net metering - HMS Legal

Surviving in Post-Hommrich Pennsylvania

Todd Stewart on August 21, 2023

Two and a half years ago the Pennsylvania Supreme Court affirmed Commonwealth Court Judge Michael Wojcik’s Opinion in Hommrich v. Commonwealth of Pennsylvania, Pennsylvania Public Utility Commission; 231 A.3^rd 1027 (Pa. Cmwlth. 2020). A recent review of the net metering applications and other requirements of several Pennsylvania electric distribution companies (EDC’s) demonstrates that some EDCs have not implemented the holdings of the Hommrich decision in these important informational and decisional materials for customers and developers. To fully promote the General Assembly’s intent of incentivizing alternative energy through net metering, the Public Utility Commission (PUC) should require stricter compliance with the law as interpreted in Hommrich.

In Hommrich, the Commonwealth Court held that several regulations (52 Pa. Code §§ 75.01, et seq.), which were promulgated over the objection of the Independent Regulatory Review Commission (IRRC), went beyond the statutory authority conferred on the Public Utility Commission (PUC) under the Alternative Energy Portfolio Standards Act (Act) and that those provisions were contrary to the requirements of the Act. 73 P.S. §§ 1648.1, et seq. The effect was to invalidate several sections of the PUC’s regulations.

Specifically, the PUC’s definition of “customer generator” was found to add a requirement not found in the Act, that a customer generator be a “customer” of the utility, thus implying the need for independent load. The stricken regulations also included a definition of “utility” which is not in the Act. The court made it clear that the Act’s definition of Customer Generator does not require any electrical use beyond the needs of the facility itself “a nonutility owner or operator of a net-metered facility may utilize net metering so long as “any portion” of the electricity that the customer-generator generates is used to offset part of the customer-generator’s electrical requirement”. Id. The court invalidated the definitions of customer generator and utility. In furtherance of its view that no independent load is required to qualify for net metering, the court also struck 52 Pa. Code § 75.13(a)(1) which required load that had a purpose other than to support the operation, maintenance or administration of the alternative energy system to be present for a project to qualify for net metering.

Despite the court’s holdings that prohibit EDCS from denying net metering eligibility on the basis of lack of customer status or independent load, EDCs continue to have language in customer-facing documents that imply customer generators without independent load may not qualify for net metering.

For example, one EDC’s net metering application requires an applicant to acknowledge that “operation of Customer’s generation facility is intended primarily to offset part or all of a customer’s electricity requirements.”[1] Regardless of the EDC’s intent or lack thereof, this phrase is clearly incorrect and misleading, and may confuse or scare off unknowing potential net metering projects. EDC’s customer or developer facing documents should not contain requirements inconsistent with the law.

Other EDC’s have similar provisions in their application. For example, another EDC’s application asks if the applicant intends to “export” power without defining “export”. The available multiple choice answers include: “Yes, Significant annual export/No net-metering/IPP” (emphasis added), suggesting that if a project is going to produce significantly more energy than it consumes that it is not eligible for net metering, which is contrary to the Act.[2] This EDC recently revised its net-metering application to take out language related to the 2007 version of the Act. There are likely other examples.

The PUC is no better when it comes to keeping its regulations current. While the PUC did withdraw a policy statement that had limited the size of third-party owned net-metered projects, to 110% of the customer-generator’s annual electric consumption, the PUC order was issued a year after the Supreme Court affirmed the Commonwealth Court’s Hommrich decision.[3] The regulations at issue were stricken in 2021 and the PUC has yet to clean them up to reflect their status, nor has the PUC holistically required EDCs to modify their forms or applications to reflect the state of the law after Hommrich. To ensure EDCs are appropriately applying net metering standards and rules, it would be best for the PUC to investigate what EDCs are stating when interacting with potential net metering project developers and provide specific guidance on what net metering related forms and agreements should and should not say. Likewise, the PUC should remove the stricken sections from its regulations so that the unsuspecting public is aware that the law has changed.

[1] https://www.pplelectric.com/site/-/media/ppl-jss-app/assets/Home/More/For-Construction/DER-Management/docs/PPL-EU-Net-Metering-Rider.ashx.

