15. The Energy Prosumer - 2016

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2016
The Energy Prosumer

Sharon B. Jacobs
University of Colorado Law School
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Sharon B. Jacobs, The Energy Prosumer, 43 ECOLOGY L.Q. 519 (2016), available at
https://scholar.law.colorado.edu/faculty-articles/709.
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The Energy Prosumer
Sharon B. Jacobs*
Decentralization is becoming a dominant trend in many industries, and

the electricity industry is no exception. Increasing numbers of energy
consumers generate their own electricity and/orprovide essentialgridservices
such as storage, efficiency, and demand response. This Article offers a positive
account of the emergence of these new energy actors, which it calls "energy
prosumers." It then frames several doctrinal and procedural puzzles that
prosumers create, includingjurisdictionalpuzzles, distributionalconcerns, and
democratic challenges. Ultimately, it concludes that prosumers can be a
positive disruptiveforce in the electricity industry if courts and regulators can
manage these challenges effectively. The Article suggests that increased
prosumption not only helps .further traditional energy law goals, but also is
consistent with a modernized canon of energy law norms, including
environmental protection and market competition. The Article concludes by
outlining regulatory pathways to a prosumer future. It emphasizes the policy
experimentation currently taking place and suggests conditions for, and core
elements of a more centralized,synoptic regulatorystrategy.
DOI: http://dx.doi.org/10.15779/Z38XS02
Copyright © 2016 Regents of the University of California.
* Associate Professor of Law, University of Colorado Law School. I would like to thank Bob
Anderson, Eric Biber, Fred Bloom, William Boyd, Ann Carlson, Seth Davis, Holly Doremus, Kristelia
Garcia, Bruce Huber, Paul Ohm, Ari Peskoe, Karl Ribago, Seth Stoughton, Susannah Tobin, Phil
Weiser, and the participants in the University of Washington Junior Environmental Law Scholars
Workshop and the Duke/Colorado Work-in-Progress Workshop on Natural Resources, Energy and
Environment in a Climate Changed World for valuable feedback. All mistakes are my own.
520 ECOLOGYLAW QUARTERLY [Vol. 43:519
Introdu ction ...................................................................................................... 520

I. The Energy Prosum er .................................................................................. 523
II. Back to the Future: A Decentralizing Energy Landscape .......................... 527
III. Doctrinal and Procedural Puzzles Created by the Energy Prosumer ........ 533
A . Jurisdictional Puzzles ..................................................................... 533
1. The Net Metering Fiction ........................................................ 534
2. The Demand Response Conundrum ........................................ 536
B . D istributional Puzzles ..................................................................... 539
1. Pricing Distributed Generation: The Problem of Cross-
Subsidization ........................................................................... 540
2. Pricing Demand Response ....................................................... 545
C . D em ocracy Puzzles ......................................................................... 549
IV. The Normative Dimensions of Prosumption ............................................. 556
A. Prosumption and Traditional Electricity Law Norms ..................... 557
B. Prosumption and Modem Electricity Law Norms .......................... 560
1. Environmental Norms .............................................................. 560
2. C om petition N orm s.................................................................. 562
V . Regulating Prosum ption ............................................................................. 564
A. Existing Regulatory Approaches .................................................... 564
1. M an dates .................................................................................. 565
2 . Incentiv es ................................................................................. 566
3. Environmental Regulation ....................................................... 568
4. Structural Reform .................................................................... 569
B. Experimentation in Electricity Policy ............................................. 571
C. Elements of a Prosumer Electricity Policy ..................................... 575
C on clu sion ....................................................................................................... 577
INTRODUCTION
Consumers have assumed a more active role in the new energy economy.
Modem electricity law, defined as electricity regulation since the rise of the
centralized public utility, assumes that consumers are passive: they take
electricity from the grid but do not provide any goods or services in return.
That paradigm, however, is changing.' Small-scale distributed generation,
which allows homes and businesses to generate their own power, is becoming
more widespread. 2 Customers are storing energy on-site and are using that
1. Former Federal Energy Regulatory Commission (FERC) Chairman Jon Wellinghoff has noted
that converging trends are allowing electricity customers to achieve more control over such diverse
concerns as reliability, security, and efficiency. Steven Schultz, Growth of 'Distributed' Electricity
Could Transform Utility Systems, PRINCETON SCH. OF ENG'G & APPLIED SCI. (May 2, 2013),
http://www.princeton.edu/engineering/news/archive/?id= 10241.
2. See infra Part II.
2016] THE ENERGY PROSUMER
storage both to support distributed generation and to provide services to the

grid. In addition, regulators and utilities are shifting their focus from the supply
side of the market equation (which concentrates on power generation) to the
demand side (which puts energy efficiency front and center). This shift enables
traditional consumers to become more active participants in energy markets,
controlling their own electricity usage as part of energy efficiency programs
and even selling commitments to reduce electricity usage in retail and
wholesale markets. 3
While commentators have examined these developments individually,
this Article identifies them as elements of a larger phenomenon: the rise of the
energy "prosumer." "Prosumers" are consumers in the traditional, passive sense
who also produce goods or services for sale in the energy marketplace. By
introducing the term to the legal vernacular, this Article seeks to minimize
conceptual confusion resulting from the application of existing legal and policy
constructs to these new market actors. The growth of prosumption challenges
traditional energy law paradigms that were established based on an
understanding of "consumer" and "producer" as distinct, non-overlapping
categories. Erosion of the boundary between the two creates puzzles for both
courts and agencies as they seek to adapt existing laws, policies, and
procedures to a new energy landscape.
Energy is not the only field in which consumers are becoming more
active. 4 But prosumer developments in energy law are striking for at least two
3. On distributed generation, see Melissa Powers, Small is (Still) Beautiful: Designing US.
Energy Policies to Increase Localized Renewable Energy Generation, 30 WIS. INT'L L.J. 595 (2012)
(explaining the benefits of distributed generation and proposing revisions to existing policy to promote
its deployment); Allyson Umberger, Distributed Generation: How Localized Energy Production
Reduces Vulnerability to Outages and Environmental Damage in the Wake of Climate Change, 6
GOLDEN GATE U. ENVTL. L.J. 183 (2012) (examining the potential for distributed generation to mitigate
the impacts of climate change and natural disasters); Kristin Bluvas, Distributed Generation: A Step
Forward in United States Energy Policy, 70 ALB. L. REV. 1589 (2007) (arguing that the federal
government should encourage distributed generation to promote grid stabilization and the integration of
renewable resources).
