Robert Young of McNees Wallace & Nurick.

Net metering is one of the public policy tools that states and state regulatory commissions use to spur the growth of renewable energy generation. Throughout 48 states and the District of Columbia, in April 2020 more than 2.3 million residential electricity customers and almost 90,000 commercial and industrial electricity customers generated their own electricity through solar panels and sold more than 175,000 megawatt hours of excess electricity back to their electric companies. US EIA https://www.eia.gov/electricity/data/eia861m/xls/net_metering2020.xlsx. Solar represents 96% of net metered generation.

At the Federal Energy Regulatory Commission's (FERC) July 16 public meeting the FERC declined to take up the substantive issues in a petition for declaratory order which sought  to have the FERC declare that "full net metering" involves wholesale sales subject to exclusive federal jurisdiction under the Public Utility Regulatory Policies Act of 1978 (PURPA) and the Federal Power Act (FPA) and not retail transactions subject to laws of each state. See Order Dismissing Petition for Declaratory Order, 172 FERC ¶ 61,042 (July 16, 2020) (FERC Order). The FERC Order dismissed the Petition for Declaratory Order of New England Ratepayers Association Concerning Unlawful Pricing of Certain Wholesale Sales, FERC Docket No. EL20-42-00, filed April 14, 2020 (NERA Petition).

Had the NERA Petition been successful, it would have been a gamechanger to states and solar developers. The NERA Petition was vigorously contested before the FERC with interventions by states, state regulatory commissions, utilities, public interest groups and numerous trade associations. While the opponents of the NERA Petition were no doubt pleased by the FERC Order, the FERC's discretionary decision to not address the substantive issues simply means that NERA's issues regarding the boundaries between state and federal jurisdiction will be litigated in specific cases rather than in a generic proceeding.

What Is Net Metering?

The federal government and the states use a variety of policy tools to encourage the development and expansion of renewable energy generation. With both utility scale and smaller projects, governments use tax policy (tax credits) and enact laws requiring utilities to purchase renewable energy credits (known as RECs) to create financial incentives for project developers. For small scale projects, however, net metering has been the most widely used policy tool to increase public interest and acceptance for renewable energy, particularly solar photovoltaic panels.

Imagine solar panels on the roof of a house or business. When the sun is out the panels generate electricity. At night, or whenever the electrical usage in the premises is greater that the electricity generated by the solar panels, the usage is met by electricity from the grid supplied by the local public utility, municipality utility or electric cooperative. When the solar panels are generating more electricity than the usage, the excess electricity is sent back to the grid where it is used by other distribution customers. In essence, the utility meter runs backward when there is excess generation.  In two meter configurations, the difference between electric consumption and electric generation is netted through the utility billing process. In either case, if generation exceeds consumption during the billing period, state laws dictate whether the excess is credited against future usage or purchased by the utility at a specific rate.

Typically, the rate paid for excess generation is greater than the wholesale rate for power. See, e.g., 71 P.S. Section 1648.5 (requiring Pennsylvania utilities to purchase net energy at the "full retail rate."). NERA contends the prices paid for excess generation are "several times greater than the wholesale price for energy." This higher purchase price subsidizes the project owner.  The utility recovers the aggregate costs of net metering and its purchases of RECs from its ratepayers.

NERA Petition

NERA contended that a wholesale sale occurs whenever the amount of energy generated exceeds the retail load behind the customer meter. NERA believed that each full net metering customer's facility is a "qualifying facility" under FERC's regulations implementing PURPA or the full net metering customer is engaging in FERC-jurisdictional wholesale sales of energy. Accordingly, NERA believed that most state net metering rates are unlawful because wholesale sales should be priced at either the PURPA mandated rate (the utility's avoided cost of energy) or a just and reasonable wholesale rate pursuant to the FPA.

NERA faced two FERC decisions in which FERC appears to have disclaimed jurisdiction over full net metering. In MidAmerican Energy, 94 FERC ¶ 61,340 (2001) and SunEdison, 129 FERC ¶ 61,146 at P 18 (2009), reh'g granted on other grounds, 131 FERC ¶ 61,213 (2010), FERC had deferred to state jurisdiction over net metering. "The commission found that such sales do not constitute the sale of electric energy at wholesale in interstate commerce or the transmission of electric energy in interstate commerce under the FPA." In each case, FERC relied upon monthly netting periods as a reasonable period of time for qualifying the netting as state-jurisdictional and, thus, disclaiming FERC jurisdiction.

