A Proposed Decision issued by Administrative Law Judges Debbie Chiv and Kelly A. Hyme of the Public Utilities Commission of California rejects a fundamental tenet of many community renewable (CR) programs. That tenet is that wholesale power sales can be “erased’ by couching cash payments to CR generators as “bill credits.” Although FERC has made clear that net energy metering (NEM) programs can eliminate the existence of wholesale power sales, the Proposed Decision rejected arguments that a proposed CR program was similar to a NEM program. The ALJs accepted the argument that “the use of the term ‘credit’, when there is no retail bill being offset by the credit, and the proposed banking of credits, when there is no subscriber to receive the credits, is not net energy metering.” As a result of finding that the proposed CR program (using a net value billing tariff approach (NVBT)) could not be squeezed into the NEM concept, the Proposed Decision held that, as with any compelled wholesale power purchase at a state-set rate, PURPA would apply.

Assuming the Proposed Decision remains largely intact, it has no immediate impact on existing CR programs. (It may send some CR generators scurrying for QF status.) CR programs can and do work, if CR generators are paid a reasonable price that does not create unacceptable cost shifts. Nonetheless, the CR industry may try to convince FERC to greatly expand the concept of NEM if the Proposed Decision stands. FERC should not bite. CR programs and PURPA have co-existed for well over a decade and can continue to do so as discussed below.

The proposed ruling here resulted from CR industry proponents developing an NVBT CR program that backed California’s purchasing utilities into a corner by proposing outlandish compensation. The purchasing utilities had little choice but to challenge whether a program, under which front-of-the-meter generators were paid in cash for energy produced and resold by such utilities, involved sales of energy.

Almost fifteen years ago, in Sun Edison LLC, FERC held that “[w]here there is no net sale over the billing period, the Commission has not viewed its jurisdiction as being implicated; that is, the Commission does not assert jurisdiction when the end-use customer that is also the owner of the generator receives a credit against its retail power purchases from the selling utility. Only if the end-use customer participating in the net metering program produces more energy than it needs over the applicable billing period, and thus is considered to have made a net sale of energy to a utility over the applicable billing period, has the Commission asserted jurisdiction.” As FERC also pointed out, PURPA typically exempts that otherwise FERC-jurisdictional sale from Federal Power Act (FPA) regulation. FERC explained in Sun Edison that “[i]f the entity making a net sale is a QF that has been exempted from section 205 of the FPA by section 292.601 of our regulations, no filing under the FPA is necessary to permit the net sale; however, if the entity is either not a QF or is a QF that is not exempted from section 205 of the FPA by section 292.601 of our regulations, a filing under the FPA is necessary to permit the sale.” Other FPA exemptions also could apply, such as those for government-owned generators (FPA § 201(f)) or DERs in DER Aggregations), but most typically, PURPA is the relevant exemption for sales by NEM customers. And, this same position was affirmed in a 2022 FERC order, finding that under a NEM program, a NEM bill credit involved no power sale.

At issue in California is the scope of the “no sale, it’s NEM” approach to FERC jurisdiction. A non-utility example best illustrates the infirmities with the “no sale” position outside of NEM:

Suppose Highway Company built a private highway and charged tolls to use it. Car owners that used the highway would be billed by Highway Company per mile driven. But, assume car owners could receive credits on their Highway Company bills if they provided asphalt to Highway Company. And, car owners could have Asphalt Company supply the asphalt directly to Highway Company and Asphalt Company could receive 90% of the car owners’ retail bill credits in cash. Now, assume Asphalt Company’s sales of asphalt to Highway Company are federally regulated, but that car owners’ sales of asphalt are not regulated at all. Car owners’ sales are unregulated even if car owners never physically supply the asphalt (Asphalt Company does). Is Asphalt Company making a sale of asphalt to Highway Company that should be federally regulated or is this a lawful way for Asphalt Company to avoid federal regulation because car owners are “deemed” to have supplied the asphalt for bill credits? Some CR advocates presumably would say of course there is no sale by the Asphalt Company, it is being paid in bill credits. (The fact the Asphalt Company has no bill to offset appears to be entirely irrelevant to such advocates.) This “no sale” of asphalt to Highway Company by Asphalt Company scenario is an obvious sham.

Under the typical CR program, a CR generator produces energy and its subscribers (retail customers of a utility) do not buy that energy, but rather associate their retail electric bill with that CR generator. The utility in turn bills the subscriber for power, just like any other retail customer, but also provides a retail bill credit reflecting a small portion of the value of the associated CR generator’s production. The utility then pays cash, rather than a retail bill credit to the CR generator. (Alternatively, the retail customer-subscriber receives a significant bill credit and pays most of its value in cash to the CR generator.) The bill credit amount is set by a state commission. The utility uses the CR generator’s power to sell power to its retail and wholesale customers. The sham of “no sale” remains just as obvious as in the prior example.

In nearly half the states and the District of Columbia myriad utilities have agreed to CR programs at state-commission-set rates. Whether these utilities are voluntarily not exercising their PURPA rights to limit such state-set rates to avoided cost, have accepted the “no sale, it’s all NEM” theory, or would argue that their CR program is different than the one proposed in California is unclear. In any case, the approach described above and proposed in California will not be found to be unlawful under two key conditions: 1) the CR generator is a QF whose sales are exempt under 18 C.F.R. section 292.601; and 2) the utility doing the purchasing of the CR generator never objects to paying the state-set rate. (Indeed, several “families” of CR generators have sought QF status, in such FERC Dockets as EL19-85, EL23-5, and EL24-19, just in case their generators are selling wholesale power.)

The CR industry and others argued to the California PUC that because there are CR programs across the country (that are the same as the NVBT) and such programs have never faced a successful challenge at FERC, the California PUC should consider the NVBT proposal legal with respect to federal law. The fact that no CR program has been successfully challenged at FERC appears to be true. But, how many CR programs have been challenged? FERC declined to act on the one 100% voluntary CR program in S. Maryland Elec. Co-op. In the Proposed Decision, no FERC case involving a compelled CR program was cited by CR proponents.

FERC has declined to opine in the abstract on the legality of full retail NEM programs, involving retail customers with on-site behind-the-meter generators and has not challenged such programs itself. NVBT is not NEM. As the ALJs pointed out: “16 U.S.C. Section 2621(d)(11) defines net metering as an arrangement through which ‘electric energy generated by that electric consumer from an eligible on-site generating facility and delivered to the local distribution facilities may be used to offset electric energy provided by the electric utility to the electric consumer during the applicable billing period.’ The NVBT proposals do not fall within this definition.” Emphasis added.

There is some likelihood that the CR industry will seek a FERC declaratory order that CR program bill credits are not power sales and should be treated like NEM bill credits, if the Proposed Decision stands. There is no reason for FERC to accept this position based on the specific NVBT proposal at issue. As noted, many states have been able to convince their utilities to participate in CR programs at state-set rates. All of the sales and purchases under such programs can be treated as voluntary PURPA sales and purchases, if they remain unchallenged, without FERC engaging in any analysis of the CR program.

There is no harm in utilities retaining their PURPA rights by finding that CR programs such as the NVBT proposal here involve power sales by in-front-of the-meter generators and not NEM bill credits. The lack of legal challenges to other CR programs already has shown that such PURPA rights will be used sparingly. Here, the fallacy of the “no sale, it’s NEM” position is being used to defend against CR program compensation so unreasonable that the state itself supports the utilities’ position.