FERC dismisses petition challenging state net metering

U.S. electricity regulators have dismissed a petition that sought to invalidate state net metering programs, under which consumers can use their own generation to offset their electricity purchases. The petition had caused legal uncertainty regarding the rate treatment of solar facilities and other net metered projects by the petition, but its dismissal by the Federal Energy Regulatory Commission leaves state-law net metering intact.

The New England Ratepayers Association, or NERA -- a conservative advocacy group which Politico.com has called "shadowy" -- filed a petition on April 14, 2020 asking the Federal Energy Regulatory Commission to issue a declaratory order that (1) there is exclusive federal jurisdiction over wholesale energy sales from generation sources located on the customer side of the retail meter, and (2) the rates for such sales must be priced in accordance with federal law. According to NERA, these circumstances represent “wholesale sales in interstate commerce” which must either be priced at the utility’s avoided cost of energy (if the sale is being made pursuant to the federal law known as PURPA) or pursuant to a just and reasonable wholesale rate (if the sale is pursuant to Section 205 of the Federal Power Act).

These issues are not novel and have been repeatedly litigated in federal and state forums. Hundreds of interested persons filed comments or protests, asking the Commission to deny NERA's petition. The Preti Flaherty team filed a protest on behalf of our client New England Small Hydro Coalition, arguing that the Commission has the discretion not to rule on the questions NERA posed, and that indeed it should not grant the petition because the validity of state-law net metering is well-settled under prior Commission rulings including the orders known as MidAmerican and SunEdison:

On July 16, the Commission issued a unanimous order dismissing the petition:

We find that the issues presented in the Petition do not warrant a generic statement from the Commission at this time. Therefore, we exercise our discretion to decline to address the issues set forth in the Petition, and, accordingly, we dismiss the Petition.

In reaching this conclusion, the Commission noted comments by New England Small Hydro Coalition and others requesting the Commission to dismiss the petition for a variety of procedural grounds, including the fact "that Commission’s net metering precedent is sound and there is no controversy or uncertainty to resolve." The Commission continued:

The Petition … does not identify a specific controversy or harm that the Commission should address in a declaratory order to terminate a controversy or to remove uncertainty. In contrast, MidAmerican and SunEdison related to the implementation of specific net metering programs or the participation in such programs by specific parties. For this separate reason as well, we decline to issue the requested order.

Commissioners McNamee and Danly each issued separate concurrences to the unanimous order dismissing NERA's petition. Commissioner McNamee emphasized that the order "is not a decision on whether the Commission lacks jurisdiction over the energy sales made through net metering; nor is it a decision on the merits of the issues raised by and contained in the Petition." He expressed his general philosophy, similar to that raised by New England Small Hydro Coalition, that "it is best to decide important legal and jurisdictional questions, like the ones raised in in the Petition, when applying the law to a specific set of facts, such as in a Section 206 complaint, or through a rulemaking proceeding."

Commissioner Danly supported the decision on the grounds that the Commission has discretion to do so, but separately expressed concerns about the consequences of dismissing the petition on procedural grounds. He noted "difficult legal questions regarding the regulatory treatment of facilities (like rooftop solar) used by retail customers primarily, but not exclusively, to serve their own electricity requirements. These questions not only include the rate treatment for excess generation but, more importantly, the boundary between federal and state jurisdiction to address such rate treatment." Given the importance of these issues, he expressed concern:

I am concerned that dismissing the petition on procedural grounds may well result in a patchwork quilt of conflicting decisions if the questions raised in the petition are instead presented to federal district courts across the country. While the federal courts are more than capable of adjudicating preemption claims, they are not steeped in the history of the Federal Power Act nor in matters of national energy policy. Confusion, delay and inconsistent rules—some of which will apply to individual states or parts of states—will be the inevitable result.

Unless NERA seeks reconsideration, rehearing, or appeal, this phase of its campaign against net metering will end with the Commission's dismissal of its petition.

Maine PUC opens net metering inquiry

Maine is approaching or has passed a net metering milestone, as state utility regulators have opened an inquiry triggered by a statute calling for an evaluation when the total amount of generation capacity involved in net energy billing in Maine reaches 10% of the state's transmission and distribution utilities' total maximum electric load.

In 2019, the Maine state legislature enacted a law that substantially reformed Maine's net energy billing (NEB) programs. Major changes included allowing larger projects to participate (less than 5 megawatts, up from 660 kilowatts); removing any limit on the number of meters or accounts that can be associated with an eligible facility; replacing an ownership requirement with a more flexible “financial interest” requirement; and adopting an additional alternative “commercial and institutional” NEB program providing monetary bill credits instead of volumetric bill credits. These changes, in addition to other enactments and broader dynamics in energy markets, have led to a significant increase in interest in Maine net metering.

The 2019 law also included a requirement that the Maine Public Utilities Commission evaluate net energy billing "when the total amount of generation capacity involved in net energy billing in the State reaches 10% of the total maximum load of transmission and distribution utilities in the State or 3 years after the effective date of this Act, whichever comes first." The law requires the Commission to evaluate the effectiveness of net energy billing in achieving state policy goals and providing benefits to ratepayers, and to report its findings to the legislative energy committee.

On May 20, 2020, Maine's largest investor-owned transmission and distribution utility, Central Maine Power Company (CMP), provided notice that, at that time, the cumulative capacity of the generating facilities for which CMP has executed NEB arrangements under Chapter 313 was approximately 10.1% of CMP’s annual peak demand.

In response, on July 6, the Commission issued a Notice of Inquiry to obtain information for an evaluation of the state's NEB programs. The Notice emphasizes that the Commission itself will not alter NEB as a direct result of the Inquiry, but rather that any changes would come from the Legislature:

At the outset, the Commission emphasizes that CMP's 10% notification and the initiation of this Inquiry to gather relevant information for the required evaluation does not implicate any suspension of the programs governed by the existing NEB rules (Chapter 313) which, as noted above, have been authorized by the Act. Any changes to these programs, including to their availability, can only occur through the legislative process. 

The Notice directs Maine's two investor-owned utilities, CMP and Versant Power, to provide a monthly report on NEB projects, categorized in various ways, including by status (operational, non-operational but NEB-agreement-executed, or application-pending), and by program (kWh or monetary). For each project, each utility must provide specific information, including contact person, project location and size, resource type, new vs. previously existing, in-service date, “For NEB kWh Credit projects, estimated lost revenue ($/year)”, “For Tariff Rate projects, estimated costs (gross and net) of the credits ($/year)”, “Estimated incremental administrative costs associated with each of the two programs, by category ($/year)”, and “Information about T&D system benefits, e.g., avoided distribution upgrades, or system costs, e.g., required system reinforcements associated with NEB projects”.

Retail net metering programs such as Maine's forms of net energy billing have been adopted by regulators and utilities in nearly every U.S. jurisdiction. Utilities traditionally argue that net metering imposes costs on the system or on ratepayers. Some net metering proponents have historically countered that net metering provides substantial benefits to the system and to ratepayers, and that any theoretical downsides are nonexistent or minimal at low levels of net metering penetration, while others have argued that the system can safely and reliable handle larger amounts of net metering on the system.