For articles discussing the use of energy storage, see Amy L. Stein, Reconsidering Regulatory
Uncertainty: Making a Case for Energy Storage, 41 FLA. ST. U. L. REV. 697 (2014) (finding that some
regulatory uncertainty in the context of energy storage can be beneficial); Deborah Behles, An
IntegratedGreen Urban Electrical Grid, 36 WM. & MARY ENVTL. L. & POL'Y REV. 671, 681-88 (2012)
(elaborating the benefits of energy storage).
On energy efficiency and demand response, see Sharon B. Jacobs, Bypassing Federalism and the
Administrative Law of Negawatts, 100 IOWA L. REV. 885 (2015) (finding federal demand response
programs beneficial but arguing that a legislative amendment clarifying federal authority over demand
response in wholesale markets would be desirable); Joel B. Eisen, Who Regulates the Smart Grid?:
FERC's Authority Over Demand Response Compensation in Wholesale Electricity Markets, 4 SAN
DIEGO J. CLIMATE & ENERGY L. 69 (2013) (defending federal jurisdiction over demand response); Noah
M. Sachs, Can We Regulate Our Way to Energy Efficiency? Product Standards as Climate Policy, 65
VAND. L. REV. 1631 (2012) (arguing that reducing energy demand is the most promising way to cut
greenhouse gas emissions and defending the existing regulatory strategy).
4. Professor Yochai Benkler has identified a parallel trend in communications, noting that
"[t]echnology now makes possible the attainment of decentralization and democratization" by allowing
some users to participate "in the production of their information environment." Yochai Benkler, From
ECOLOGYLA W QUARTERLY [Vol. 43:519
reasons. First, key statutory language in energy law is, at least at the federal
level, badly out of date. The Federal Power Act's (FPA's) jurisdictional line
between areas of federal and state regulation, for example, has not been
updated since 1935.5 As will be explored in more detail in Part III, prosumption
highlights the disconnect between such antiquated standards and modem
developments. Second, energy prosumption is spreading rapidly, creating
pressing challenges for regulators. 6 This Article will examine both the
desirability and the mechanisms of that development.
The Article unfolds in several parts. Part I introduces the concept of
energy "prosumers" and indicates limits to the term's application. Part II then
offers a positive account of decentralization and the rise of the energy
prosumer. It introduces the most prominent examples of energy prosumption:
retail electricity customers' on-site production of power, termed distributed
generation; customer storage of electricity; and customer participation in
energy efficiency and demand response programs that offer compensation for
7
reducing consumption.
Regulating innovation can be challenging. 8 In the case of distributed
energy resources, developments on the ground are occurring more quickly than
regulatory structures are evolving. 9 Part III explores several legal and policy
puzzles created by the rapid rise of the prosumer. First, subpart III.A examines
two instances of jurisdictional confusion created by the erosion of the
consumer/producer dichotomy. In both cases, courts have struggled to
determine whether, under the FPA, certain prosumer activities are properly
regulated by state utility commissions or by the Federal Energy Regulatory
Commission (FERC).
Prosumer participation in energy markets also raises distributional
concerns, with some arguing that compensation structures unfairly shift costs
Consumers to Users: Shifting the Deeper Structures of Regulation Toward Sustainable Commons and
UserAccess, 52 FED. COMM. L.J. 561, 562 (2000).
5. For thoughts on why energy policy reform has been so difficult to achieve, see David B.
Spence, Regulation, "Republican Moments, " and Energy Policy Reform, 2011 BYU L. Rev. 1561
(2011) (positing that major policy shifts are unlikely due to the complexity of the subject matter and the
fact that those who will benefit from reform differ from those who will bear its costs).
6. A new report predicts that the worldwide annual installed capacity of distributed generation
will double by 2023. DEXTER GAUNTLETT & MACKINNON LAWRENCE, NAVIGANT RESEARCH,
EXECUTIVE SUMMARY: GLOBAL DISTRIBUTED GENERATION DEPLOYMENT FORECAST 3 (2014).
Customers are also becoming more active in managing their energy demand. See, e.g., FED. ENERGY
REGULATORY. COMM'N, ASSESSMENT OF DEMAND RESPONSE AND ADVANCED METERING 1 (2015)
(noting an increase in deployment of advanced meters and the development of programs at the state and
federal levels).
7. Together, these innovations are often referred to as distributed energy resources.
8. See, e.g., Tim Wu, Agency Threats, 60 Duke L.J. 1841 (2011) (proposing a threat-based
governance regime for emerging technologies and processes); Nathan Cortez, Regulating Disruptive
Innovation, 29 Berkeley Tech. L.J. 175, 179 (2014) (arguing that regulators should use threats as a
stopgap rather than as a permanent solution).
9. On the challenge of using existing legal infrastructure to address new problems, see Jody
Freeman & David B. Spence, Old Statutes, New Problems, 163 U. PA. L. REV. 1 (2014).
from prosumers to traditional consumers. Subpart III.B examines two ongoing

pricing debates implicating these distributional concerns. Finally, subpart III.C
describes the ways in which prosumers create challenges for democratic
governance at the agency level. The modem trend favors democratic, or at least
pluralistic, decision making within energy regulatory agencies.' 0 Prosumer
interests are currently being represented by proxies, including industry trade
organizations, middlemen (such as solar services companies and demand
response providers), environmental groups, and traditional consumer advocates.
The limitations of such representation by proxy are likely to be tested as
prosumer activity increases.
Part IV makes the case that, notwithstanding these challenges,
prosumption is consistent with the values underlying our system of energy
governance. This Part defines a new set of norms that animate electricity
regulation today, including environmental protection and market competition.
