Update – April 23, 2020 – Group Petitions FERC to Regulate Rooftop Solar Energy Transfers

Last week, a group calling itself the New England Ratepayers Association (NERA) filed a petition for a declaratory order at FERC requesting that the Commission find that it has jurisdiction over energy transfers from generation located on the ratepayer side of the retail meter, such as rooftop solar panels. Utility ratepayers with solar panels are typically credited on their monthly bills for their rooftop production under net metering tariffs that charge the difference between monthly household consumption and rooftop production. The Petitioner argues that such state-regulated net metering arrangements are preempted by federal law. The netting between consumption and production, it claims, must be calculated on an hourly basis, and any excess hourly production is a wholesale sale in interstate commerce from the ratepayer to the utility and therefore subject to federal pricing regulation.

FERC disclaimed jurisdiction over net metering nearly twenty years ago. In a 2001 order, FERC concluded that “no [wholesale] sale occurs when an individual homeowner or farmer installs generation and accounts for its dealings with the utility through the practice of netting.” Only when production exceeds consumption over the course of the state-determined netting period (typically a monthly billing cycle) is there a wholesale sale subject to federal pricing regulation. In a 2009 order, FERC affirmed this conclusion and extended it to a situation where the owner of the generation resource is not the utility ratepayer. It determined that “where the end-use customer makes no net sale to the local [ ] utility with which it has a net metering arrangement, the sale of electric energy by [the generation owner] to the end-use customer in such circumstances does not constitute a sale for resale . . . [and] the sales are not subject to the Commission’s jurisdiction.” FERC’s landmark storage orders, issued in 2018 and 2019, cite both net metering orders, affirming that they continue to be on solid legal ground.

Petitioners nonetheless assert that FERC’s reasoning in these two orders “was never correct” and was invalidated by a 2010 D.C. Circuit decision. In that case, the court reviewed a FERC order requiring the California ISO to establish a monthly netting interval to calculate so-called station power, the amount of power consumed by power plants selling through the organized wholesale market. A utility protested the order, arguing that FERC has no authority to set any netting period that has the effect of determining the quantity of state-regulated retail sales. The court remanded to FERC, which subsequently disclaimed its prior approach, proclaimed that it did not intend to preempt the state’s calculation of retail sales, and concluded that states may use a different methodology to calculate retail sales from the netting method approved by FERC in CAISO’s tariff. NERA argues that the 2010 case and subsequent decision upholding FERC’s remand order “reject the very basis of FERC’s decision to disclaim jurisdiction” over net metering.

We have published two pieces that directly address NERA’s arguments. In 2016, we released a two-page policymaker summary of Professor Jim Rossi’s article, “Federalism and the Net Metering Alternative.” Professor Rossi defends FERC’s current approach to net metering and argues that NERA’s attorney misinterprets the DC Circuit case. In 2018, we released “The Case Against Direct FERC Regulation of Distributed Energy Resources,” which explains why sales from behind-the-meter resources are not wholesale sales in interstate commerce.

NERA filed a petition in 2018 asking FERC to find that a New Hampshire law supporting in-state biomass plants is preempted because it sets a wholesale rate. FERC granted the petition.