy policy expert who served as CPUC president from 2000 to 2002, said during a webinar led by M.Cubed last week.
Instead, the Public Advocates Office published a paper in August 2024 asserting its cost-shift figure, which has since been used to justify a range of policy decisions, she said. That’s not how regulators are supposed to do things, Lynch added.
“Before the CPUC goes and touts an unvetted report of dubious calculation and worth, perhaps it should put that report in an evidentiary hearing in a proceeding, along with Richard’s analysis,” she said, referencing M.Cubed’s latest paper.
Then, the CPUC could “have the expert analysts go toe-to-toe, under oath, with questions and cross-examination, so we can see the assumptions made, the data used, and whether or not the conclusions are valid.”
It’s important to note that these cost-shift analyses are looking at California’s rooftop solar past, not its future. In more recent years, as solar has grown to make up an increasing portion of California’s electricity-generation mix, peak grid demands have shifted from late afternoons when the sun is still shining to hot evenings after the sun goes down. Every new increment of solar power added to the grid is less and less useful on its own in reducing these new “net peak” demands.
Batteries that store power for use during these post-sundown peaks have thus become a vital addition to new solar installations, both at the utility scale and at homes and businesses.
The net-billing tariff the CPUC approved in late 2022 to replace its previous net-metering regime offers far lower payments for the electricity that newly installed rooftop solar systems inject onto the grid, except for a few hours per year when peak power is in dire need. That structure rewards customers who add batteries that can store and inject power during those valuable hours — a service that should reduce how much energy utilities need to secure and how much grid infrastructure they need to build to serve those peak moments.
But solar advocates are now worried that the CPUC’s report on containing rate increases calls for reducing the value of solar power for “legacy” net-metering customers as well.
Under the CPUC’s previous net-metering regimes, customers are paid full retail rates for solar power they send back to the grid for 20 years. In its February report, the CPUC proposes shortening those legacy periods, which could reduce costs for utilities but also undermine the economic calculations that made rooftop solar worthwhile to customers who installed it with the assumption that those rules wouldn’t change.
The CPUC report also proposes adding a “grid-benefits charge” to the bills of existing rooftop solar owners — in essence, charging them extra for having solar panels. Utilities have previously proposed this concept and shortening legacy net-metering periods, but regulators rejected them after significant pushback.
The CPUC’s new report doesn’t advocate for these or any other particular changes to utility regulations or policy. But it does propose that state lawmakers consider finding “non-ratepayer sources” to compensate customers with rooftop solar.
The CPUC didn’t specify which alternative sources could fill that gap. Prior proposals to use state tax revenues or California’s cap-and-trade program could be part of the mix, said Mark Toney, executive director of The Utility Reform Network, a ratepayer-advocacy group.
But even supporters of those concepts like Toney don’t see much hope of lawmakers fielding bills that would ask taxpayers to shoulder costs now borne by utilities. “It is wishful thinking that we could shift rooftop subsidies to taxpayers,” he said. “I’m not holding my breath here.”
Given the unlikely prospects of using taxpayer funds to pay rooftop solar customers, solar advocates fear that the CPUC’s proposal is an opening shot in a battle to weaken rooftop solar even further.
Cook of the Environmental Working Group described the potential ramifications of such a move: “If people come to believe that any agreement they thought was going to be good for, say, 20 years means nothing to the state and to the utility regulators — if it can be wiped away — that’s going to make it even harder to convince people to think that their own investments and rooftop solar are going to pencil out.”
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