The California Supreme Court ordered a lower court to reconsider a policy decision that reduced utility payments to homeowners for electricity sent to the grid from rooftop solar panels. The court sent the regulations in California’s third iteration of its Net Energy Metering (NEM) subsidy program, known as NEM 3.0, back to the state appeals court for review.
The Supreme Court, in its August 7, 2025 decision in Center for Biological Diversity, Inc. v. Public Utilities Com, said a state appeals court was too deferential to the California Public Utilities Commission (CPUC) in reviewing its decision on the NEM 3.0 program.
The California Public Utilities Commission (CPUC) approved the new NEM 3.0 policy in December 2022. The NEM 3.0 plan, which took effect in April 2023, reduced by 75% how much credit solar customers receive when exporting their excess power to the grid. It also changed the electricity rate structure to provide greater incentives to install batteries to store their solar energy during the day and export it or use it in the evening.
In making its decision, CPUC found that NEM 2.0 benefitted program participants, but shifted the costs onto non-participating customers. Utility companies had argued that the credits rates they had to pay were higher than the cost of electricity on the wholesale market.
Opponents of the decision argued that this reasoning does not fully consider the benefits of rooftop solar. They also argued that the plan would reduce rooftop solar installations. They argued that the increase in the time it would take customers to recoup the costs of a rooftop solar would reduce the incentive to install the system.
The Center for Biological Diversity and other groups unsuccessfully challenged the rules in December 2023. The state court of appeals affirmed the CPUC decision, holding that “uniquely deferential standard of review is accorded the Commission because of its status as ‘a constitutional body with broad legislative and judicial powers.’”
In its recent ruling, the California Supreme Court noted that, while statutory law directed courts to uphold CPUC decisions unless the decision “fails to bear a reasonable relation to statutory purposes and language.” The state legislature, however, expanded judicial review of most CPUC decisions in the late 1990s. “We do not decide whether the court’s ultimate conclusion that the tariff is consistent with section 2827.1 is correct or incorrect — only that the Court of Appeal erred by applying an unduly deferential standard of review to reach that conclusion,” the court wrote.