NERA asserted that MidAmerican Energy and SunEdison contain statements of law that support its position, notwithstanding the disclaimers of federal jurisdiction based on monthly netting.  "[T]he commission affirmatively held that "net sales" are subject to the commission's jurisdiction under the FPA. In MidAmerican, the commission stated:

When there is a net sale to a utility, and the individual's generation is not a QF, the individual would need to comply with the requirements of the Federal Power Act. … When there is a net sale to a utility, and the individual generation is a QF, that net sale must be at an avoided cost rate consistent with PURPA and our regulations implementing PURPA.

Answer to Protests and Motions to Dismiss and Provisional Motion for Leave to Answer of the New England Ratepayers Association, Docket No. EL20-42-00, filed June 30, 2020, at 18 (NERA Answer to Protests).

NERA also relied on two cases from the D.C. Circuit that rejected the reasoning underlying FERC's MidAmerican Energy and SunEdison decisions. Both D.C. Circuit cases involved power flows to a generator, known as station power. "[The DC Circuit] held that the commission cannot rely on netting periods to determine jurisdiction over the transactions involved." "The court's reversal of the commission's station power cases removes the foundation upon which the commission rested its disclaimer of jurisdiction in Sun Edison." NERA also relies on various public policy rationales against net metering, arguing that it favors photovoltaics over more efficient renewable technologies, that net metering is inconsistent with FERC's responsibility to ensure reliability, and that net metering increases costs and shifts costs inequitably, harming low income ratepayers.

Answers to NERA's Petition

Members of the general public filed hundreds of comments opposing the NERA Petition.  Dozens of answers and protests in opposition to the petition were filed by governors, state attorneys general, state public utility commissions, state consumer advocates, solar advocacy organizations and myriad other interested parties. While many utilities moved to intervene in the case, very few actively participated.

The answers and protests raised a wide variety of procedural and substantive grounds for FERC to deny the NERA Petition. Many protests challenge NERA's use of the declaratory order process. For example, the Protest of the National Association of Regulatory Utility Commissioners (NARUC Protest) states "[a]n abstract attack on net metering laws, divorced from any concrete controversy, may make for a stimulating law review article. But it is not grounds for a declaratory order. Far from resolving uncertainty, the relief requested by the Petitioner will generate widespread uncertainty and litigation."

The Pennsylvania Public Utility Commission (PaPUC) filed a protest in opposition to the NERA Petition. In addition to contending that NERA failed to present a proper controversy to FERC, the PaPUC rejects NERA's contention that net metering transactions are wholesale sales in interstate commerce. The PaPUC states there is an "established jurisdictional line in the Federal Power Act preserving significant jurisdiction to the states. Lest we forget, the Federal Power Act does not merely preserve jurisdiction to the states over retail sales, but it endeavors at every step to preserve state authority over "any other sale" beyond wholesale interstate sales."

On July 1, the public interest organization Public Citizen filed an answer to NERA's Answer to Protests challenging's NERA's self-description as a "ratepayer group." "NERA has intentionally mischaracterized itself as a ratepayer organization in an effort to shield the true economic interests that are financing its petition. NERA's misleading depiction of itself threatens to hijack the public interest from the commission's ratemaking process." See Answer to Answer of New England Ratepayers Association at 1.

FERC Order

The FERC Order did not reach the merits of the NERA Petition. Instead, FERC exercised its "discretion to decline to address the issues set forth in the Petition." Commissioners Danly and McNamee authored separate concurring statements. Danly agreed that dismissal on procedural grounds was within the FERC's discretion. However, he thought the petition raised "questions of profound importance and the commission will eventually have to address them."  McNamee noted the FERC Order did not address any of the "important, substantive issues underlying the Petition."

 

Conclusion

The NERA Petition is NERA's second attempt in three years to obtain a declaratory order from FERC.  NERA was successful in its previous attempt, obtaining a declaration from FERC that the FPA and PURPA preempted a New Hampshire bill mandating a purchase price for wholesale sales. See New England Ratepayers Association, 168 FERC ¶ 61,169 (2019). The prior petition was focused on a single New Hampshire statute. Accordingly, it did not garner the same level of attention as has been drawn to the current petition.

By declining to make a generic statement on the jurisdictional issues the FERC ensured that the jurisdictional disputes over full net metering remain. For the time being, net metering remains a tool for the states to use in promoting development of renewable energy.

Robert F. Young practices in McNees, Wallace & Nurick energy and environmental group, representing and counseling clients on matters involving water, telecom, electric, natural gas and pipeline utilities. Prior to rejoining the firm, Young was the Deputy Chief Counsel-Energy in the Pennsylvania Public Utility Commission's Law Bureau providing legal, policy and regulatory advice to the commission.