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The California Supreme Court on June 4 heard arguments in a pivotal case that could reshape rooftop solar incentives across the state. At issue is whether a 2022 policy that reduced compensation rates for new solar customers violates state law and undermines California's environmental and climate goals.
The lawsuit, Center for Biological Diversity v. Public Utilities Commission (S283614), was brought by three environmental groups: the Center for Biological Diversity, the Environmental Working Group, and the Protect Our Communities Foundation. The groups are challenging the California Public Utilities Commission's decision to reduce solar credit rates under the state's Net Energy Metering 3.0 program. The Supreme Court granted review on April 10, 2024, and heard arguments on June 4, 2025.
Under prior versions of the program, homeowners with solar panels were credited at the full retail rate for excess electricity sent back to the grid. NEM 3.0 changed that, reducing compensation by up to 80% and shifting to a lower "avoided cost" rate — the amount utilities save by not purchasing power elsewhere. The change took effect in April 2023 and applied only to new installations. Earlier customers retained their original rates for 20 years.
Malinda Dickenson, attorney for the environmental groups, told the court the CPUC failed to consider critical non-financial benefits of rooftop solar, including grid reliability, resilience during peak demand, and public health. She said the commission "excluded reliability and resiliency benefits" in the decision.
The CPUC, represented by Deputy Solicitor General Mica Moore, argued the previous compensation model created an unfair cost shift to non-solar customers. "The commission made a factual finding in its proceedings that the former [net metering] system was unsustainable because of the burden that it was placing on customers without solar," he said. "It's hard to see what the commission could have done to address that issue if it had been required to compensate homeowners for every quantifiable benefit for solar."
The policy change has had a marked effect on the rooftop solar industry. According to filings and industry reports, new solar permit applications dropped by 82% statewide in 2023. The California Solar & Storage Association warned the policy could lead to an estimated 17,000 job losses in its first year.
Environmental groups argue that cutting compensation makes it harder to meet California's mandate of 100% carbon-free electricity by 2045, with rooftop solar expected to provide more than 50% of that goal. Rooftop systems also reduce the need for costly transmission infrastructure and deliver power directly where it is used, lowering environmental impact.
Meanwhile, the California Legislature is considering Assembly Bill 942, which would prevent homebuyers from inheriting favorable solar rates tied to previous homeowners. If passed, it could further reduce the appeal of rooftop solar investment. "If lawmakers are serious about controlling energy costs, they should address the real problem: runaway utility spending," said Brad Heavner, executive director of the California Solar & Storage Association, in a statement.
The court's decision, expected in the coming months, could determine whether NEM 3.0 stands or must be revised — a ruling with potential implications for rooftop solar policy across the nation.
