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FERC Rejects Calls to Overturn Net-Metering Policy

July 23, 2020

The latest action by the Federal Energy Regulatory Commission dismisses an advocacy group’s request that FERC assert jurisdiction over net-metering transactions on procedural grounds, leaving important legal and jurisdictional questions unanswered.

The Federal Energy Regulatory Commission (FERC or Commission) has decided not to exercise its discretionary authority to address the federal preemption issues raised by the New England Ratepayers Association (NERA) related to state-administered net-metering programs. As we reported, NERA submitted a petition for declaratory order on April 14, asking FERC to find that it has jurisdiction over certain net-metering transactions. NERA claimed that FERC’s existing policies fail to recognize the existence of a jurisdictional sale when customer-sited, behind-the-meter generation either exceeds the retail load behind the same meter or is designed to bypass the customer’s load entirely and be transmitted to the grid for resale.

FERC dismissed NERA’s petition on procedural grounds, thereby leaving intact its existing view that net-metering transactions are subject to state commissions’ retail sales jurisdiction, unless a customer sells more power back to the utility than it consumes in the applicable retail billing period (usually one month). FERC’s rejection of the petition was twofold.  

First, FERC found that NERA’s petition was too general to warrant the requested declaratory relief. FERC held that NERA failed to “identify a specific controversy or harm” that would typically be addressed in a declaratory order. As examples, FERC pointed to its MidAmerican and Sun Edison orders, which established the “netting theory” underlying NERA’s petition.  Those prior rulings, FERC said, “related to the implementation of specific net metering programs or the participation in such programs by specific parties.” In contrast, FERC found that NERA’s petition made “general assertions that Net Energy Metering policies adopted by various states improperly intrude on the Commission’s authority under the [Federal Power Act (FPA)] and [the Public Utility Regulatory Policies Act of 1978 (PURPA)].” 

Second, FERC held that NERA lacked standing under PURPA to challenge state regulatory pricing schemes governing sales from so-called “qualifying facilities.” Under Section 210(h) of PURPA, only electric utilities, qualifying small power production facilities, and qualifying cogeneration facilities may petition for enforcement of PURPA. FERC concluded that NERA does not fall within any of those categories.

This is not the first time FERC has refused to address such federal preemption arguments on procedural grounds. In 2016, FERC dismissed a petition requesting a finding that a Maryland community solar program relying on the concept of virtual net metering resulted in an energy pricing scheme in violation of PURPA. FERC dismissed that proceeding for lack of ripeness.

FERC also refused to rule on the merits in this case. Notably, though, two commissioners issued concurring opinions to highlight the need for FERC to eventually address the legal and jurisdictional questions underlying NERA’s petition, especially in light of the US Court of Appeals for the DC Circuit’s recent opinion in NARUC v. FERC upholding the agency’s broad authority to regulate activities on wide portions of the electric grid that affect wholesale rates.

Specifically, Commissioner James P. Danly expressed concerns that a “patchwork quilt of conflicting decisions” will emerge in different jurisdictions following FERC’s decision to dismiss NERA’s petition. Commissioner Danly cautioned that competing federal court decisions could introduce confusion, delay, and inconsistency in the rate treatment for excess generation.

Commissioner Bernard L. McNamee added that the legal and jurisdictional issues raised in NERA’s petition would be better addressed in the context of a specific set of facts, such as an FPA Section 206 complaint or a rulemaking proceeding. Until such time, the Commission’s existing net metering policies will remain undisturbed.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Washington, DC
Stephen Spina
Levi McAllister
Arjun Ramadevanahalli

Philadelphia
Ken Kulak

Los Angeles
Neeraj Arora