California Supreme Court Ruling on Rooftop Solar
The California Supreme Court delivered a unanimous 7-0 decision on August 7, 2025, that will significantly reshape the legal landscape for rooftop solar policy in the state. This landmark ruling addresses the controversial Net Energy Metering 3.0 (NEM 3.0) policy implemented by the California Public Utilities Commission (CPUC) in 2022. The NEM 3.0 regulations remain in effect during the ongoing legal process. The outcome of this case is unlikely to impact Lodi Electric customers as Lodi solar customers are compensated based on “avoided cost” calculated by Lodi Electric: currently $0.0831/kWh, effective July 1, 2025 - June 30, 2026. PG&E Solar customers in areas around Lodi would benefit from a return to NEM 2.0.
Details of the Supreme Court Ruling
Legal Standard Established
The Supreme Court's primary holding centered on judicial review standards. Justice Leondra Kruger, writing for the unanimous court, determined that the state court of appeals "used an unduly deferential standard of review" when it previously upheld the CPUC's NEM 3.0 decision[1].
The Court established that lower courts must now apply a more demanding standard of review when evaluating CPUC decisions, specifically requiring them to consider whether the commission has "followed the law, and considered the costs and benefits of power generation it is regulating"[1]. This represents a significant departure from the previous approach where courts gave extensive deference to the CPUC's expertise.
Legal Foundation for the Decision
The ruling was grounded in a 1998 state law that expanded judicial access, with the Court quoting legislative findings that "the activities of the energy, telecommunications, and transportation industries will require expanded access to the court system at all levels"[1]. This statutory foundation effectively limits the deference that courts must give to utility regulators[2].
The Supreme Court rejected arguments from the utility commission and California's three major investor-owned utilities — Pacific Gas and Electric, Southern California Edison, and San Diego Gas & Electric — that sought to maintain the previous deferential review standard[2].
What the Court Did NOT Do
Importantly, the Supreme Court did not rule on whether NEM 3.0 was legal or illegal. As the Court explicitly stated, it was "not concluding the new solar rules are correct or incorrect — only that the Court of Appeal erred in applying an unduly deferential standard of review"[3]. The NEM 3.0 regulations remain in effect during the ongoing legal process[3].
Background: The NEM 3.0 Controversy
The Policy Changes
In December 2022, the CPUC unanimously approved NEM 3.0, which fundamentally altered how rooftop solar customers are compensated for excess electricity they send back to the grid. The key changes included:
Reduction of compensation by approximately 75-80% for new solar customers[4]
Transition from retail rate compensation to "avoided cost" pricing, which is significantly lower[4]
Implementation began in April 2023 for new solar installations[4]
Economic Impact
The policy changes have had devastating effects on California's solar industry:
82% drop in customers requesting solar connections[4]
17,000 job losses projected by end of 2023, representing 22% of the state's solar workforce[6]
Solar sales declined 77-85% year-over-year[7]
Extended payback periods for solar installations, with some customers now facing 16-18 year payback periods compared to previous 5-9 years[9]
The Legal Challenge
Three environmental organizations filed the lawsuit challenging NEM 3.0:
Center for Biological Diversity
Environmental Working Group
The Protect Our Communities Foundation
These groups argued that the CPUC's decision violated state law requiring continued growth of rooftop solar, particularly in disadvantaged communities, and failed to properly account for the benefits solar provides to the electrical grid[2].
What Happens Next
Court of Appeals Review
The case now returns to the California Court of Appeals for substantive review under the new, more demanding standard. The appeals court will specifically examine:
Whether the CPUC had legal basis to make the cuts to rooftop solar compensation[2]
Whether the commission designed a policy that ensures continued rooftop solar growth in environmental justice communities, as required by state law[2]
The comprehensive costs and benefits of rooftop solar that the CPUC may have failed to consider[1]
Timeline
Legal experts estimate that a new hearing could be scheduled in approximately 3-4 months, with the filing of briefs from opposing sides required before the rehearing[3]. As attorney Roger Lin noted, "It is a long road. The fight is not over"[3].
