FERC and the War on Net Metering

By Andy Johnson, Executive Director

There is growing interest in what’s happening at the FERC (Federal Energy Regulatory Commission) around net metering for customer-owned solar. We introduced the topic last issue, and provided a resource page on our web site. Here we’ll dive a little deeper.

In April, a shadow group called the New England Ratepayer’s Association (NERA) submitted a petition to the FERC for a “declaratory order”. The NERA appears to be a front group for major electric utilities. The petition made two demands on the FERC:

  1. declare that there is exclusive federal jurisdiction over wholesale energy sales from generation sources located on the customer side of the retail meter, and

  2. order that the rates for such sales be priced in accordance with the Public Utility Regulatory Policies Act of 1978 (“PURPA”) or the Federal Power Act (“FPA”), as applicable

The second demand cannot happen without the first, which is the foundation of this disruptive NERA effort. Essentially, if the FERC declared jurisdiction over all customer-side distributed generation as “wholesale energy sales”, it is a small step to then mandate that PURPA “avoided cost” rates apply universally. 

This would effectively negate all net metering programs in the country, for all participants. It would result in unfairly low compensation paid to solar producers, retroactively reverse the positive economics for most, and curtail the solar prosperity growth in communities and counties throughout the Heartland. 

It would also create major new federal regulation and correspondingly large bureaucracy to implement.

The 1920 Federal Power Act and numerous subsequent amendments create a “cooperative federalism” approach to state and federal authority over electric markets. The FERC has authority to regulate wholesale electric markets and interstate transmission, while the states generally regulate retail markets and the distribution system.

In multiple rulings over the past 20 years, the FERC itself has “disclaimed” jurisdiction over net metering programs, leaving them under state authority. One of those foundational cases actually came from Iowa. In 2001, the FERC ruled against MidAmerican Energy’s request to overrule the Iowa Utility Board’s net billing order. In the ruling, the FERC stated:

          We find that the Iowa Board’s actions are not preempted by Federal law.  The issue in this case is how to measure the transaction between MidAmerican and those entities that have installed generation on their premises. In essence, MidAmerican is asking this Commission to declare that when, for example, individual homeowners or farmers install small generation facilities to reduce purchases from a utility, a state is preempted from allowing the individual homeowner’s or farmer’s purchase or sale of power from being measured on a net basis, i.e., that PURPA and the FPA require that two meters be installed in these situations, one to measure the flow of power from the utility to the homeowner or farmer, and another to measure the flow of power from the homeowner or farmer to the utility. MidAmerican argues that every flow of power constitutes a sale, and, in particular, that every flow of power from a homeowner or farmer to MidAmerican must be priced consistent with the requirements of either PURPA or the FPA. We find no such requirement.

NERA now argues that the MidAmerican and other cases were wrongly decided, and that subsequent court cases support their contention that FERC must claim jurisdiction over all customer owned distributed generation as wholesale energy sales. This claim is disputed by many legal scholars, regulatory agencies, and other experts that submitted comments encouraging the FERC to reject NERA’s petition.

In fact, according to VoteSolar, the over 57,000 comments submitted in opposition to the NERA petition included 30 Public Utility Commissions, 54 Governors/Attorney’s General/State Officials, and over 500 Legal Experts/Academics/Advocacy Groups (with the rest coming from individuals, mainly home, farm, and business solar owners). Only 22 comments were submitted in support of the petition, mostly from Legal Experts/Academics/Advocacy Groups. 

Notably, Iowa’s Governor Reynolds was the lone Governor to submit comments in the case. She recognized Iowa’s long history of clean energy leadership, and highlighted the unanimous passage of SF 583 during the 2020 legislative session, which codifies net metering into state law. She went on to say

 Iowa farmers have been leading the way on renewable energy, including livestock producers who have suffered some of the worst effects of the COVID-19 pandemic. A favorable ruling by FERC of NERA would upset the finely struck balance between state and federal jurisdictions and would have a devastating impact on their bottom line and would lead to higher energy costs for livestock producers who have already invested in solar energy projects on their farms. They would lose the value of their investment, as well as being forced to pay higher utility bills. 

States, like Iowa, continue to set an example with robust stakeholder processes that create good renewable energy policy. FERC ruling in favor of NERA would be an extreme overreach that diminishes states’ regulatory authority. 

I ask the FERC commissioners to dismiss the NERA docket and let states continue to lead.

Reynold’s argument about state’s regulatory authority is important. While the bulk of the thousands of comments likely refer to the economic importance, and true value of solar (or in the case of NERA supporters, the unfair “subsidization” of solar), the fundamental issue in front of the FERC is jurisdictional: will they declare customer-side generation as part of wholesale energy markets, and then be directly responsible for its regulation?

Many legal arguments against NERA have focused on this jurisdictional question and “state’s rights”, but the administrative implications of a positive NERA ruling may be similarly important. A FERC declaration of “exclusive federal jurisdiction” would then necessitate FERC implementation of “exclusive federal regulation”, and a corresponding federal bureaucracy to accomplish that regulation

A recent Politico story notes that NERA and allies may have carefully timed the submission of this case to coincide with the public health emergency. One has to wonder, however, if any time is a good time to ask the current administration for major new federal regulation that reaches straight onto the premises and into the pocketbooks of hundreds of thousands of farm, business, and home solar owners.

The initial deadline for comments in the NERA docket was June 15. The FERC will now review submissions, and determine whether they will dismiss or take up the petition. We will keep you posted.

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