[2] https://www.firstenergycorp.com/content/dam/feconnect/files/retail/pa/PA-Level-234-Interconnection-Application.pdf.

[3] Net Metering – The Use of Third-Party Operators; Docket M-2011-2249441 (Order entered February 24, 2022).

Net Metering is Back in Pennsylvania

Todd Stewart on February 17, 2021

The Supreme Court today affirmed the Commonwealth Court’s invalidation of Pennsylvania Public Utility Commission (“PUC” or “Commission”) regulations that had the effect of blocking alternative energy project developments of 5 MW or less that propose to use net metering. The PUC’s regulation had defined a developer of a net metering project as a “utility”; because the legislature in the PUC-administered Alternative Energy Portfolio Standards Act (“AEPS”), 73 P.S. §§1648.1, et seq. prohibited a “utility” from participating in net metering, the PUC’s regulation made it impossible for an alternative energy project developer from availing itself of net metering, essentially rendering such projects uneconomic. The Independent Regulatory Review Commission (“IRRC”) had voted to disapprove this attempt by the PUC to block developers from using net metering in their projects,[1] but the PUC submitted the regulations for legislative approval anyway, and because the general assembly was not in session, the IRRC process allowed the regulations to become law.

David Hommrich, a developer of solar energy projects, sued in the Commonwealth Court seeking a declaration that the PUC’s definition of “utility” and other related net metering regulation provisions are unlawful, arguing that the PUC acted beyond the scope of its statutory authority, and that the regulations were otherwise unreasonable. In a May 2020 opinion, [2] Judge Wojcik, writing for a panel of the court, agreed, and granted most of the relief requested by Mr. Hommrich, ruling that several of the sections of the Commission’s regulations, namely, Sections 75.12, 75.13(a)(1) and the definitions of “utility” and “customer generator” and are invalid and unenforceable. The Supreme Court has now rejected the PUC’s appeal, affirming the Commonwealth Court in a single sentence order.

What this means in a practical sense is that those sections of the Commission’s regulations that were declared unenforceable are no longer part of the regulations. Absent amendment, future codifications of those sections will likely note that they have been declared unenforceable and those seeking the guidance of those rules will need to make sure that they read the notes. The Commission need not engage in a further regulatory process to revise its regulations, but it may choose to do so, and should. 52 Pa. Code § 75.12, which was struck down, contains definitions that are relied upon throughout the entirety of Subchapter B, the section of the regulations that addresses net metering. Also stricken was the independent load requirement for net metering that would have imposed an extra-statutory requirement that there be some specific, non-alternative energy system load to offset the production of the renewable facility, in order for net metering to be permitted. The definitions of “utility” and “customer generator”, while at the heart of the Commission’s regulatory over-reach, could simply be deleted. “Customer generator”, is already defined in the statute, and no definition of “utility” is necessary. For those who rely on these sections, utilities, and renewable project developers in particular, it will be as if those sections don’t exist; any attempt to rely upon them as authority would be futile.

So, what does this all mean for the future of renewable energy projects in Pennsylvania? It means that project developers who focus on net metering projects, i.e., up to 5 MW, are back in business and can develop and participate in those projects as they could pre-2016, that funders can finance those projects, and that utilities and the Commission cannot reject them on the basis that developer is a “utility” as the Commission vainly attempted to define that term. Hopefully, this will also serve as a reminder to regulators that they cannot, through regulations, rewrite a statute they are tasked with administering in the way they wish the legislature had written it. Rather, they need to pay attention to the words and intent, because the courts most certainly will.

[1] See, IRRC Shoots Down AEPS Regulations a Second Time.

[2] Hommrich v. Pa. P.U.C., 231 A. 3d 1027 (Pa. Cmwlth. 2020).

Commonwealth Court Denies PA PUC Authority to Rule on the Meaning of “Customer-Generator” under AEPS

Micah Bucy on October 24, 2016

In Sunrise Energy v. FirstEnergy Corp. and West Penn Power Company,[1] the Pennsylvania Commonwealth Court affirmed the lower court’s ruling, in a 5-2 decision, that the Pennsylvania Public Utility Commission does not have primary, let alone exclusive, authority to adjudicate claims arising under the Alternative Energy Portfolio Standards Act[2] (“AEPS”) because the General Assembly failed to delegate such authority to the Commission.

