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.