A recent petition to the Federal Energy Regulatory Commission¬†could trigger nationwide changes to solar net metering.¬†On April 14, the New England Ratepayers Association (NERA) petitioned FERC¬†to assert jurisdiction over any on-site, behind-the-meter generation that injects energy onto the grid.¬†
If FERC asserts such jurisdiction in the manner requested by NERA, individual states could lose control over their solar net-metering policies ‚ÄĒ¬†with myriad implications for the U.S. distributed solar market.
Today, states set their own rules for solar energy generated by residential, commercial¬†and municipal utility customers in excess of what the customer needs at any given time.¬†Over 40 states now require utilities to provide net-metering credits for that excess energy.
NERA believes most solar net-metering amounts to energy sales that should be subject to FERC‚Äôs jurisdiction, and that such sales should be priced at no more than a utility‚Äôs avoided costs rather than compensated at retail rates. NERA argues that net-metering generators are qualifying facilities (QFs) pursuant to the Public Utility Regulatory Policies Act (PURPA).
If FERC agrees, that could mean significantly less compensation for homes, businesses and municipalities that have invested in existing distributed solar systems and a decline in installations of¬†new systems.
FERC has previously ruled that states have jurisdiction over the regulation of their own net metering, but NERA argues that FERC‚Äôs current policy was wrongly decided.¬†
If states lose control over net metering and virtually all behind-the-meter solar systems come to be treated as QFs, the practical implications could be significant. Variables that could be impacted include the following:¬†
Billions of dollars have been invested in distributed solar based on state net-metering policies.¬†In addition to the implications discussed above, QF status would worsen the economics for most existing net-metered solar systems by removing the benefits they had expected when built.¬†
System hosts will receive less compensation on net-metered power, which can often amount to 5 percent to 20 percent of their solar production.¬†Electricity cost savings they relied on would be eroded, potentially costing jobs and hindering future economic investment.
Unless FERC creates an exception, existing solar systems would have to follow the new rules.¬†While difficult to say how quickly new rules could be implemented, the rulemaking process may take years.
Significant headwinds weigh against FERC changing its long-held precedent.¬†
If FERC asserts jurisdiction over net-metering generators, it would likely wade into the murky waters (and likely litigation) of the proper allocation of power between states and the federal government and would increase its own administrative burden by overseeing a slew of distributed solar facilities currently regulated by states.¬†
That said, FERC’s recent minimum offer price rule decision¬†demonstrates that the commissioners, all of whom are recent appointees, may have an expanded view of FERC‚Äôs authority and be willing to assert preemption over state rulemaking.
FERC is currently accepting comments and intervenors from individuals and organizations.¬†The period to comment or intervene ends June 15, 2020.
Ben Huffman is a partner with law firm Sheppard Mullin’s energy, infrastructure and project finance team. Marc Palmer is managing director of New Resource Solutions, a clean energy project facilitator.