While prosumption in many respects harmonizes with traditional goals of
electricity governance (accessible, reliable service at low cost), it is an even
better fit with this updated normative canon.
Part V turns to the future of prosumption. First, it describes the various
regulatory strategies that have been employed to boost prosumption, including
efforts to localize electricity decision making through municipalization of
electric utilities. It then suggests that these strategies are best understood as part
of a decentralized, investigatory approach to regulation that incorporates
features of incrementalism as well as democratic experimentalism. The
experimentalist approach is appropriate given the relative novelty and
complexity of prosumption. However, to maximize prosumption's benefits,
policymakers must address well-known critiques of experimentalism, including
the frequent failure to achieve consensus on goals or implement effective
monitoring and measurement programs. Finally, while an experimentalist
approach is justified at present given the newness of prosumption and its
enabling technologies, Part V concludes with thoughts about when and how
more centralized, coordinated regulation of prosumption should emerge and
what essential features would enable such a regulatory framework to promote
electricity law's values, both traditional and modern.
I. THE ENERGY PROSUMER
Until recently, a clean line separated electricity consumers on the one

hand, and generators and service providers on the other. As described above,
10. See, e.g., Cary Coglianese et al., Transparency and Public Participation in the Federal
Rulemaking Process: Recommendations for the New Administration, 77 GEO. WASH. L. REV. 924, 926
27 (2009) (asserting that public participation can enhance the democratic goals of legitimacy and
oversight and produce better quality decisions); Mark Seidenfeld, A Civic Republican Justification for
the Bureaucratic State, 105 HARV. L. REV. 1511, 1515 (1992) (imaging agencies as loci of civic
republicanism).
however, today many consumers are playing a more active role in energy
markets. These hybrid energy consumers and producers are most accurately
described as "prosumers." Some state statutes have begun to describe
customers with distributed generation on-site as "customer-generators."'
However, "prosumer" is more useful as a general term because the modem
energy consumers described above do more than generate electricity. They also
provide essential grid services, such as storage, regulation, and demand
response in both retail and wholesale markets.
To date, there has been virtually no discussion of "prosumers" as such in
the legal literature. However, scholars in other disciplines have examined the
phenomenon in more detail. 12 Web and software users who generate content
have been deemed "prosumers," 13 as have home creators of audio and video
imagery, 14 and even authors of fan fiction. 15 The editors of a special issue of
American Behavioral Scientist that focused on prosumption claimed that
"humans are by their very nature prosumers" and declared that "the existence
of largely separable producers and consumers is, at best, a historical
11. See, e.g., WASH. REV. CODE § 80.60.010 (2007) (defining a "customer-generator" as a user of
a net metering system). Courts have adopted this nomenclature. See FirstEnergy Corp. v. Pub. Utils.
Comm'n, 768 N.E.2d 648, 650 (Ohio 2002); Babb v. Mo. Pub. Serv. Comm'n, 414 S.W.3d 64, 67 (Mo.
Ct. App. 2013); City of Great Falls v. Mont. Dept. of Pub. Serv. Reg. 254 P.3d 595, 599 (Mont. 2011)
("'customer-generator' [] means 'a user of a net metering system'); ARIPPA v. Pa. Pub. Utils.
Comm'n, 966 A.2d 1204, 1212 n.4 (Pa. Commw. Ct. 2009) (citing state statutory provision that referred
to a "customer-generator").
12. The term "prosumer" was coined by futurist Alvin Toffler in his 1970 book, Future Shock.
Sarvapali D. Ramchum et al., Putting the 'Smarts' Into the Smart Grid: A Grand Challenge for
Artificial Intelligence, 55 COMM. OF THE ACM 86, 88 n.c (2012). For a collection of articles on
prosumers from a behavioral perspective, see George Ritzer et al., The Coming of Age of the Prosumer,
56 AM. BEHAV. SCIENTIST 379, 380 (2012) (noting the "expansion of work on this topic in the last few
years"). The term "prosumer" has been given at least two additional related, but distinct meanings. First,
it has been used to describe "professionalized consumers" as opposed to consumer/producers, especially
in the marketing context. See Susan Gunelius, The Shift from CONsumers to PROsumers, FORBES
Jul. 3, 2010, http://www.forbes.com/sites/work-in-progress/2010/07/03/the-shift-from-consumers-to-
prosumers/#6522e0c6543f (documenting a shift from prosumers as mere professional consumers to
"product and brand advocate[s]"). Second, the term has been used to mean "someone who makes little
distinction between his or her home and work lives." WILLIAM GERHARDT, CISCO INTERNET BUSINESS
SOLUTIONS GROUP, PROSUMERS: A NEW GROWTH OPPORTUNITY 1 (2008).
13. See Aaron Shaw & Yochai Benkler, A Tale of Two Blogospheres: DiscursivePracticeson the
Left and Right, 56 AM. BEHAV. SCIENTIST 459, 461 (2012) (defining blog authors as prosumers); Jamie
Skye Bianco, Social Networking and Cloud Computing: PrecariousAffordances for the "Prosumer,"37
WOMEN'S STUD. Q. 303, 303-04 (2009) (using a broad definition of self-production and distribution that
would deem social network users who simply post a URL on a friend's "wall" prosumers).
14. See Kathleen Bell Welch, Electronic Media: Implications of the "Third Wave" View of
Electronic Media, 70 ENG. J. 86, 87 (1981) (citing Toffler). For examples, consider the individuals who
upload videos of themselves to YouTube.
15. See Abigail De Kosnik, Should Fan Fiction Be Free?, 48 CINEMA J. 118, 124 n.21 (2009)
(citing Suellen Regonini, They Aim to Misbehave: A Case Study of Technology, Fan Activities, and the
ProsumerEconomy (paper presented at the 2006 Conference of the Popular Culture Association in the
South and the American Culture Association in the South, Oct. 7, 2006)).
anomaly." 16 Our error, the authors concluded, has been "to treat production and
17
consumption as a binary."'
