FERC Might Rewrite Solar Net Metering. Here’s What That Could Mean

A recent petition to FERC could trigger nationwide changes to
solar net-metering.On April 14, the New England Ratepayers
Association (NERA)
petitioned the Federal Energy Regulatory Commission
(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 — with myriad implications for the U.S.
distributed solar market.

NERA’s net-metering petition

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’s jurisdiction, and that such
sales should be priced at no more than a utility’s avoided costs
rather than compensated at retail rates. NERA argues that
net-metering generators are Qualifying Facilities (QF) 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
for new ones.

FERC has previously ruled that states have jurisdiction over
regulation of their own net-metering, but NERA argues that FERC’s
current policy was wrongly decided. 

Potential impacts on solar markets

If states lose control over net-metering and virtually all
behind-the-meter solar systems become treated as QFs, the practical
implications could be significant: 

  • There would likely be a pause in development and resulting drop
    in jobs and investment, at least until FERC and utilities figure
    out how to implement QF rules in the context of distributed solar,
    and states redesign incentive programs.
  • State net-metering programs could be dead letter. States where
    excess production is priced at the retail rate could start pricing
    at the purchasing utility’s avoided cost rate, often 50
    percent or lower by comparison.
  • Distributed solar development may decrease in states with
    robust net-metering regimes (e.g., California, Massachusetts) but
    increase in states that have resisted net-metering (e.g.,
    Tennessee, Alabama). 
  • Existing meters used for net-metering may not measure real-time
    injection separately from real-time consumption. Solar system
    owners and many utilities could face significant data capture and
    tracking problems and need to install additional equipment and
    increase investment. Each existing generator may need to buy and
    install a new meter approved by the local utility.
  • States that want to regulate the amount of distributed solar
    would likely implement or enhance other incentives/disincentives
    such as revising REC markets or reallocating the portion of
    electricity rates for delivery/infrastructure costs. Changes would
    likely take years to implement.
  • Each interconnection customer, typically the host for
    distributed solar, would have to register with its ISO. Some would
    enter into PURPA-compliant contracts with utilities, while others
    would sell at real-time market rates. (Seprately, FERC is proposing
    changes that would affect the price structures utilities provide to
    QFs, so it is uncertain what small generators’ filing
    requirements and price availability will be.)
  • Generators with systems over 1 MWac would have to self-certify
    with FERC and file updates for ownership changes.
  • Filing obligations and availability of PURPA-compliant
    contracts would depend on the size of the system owned by the
    generator and generators would need to beware of rules which
    aggregate commonly owned systems located close together.
  • Utilities and customers would have to adjust to the tax and
    financial reporting consequences of net-metering offsets becoming
    separate energy sale transactions.
  • Some utilities would experience unplanned administrative burden
    and significant changes to rate-based cost structures, which could
    lead to reduced profits or to windfalls, depending on the
    circumstances for each utility.

Impacts unique to existing solar generators

Billions of dollars have been invested into 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 5-20 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.

So will FERC issue the order?

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 ruling
demonstrates that the
commissioners, all of whom are recent appointees, may have an
expanded view of FERC’s 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.

Source: FS – GreenTech Media
FERC Might Rewrite Solar Net Metering. Here’s What That
Could Mean