Before the Court, on interlocutory appeal, were FirstEnergy’s and West Penn Power’s (collectively “WPP”) preliminary objections (and an amicus curiae brief on behalf of the Commission) asserting that the Commission, not the Court of Common Pleas, has exclusive jurisdiction to hear Sunrise Energy’s contract dispute, or at the very least had primary jurisdiction to rule on whether Sunrise was a “customer-generator” under AEPS. The dispute arose after Sunrise, a solar developer, and WPP agreed to an Electronic Services Agreement (“ESA”) whereby WPP purchased electricity generated by Sunrise at a specified price.

However, shortly after the ESA was signed by the parties in 2014, the Commission proposed an amendment to its regulations that would “require customer-generators to maintain ‘an independent retail load.’”[3] In short, the Commission attempted to develop regulations setting forth the qualifications to participate in net metering. Although these proposed amendments have twice been rejected by the Independent Regulatory Review Commission and they have not yet been published, the Commission still appears poised to enact these amendments as evidenced by its filing of an amicus brief in this case.

As a result of the Commission’s proposed amendments, WPP terminated the ESA citing that Sunrise was not a “customer-generator” but was actually an Electric Generation Supplier and therefore would be paid at a rate different than what the parties had agreed upon. In turn, Sunrise initiated the underlying complaint.

WPP presented the Court with two unpersuasive theories as to why the Commission, not the Court of Common Pleas, was the proper venue to resolve Sunrise’s claims: 1) the Commission has “exclusive jurisdiction” to determine the meaning of “customer-generator” under AEPS, or alternatively, 2) the Commission has primary jurisdiction over the statutory issue of the meaning of “customer-generator.”

In responding to WPP’s first theory for Commission jurisdiction, the Court affirmed the trial court’s finding that Sunrise’s claim was a question of statutory construction and such an exercise is a matter for the courts. The Court also discussed, at some length, the law for when agencies or the courts have jurisdiction under legislative acts and concluded that an agency has exclusive jurisdiction over a matter “where the legislature has given it the power to adjudicate on a particular subject matter”[4] and when that remedy is “adequate and complete.”[5] In the instant case, the Court simply found that there was no “statutory remedy provided in [AEPS] for resolving disputes arising thereunder.”[6] And because agency jurisdiction is determined by a delegation in a given statute, lack of such delegation in AEPS is a bar to the Commission having jurisdiction over the meaning of “customer-generator.”

WPP’s second theory was that the Commission had primary jurisdiction to resolve the question of whether Sunrise qualified as a “customer-generator” and if the Commission determined Sunrise did qualify, then the Court of Common Pleas would retain jurisdiction to resolve the contract and quasi-contract claims.[7] The Commission in its amicus brief also argued that it should be permitted to determine the meaning of “customer-generator” under AEPS because, if the courts are left to construe the statute, “it will lead to different results … and thereby balkanize the electric service industry.”[8] Both WPP and the Commission pointed to Morrow v. Bell Telephone Company of Pennsylvania[9] in support of their positions. The Court rejected WPP and the Commission’s arguments because in Morrow, unlike the instant case, the subject at issue was a utility’s rates or tariff, to which the legislature expressly conferred jurisdiction to the Commission. And, despite WPP’s argument that its Net Energy Metering Rider is at issue as it is part of the ESA and WPP’s retail electric Tariff No. 39, the court sharply dismissed the argument, noting that tariffs state “what the utility will collect for its service”[10] but the net metering tariff states “what the utility will pay for electricity.”[11]

The Court went on to dismiss the policy arguments espoused by the Commission in support of its position for jurisdiction, stating that such concerns are appropriately addressed to the legislature and not the courts. Essentially, the Court ruled that without a statutory remedy included in AEPS, Commission jurisdiction cannot be found; and, only the legislature is equipped to add such a remedy, which is why the Commission’s concerns should be taken to the General Assembly.

