On April 14, 2020, the New England Ratepayers Association (NERA) filed a Petition for Declaratory Order (PDO) with the Federal Energy Regulatory Commission (FERC) requesting that FERC: (1) assert exclusive jurisdiction over energy “sales” made by behind the meter generation (such as rooftop solar) under state-administered “Full Net Metering” programs; and (2) direct that “sales” of such energy be priced consistent with the Public Utility Regulatory Policies Act of 1978 (PURPA) (i.e., at a utility’s avoided cost) or at a rate approved by FERC pursuant to Section 205 of the Federal Power Act.
The proceeding could have implications for behind the meter generation resources and investors in such resources, as well as utilities that provide credits to customers with behind the meter generation under state net metering programs. If FERC grants the PDO, behind the meter generation could become subject to FERC jurisdiction, and the current economics of these facilities could be adversely affected.
A copy of the PDO is available here. Interested parties may intervene and provide comments in FERC Docket No. EL20-42 on or before May 14, 2020.
Existing FERC Precedent and NERA PDO Request
Full Net Metering allows a customer to produce electricity from a generation source located on the same side of the retail meter as the customer’s load and net the amount of energy it produces against the amount of energy it consumes. In many states, behind the meter generation is effectively compensated at a bundled retail electric rate. That rate may be greater than wholesale prices for energy. For example, the PDO alleges that the average residential retail rate in the United States is approximately 13 cents/kWh. The PDO states that, in contrast, wholesale energy prices in most of the country average between 2 and 6 cents/kWh.
For almost two decades, FERC has disclaimed jurisdiction over net metering transactions where there is no net sale over the applicable billing period, typically one month. According to FERC, such transactions do not constitute sales of electric energy at wholesale in interstate commerce under the Federal Power Act because there is no “sale.” Instead, net metering transactions have long been regulated by the states.
Urging FERC to depart from this longstanding precedent, the PDO asserts that a wholesale sale takes place whenever a behind the meter generator provides energy to a utility and the utility in turn uses that energy to serve its retail load. Specifically, the PDO claims that the energy produced by behind the meter generation sources is “sold to the utility for resale to the utility’s retail load, or for resale by an [Independent System Operator/Regional Transmission Organization].” On this basis, the PDO claims that sales from behind the meter generation fall within FERC’s exclusive jurisdiction over sales of energy at wholesale (i.e., sales of energy for resale).
With regard to pricing of energy from behind the meter generation, the PDO asserts that behind the meter generators are virtually always Qualifying Facilities (QFs) under PURPA, and a QF may not compel a utility to purchase its output at more than the utility’s avoided cost for wholesale energy. The PDO claims that, as a consequence, customers with behind the meter generation are receiving compensation that violates PURPA because Full Net Metering credits exceed the avoided cost rate. The PDO claims that there are a “few cases” where sales from behind the meter generation are not subject to PURPA, such as where “the seller is not eligible to be a QF or is eligible but larger than one megawatt and does not self-certify.” The PDO asserts that such sellers should be “required to have a rate approved and on file with [FERC], together with a contract or tariff under which the wholesale purchaser has agreed to purchase its energy at that rate.”
If NERA’s argument is successful, behind the meter generators that participate in net metering programs would find themselves subject to FERC’s jurisdiction, and the majority of these generation resources could become subject to a PURPA avoided cost rate, or a rate that is otherwise determined just and reasonable under Section 205 of the Federal Power Act. Such rates could be lower than the rate credits that behind the meter generation facilities currently receive. This proceeding therefore could have implications for behind the meter generation resources, investors in behind the meter generation, and utilities that credit customers for excess energy under state net metering programs.
ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm whose lawyers practice throughout a network of offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.