State regulation of net metering may be a thing of the past if a recent petition filed by the New England Ratepayers Association (“NERA”) with the Federal Energy Regulatory Commission (“FERC”) is granted.  NERA’s petition requests that FERC (1) find that there is exclusive federal jurisdiction over wholesale energy sales from generation sources located on the customer side of the retail meter (such as rooftop solar facilities), and (2) order that the rates for such sales be priced in accordance with the Public Utility Regulatory Policies Act of 1978 (“PURPA”) or the Federal Power Act (“FPA”), as applicable.

The NERA petition will be highly controversial.  Hence, this post should be of interest to a wide range of market participants, including owners of behind the meter generation, utilities,  participants in wholesale and retail electricity markets, and state commissions and policymakers.

Under a net metering arrangement, the amount of electricity that a customer produces is usually netted by the utility, on a monthly basis, against the amount of electricity that the customer consumes.  NERA’s petition highlights that, in these instances, utilities may credit a customer for its produced electricity at the same retail rate that the utility sold electricity to the customer.  This rate is set by the state regulatory commission and may be approximately four times higher than the prevailing wholesale rate.  NERA’s petition specifically asks FERC to declare its jurisdiction over electricity sales from rooftop solar facilities and other distributed generation located on the customer side of the retail meter whenever (i) the output of such generators exceeds the customer’s demand or (ii) the output from such generators is designed to bypass the customer’s load, and is therefore not used to serve demand behind the customer’s meter.  In each of these circumstances, NERA’s petition argues, electricity is being delivered to the local utility for resale to the utility’s retail customers, making the transactions wholesale sales in interstate commerce subject to FERC’s exclusive jurisdiction.

NERA’s petition challenges FERC’s 2001 decision in MidAmerican Energy and its 2009 decision in SunEdison addressing the circumstance in which a customer both consumes electricity sold by a utility and delivers power generated on-site to the utility.  In MidAmerican Energy, the Commission found that no sale of electricity occurs when (i) a utility customer installs generation and delivers power to the utility, (ii) the utility nets any power delivered against power consumed  by the customer during a monthly billing cycle, and (iii) the customer consumes more power than it delivered during such billing cycle.  In SunEdison, the Commission extended its finding in MidAmerican Energy to net metering arrangements in which the generator installed behind a customer’s retail meter is owned by a third-party such a rooftop solar developer.

In challenging the Commission’s findings in MidAmerican Energy and SunEdison, NERA’s petition points to the D.C. Circuit’s 2010 opinion in So. Cal. Edison v. FERC finding that FERC’s reliance on netting periods to determine whether sales of electricity occurred with regard to station power consumed by a generator  was “rather arbitrary and unprincipled – certainly as a jurisdictional standard.”[1]  NERA’s petition also challenges the principle of netting approved by the Commission in MidAmerican Energy and SunEdison by arguing that, even when electricity is returned in kind in connection with a wholesale sale, the Commission has recognized that the returned energy does not diminish FERC’s jurisdiction over the wholesale sale in the first instance.

Because the petition raises threshold questions of federal jurisdiction, the Commission’s decision will likely have serious implications for every state net metering program, with the exception of those portions of the country not served by the interstate electric grid (i.e., Alaska, Hawaii and the Electric Reliability Council of Texas-controlled grid).  If FERC grants the petition, interested parties, including state commissions, would almost certainly file requests for rehearing with the Commission, and, if denied, seek review of the order from a U.S. Circuit Court of Appeals.

Comments on NERA’s petition are due by June 15.

[1] So. Cal. Edison v. FERC, 603 F.3d 996, 1000 (D.C. Cir. 2010).