The idea of prosumption is increasingly being applied in the context of
energy markets.1 8 Two defining features of energy prosumption are autonomy
and market participation. Energy prosumers exercise increased autonomy in
that they take more ownership of their consumption decisions than traditional
consumers, either taking active steps to regulate their consumption or engaging
in self-supply. These behaviors, however, are supplemented by their activities
as market participants. Some prosumers sell excess energy generated on-site
back to their local utilities, some bid energy storage services into ancillary
services markets, and some receive compensation for reducing their electricity
usage through demand response programs. Each of these activities will be
explored in greater detail in Part II.
One point of clarification is needed: because they are a species of
customer, prosumers may be divided into the familiar classes of residential,
commercial, and industrial. Size is relevant to prosumption activities, especially
when it comes to the question of participation in regulatory processes. Small
residential prosumers tend to lack the means and sophistication to participate
vigorously in legislative and regulatory debates. Larger commercial and
industrial customers have a greater stake in regulatory outcomes (because their
16. Ritzer et al., supra note 12, at 380.

17. ld. at381.
18. See, e.g., STEPHENS ET AL., SMART GRID (R)EVOLUTION 29-30 (2015) (noting that the term is
useful in part because it denotes a class of individuals whose simultaneous production and consumption
of electricity are harbingers of a systemic change); Joseph P. Tomain, A Perspective on Clean Power
and the Future of U.S. Energy Politics and Policy, 39 UTILS. POL'Y 5, 9 (2016) (stating that
"[a]ccording to some, a prosumer society is starting to develop."); Jennie C. Stephens & Elizabeth J.
Wilson, Climate Change, Technological Innovation, 72 BULL. ATOMIC SCIENTISTS 4, 5 (2016)
(remarking on the empowerment of individual citizens in energy systems).
Until recently, the use of the term "prosumer" in energy markets has been primarily in the
technical and economics literature on grid management systems and the smart grid. See, e.g., Ramchurn
et al., supra note 12, at 94-95 (describing the emergence of prosumers as one of the challenges facing
build-out of the smart grid and predicting that as the number of prosumers grows, "electricity will
become a commodity with similar properties to those traded on stock markets."); Agata Filipowska et
al., Towards ForecastingDemand and Productionof Electric Energy in Smart Grids, in PERSPECTIVES
IN BUSINESS INFORMATICS RESEARCH (Andrzej Kobylinski & Andrzej Sobczak eds. 2013) (offering a
solution for managing energy consumption and production in microgrids); ILIANA SHANDURKOVA ET
AL., A PROSUMER ORIENTED ENERGY MARKET, IMPROSUME PUBLICATION SERIES (2012) (describing
research on the impact of prosumers on smart grid development in Europe). The term has also been used
in policy and sociology articles discussing subsidies for renewable generation. See Wladyslaw
Mielczarski, New Subsidies for Renewables 3 (unpublished manuscript), http://ieeexplore.ieee.
org/stamp/stamp.jsp?tp=&arnumber=6607273&tag= I (noting that the development of regional
transmission infrastructure could help encourage renewable energy prosumers); Fritz Reusswig,
Sociological Tasks in View of the Transition to Post-Carbon Societies, I INT'L REV. SOC. RES. 189,
190-91 (2011) (explaining that renewable energy systems can occur in both centralized systems and
decentralized networks of individual energy "prosumers"). Much of the discussion of prosumers in the
energy field comes from outside of the United States, which is unsurprising given that other economies
have had greater experience with the competitive energy markets in which prosumers thrive and have
thus had more time to consider the challenges they pose.
levels of program participation tend to be higher) and often have the resources
to influence policymaking in a way that smaller prosumers do not.
In addition, it is worthwhile to note that the rise of the prosumer has also
led to the rise of the energy middleman. Some prosumers act entirely on their
own initiative. As prosumer activity has expanded, however, new companies
have taken advantage of the growing market to offer their services as
middlemen between prosumers and energy markets. In the distributed
generation context, the best known of these companies are solar services
providers who install, maintain, and operate solar panels on a customer's
property. 19 In such cases, the solar services company may itself sell excess
power back to the grid, minimizing the customer's involvement. Because
customers who are party to such agreements abdicate most of the production,
management, and sales responsibilities to solar companies, they often behave
more like traditional consumers than prosumers. 20 Nevertheless, these
customers are more active than traditional consumers in that they are using
their own resources to generate a product that can be sold on energy markets.
Notwithstanding these definitional caveats, prosumers stand in contrast to
traditional consumers-those whose sole interactions with electricity markets
are to purchase goods and services. Prosumers do not fit neatly into the classic
mold of either energy consumer or energy producer-they engage in behaviors
characteristic of both.
What motivates some consumers to become prosumers? Many prosumers
purchase on-site generation and storage capacity and participate in demand-side
management programs because it provides them with greater control over their
electricity supply and their consumption patterns. As an extreme example,
consider the movement to go "off-grid" entirely. The primary reasons
individuals might wish to supply all of their own power center around the
desire for greater autonomy. They might wish to live in an isolated location
without access to a utility system. 2 1 Or, libertarian ideals might motivate them
19. According to the Solar Energy Industries Association, third-party financing agreements
accounted for 90 percent of New Jersey's residential solar market, 50 percent of New York's distributed
generation systems, and 69-81 percent of distributed generation systems installed in California in the
first quarter of 2014. Third-Party Solar Financing, SOLAR ENERGY INDUS. ASS'N, http://www.seia.
org/policy/finance-tax/third-party-financing (last visited Feb. 25, 2015). One popular model is the solar
lease, under which customers pay the costs of their system over many years. Another model is the power
purchase agreement, wherein the customer never acquires ownership of the system but signs an
agreement with the solar services company to purchase electricity from the system at a specified rate.
What's a Solar Lease or Solar Power-Purchase Agreement?, SOLAR ENERGY INDUS. ASS'N,
http://www. seia.org/about/solar-energy/solar-faq/what's-solar-lease-or-solar-power-purchase-agreement
(last visited Jan. 7, 2016).
