On June 15, tens of thousands of comments poured in on a controversial petition filed by the New England Ratepayers Association (NERA). The petition requests that FERC assert its jurisdiction over state net energy metering (NEM) policy, which determines how much customers are compensated for selling extra on-site generation (e.g., rooftop solar).

The stakeholder opposition to this proposal was overwhelming, with only a small band of supporters consisting mostly of conservative groups despite the petition’s deep subversion of states’ rights. The comments are in, but a forthcoming resolution at the American Legislative Exchange Council (ALEC) gives conservatives a chance to regroup and rally for energy federalism.

FERC filings on NERA’s petition

  Oppose Support
State Public Utility Commissions 30 0
Associations of State Regulators and
Public Electricity Providers
9 0
Legal Experts/ Academics/ Advocacy Groups 539 19
Governors/ AGs/ State Officials 54 0
Members of Congress 35 0
Individuals 48,693 2
Total 49,360 21

FERC officially makes its decisions based on the legal record and not a tally or perceived weight its commissioners give to particular stakeholder groups (whether that’s actually the case is another discussion altogether). Still, it is incredibly rare to see a record this lopsided from a stakeholder accounting perspective.

The divide appears even steeper upon closer examination, as 15 of the 21 supporters of the petition filed a single, four-page set of comments led by the Heartland Institute. The record is also noteworthy for who it does not include, namely the trade associations representing electric generators opposed to NEM, who decided this was the wrong vehicle to combat the policy.

Nevertheless, FERC’s decision should come down to the quality, not quantity of arguments nor its messengers.

On the merits, the petition appeared to bifurcate the conservative, free-market community. In addition to R Street, those on the right opposing the petition included the Land & Liberty Coalition, all conservative state energy officials, the Conservative Energy Network and various conservative state groups.

In addition to Heartland and its co-signers, prominent free market groups including Americans for Tax Reform (ATR) and the Competitive Enterprise Institute (CEI) supported the petition.

But the two sides are largely talking past each other, as petition supporters made anti-NEM commentary their main argument, whereas those opposed made federalism their core focus. Indeed, if the petition were about the merits of NEM there’d be more common ground. But it’s really a jurisdictional dispute.

To that end, CEI provided some thoughtful comments on the legal side, arguing that electricity is inherently interstate in nature, while briefly diving into the relevant statutes: the Federal Power Act and the Public Utility Regulatory Policies Act.

Still, this contradicts far more extensive legal research, such as a paper by Jim Rossi on “Federalism and the Net Metering Alternative” that concludes that “[n]othing in federal law supports FERC extending the reach of its jurisdiction to dictate net metering terms.”

Former FERC commissioner Tony Clark has since authored a piece dismissive of the “nouveau federalists” opposing the petition — targeting the messengers’ federalist inconsistencies on other issues — rather than digging into the meat of the legal case or merits of where NEM authority should properly reside.

It dances around a firm federalist position, only to conclude that NEM is universally problematic, which is inconsistent with some local experiences, and to present utility investment as the better alternative. Principled conservatives should not be so timid to defend federalist threats, nor so eager to side with monopoly utilities.

One area we agree with Mr. Clark is that NEM is not the preferred model for distributed energy resources (DERs) at scale, but reforms should be led to enable consumer choice and cultivate markets to determine the value of DER services, not letting utilities stifle competition.

Implications of federalizing NEM policy

Altogether, none of the arguments in support of the petition acknowledge the full implications of federalizing a critical element of DER policy. That is, FERC would either set a uniform rate — a far inferior approach to current state practice given that proper DER rates fluctuate massively between utility territories — or it would set utility-specific rates, which would markedly “expand the scope and size of the federal energy regulatory apparatus”.

Even with such federal expansion, FERC is not in a position to align DER rates as efficiently as states, who coordinate adjustments with other retail ratemaking policies and procedures. Various experts have noted the need to better tie DER compensation to its value but also emphasize that FERC lacks the tools to do so, while numerous states are leading the frontier of DER valuation already.

Paradoxically, federalization of NEM would aggravate the very conditions that motivate many conservatives to oppose NEM.

Regardless of the petition arguments, the merits of NEM and the future of DER policy deserve prompt examination. A great place to start is the National Association of Regulatory Utility Commissioner’s DER Manual, which was authored by R Street’s own Chris Villarreal.

For a more focused discussion, R Street is hosting an event today entitled “A Federal Takeover of Consumer Generated Electricity?” that features our own Chris VillarrealLandon Stevens of the Conservative Energy Network and Republican Chairman Ted Thomas of the Arkansas Public Service Commission, who is perhaps the leading federalist mind on DER policy among all state officials. We invite all, but especially the right-of-center crowd, to discuss the true merits of the NERA petition and a pathway to state-led market reforms for DERs.

Looking ahead, R Street welcomes collaboration on its future DER work, including incremental pro-market projects to introduce third-party competition where incumbent utilities have built a protective moat of regulation.

But our ambition also scales to enhance transparency and liberalization of the electric distribution system through concepts like a distribution system operator (DSO) in market-based states like Texas. In fact, R Street has been pioneering decentralized electricity markets as an alternative to NEM since 2016.

Importantly, the vehicles for these reforms begin with state institutions. But first we need to get past unnecessary federal regulatory uncertainty, like the NERA petition and FERC’s delayed DER rulemaking, so we can start digging into regulatory nuance.

This will help get the movement beyond absolutist positions that tend to oversimplify problems and fixes, sometimes inadvertently contradicting conservative principles in the process.

Unfortunately, the NERA petition is not the only recent occurrence of unnecessary conservative division at FERC.

The implied “any medicine will do” mindset of petition supporters is reminiscent of some free market groups supporting FERC’s minimum offer price rule (MOPR). The rule creates new federal price controls in an attempt to “fix” state subsidies, despite categorically constituting policy that worsens economic performance (analogous to supporting tariffs because one opposes foreign subsidies).

At least with MOPR the disease diagnosis is correct; subsidies harm economic outcomes. With NEM, cross-subsidies are only pronounced in certain areas, while NEM may constitute reasonable temporary policy in other areas.

If the conservative movement is to achieve more victories at the energy regulatory margin, it needs to coalesce, move past generic posturing and start diving deep into institutional contexts.

At least with the NERA petition, the movement still has an opportunity to unify. A resolution to “Support States Rights in Establishing Net Metering Policies” faces a vote at ALEC in July.

Federalist redemption awaits should the ALEC resolution pass with ease.