NEM Illustration shows how Net Energy Metering works.

Net Energy Metering 2.0 – Successor to the Net Energy Metering Tariff

What is Net Energy Metering?

Net Energy Metering (NEM) is a billing arrangement, or “tariff,” established pursuant to Public Utilities Code § 2827 that allows customer-generators to install and utilize an on-site power generation system to serve a portion of their energy needs, and to receive compensation for any excess generation exported to the utility grid. The current NEM program bills customers on the basis of “net consumption” and gives full retail credit for power exported to the grid.*

As illustrated, the residential customer has Total Energy Needs of [A] 1,000 kWh per month. During daylight hours that month, the homeowner’s rooftop Solar system generates [B] 600 kWh of power. The customer only uses [D] 250 kWh to meet the family’s needs during the daytime. So the remaining [E] 350 kWh, is exported back to the grid. During the night, the family relies on the utility to deliver its remaining energy needs. The customer is only billed for the Net Consumption of [C] 400 kWh, which is equal to the Energy Delivered [F] minus the Energy Exported [E]. (The above illustration was taken from the SDG&E Proposal for Successor Net Energy Metering Tariff submitted to the CPUC in August, 2015)In the region serviced by San Diego Gas & Electric, new Net Metering regulations became effective as of about 8:24 am on Wednesday, June 29, 2016. That is the time SDG&E reached the 617 MW NEM Cap. The amount of NEM-eligible Megawatt generation now exceeds the NEM 5% Program Limit capacity in SDG&E’s service territory, and the Section 2827 tariff is now closed to new customers.

All new NEM applications will be processed and treated according to the NEM Successor Tariff. The tariff authorized by Public Utilities Code § 2827.1, as implemented by Decision 16-01-044 (NEM successor tariff), is available immediately. Information about interconnections under the NEM Successor Tariff can be found here:

The NEM-ST rules are similar to NEM tariff except for three primary differences.  NEM-ST customers will:

  1. Pay a one-time non-refundable interconnection fee, currently set at $132.00;
  2. State that their system equipment has at least a 10-year warranty;
  3. Pay non-bypassable charges (NBC’s) on the electricity that is received from SDG&E (NBC’s are not paid on electricity generated by the customer’s solar PV system)

In the region of California serviced by San Diego Gas & Electric (SDG&E), the NEM cap was set at 617 megawatts. As of 8:24 AM on June 29, 2016 that level of authorized production was achieved.


Will Net Energy Metering 2.0 be fair, or will the utilities prevail?

Pursuant to California Assembly Bill (AB) 327, the California Public Utilities Commission (CPUC) was charged with the responsibility of setting forth a new Net Energy Metering (NEM) tariff by December 31, 2015. The proposed decision was issued on December 15.

The new tariff, referred to in the industry as NEM 2.0, is to replace the current method of billing utility customers who generate electricity from photovoltaic (PV) solar panels installed on their property. These utility customers are referred to as “customer-generators.” Presently, under NEM 1.0, a customer-generator receives full retail credit for the energy generated and sent onto the grid, on a 1:1 ratio.  For every kilowatt hour the customer generates for the utility, he or she is entitled to later receive one kilowatt hour back from the utility, without charge. This arrangement is about to change for those utility customers who start generating power after the current NEM cap is reached.

The utilities are not happy with the current arrangement. Each of California’s investor owned electric utilities   – San Diego Gas & Electric (SDG&E), Pacific Gas & Electric (PG&E), and Southern California Edison (SCE) – have proposed NEM policy changes before the CPUC. The new plan will be known as Net Energy Metering 2.0. If the utilities get their way, customer-generators will receive far less credit for the power they produce and export to the utility, while also paying added interconnection costs.

In August of 2015, SDG&E, PG&E and SCE each filed proposals with the California Public Utilities Commission. According to an article appearing on Green Tech Media, the proposed changes, “would have the broad effect of significantly reducing the economic value of customer-sited solar systems, compared to today’s current net-metering rules.”