Broader Implications and Future Ramifications
Precedent for Regulatory Oversight
The ruling establishes significant precedent beyond solar policy. Environmental advocates emphasized this point, with Bernadette Del Chiaro stating: "This is a precedent much bigger than rooftop solar" and "For too long, they really have operated in a black box behind a shroud of complexity"[4].
The decision limits the CPUC's regulatory autonomy and subjects future utility decisions to more rigorous judicial scrutiny, potentially affecting:
Utility rate increases
Energy efficiency programs
Grid modernization decisions
Climate policy implementation
Environmental Justice Implications
The ruling holds particular significance for disadvantaged communities and environmental justice. Current data indicates that, although they make up 25% of California's population, only 11-12% of households with solar installations are located in disadvantaged communities[11].
The Court of Appeals will now specifically examine whether NEM 3.0 violates state requirements to ensure continued solar growth in these communities. [2] This could lead to:
Enhanced protections for low-income solar access programs
Stronger requirements for equitable clean energy deployment
Greater scrutiny of utility decisions affecting environmental justice communities
Market Recovery Prospects
While the ruling doesn't immediately change NEM 3.0, it creates potential pathways for market recovery:
Short-term (2025-2026):
Continued regulatory uncertainty may further suppress installations
Federal tax credit elimination after 2025 compounds challenges[1]
Some commercial solar growth may continue (+11% in 2024)[13]
Medium-term (2026-2030):
Potential appeals court reversal could restore more favorable rates
Battery storage integration becoming essential for new installations[14]
Utility-scale solar continuing to grow regardless of rooftop policy changes[13]
Long-term implications:
Grid resilience concerns may drive policy reconsideration
Rising electricity rates (utilities have increased rates 82-110% over the past decade) may make solar more attractive even under NEM 3.0[16]
Climate goals may require policy adjustments to meet 2045 carbon neutrality target
Federal Context
The state ruling comes amid challenging federal policy changes:
Elimination of 30% federal tax credits for residential solar after December 31, 2025[3]
Potential $7 billion cut in federal grants for low- and middle-income solar projects[1]
These federal changes could compound the negative effects of NEM 3.0 or alternatively make state-level policy corrections more crucial
Economic and Grid Implications
Cost-Shift Debate Resolution
The appeals court review will likely address the controversial "cost-shift" argument central to NEM 3.0's justification. While utilities claim rooftop solar creates an $8.5 billion cost burden on non-solar customers[17], independent analysis suggests rooftop solar actually provides $1.5 billion in grid cost savings[16].
Grid Resilience Considerations
The ruling comes as California faces increasing energy demands from AI and data centers, along with climate-driven grid stress[15]. The appeals court may need to consider whether restricting rooftop solar conflicts with grid resilience and reliability goals, particularly given that battery storage capacity has surged to over 13,000 MW statewide[18].
The California Supreme Court's unanimous decision represents a watershed moment for energy regulation in California. While NEM 3.0 remains in effect for now, the new judicial review standard creates significant potential for policy reversal and establishes important precedent for holding utility regulators accountable to state law. The ultimate resolution of this case will likely shape not only the future of rooftop solar in California but also the broader balance of power between utility regulators and the communities they serve.
Sources
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[2] California Supreme Court Rejects Deference to Regulators on Rooftop Solar Rollback https://biologicaldiversity.org/w/news/press-releases/california-supreme-court-rejects-deference-to-regulators-on-rooftop-solar-rollback-2025-08-07/
[3] California's rooftop solar rules in limbo after state Supreme Court ruling https://techxplore.com/news/2025-08-california-rooftop-solar-limbo-state.html
[4] California Supreme Court Hands Victory to Rooftop Solar Panel ... https://www.independent.com/2025/08/08/california-supreme-court-hands-victory-to-rooftop-solar-panel-owners/
[5] California Supreme Court hands victory to rooftop solar panel owners https://laist.com/news/climate-environment/california-supreme-court-hands-victory-to-rooftop-solar-panel-owners
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[10] California Supreme Court sides with environmental groups in rooftop solar case https://www.latimes.com/environment/story/2025-08-07/california-supreme-court-sides-with-environmental-groups-in-rooftop-solar-case
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[15] 2025 Energy Costs in California: Why Now Is the Time to Go Solar https://revel-energy.com/2025-caifornia-energy-costs-now-is-the-time-for-solar/
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