Fact Pattern

Net metering is a practice for electricity billing. Under a net metering system, customers of a utility company who also generate their own electricity (say, by having rooftop solar panels) can sell that electricity back to the utility company to whom they are connected on the electricity grid. Under a net metering system, customers receive a credit against their monthly utility bills for the solar energy that they sell back to the utility company.

Net metering is an important practice for proponents of solar energy. But whether net metering is available, and under what terms, is something that varies widely from state to state. One issue, for example, is the rate at which customers are compensated for solar electricity generation. Many states allow reimbursement at retail electricity rates, but some only allow reimbursement at relatively low, wholesale electricity rates.

Proponents of the higher, retail rates argue that they create incentives for homeowners and others to install solar panels. Proponents of the lower, wholesale rates argue that the higher rates unfairly advantage relatively wealthy homeowners who install solar energy panels, over lower-income homeowners and renters who do not do so, because the higher rates ultimately constitute a subsidy that is passed on to other electricity customers.

Recently, one of the biggest states in the country, with one of the largest solar energy markets in the country, made a major change to its net metering policy. The regulatory agency in the state, after a notice and comment period, enacted a new regulation that reduced the credits received by utility customers with solar energy panels from retail rates to wholesale rates. This will produce a reduction of about 80 percent in the net metering rates received by those utility customers. The new net metering regulation is supposed to take effect in a few months.

This move to lower net metering credits drastically was coupled with substantial new subsidies aimed at defraying the costs of solar panel installation for lower-income customers. The agency justified its changes by arguing that the new policies will produce a fairer distribution of utility rates for customers without solar energy (who tend to have lower incomes on average), as well as greater adoption of solar energy by lower income customers because of the subsidies.

Assignment

Your organization is opposed to the reduced net metering credits in the new state regulation, and instead favors maintaining the existing, higher rates for net metering. (Although your organization does favor the new subsidies for solar installation by lower income customers.) Your organization is worried that the much lower net metering rates will reduce adoption of solar throughout the state, and also that similar policies will spread to other states. Your organization is considering two possibilities for combating the action of the state agency:

1. Challenging the new regulation in court. Your organization believes that the new regulation, first, misapplied the relevant statute under which the agency claims authority. That statute requires that the state agency set net metering rates so that solar energy "grows sustainably," among other criteria. Your organization believes that the agency failed to properly prioritize this statutory goal vis--vis others included in the statute, such as a requirement to (a) develop alternatives that will promote solar adoption and opportunities in "disadvantaged communities" and (b) ensure that rates are set so that benefits and costs are "approximately equal" for all utility customers in the state. Furthermore, your organization believes that the agency did not properly consider some evidence presented during the notice and comment process, which shows that the net metering rate change will reduce the overall growth of solar power significantly, without increasing its adoption among lower-income customers. Note: you can assume the jurisdiction in question uses an enacted version of the MSAPA.
2. Filing a petition for rulemaking with the relevant federal regulator, the Federal Energy Regulatory Commission (FERC), to establish a uniform nationwide standard for net metering rates, set at the higher retail rather than lower, wholesale rates. FERC has consistently stated in several different adjudications, since 2001, that it does not have jurisdiction to regulate net metering, and that net metering instead is left to the states. This ruling was reiterated in an adjudication early this year. However, your organization believes that FERC may be misreading the relevant statutes and should be challenged. Your organization also believes that a national standard may end the uncertainty and inconsistency of a state-by-state approach. In a memo, discuss the following:
   • How will each of the two alternatives being explored by your organization work? What are their respective likelihoods of success, and why? You should discuss the procedural requirements of each path, and explain how they interact with the arguments being made by your organization.
   • Are there any other alternative legislative or regulatory strategies you can think of that may be successful, and what would they be?