In the dissent joined by Judge Covey, Judge Jubelirer criticized the majority for evaluating AEPS in a “vacuum” instead of in pari materia with the Public Utility Code and other applicable legislative acts. In support of its argument, the dissent pointed to Elkin v. Bell Telephone Company[12] which required “judicial abstention in cases where protection of the integrity of a regulatory scheme dictates preliminary resort to the agency which administers the scheme.”[13] In short, the dissent opined that, because the legislature granted the Commission with “the power to carry out the responsibilities delineated within [the AEPS] Act” and to “monitor the performance of all aspects of the act,” the Commission had at the very least primary jurisdiction over Sunrise’s claim.

Although the Commonwealth Court ruling does not put an end to the Sunrise Energy litigation and likely does not spell the end for the issues addressed in this interlocutory appeal – remanded to the trial court to continue with litigation – as of now, the Commission is left waiting to see what its role will be in administering AEPS in the future.

[1] Slip Op., No. 1282 C.D. 2015 (Oct. 14, 2016)(“Opinion”).

[2] Act of November 30, 2004, P.L. 1672, 73 P.S. §§1648.1 – 1648.8.

[3] Opinion, 4.

[4] Id. at 13.

[5] Id. at 12.

[6] Id. at 16.

[7] Id. at 16–20.

[8] Id. at 16.

[9] 479 A.2d 548 (Pa.Super. 1984). (sustaining preliminary objections and dismissing a civil action where the plaintiff sought damages for being overcharged for utility services because the claim necessarily implicated the utility’s rates, a subject in which jurisdiction was expressly conferred to the Commission).

[10] Opinion, at 19.

[11] Id.

[12] 420 A.2d 371 (Pa. 1980).

[13] Dissent, at 3.

The Uncertain Future of Net Metering in Pennsylvania

Todd Stewart on June 22, 2016

On June 2, 2016, the Independent Regulatory Review Commission (“IRRC”) appropriately voted 5-0 to disapprove the Pennsylvania Public Utility Commission’s (“PUC”) attempt to modify its regulations implementing the Alternative Energy Portfolio Standards (“AEPS”) Act, 73 P.S. §§1648.1, et seq. The IRRC’s rejection was based primarily on its view that the PUC’s proposed regulations would exceed its statutory authority by limiting net-metering of electricity to entities with alternative energy systems sized to generate no more than 200% of their annual consumption. The IRRC went on to state that if the PUC decides to proceed with the rulemaking by deleting this limit, it “should ensure that other provisions of the regulation do not limit a customer-generator’s ability to net-meter excess generation it produces.” The IRRC also found that the PUC had failed to show any need for the modifications and suggested that because the PUC’s proposal appeared to be a change in policy of such a substantial nature consultation with the General Assembly was warranted.

At its June 9, 2016 Public Meeting, the PUC re-issued the previously rejected regulations with two types of revisions. Implementation of the Alternative Energy Portfolio Standards Act of 2004, Docket No. L-2014-2404361 (Amended Final Rulemaking Order entered June 9, 2016) (“Amended Rulemaking Order”). The PUC removed the references to the 200% cap on the size of net metering facilities, giving the appearance that the PUC complied with the IRRC’s primary objection. The PUC also, in an ironic twist, removed the information from the regulatory impact packet that purported to show the need for the regulations, even though the IRRC had found that the PUC had failed to establish a sufficient factual basis of need for the regulations. The PUC did not address the other portions of the regulation (for example, the definition of “utility,” and the “independent load” and “behind the meter” requirements for virtual meter aggregation) that limit a customer-generator’s ability to net-meter excess generation. The reissued regulations will be addressed by the IRRC at its next public meeting on June 30, 2016.

No matter what happens at the IRRC meeting, there are only two ways the AEPS regulations will not become effective. The first is if both of the standing oversight Committees of the General Assembly take concurrent action within 14 days, followed by concurrent action of the full General Assembly and the Governor. The second is if the PUC were to withdraw the regulations. Given its recent track record, it seems unlikely that the General Assembly will be able to act to prevent the regulations from going into effect. Many people however, are concerned that the regulations without the 200% cap are likely to be enforced in a manner that eliminates or seriously and negatively impacts net metering.

