On November 16, the California Public Utilities Commission (Commission) voted to adopt a decision resolving the remaining issues in the Net Energy Metering (NEM) proceeding.  The decision, issued on November 22 as D.23-11-068, applies the net billing tariff concept adopted in D.22-12-56 to virtual net metering customers (VNEM) and aggregated NEM customers (NEMA), which groups generally include multi-family residences, agricultural customers, and other larger facilities such as schools.  The Commission adopted these successor tariffs to recalibrate a perceived cost shift from NEM customers to non-participating ratepayers, but the tariffs are widely viewed by the solar industry and environmental groups as restricting rooftop solar.  The successor tariffs replace the retail export compensation rates for NEM customers with compensation rates tied to the Avoided Cost Calculator (ACC), which assigns variable values for distributed energy resources that generally fall well below retail rates.  The decision finds that the shift to ACC compensation values will improve price signals and encourage customers to optimize their NEM systems in a manner consistent with the grid’s needs, despite resulting in a longer payback period for NEM customers.  The successor tariff also prohibits netting out consumption of on-site load for non-residential NEM projects, which means that those NEM customers will not be able to apply their on-site generation to directly offset their retail rates.

While the decision has received significant attention stemming from the move to ACC compensation rates and the limitation for on-site netting in the successor tariff, D.23-11-068 also resolves several other remaining issues in the NEM proceeding, including: (1) adopting a subtariff for NEMA customers; (2) enhancing customer protections and “watch list” requirements for solar providers; (3) modifying the NEM fuel cell tariff; and (4) implementing the prevailing wage requirements established under Assembly Bill (AB) 2143 (Carillo, 2022).  The prevailing wage requirements will have significant cost and compliance implications for solar rooftop developers installing projects on commercial sites and/or multi-family housing units (except for units with two or fewer stories, or modular homes, which are exempt).

Prevailing Wage Requirements

AB 2143 added Public Utilities Code § 769.2, which requires contractors developing (or “perform[ing] work on”) a renewable electrical generation facility with a capacity rating in excess of 15 kW, or a related battery storage project, and that would take service under a NEM tariff or other standard offer contract, to pay each construction worker employed on the project, at a minimum, the general prevailing rate of per diem wages after December 31, 2023, subject to limited exceptions.  AB 2143 directed the Commission to oversee the implementation of this new rule by requiring electrical utilities to update their tariffs consistent with the law. 

Through the recently adopted D.23-11-068, the Commission implements AB 2143 and resolves several critical ambiguities, in addition to setting the procedural requirements for verification and compliance.  First, the decision makes clear that the prevailing wage requirements only apply to projects that submit an interconnection application with the relevant utility after December 31, 2023.  Therefore, if a project submits an interconnection application before year-end 2023, it will not be subject to the new requirements under § 769.2, regardless of whether construction or other work on the project commences on or after January 1, 2024.  Project developers should note, however, that if an upgrade is sought for an existing NEM project such that a new interconnection application is required (e.g., the project’s capacity would increase or it would be paired energy storage), then same trigger date of December 31, 2023, would apply and the project may be subject to the prevailing wage requirements.

Second, the Commission determined that the electric utilities should assume responsibility for educating customers on the new requirements and directed the utilities to create a “Prevailing Wage Disclosure Form” that will require customer acknowledgement as a new step in the interconnection application. 

Third, the Commission authorized the Energy Division to develop (with a consultant) a system for collecting payroll records and reviewing such records to ensure compliance, and to maintain a list of contractors found to be non-compliant. Contractors found to be non-compliant will (1) lose access to the applicable NEM tariff associated with the specific generation facility for which it did not pay a prevailing wage, and (2) will be ineligible to take service under any future NEM project (i.e., any future interconnection application with that contractor would be denied). Under AB 2143, the Department of Industrial Relations is authorized to issue a civil wage and penalty assessment to further penalize contractors found to willfully violate the prevailing wage requirements.

Summary

D.23-11-068 includes several pertinent requirements for solar developers and battery storage providers looking to interconnect under a NEM and net billing tariffs.  If developing a project with a generating facility over 15 kW, and the project will be sited neither on a single-family home, a modular home, or a small, multi-unit housing complex, then it will need to account for the prevailing wage requirements if the project’s interconnection application is submitted on or after January 1, 2024.