California Legal Brief

The Rule of Center for Biological Diversity, Inc. v. Public Utilities Commission is that a public utilities commission's quasi-legislative decision developing a successor net energy metering tariff pursuant to statutory directive receives narrow judicial review and will be upheld if it lies within the lawmaking authority delegated by the Legislature and is reasonably necessary to implement the statutory purpose, under circumstances where the Legislature has explicitly directed the commission to develop a tariff meeting specified objectives while providing discretion to revise the tariff as appropriate.

Appeal from order in Cal.P.U.C. Decision No. 22-12-056.

Petitioner Appellants were Center for Biological Diversity, Inc., Environmental Working Group, and The Protect our Communities Foundation — environmental organizations challenging the Commission's successor net energy metering tariff as inconsistent with statutory requirements.

Respondent was Public Utilities Commission — the state agency that adopted the successor tariff replacing the existing net energy metering program.

The suit sounded in administrative law regarding statutory interpretation and compliance with Public Utilities Code section 2827.1.

The key substantive facts leading to the suit were that for over 30 years, California used a net energy metering tariff allowing customers with renewable electrical generating facilities to receive full retail rate credit for excess energy exported to the grid, resulting in a "substantial subsidy" and cost shift to non-NEM customers estimated at $60 million. In 2013, the Legislature enacted section 2827.1 directing the Commission to develop a successor tariff that "prevents a cost shift to non-NEM customers" and "is based on the electrical system costs and benefits received by nonparticipating customers." In 2022, the Commission adopted a successor "net billing" tariff that calculated imported and exported power separately based on avoided cost values rather than treating them as equivalent.

The procedural result leading to the Appeal: The trial court (Court of Appeal) initially affirmed the Decision using the highly deferential Greyhound standard, but the California Supreme Court reversed and remanded, ruling that the less deferential Yamaha standard applies to Commission interpretation of statutes, requiring the Court of Appeal to determine whether the successor tariff lies within the Commission's lawmaking authority.

The key question(s) on Appeal: 1. Whether the Commission failed to proceed in the manner required by Public Utilities Code section 2827.1(b)(1) regarding sustainable growth and specific alternatives for disadvantaged communities; 2. Whether the Commission failed to comply with section 2827.1(b)(3) requiring the tariff be based on costs and benefits of renewable electrical generation facilities; 3. Whether the Commission failed to comply with section 2827.1(b)(4) requiring total benefits to all customers and the electrical system to be approximately equal to total costs.

The Appellate Court held the Commission's successor net energy metering tariff lies within the lawmaking authority delegated by the Legislature under Public Utilities Code section 2827.1, where the Commission conducted extensive rulemaking proceedings, included specific alternatives for disadvantaged communities through higher compensation adders and existing programs, based export compensation on avoided cost calculations that considered relevant costs and benefits of renewable facilities, and ensured total costs and benefits were approximately equal across all customers and the electrical system.

The case is inapplicable when the commission fails to conduct adequate rulemaking proceedings, completely ignores statutory objectives, adopts tariff provisions with no rational relationship to statutory purposes, or acts outside the scope of legislative delegation in developing utility compensation programs.

The case leaves open whether the Commission must adopt particular methodologies for calculating avoided costs, whether future revisions based on new evidence regarding societal benefits would be required, the extent to which the Commission must quantify speculative or private benefits in compensation calculations, and how the Yamaha standard applies to other types of Commission decisions beyond quasi-legislative rulemaking.