It is important to note that the coming change in the regulations will only apply to customers who implement solar technology after that point. Those utility customers already generating energy from their own wind or solar energy systems are protected for 20 years. They are grandfathered under the old rules in effect when their energy production systems came on line.

SDG&E’s NEM 200 page proposal before the CPUC is complicated and very customer-unfriendly.  The full text of the proposal is found at (We also have a copy here.)

On December 15, 2015, a proposed decision was released. This proposed decision was voted on by the CPUC on January 28, 2016, granting some of the utility’s requests, and postponing decision on others.

SDG&E’s proposal before the CPUC included several new charges, including the following:

  • Grid Use Charge: This is “for the recovery of capacity-related distribution costs.” While that may sound reasonable, the grid works in both directions and benefits the utility as well as the customer. Since the utility is receiving power from the customer-generator via the grid, that it will resell to other customers, it is hard to understand why the utility should charge the customer-generator for the privilege of using that grid to deliver electricity to the utility. Fortunately, the CPUC’s January 28, 2016 decision did not fully go along with the utility’s request. They are, however, allowing the utility to charge a one-time grid connection charge. Details as to the amount of that charge are not yet available.
  • System Access Fee: The utility claims this is “for the recovery of curb-to-meter infrastructure and customer services.” It will also include a Public Purpose Program (“PPP”) surcharge. Here again, energy received from the customer-generator travels across that same “curb-to-meter” infrastructure, so an ongoing fee to access the system seems untenable. The CPUC decision is permitting the utility to pass along to the customer-generator certain “non-bypassable” fees, including the line item charge on current bills labeled as Public Purpose Programs. Under NEM 1.0 the customer-generator will not be charged for this item, but under NEM 2.0 that charge will continue to pay this fee.
  • Time-of-Use rate: The utility proposed to charge its utility customer-generators higher rates a certain times of the day. One might wonder why the utility wants the ability to do this, since presently the higher time of use rates apply during the daytime — when the customer’s solar energy generation facility will likely be producing most of the customer’s energy requirements. Since the customer is not drawing much power from the grid during those hours, why does the utility want the freedom to charge a different rate during that time?  Could it be that the utility will later decide to charge customer more in the evening hours, when their systems are not producing energy. We do not know that. But what we do know is that the CPUC did grant that request, which will apply to customers coming in under the new NEM 2.0 tariff.
  • The utility also proposed a “wholesale rate” for energy exported to the grid, amounting to just 4 cents per kilowatt hour. This is excess energy generated by solar customers above their consumption during daylight hours, and passed on to the grid. The utility is currently charging up to almost 42 cents per kWh ($0.41778) for power they sell to their customers. Yet they want to pay their solar customer-generators only 4 cents for each kWh they produce. It may be reasonable to credit customer-generators a bit less than full retail, but a 90% discount in favor of the utility, together with all those added interconnection fees, seems far from fair. Decision on this request has been postponed.

The proposal also indicates that SDG&E plans to invest $50 million in utility-owned solar generation facilities, the cost of which they want to be recovered from “all customers, except residential customers and public K-12 schools in Disadvantaged Communities.” In other words, they want to invest in solar infrastructure so they can have greater access to cheap solar power, that they intend to sell to you, and they want YOU, the utility’s customers, to pay for that new infrastructure.

If SDG&E wants to expand its own solar infrastructure, let them. But let their investors pay for it, not their customers.

If you are going to pay for it anyway, wouldn’t it be better for you to OWN that power infrastructure yourself, thus avoiding future exorbitant rate increases the utility imposes several times each year? SDG&E has raised its rates about 60 times in 15 years, increasing rates by nearly 300% to 500% in those same 15 years. Where else in the world has inflation raised prices by 3 to 5 times in the past 15 years?

If SDG&E wants to expand its own solar infrastructure, that would be wonderful. But let their investors invest in the project, not force the cost onto the utility’s customers.

Net Energy Metering In Action

This chart illustrates solar Net Energy Metering (NEM) in action, with power generated by solar panels on my roof actually generating 100% of my energy demand. As our days are getting longer, my solar ROI is getting shorter.

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