by Emma Foehringer Merchant
June 22, 2020

After the turmoil of the last several months, residential solar is now coping with a new threat — one the industry says is existential.

In April, a group called the New England Ratepayers Association filed a petition with the Federal Energy Regulatory Commission, which regulates the interstate transmission of electricity, asking the agency to transfer jurisdiction over retail solar sales from states to the federal level. If granted, the petition would upend decades of precedent allowing those policies to be set locally.

Net metering credits home solar customers for the power they sell back to the grid if they produce an amount in excess of their own usage. It’s been successful because it’s relatively easy to understand and makes solar economically feasible for many customers. The U.S. now has more than 2.4 million residential solar systems, according to Wood Mackenzie Power & Renewables. Forty-one states have some type of net-metering policy, per the National Renewable Energy Laboratory.  

“Next to the [federal] Investment Tax Credit, [net metering] is the second most important policy mechanism for making residential solar economic and financeable for customers,” said Austin Perea, a senior solar analyst at Greentech Media. “It’s been essential for residential solar in the U.S.”

The industry worries that approval of NERA’s petition would leave net-metering policies open to state-level challenges and reduce the compensation customers are eligible to receive. Perea said those changes could “decimate” the distributed solar industry. Challenges created by the coronavirus pandemic have amplified the industry’s concern.

NERA's solar petition

In its petition, NERA argues that home solar sales should be regulated by FERC as “wholesale energy sales” and priced as facilities under the Public Utilities Regulatory Policy Act or the Federal Power Act.

The organization’s motivations are somewhat opaque; though NERA has framed itself as a ratepayer group, the organization Public Citizen identified just a few members that paid thousands of dollars each to the group in 2018, which makes NERA seem more like a trade organization. NERA did not respond to request for comment on its petition.

What is clear is that offering residential solar customers wholesale rates rather than residential retail rates for excess power would significantly reduce compensation, making it more expensive to go solar or extending the payback period for a system beyond its current 7.5-year average.

Prices for exported power and other solar incentives vary from state to state. But solar companies, advocates and analysts generally agree that net metering is a relatively simple concept for customers to understand and an acceptable stand-in for a complex value-of-solar calculation.

For that reason, the petition has garnered enormous interest, especially for a somewhat wonky agency proceeding. Analyzing public comments sent to FERC last week, a group led by advocacy organizations Vote Solar and Solar United Neighbors logged opposition to the proposal from 30 state public utility commissions and 35 members of Congress. Thirty-one attorneys general spoke out against the petition as well, from states as politically divergent as Oklahoma and California.

Support came from an “exceedingly small group” of conservative advocacy organizations and a few individuals, said Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School.

In addition to its wholesale argument, NERA claimed in its petition that net metering “increases costs for those consumers who do not engage with it” and shifts costs “from wealthier customers to those who cannot afford large houses or businesses.”

The NAACP rejected those arguments as “spurious and misleading” in its public comments. “The majority of studies have found that the benefits of solar net metering outweigh costs for all ratepayers,” the organization wrote.

NERA’s argument about cost-shifting is often cited by utilities that are opposed to net metering, but that group was notably absent from public comment on the petition. Several utilities filed to intervene in the proceeding, but the industry’s largest trade group, the Edison Electric Institute, said in a statement to Greentech Media that its members remain “focused on continuing to provide safe, reliable, and affordable service during a pandemic and on the policies that will help drive our nation’s economic recovery after this crisis.” The group said it may get involved when FERC rules on the petition.

“Yet another punch”

Whether FERC will rule at all remains an open question.

After receiving public comment, the agency has wide latitude to either take up the petition immediately or ignore it entirely. The “easiest way out” for FERC, Harvard’s Peskoe said, is dismissing the petition as “procedurally improper.” Most oppositional comments suggested the petition was far outside the jurisdiction of FERC and unlike other issues that the agency typically considers.  

Predicting what FERC will do is difficult, though. And if the agency does implement NERA’s suggestions, the industry says the impacts will be twofold. First will come uncertainty, which may slow the pace of new installations. Next will come the possibility of state-by-state challenges to net metering from utilities or anti-solar groups.

“In the current situation, it would be yet another punch,” said Sean Gallagher, vice president of state affairs at the Solar Energy Industries Association. “It would be bad legally, it would be bad policymaking and it couldn’t come at a worse time.”

Any FERC decision favoring the petition would be likely to face legal backlash.

“If FERC were to grant the petition for declaratory order and give NERA an order really similar to what NERA’s looking for, there would be further legal challenges — just judging on the type of opposition we saw to the petition,” said Jessica Bell, a clean-energy attorney at the State Energy & Environmental Impact Center at New York University’s School of Law. “The prolonged legal battle would generate more uncertainty.”

Any challenges to FERC must also go through a formal process that could take years to play out, stalling a potential decision’s impact.

“The bottom line is there is no...immediate effect [from] granting this order,” said Peskoe.

But in addition to creating uncertainty, the decision could have more of a near-term effect in changing how FERC navigates its decision-making process. What has traditionally been a relatively politically agnostic agency has become somewhat politicized under the Trump administration. Peskoe said any major policy changes made through the NERA petition may set a “dangerous precedent” that encourages special-interest groups of all types to take their issues to FERC.

A state's right to experiment with the grid

Any result favoring NERA is also likely to meet serious opposition at the state level, based on the views represented in the public comments submitted last week.

For many states, including those with meager or massive solar markets, control over net metering and other residential solar policies at a local level is an essential tool in energy policymaking.

“This might hit differently in different political environments,” said Peskoe. “In a lot of blue states, this is another potential act from the federal government to hamstring renewable energy development. In maybe some other political environments, places that emphasize state-rights issues, this is another example of Washington, D.C. coming to regulate what’s happening at the state and local level.”

The importance of state jurisdiction over solar policy decisions has evolved as the use of the energy resource has become more widespread. In recent years, states such as Nevada and Maine have worked through battles over whether to continue net metering. Many other states, such as Massachusetts and Hawaii, are learning how to work with a greater amount of distributed solar on their grid. Experts including NYU’s Bell assert that it is the states that are “best suited to address” those types of issues.

“For the past 10 years or so...[states] have been actively trying to figure out...the regulatory model for distributed energy resources. I think they want the freedom to experiment with different policies,” said Peskoe. “This [petition] has the potential to curtail their authority to conduct those experiments.”

Those experiments are especially central to energy policy in states such as California and New York, where lawmakers and regulators are considering how to value solar in new ways while incentivizing its build-out.  

“They’ve been spending their own money, states or commissions, on the value of solar on the grid of the future,” said Anya Schoolman, executive director at Solar United Neighbors. “Then, all of a sudden, some distant federal agency is going to short-circuit all that work.”

To do so “with one blunt instrument,” Schoolman said, “is incredibly shortsighted in the context of this rapidly changing grid.”