20. As the founder of one solar services company put it, "(w]e're trying to build a convenient,
Netflix-like experience." Ehren Goossens & Will Wade, The New Solar Middlemen, BLOOMBERG
BUSINESSWEEK (Mar. 24, 2011, 2:00 PM), http://www.bloomberg.com/news/articles/2011-03-24/the-
new-solar-middlemen (quoting Danny Kennedy, founder of Sungevity).
21. USA Today reported in 2006 that approximately 180,000 people live off the grid in the United
States. Paul Davidson, Off the Grid or On, Solar and Wind Power Gain, USA TODAY (Apr. 12, 2006,
10:53 PM), http://usatoday30.usatoday.com/tech/news/techinnovations/2006-04-12-off-the-grid- x.htm.
to disconnect from local utilities, which are heavily regulated by the

government. 22 They might also desire full control over the source of their
23
power consumption for environmental reasons.
A key motivation for prosumption, however, is economic. Individual
electricity customers are often able to save money on their utility bills, or even
make a net profit, by generating energy on-site, using energy storage to
supplement generation or provide services to the grid, or participating in energy
efficiency and demand response programs. Even factoring in the effects of
government subsidies, the capital costs of on-site solar systems in particular
have declined precipitously over the past several years. 24 The costs of batteries
used in electric vehicles dropped by 40 percent between 2010 and 2012.25
Meanwhile, the returns customers can earn by participating in demand-side
26
management programs have increased.
II. BACK TO THE FUTURE: A DECENTRALIZING ENERGY LANDSCAPE
This Part describes the three basic means by which prosumers can
participate in energy programs: generating and selling their own electricity
(distributed generation), selling energy storage services, or committing to
For a vivid description of what such off-grid living can be like, see Robert Walton, Diary of a Grid
Defector: How an Energy Reporter is Going off the Grid, UTILITYDIVE (July 10, 2015),
http://www.utilitydive.com/news/diary-of-a-grid-defector-how-an-energy-reporter-is-going-off-the-
grid/401953/.
22. See generally NICK ROSEN, OFF THE GRID: INSIDE THE MOVEMENT FOR MORE SPACE, LESS
GOVERNMENT, AND TRUE INDEPENDENCE IN MODERN AMERICA (2010).
23. Often, interest in "going green" is what drives customers to attempt off-the-grid living. See,
e.g., WILLIAM H. KEMP, THE RENEWABLE ENERGY HANDBOOK: THE UPDATED AND COMPREHENSIVE
GUIDE TO RENEWABLE ENERGY AND INDEPENDENT LIVING I-3 (2009); C. DENNIS BARLEY ET AL.,
NAT'L RENEWABLE ENERGY LAB., THE VAN GEET OFF-GRID HOME: AN INTEGRATED APPROACH TO
SAVING ENERGY (2004). See also PAUL DENHOLM ET AL., NAT'L RENEWABLE ENERGY LAB., METHODS
FOR ANALYZING THE BENEFITS AND COSTS OF DISTRIBUTED PHOTOVOLTAIC GENERATION TO THE U.S.
ELECTRIC UTILITY SYSTEM 2-3 (2014) (measuring the costs and benefits of distributed photovoltaic
generation, including the environmental benefits). As discussed in greater detail in Part It.D, reduced
consumption and clean self-generation can mitigate the need for new fossil fuel fired power plants.
24. In a report for the Department of Energy, the National Renewable Energy Laboratory and the
Lawrence Berkeley National Laboratory reported that solar photovoltaic system prices declined by 12-
15 percent in 2013 and were predicted to fall further still in 2014. DAVID FELDMAN ET AL.,
PHOTOVOLTAIC SYSTEM PRICING TRENDS: HISTORICAL, RECENT, AND NEAR-TERM PROJECTIONS 4
(2014).
25. Zachary Shahan, 40% Drop in EV Battery Prices From 2010 to 2012, CLEANTECHNICA (Jul.
8, 2013), http://cleantechnica.com/2013/07/08/40-drop-in-ev-battery-prices-from-2010-to-2012/ (citing
a Bloomberg New Energy Finance study by Michael Liebreich from Apr. 17, 2013). Tesla Motors
predicts that battery costs will decline further-by 30 percent or more-when it builds its promised
"Gigafactory" for lithium-ion batteries. See Alan Ohnsman, Musk's $5 Billion Tesla Gigafactory May
Start Bidding War, BLOOMBERG (Feb. 27, 2014, 12:18 PM), http://www.bloomberg.coli/news/articles/
2014-02-26/tesla-plans- I-6-billion-note-offering-to-fund-gigafactory.
26. See Demand Response Compensation in Organized Wholesale Markets, Order No. 745, 134
F.E.R.C. 61,187 at P 2 (2011) (mandating that retail demand response providers in wholesale energy
markets be paid the same amount for each "negawatt" they forego as power plants are paid for each
megawatt they produce).
reduce consumption or shift their consumption patterns (energy efficiency and

demand response).
Fundamentally, there is nothing new about decentralized energy
production. As commentators have remarked, before centralized power
production, all energy was local. 27 As late as the second half of the nineteenth
century, indoor lighting was mostly achieved through the use of kerosene,
candles, or gas manufactured from coal. 28 The first power plant, Thomas
Edison's Pearl Street generating station, began operations on September 4,
1882.29 Soon, central installations dominated. 30 The development of
increasingly large steam turbines in the early twentieth century made larger
power plants possible, allowing each station to exploit economies of scale. This
technological development fully ushered in "lt]he era of central station
3
power." '
More than one hundred years later, decentralized energy production, also
known as distributed generation, is experiencing a renaissance. In addition,
customers are increasingly participating in energy efficiency and demand
response programs. The latter, offered at both the retail and wholesale levels,
provide compensation for scaling back electricity usage at times of peak use.
Demand response programs in particular involve the sale of a "product"-the
commitment not to consume-into energy markets. Collectively, distributed
generation, distributed storage, energy efficiency, and demand response are
32
known as "distributed energy resources."
