July 24, 2020

Jeffrey Hammons

When it Comes to Solar, It’s the Tale of Two FERCs

Last Thursday, the Federal Energy Regulatory Commission (FERC) made two important, but vastly different rulings on the future of renewable energy. One of those decisions could be a matter of life or death for solar, wind and other renewable energy jobs across the nation.

While FERC rightly and unanimously rejected an attack on net metering from a shady, dark-money organization, they voted 3-1 along party lines to gut PURPA, which has been a guiding force behind American renewable energy policy since the 1970s.

First, the good news.

NERA miss

When you put a solar panel on your roof or a wind turbine on your property, you might make more energy than you use. Rather than let that power go to waste, it’s fed back into the grid to power your neighbors, and you’re compensated in some way for the electricity you produced, usually by having some amount of money taken off your bill.

There are different methods for determining how you should be compensated, and the most equitable method is called net metering. It’s simple: you are credited at your retail electric rate for the electrons you put back on the grid.

Utilities hate it when you are in control of your electricity source because it means they lose money. They continue to push for systems that stack the deck in their favor or challenge valid ownership agreements in court.

Earlier this year a dark money group called the New England Ratepayers Association (NERA), filed a request with FERC that would have upended net metering as we know it while taking jurisdiction away from states and giving it to the federal government. In describing NERA, Utility Dive called the group “secretive.” Both Greentech Media and pv magazine USA used the term “shadowy.” Rumors swirled about the funders backing this group asking for what amounts to a handout to utilities.

Opposition was bipartisan, with prominent conservatives like Iowa Gov. Kim Reynolds calling on FERC to reject what she called “an extreme overreach that diminishes states’ regulatory authority.”

Iowa has been a longtime leader in solar, passing landmark legislation earlier this year that enshrines net metering into the state’s energy laws, creating a stable valuation that will encourage people and companies to invest in solar. ELPC was heavily involved in brokering that deal, showing that Iowa knows that fair, stable valuation of solar is best for the economy as well as the environment.

In the end, NERA’s petition failed on its own merits. The group failed to identify any specific harm or controversy for FERC to address. Here, FERC did well for solar, the environment, and the economy.

Now, the bad news.

PURPA Revamped

The Public Utility Regulatory Policies Act (PURPA) requires utilities to purchase energy from independently owned, small renewable energy facilities. Intended to spur innovation and competition against monopoly utilities, PURPA applies to all sorts of renewables, from a rooftop solar panel up to a utility-scale solar farm.

Over the years, while states implemented policies to support clean energy, such as renewable portfolio standards and net metering, PURPA remained an important federal backstop. PURPA applies to facilities that fall through the cracks of state policies, and it gives rights to renewable electricity generators to expect fair compensation.

Until Thursday.

Pushed by Trump-appointed FERC Chairman Neil Chatterjee and approved 3-1 along party lines, FERC approved changes to PURPA that the House Energy & Commerce Committee chairman called “a transparent attempt to dismantle PURPA.”

The revamp of the 42-year-old law comes in the form of a 491-page order stocked with changes that radically alter the landscape regarding PURPA. Here’s a brief discussion of some of the broader strokes, but the overall summary is that the biggest winners were monopoly utilities.

The new rule insulates monopoly utilities from any competition from independent renewable generators and harms ratepayers, public health, and the environment.

The new rules reduce the bargaining power that qualifying renewable facilities have to negotiate fair contracts with monopoly utilities and to reduce our reliance on fossil fuels. In most parts of the country, utilities are still governed by 19th-century rules allowing them to have guaranteed service areas, guaranteed revenues, and guaranteed profits. This “cost of service” model allows the vertically integrated utilities to own or contract for all aspects of your electricity service – from owning the power plants, the power lines, and the website you use to pay your bill. Those utilities are guaranteed to profit on all of those assets. Congress enacted PURPA to drive a wedge in these monopolies and promote competition.

In the 1990s and 2000s, some states started moving away from the 19th century “cost of service” model by divesting utilities from ownership of power plants to create competition in the hopes of reducing power supply costs. In the Midwest, the only states with these types of markets are Illinois and Ohio.

Although the creation of regional transmission organizations (RTOs) or independent system operators (ISOs) has spread across the Midwest, these organizations are primarily concerned with reliability, to ensure a stable grid. They do not play any role in how a particular state allows new power plants to form. That decision is still up to the states, including those that still follow the 19th-century “cost of service” model where monopoly utilities act as gatekeepers to their own competitors.

In most states in the Midwest (excluding Illinois and Ohio), the only federal policy requiring competition is PURPA. FERC’s new rules will, under the guise of “flexibility,” allow monopoly utilities to have greater control over their own competitors’ access to their markets. They will have more power to influence the rates to benefit themselves and potentially stifle the renewable marketplace.

Would you invest in an industry where you know you’re not going to get a fair deal?

The new rule changes the definitions of a “qualified facility” for monopoly utilities in regions with RTOs or ISOs in a way that excludes renewable projects larger than 5 MW (e.g., a solar farm about 10 acres in size). By eliminating these larger renewable facilities, monopoly utilities will see less competition.

The new rule further insulates those monopoly utilities from any competition from independent renewable generators and harms ratepayers, public health, and the environment.