In April, the New England Ratepayers Association (NERA) filed a petition challenging a bedrock FERC decision to not assert federal jurisdiction over state net metering policy. Although a legal challenge in nature—NERA asserts that FERC seized jurisdiction based on legal precedent from the D.C. circuit—the economic implications would be severe. This would fundamentally disrupt rooftop solar markets; rates to owners could be cut in half. It would also upend state policies on distributed energy resources (DERs) and unleash a political hailstorm.

National progressives have rallied to counter the petition, effectively leapfrogging conservatives on leadership to defend states’ rights. Reluctant conservatives need to distinguish between the general merits of net metering and the particular circumstances of the filing. It is time for conservatives to recognize the petition for what it really is: a threat to energy federalism.

Conservative state energy experts have led the opposition choir. Ted Thomas, the Republican chair of the Arkansas Public Service Commission, remarked that states have innovative DER policy in the pipeline and that the NERA request is “a one-size-fits-all federalization. That’s what’s at stake and I obviously don’t like that.” The state backlash likely contributed to the neutral posturing of incumbent utilities, who said they will not file substantive comments on the petition despite opposing net metering generally.

This is not to say that the merits of net metering do not warrant prompt examination, but rather that this is the wrong forum for doing so. Net metering has long given many conservative camps heartburn. That’s reasonable in many contexts, as net metering is not an efficient or equitable rate structure in some locations, especially at substantial deployment levels. However, net metering has value in its simplicity and under some local circumstances does not depart markedly from cost-causation alignment, a core principle of retail ratemaking. Rushed net metering reform, such as the infamous Nevada reform in 2016, can worsen the status quo. Ultimately, we should be looking to more market-based alternatives to net metering as the proper long-term regulatory architecture for DERs. But this is for states to decide.

Net metering is a matter for local rule, regardless of the substantive considerations. But the further we dig into the merits, the more it becomes apparent that a federal takeover of net metering would result in inferior governance and policy outcomes.

For one, the proper net metering rate varies widely by utility jurisdiction. For example, NorthWestern Energy in Montana issued a cost benefit report in 2018 that showed a levelized value of less than $0.05/KWh, whereas the Maryland Public Service Commission issued a report that showed a value from behind the meter solar between $0.30-0.38/KWh. This begs for decentralized governance, as state regulators have better utility-specific information and local stakeholders can engage more robustly in the ratemaking process. Furthermore, net metering policy interacts with other state ratemaking vehicles, and only state regulators can coordinate such engagements to co-optimize them appropriately.

Secondly, uniform, national net metering policy would be very inefficient to address the heterogenous elements that determine equitable and efficient DER rate structures. Therefore, federalized net metering would likely prompt FERC to develop utility-specific rates. This would be administratively taxing and the corresponding workload increase would expand the scope and size of the federal energy regulatory apparatus considerably. Altogether, this furthers the compelling point that the most economical and legally defensible institutional arrangement is for net metering policy to reside with states.

Officially, this will come down to a legal, on-the-record decision. Comments on the FERC petition are due June 15. Legal analysts believe this will ultimately end up being decided in the D.C. Circuit Court of Appeals. Legal issues aside, the jury is not out on the policy merits; a federal takeover of net metering would be a major setback to energy federalism and national DER policy.

Image credit:  foxbat

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