The most visible manifestation of decentralization is distributed
generation. A Congressional Budget Office report described distributed
generation as "small customer-owned generators ... sited at or near the
27. See, e.g., Garrick B. Pursley & Hannah J. Wiseman, Local Energy, 60 EMORY L.J. 877, 897
(2011) ("At the distributed scale, renewables fit an energy production model that has existed for
thousands of years; energy is consumed close to its source.").
28. JOHN F. WASIK, THE MERCHANT OF POWER: SAMUEL INSULL, THOMAS EDISON, AND THE
CREATION OF THE MODERN METROPOLIS 14 (2006).
29. Id. at 20. The New York Times was one of the first customers to take electricity from the
station. Its reporters noted in awe that night that "[i]t seemed almost like writing by daylight." Id. at 20-
21.
30. While Edison's plant was the first in operation, itwas only because of the development and
eventual triumph of alternating current power that transmission of power over longer distances (and the
resulting rise of large, centralized plants) became possible. See JOEL B. EISEN ET AL., ENERGY,
ECONOMICS, AND THE ENVIRONMENT: CASES AND MATERIALS 34-35 (Joel B. Eisen et al. eds., 4th ed.
2015). Technology played the critical role in centralization of other industries as well. See Benkler,
supra note 4, at 563 ("the development of high volume, high cost mechanized printing presses and the
telegraph changed the enterprise of the press from a local, small circulation medium ... to a mass scale
demand management system.").
31. BRANDON OWENS, GEN. ELECTRIC, THE RISE OF DISTRIBUTED POWER 14 (2014).
32. Various definitions of "distributed energy resources" exist, but California's is typical and
includes "distributed renewable generation resources, energy efficiency, energy storage, electric
vehicles, and demand response technologies." Order Instituting Rulemaking Regarding Policies,
Procedures and Rules for Development of Distribution Resources Plans Pursuant to Public Utilities
Code Section 769, Cal. Publ. Utils. Comm'n, Rulemaking 14-08-013, at 3 n.B (Aug. 14, 2014).
locations where the electricity is used."'33 Distributed generation currently

represents about 1 percent of installed generation capacity in the United States,
although the percentage is much higher in other countries. 34 Those rates are
35
only expected to climb.
Distributed generation can include photovoltaic (PV) panels, small wind
36
turbines, fuel cells, and biomass generators (among other technologies). Of
these, solar has been identified as the "most disruptive" to electricity markets
due to its widespread adoption and its potential to compete with conventional
generation. 3 7 Indeed, rooftop solar panels are becoming a common feature of
38
both urban and rural landscapes.
A related but distinct concept is distributed energy storage. The inability to
store energy efficiently has long been a defining feature and significant
structural impediment of the electricity grid. 39 The dearth of effective storage
technologies necessitates that electric supply and demand be kept perpetually in
balance, in real time. Although storage technologies have lagged behind
generation technologies for a century, there are finally promising signs that
storage is becoming more feasible. While larger, utility-owned storage
installations have received the most attention to date, smaller, customer-owned
33. CONG. BUDGET OFF., PROSPECTS FOR DISTRIBUTED ELECTRICITY GENERATION I (2003). A
recent article in The Economist offered a similar definition: "producing electricity in small quantities
near the point of use, rather than in large amounts in a few places." Devolving Power, THE ECONOMIST
(Mar. 8, 2014), http://www.economist.com/news/business/21598668-big-batteries-threaten-big-power-
stationsand-utilities-profits-devolving-power.
34. In Germany, distributed generation represents at least 20 percent-and perhaps as much as 48
percent-of installed capacity. See THE ECONOMIST, supra note 33; Helmut Edelmann, Distributed
Generation Hits the Big Numbers, 15 Utils. Unbundled 34, 34 (2013). The U.K. figures are lower but
still stand at approximately I I percent of total generating capacity. CARBON CONNECT, DISTRIBUTED
GENERATION: FROM CINDERELLA TO CENTRE STAGE 6 (2012).
35. The independent research firm Morningstar predicts that distributed generation will represent
nearly a third of new U.S. capacity by 2017, though that figure seems ambitious. THE ECONOMIST,
supranote 33.
36. AM. PUB. POWER ASS'N, DISTRIBUTED GENERATION: AN OVERVIEW OF RECENT POLICY AND
MARKET DEVELOPMENTS 3 (2013); CONG. BUDGET OFF., supra note 33, at 5.
37. THE ECONOMIST, supra note 33. California already has high rates of rooftop solar, see Go
Solar California, California Solar Statistics, https://www.californiasolarstatistics.ca.gov/reports/
monthlystats/ (last visited Aug. 16, 2016) as do New York, Massachusetts and Arizona. SOLAR
ENERGY INDUS. ASS'N, SOLAR MARKET INSIGHT REPORT 2015 Q2, at 2 (2015). Solar represents more
than 90 percent of installed distributed generation in the United States. AM. PUB. POWER ASS'N, supra
note 36, at 3.
38. As of the end of November 2015, California had over 3000 megawatts of distributed solar
generating capacity installed. Calijornia Has Nearly Half of the Nation's Solar Electricity Generating
Capacity, U.S. ENERGY INFO. ADMINISTRATION (last updated Feb. 5, 2016), http://www.eia.gov/
todayinenergy/detail.cfm?id=24852. Nationwide, almost three gigawatts of rooftop solar power-the
equivalent of about four to five conventional power plants-were added in 2012 and 2013. Mark
Chediak et al., Utilities Feeling Rooftop Solar Heat Start Fighting Back, BLOOMBERG (Dec. 25, 2013,
10:43 PM), http://www.bloomberg.com/news/articles/2013-12-26/utilities-feeling-rooftop-solar-heat-
start-fighting-back.
39. See PAUL DENHOLM ET AL., NAT'L RENEWABLE ENERGY LAB., THE ROLE OF ENERGY
STORAGE WITH RENEWABLE ELECTRICITY GENERATION 6-8 (2010) (explaining that high cost has
limited the deployment of grid-scale energy storage technologies).
systems are increasingly popular. 40 Behind-the-meter storage enables

customers to avoid peak electricity charges and, where programs exist, to
provide important ancillary services to the grid.4 1 These ancillary services, such
as frequency regulation, 42 are functions performed "in support of the basic
43
services of generating capacity, energy supply, and power delivery."
