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Net Energy Metering (NEM)

For information about the NEM Successor Tariff or Contract mandated by AB 327, and related Energy Division workshops, please visit our NEM Successor Tariff or Contract page.


NEM Overview

Customers who install small solar, wind, biogas, and fuel cell generation facilities (1 MW or less) to serve all or a portion of onsite electricity needs are eligible for the state's net metering program. NEM allows a customer-generator to receive a financial credit for power generated by their onsite system and fed back to the utility.  The credit is used to offset the customer's electricity bill.  NEM is an important element of the policy framework supporting direct customer investment in grid-tied distributed renewable energy generation, including customer-sited solar PV systems.

  • Participation in NEM does not limit a customer-generator’s eligibility for any other rebate, incentive, or credit provided by an electric utility, or as part of a governmental program, such as the California Solar Initiative.
  • More than 90 percent of solar PV systems interconnected to the grid in the three large investor-owned utility territories are signed up for NEM tariffs, with 337,374 residential and non-residential accounts enrolled in California’s NEM program as of March 31, 2015. There are an additional 11,504 applications pending for NEM interconnection.
  • NEM allows the customer to size their generation to meet their annual load instead of the peak demand.  This allows for a slightly smaller system to meet the load than would otherwise be required because of seasonal variation in both the demand for electricity and the solar resource itself.
  • NEM also reduces concerns about short term fluctuations in generation. Solar PV generation is relatively predictable on an annual basis, but shows strong variability, even on an hourly basis, as passing clouds, inclement weather or other fluctuations in the available solar resource affect the actual output of the solar system.  Since customer load also varies, at any given moment it is very difficult to determine if a solar PV system will be serving onsite load or exporting energy to the grid.  NEM means that load and generation do not have to be precisely coincident to return value to the customer.
  • NEM provides a long term, predictable benefit tied to market value (bundled retail rates) for the customer, improving the financial viability of distributed generation (DG) investments.
    • DG, like Solar PV systems, typically have very high up-front costs, and capacity based incentives cover only a small portion of that cost.
    • At a minimum, NEM allows customers to receive the fully bundled retail rate for generation that offsets load (coincident or non-coincident), and may be expanded to cover net excess generation.  This is significantly more incentive than would be provided by exported energy valued at the utility avoided cost rate, which may be as little as half of the retail rate.
  • NEM program rules and regulations allow regulators and utilities to provide transparent, simplified and expedieted interconnection procedures for small customers.
    • NEM systems are primarily intended to offset onsite load, mitigating to some extent the impact on the Transmission and Distribution system, allowing for simplified interconnection procedures.
    • NEM is particularly useful for encouraging interconnection of small to medium sized PV systems, which represent a significant resource in California and elsewhere, and is thus an excellent companion policy for more traditional procurement.
    • Most NEM projects pay little to no charges to interconnect to the utility grid.  NEM customers do pay nonbypassable charges, such as the Department of Water Resources surcharge and the Public Goods Charge ( a nobypassable surcharge to fund public goods research, development and demonstration, energy efficiency activities, and low income assistance programs) but based on net rather than gross consumption.

The PUC submitted a net energy metering status report in March 2005 and an updated NEM cost-effectiveness evaluation to the Legislature in 2010.  In response to AB 2514 (Bradford, 2013), the PUC released an updated and expanded cost-effectiveness evaluation in October 2013.  Additional information is available on the GoSolarCalifornia NEM page, and on the utilities websites:

NEM Billing

Net energy metering (NEM) is an electricity tariff billing mechanism designed to facilitate the installation of onsite renewable generation. Under NEM tariffs, participating customers receive a bill credit for excess generation that is exported to the electric grid during times when it is not serving onsite load.  On a month-to-month basis, bill credits for the excess generation are applied to a customer’s bill at the same retail rate (including generation, distribution, and transmission components) that the customer would have paid for energy consumption, according to their otherwise applicable rate structure.  At the end of a customer’s 12-month billing period, any balance of surplus electricity is trued-up at a separate fair market value, known as net surplus compensation (NSC). The NSC rate is based on a 12-month rolling average of the market rate for energy, or approximately $0.04 to $0.05 per kilowatt-hour (kWh), and it was established in Commission Decision (D.) 11-06-016 following AB 920 (Huffman, 2009).

In addition to billing credits for net energy exported to the electric grid, participating NEM customers are also exempt from standby charges, departing load charge, and costs associated with interconnection application fees, studies and distribution upgrades.

