FERC to Consider Whether to Expand Jurisdiction Over State-Controlled Net Metering Sales

April 29, 2020

Update: On July 16, 2020, FERC dismissed NERA’s petition on procedural grounds. For more details, please see our July 17, 2020 alert.

On April 14, 2020, the New England Ratepayers Association (NERA) filed a petition for declaratory order asking the Federal Energy Regulatory Commission (FERC), to assert jurisdiction over state-administered net metering programs and to price any sales made under such programs in accordance with either the Public Utility Regulatory Policies Act of 1978 (PURPA) or the Federal Power Act (FPA). If NERA’s petition is successful, such an order would upend a long-settled state/federal jurisdictional divide over net metering programs, which are currently regulated almost exclusively at the state level, and could create further tension between state regulators and FERC by limiting the incentives a state may use to encourage the development of renewable energy generation.

Net energy metering is often offered under retail tariffs, enabling a retail customer to own or lease a behind-the-meter generating facility and to generate its own power (usually through renewable resources such as rooftop solar) behind the meter and receive compensation for any excess power generated above the customer’s generation needs. Rates for generation under net metering programs are often fixed at the full or “bundled” retail rate, although some states are moving away from this net metering structure due to cross-subsidization concerns for non-participating customers. Current FERC policy is to assert jurisdiction over such “net sales” only where the sales exceed netted consumption over a state-set “netting period,” which is often set at a month.

In its petition, NERA states that because current net metering policies implemented by many states effectively compensate the retail customer at the bundled retail electric rate, these policies treat sellers of non-firm services as if they are supplying capacity, transmission, distribution and ancillary services, in addition to non-firm power. Such compensation, according to NERA, effectively subsidizes customer-generators by compensating them for services they are not actually providing. NERA contends that, to the extent that a portion of the energy a customer-generator produces exceeds the customer’s demand or is specifically designed to bypass the customer’s load, and is then sold for resale to the utility’s other customers, such a sale is a “sale for resale” and is therefore FERC-jurisdictional. Therefore, NERA argues that FERC should assert jurisdiction over any such sales, and should remove the “subsidy” that the current programs allow customer-generators to receive.

To support its petition, NERA asserts that previous FERC decisions that specifically disclaimed jurisdiction over net metering sales were based upon legal theories that have since been rejected by the D.C. Circuit Court of Appeals. Namely, NERA cites to MidAmerican Energy Co., 94 FERC ¶ 61,340 (2001) and Sun Edison LLC, 129 FERC ¶ 61,146 (2009), where FERC established its current policy of finding a FERC-jurisdictional sale only when there is a sale from the customer to the utility in excess of the monthly billing cycle, or another netting period determined by the state. NERA states that the reasoning FERC relied upon in Sun Edison and MidAmerican was based solely on previous cases involving station power. More recently, NERA contends, the D.C. Circuit Court of Appeals reversed FERC’s policy on the netting of station power. Specifically, NERA states that in the D.C. Circuit’s 2010 decision in S. Cal. Edison v. FERC, 603 F.3d 996 (D.C. Cir. 2010), which was further clarified in its 2012 decision in Calpine Corp. v. FERC, 702 F.3d 41 (D.C. Cir. 2012), the court rejected the idea that the existence of a sale, for jurisdictional purposes, may be determined based on the length of a netting interval, finding that such a standard was arbitrary and unprincipled. Based on the court’s holding in S. Cal Edison v. FERC, NERA argues that all deliveries of energy for compensation from a full net metered customer to an interconnected utility are FERC-jurisdictional; there is no de minimus exception. Accordingly, NERA requests that FERC assert jurisdiction over all such sales and require that they be priced in accordance with PURPA or the FPA, as applicable.

Acceptance of NERA’s arguments would constitute a significant shift in FERC policy, widen FERC’s jurisdictional oversight into an area traditionally regulated by state regulatory bodies, and decrease the compensation that customer-generators are permitted to recover under the net energy metering programs around the country.

Comments on NERA’s petition are due May 14, 2020.