Finally, vehicle-to-grid (V2G) technology promises to further expand
customers' roles in the energy marketplace. 44 This technology allows hybrid
and electric plug-in vehicles to connect directly to the grid. V2G car batteries
may be used as grid storage devices, facilitating demand response or making
power available to the grid as needed. 45 Hybrid vehicles can also be used to
40. Last year, Tesla began offering a home battery system for a few thousand dollars. Demand has
far outstripped supply. Kirsten Korosec, Elon Musk: Demandfor Tesla's Home Battery is 'Crazy off the
Hook,' FORTUNE (May 6, 2015, 8:54 PM), http://fortune.com/2015/05/06/elon-musk-tesla-home-
battery/.
41. See Prepared Direct Testimony of Cynthia Fang, Chapter 1, On Behalf of San Diego Gas &
Elec. Co., Application of San Diego Gas & Elec. Co. (U 902 E) for Auth. to Update Marginal Costs,
Cost Allocation, & Elec. Rate Design, C24-C25 (July 1, 2015) (describing San Diego Gas & Electric's
new rate program for customers willing to make their batteries available to the grid at specified times).
Because prices for electricity at times of peak usage (as during the middle of a hot summer day) are
significantly higher, customers who can rely on their own stored energy during those times can avoid
peak prices.
42. The U.S. electricity grid operates at a frequency of 60 hertz. Fluctuations between power
supply and demand can disrupt that frequency, requiring grid operators to draw on fast-responding grid
resources (such as storage) to correct the imbalance.
43. BRENDAN J. KIRBY, OAK RIDGE NAT'L LAB., FREQUENCY REGULATION BASICS AND TRENDS
1 (2004). The California Energy Commission is optimistic about the potential for customers to use
battery systems "to participate in power markets by providing grid services .... " PUB. INTEREST
ENERGY RES. PROGRAM, 2020 STRATEGIC ANALYSIS OF ENERGY STORAGE IN CALIFORNIA 7 (2011).
Retail customers can also take advantage of wholesale markets for frequency regulation services.
FERC's Order 755 provides an extra incentive for them to do so by compensating fast-responding
regulation sources like batteries or flywheels more generously than sources that come online more
slowly. See Frequency Regulation Compensation in the Organized Wholesale Power Markets, 137
F.E.R.C. T 61,064 at PP 35, 66-67 (2011). In Order 784, FERC also required all transmission-owning
utilities to consider the speed and accuracy of ancillary services resources in making dispatch decisions.
Third-Party Provision of Ancillary Services; Accounting and Financial Reporting for New Electric
Storage Technologies, 144 F.E.R.C. 61,056 at P 5 (2013). Order 784 also made it easier for energy
storage resources to obtain market-based rate authority (the ability to sell power at market rates in
competitive wholesale marketplaces) and simplified accounting procedures that facilitate deployment of
energy storage services. Id at PP. 2-5.
44. For academic treatments of V2G technology, see Matthew Hutton & Thomas Hutton, Legal
and Regulatory Impediments to Vehicle-to-Grid Aggregation, 36 WM. & MARY ENVTL. L. & POL'Y
REV. 337 (2012) (concluding that impediments are unlikely to stand in the way of adoption of V2G
programs); Bryan Lamble, Of Nesting Dolls and Trojan Horses: A Survey of Legal and Policy Issues
Attendant to Vehicle-to-Grid Battery Electric Vehicles, 86 CHI.-KENT L. REV. 193 (2011) (describing
promise and pitfalls of this technology).
45. Several pilot projects are underway. The University of Delaware partnered with NRG Energy
on a pilot project called eV2g that became an official resource to PJM, the regional transmission
organization in the mid-Atlantic region. Press Release, Office of Governor Markell, In First, Electric
Vehicle-to-Grid Technology Sells Power to PJM Power Grid (Apr. 26, 2013). Pacific Gas & Electric
(PG&E) and Tesla Motors are partnering on a similar project. PG&E and Tesla Motors Co-Pilot
Vehicle-to-Grid Research, PR NEWSWIRE, (Sept. 12, 2007, 1:00 AM), http://www.pmewswire.com/
news-releases/pge-and-tesla-motors-co-pilot-vehicle-to-grid-research-58005827.htm]. The Department
provide backup power to the customer, a phenomenon the New York Times
46
called "power to the people."
Consumers are also becoming more active on the demand side of the
market equation. First, consumers are participating in energy efficiency and
energy conservation programs. A simple definition of energy efficiency is
"using less energy to provide the same service," while energy conservation
means "reducing or going without a service to save energy." 47 Both types of
programs have been encouraged at the federal level since the oil embargos in
the 1970s led to rising electricity prices. 48 Throughout this period,
49
individual
utilities instituted their own conservation and efficiency programs.
Customers can participate even more actively in energy markets through
demand response programs. Demand response is a reduction in demand in
response to a price signal from the grid. 50 There are demand response programs
at both the retail level, where they are typically run by the local utility, and 5at1
the wholesale level, where they are run by wholesale market administrators.
At the retail level, demand response programs fall into one of two
categories. First, utilities might offer dynamic pricing schemes that make
consumption at peak times more costly. Second, utilities might pay customers
of Defense plans to develop an electric vehicle fleet that will supply power to local grids. Nick Simeone,
DOD Electric Vehicles Will Supply Power to Local Grids, DEP'T OF DEF. NEWS, (Jan. 10, 2013),
http://archive.defense.gov/News/NewsArticle.aspx?ID=l 18971.
46. Jim Motavalli, Power to the People: Run Your House on a Prius,N.Y. TIMES (Sept. 2, 2007),
http://www.nytimes.com/2007/09/02/automobiles/02POWER.html?_r=l .
47. What's Energy Efficiency?, LAWRENCE BERKELEY NAT'L LAB., http://eetd.lbl.gov/ee/ee-
1 html (last visited May 7, 2016).