Net Surplus Compensation Rates:

Net Surplus Compensation Rate ($/kWh)

True-up Month




Bear Valley1


April 2015






 1 Same as SCE

2 Same as PG&E

Compensation for Renewable Energy Credits

NEM customers who generate a balance of energy at the end of their 12-month billing period are eligible to receive compensation for the renewable energy credits (RECs) associated with excess generation. This payment is equal to the net surplus kWhs multiplied by the Renewable Attribute Adder rate, which reflects an average premium utilities pay for renewable energy in order to comply with California’s Renewable Portfolio Standard.

To receive compensation for RECs, a customer-generator must register their generation facility with the Western Renewable Energy Generation Information System (WREGIS) and follow the eligibility guidelines contained in the latest version of the California Energy Commission’s Renewable Portfolio Standard Guidebook.

NEM Cap:

Pursuant to AB 327 (Perea, 2013), each large investor-owned utility is required to offer NEM until the earlier of July 1, 2017, or the date on which the utility reaches its NEM program cap. The NEM program cap is reached when the total installed NEM capacity in a utility territory exceeds 5% of its aggregate customer peak demand (see table below).

As of March 2015, the remaining capacity available for NEM in each utility’s program


5% NEM Cap (MW)

Remaining Capacity (MW)


2,409 MW

980.3 MW


2,240 MW

1,156.9 MW


607 MW

213.7 MW

In accordance with Decision (D.) 14-03-041, and as required by Public Utilities Code 2827(c)(4)(C), the large investor-owned utilities are required to file monthly reports with the CPUC that detail progress towards meeting the current NEM program cap. These reports include current data on the installed NEM capacity as well as NEM systems with pending requests for interconnection to the electric grid.

See the utilities’ webpages for more information:

NEM Aggregation

Senate Bill (SB) 594 (Wolk, 2012) authorizes NEM aggregation, in which an eligible customer-generator elects to aggregate the electrical load from multiple meters, and NEM credits are shared among all property that is attached, adjacent, or contiguous to the generation facility. A customer-generator must be the sole owner, lessee, or renter of the properties in order to utilize NEM aggregation. For example, an agricultural customer could use a single solar system to provide NEM bill credits to offset the electrical load from their home as well as from an irrigation pump located on an adjacent parcel.

SB 594 conditioned implementation of NEM aggregation for the three investor-owned utilities on a Commission determination that the policy would not result in an increase in the expected revenue obligations of customers who are not eligible customer-generators. The Commission authorized investor-owned utilities to implement NEM aggregation in Resolution E-4610. NEM aggregation applications are counted towards the 5% NEM cap, and all other NEM restrictions apply.

Virtual Net Metering

Virtual Net Metering (VNM) is a special tariff available to MASH incentive recipients that enables a multifamily housing owner to allocate a solar system's benefits to tenants across multiple units.  Current tariff rules allow the system owner to allocate bill credits of a percentage of the solar generation between common load areas and tenants along a single service delivery point.  Under VNM, MASH Track 1a incentives are granted to common load offset and Track 1b incentives to tenants' load at the determined allocation rates.

For more information, please contact the Program Administrator for you utility service territory, or click on the links below to go to the Utility tariff books:

AB 920

On October 11, 2009, Governor Schwarznegger signed into law AB 920, requiring California utilities to compensate Net Energy Metering (NEM) customers for electricity produced in excess of on-site load over a 12-month period. The law requires that the utilities notify their NEM customers by January 31, 2010, that they are eligible for net surplus electricity compensation, and it directs the CPUC to establish by January 1, 2011, a net surplus compensation rate to be paid to NEM customers who produce more kilowatt hours than they consume in a 12-month period. Customers may sign up for net surplus compensation immediately, although they will not know the rate at which they will be compensated until the CPUC establishes the rate, some time in 2010.

AB 920 stipulates that the utilities will receive the renewable energy credits (RECs) associated with those excess kilowatt hours for which they have provided customers compensation. In addition, the law requires the CPUC to set the net surplus compensation rate at a level that is just and reasonable for the net surplus customer-generator but that does not create a cost for other bundled service customers.

As a first step in this process, on January 15, 2010, the CPUC issued an Assigned Commissioner Ruling directing the utilities to file applications proposing a net surplus compensation rate that meets the requirements of AB 920.  Utilities filed applications on March 15, which were  then consolidated into a single proceeding, and the public was provided several opportunities to provide input before a final net surplus compensation rate was put forward for Commission vote. Customers may sign up for net surplus compensation immediately, and will be compensated at the rate determined on June 9, 2011 in Decision (D.) 11-06-016 following staff advice letter disposition.


Last Modified: 7/7/2015

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