The primary reason for the concern of many in the renewables industry is the regulations new definition of “utility.” The AEPS Act defines “customer-generator” as “[a] nonutility owner or operator of a net metered distributed generation system with a nameplate capacity of not greater than 50 kilowatts if installed at a residential service or not larger than 3,000 kilowatts at other customer service locations….” 73 P.S. § 1648.2. Because eligibility to be a customer generator is limited to non-utilities, and apparently because it proved worthy as a second tool to prohibit “merchant generators” – a term invented by the PUC – from participating in net metering, the PUC decided that a definition of “utility” was required. The Amended Rulemaking Order shunned the IRRC’s suggestion to add the word “public” before “utility” to make it logical and to eliminate confusion. Instead, the Amended Rulemaking Order undertakes logical gymnastics to contrive a conclusion that because the definition of “public utility” in the Public Utility Code, 66 Pa.C.S. § 102, excludes certain entities from the definition of “public utility”, that the definition of “public utility” is not “synonymous” with the use of “utility” in the definition of “customer generator”—even though “utility” is not defined anywhere in the AEPS Act. Even more bizarre is the PUC’s contention that the Electricity Generation Customer Choice and Competition Act, 66 Pa. C.S. §§ 2801, et seq., actually supports the notion that because electricity generation is no longer regulated as a “public utility” function, the General Assembly has drawn a distinction between “utility” and “public utility.” The irony is that in the passage quoted by the PUC, it is clear that the General Assembly uses other terms, such as “electric utility” and “electric distribution utility” interchangeably with “public utility” showing that there was no intended distinction.

Nonetheless, it is clear, even from the Amended Rulemaking Order, that the PUC intends to enforce the definition of utility in a way that excludes customer-generators that it deems to be “merchant generators” from participating in net metering:

Net metering allows the customer-generator to obtain above-market prices for electricity produced by certain alternative energy resources. This benefit is subsidized by ratepayers and constitutes a transfer of wealth from the utility’s general body of ratepayers to customer-generators in order to promote alternative energy resources. However, to allow de facto merchant generators to obtain the customer-subsidized benefits of net metering would be, in the Commission’s judgement, an unreasonable interpretation of the statute and would result in unjust and unreasonable rates.

Amended Rulemaking Order at 26.

The PUC goes on to conclude that the definition of “utility” includes entities that provide “electric generation, transmission or distribution services at wholesale or retail, to other persons or entities, and that this term includes within its scope, merchant generators. These are entities that do not qualify for net metering subsidies.” Id. at 27. Coupled with the newly imposed PUC review and approval of all net metering applications for facilities over 500 KW, it becomes clear that the PUC will not approve what it perceives to be “merchant generators” (an undefined term) to participate in net metering. This is not a 200% size cap; it is a total ban. Whomever the PUC determines to be “providing electric generation or distribution service [also undefined terms] to the public or other entities,” will be branded a “merchant generator” and disqualified. It also appears that the PUC and Pennsylvania’s electric utilities intend to apply this provision retroactively to existing projects, thus raising the very real specter of unconstitutional regulatory takings and/or inverse condemnation actions.

Simply put, the AEPS Act contains no restriction on the ability of merchant generators to participate in net metering. For the PUC to contrive a definition of utility that allows it to exclude these entities that clearly are not utilities, public or otherwise, in order to effectuate its belief that merchant generator net metering is wrong, is well beyond the statutory mandate. The General Assembly obviously understood that it was creating an incentive to invest in renewable energy and thus imposing a subsidization regime on ratepayers. It was the PUC, after all, that decided on the definition of “full retail value” as the basis for payment for net metering, 73 P.S. § 1648.6, when it promulgated its regulations at 52 Pa. Code § 73.13(c). Despite the fact that the PUC was unable to show any significant cost burden on customers as a result of net metering, if the PUC feels the compensation for net metering is a problem, it should have started with those regulations. Contriving a definition to exclude a whole class of market participants who already may have made substantial investments in view of what appears to be a straightforward statutory policy in favor of net metering, without even considering the impacts of its new regulation on them, is simply reckless.

Surviving in Post-Hommrich Pennsylvania

Net Metering is Back in Pennsylvania

Commonwealth Court Denies PA PUC Authority to Rule on the Meaning of “Customer-Generator” under AEPS

The Uncertain Future of Net Metering in Pennsylvania

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