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Creation Date

3-16-2017

Description

Congress passed the Federal Power Act (FPA) in 1935 in response to an emerging electricity sector, which enshrined a division of jurisdiction between the federal government and the states. Federal jurisdiction would control wholesale electricity and transmission while state jurisdiction would control retail electricity. Since the FPA’s passage, significant regulatory, structural, and technological changes have tested the adaptability and coherence of this “bright line” jurisdictional division. Distributed generation (DG)—power generation at the point of consumption—is changing how and where power is created. Increasingly, end users are choosing to generate power on-site using solar panels, combined heat and power, and energy storage systems. In turn, these systems are changing how we operate the grid and manage markets. Net metering, a policy which enables DG, is a popular and controversial method of measuring the difference between the amount of production and use of electric energy in an applicable billing, or “netting,” period by retail customers with on-site generation. Approximately 43 states and the District of Columbia have implemented net metering programs, and they vary widely in their approaches. Net metering blurs the jurisdictional “bright line” by allowing retail customers to essentially become wholesale generators of electricity. Under the jurisdictional divide of the FPA, states retain jurisdiction over retail customers. However, when these retail customers also become generators of electricity, adding power to the grid and receiving compensation for their generation, either in the form of bill credits or actual compensation, they are no longer the retail customers originally envisioned by the FPA. They now are subject to both state jurisdiction as retail customers and federal jurisdiction as wholesale generators. DG, enabled by net metering, connects these two domains, blurring the jurisdictional divide. Increasing use of these new energy resources reveals how continuing to divide jurisdiction along a line that has become less and less clear in practice will continue to cause confusion and impose costs on policy innovation. These jurisdictional tensions should be resolved through the expansion of the Federal Energy Regulatory Commission’s (FERC) jurisdiction under the FPA’s current retail-wholesale jurisdictional intersection either through FERC or congressional action, which would grant FERC authority to regulate net metering and thereby enabling the unified integration of DG. This expansion of FERC’s authority under the FPA would allow the strength of our current centralized power system to combine with the flexibility of DG under the coherent, clear, and unifying voice of the federal government.

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