48. Robert K. Dixon et al., U.S. Energy Conservation and Efficiency Policies: Challenges and
Opportunities, 38 ENERGY POL'Y 6398, 6398 (2010). At the federal level, these measures were
encouraged through provisions in the Energy Policy and Conservation Act of 1975. The Energy Policy
Act of 1992 and the Energy Independence and Security Act of 2007 expanded on these mandates.
However, federal involvement has been inconsistent, with the federal government showing the greatest
interest when oil and gas prices are high. Id. at 6401.
49. Home energy management systems and smart metering devices are essential to these programs
and are also key drivers of consumer empowerment. Smart meters can record electricity consumption in
short-term intervals and communicate that information to the customer and the local utility. They make
it possible for consumers to understand and control their own energy consumption, to participate in
demand response programs, and to enable automated appliances that make conservation simpler. See
SMART ENERGY DEMAND COALITION, METERING AND INFORMATION: SMART METERS AND THEIR
CENTRAL ROLE IN CONSUMER EMPOWERMENT 1, http://sedc-coalition.eu/wp-content /uploads/2012/02/
SEDC-Smart-Meter-Position-Paper.pdf (last accessed May 7, 2016).
50. The Department of Energy defines demand response as "[c]hanges in electric usage by end-
use customers from their normal consumption patterns in response to changes in the price of electricity
over time, or to incentive payments designed to induce lower electricity use at times of high wholesale
market prices or when system reliability is jeopardized." U.S. DEP'T OF ENERGY, BENEFITS OF DEMAND
RESPONSE IN ELECTRICITY MARKETS AND RECOMMENDATIONS FOR ACHIEVING THEM 6 (2006).
FERC's definition is the same. FED. ENERGY REGULATORY. COMM'N, 2008 ASSESSMENT OF DEMAND
RESPONSE AND ADVANCED METERING, at C-2 (2008).
51. For a more detailed discussion of demand response programs and FERC's efforts to regulate
them, see Jacobs, supra note 3, at 895 (2015).
for reducing electricity consumption at certain times. 52 However, many utilities

53
do not offer either option.
At the wholesale level, demand response programs are more widespread.
Retail customers are typically allowed to participate in any of the demand
response programs offered by their regional market administrator. For example,
PJM, the market administrator for the mid-Atlantic region, offers two types of
demand response. First, PJM offers emergency demand response, where
customers agree to be on-call to reduce electricity demand (also called a
customer's electrical "load") if the system comes under unanticipated stress.
The customers are paid a monthly rate to be available, and participation is
mandatory if they are called upon. 54 Second, customers may participate in so-
called "economic" demand response programs, which are triggered when prices
are especially high. Under these programs, customers may choose whether or
not to participate and are only compensated based on the actual decrease in
their electrical load.55 In addition, PJM offers ancillary services programs.
Under these programs, customers agree to reduce their electricity load by
smaller amounts, but to respond more rapidly in order to counter sudden
56
fluctuations of grid frequency or restore balance quickly.
As noted above, prosumers can use the services of middlemen to
participate in energy programs. In the demand response context, these
companies are called "aggregators" because they aggregate many small
demand response commitments and bid them as a package into retail or
wholesale electricity markets. Aggregation can be useful, since some markets
require minimum bids that far exceed average residential usage, even during
peak summer hours. 57 Aggregation can also help compensate for
52. California's public utilities commission has proposed that the state's three large investor-
owned utilities be permitted to recover costs of bringing more customers into demand response
programs. Decision Approving Recovery of Costs to Implement an Initial Level of Demand Response
Direct Participation, at 2 (Cal. Pub. Utils. Comm'n Feb. 20, 2015) (prop. decision).
53. A 2009 survey of the thirty load-serving utilities in the Southwest Power Pool found that
fewer than half offered any kind of dynamic pricing or demand response program. RANJIT BHARVIRKAR
ET AL., LAWRENCE BERKELEY NAT'L LAB., RETAIL DEMAND RESPONSE IN SOUTHWEST POWER POOL 9,
17 (2009).
54. See Retail Electricity Consumer Opportunities for Demand Response in PJM's Wholesale
Markets, PJM, http://www.pjm.com/-/media/markets-ops/dsr/end-use-customer-fact-sheet.ashx, at 2-3
(last visited May 7, 2016).
55. See id.
56. See id
57. For example, the New York independent system operator requires that participants be able to
shed a minimum of 100 kilowatts of electrical load for the duration of system emergencies. N.Y. INDEP.
SYS. OPERATOR, EMERGENCY DEMAND RESPONSE PROGRAM MANUAL 2.2 (version 7.2, 2016),
http://www.nyiso.com/public/webdocs/markets operations/documents/Manuals and Guides/Manuals/O
perations/edrp mnl.pdf. Residential usage is typically well under 10 kilowatts per hour, which means
that these resources would still fall short of the minimum even if they were to draw no power from the
grid. See, e.g., Barry Fischer, Hot and Heavy Energy Usage: How the Demand andPrice ForElectricity
Skyrocketed on a 100 ° Day, OPOWER: OPOWER BLOG (Sept. 5, 2012), http://blog.
opower.com/2012/09/hot-and-heavy-energy-usage-how-the-demand-and-price-for-electricity-
skyrocketed-on-a- 100-day/.
nonperformance by some customers, since most demand response programs

allow over-participation by the aggregator's other customers to make up the
shortfall. 58 While demand response aggregators eliminate the need for
individual customers to enroll directly in utility or wholesale market programs,
customers are still actively engaged in the enterprise of reducing load when
called upon to do so and are therefore acting as prosumers rather than passive
consumers.
Consumers participating in energy efficiency and especially demand
response programs are often behaving more like producers than consumers.
They provide services that the market needs in exchange for compensation.
Like customers with distributed generation or distributed storage, these
customers participate in both the supply and demand sides of the energy
market. They are, therefore, challenging traditional paradigms in energy law,
and their growing presence requires shifting the way we think about energy
customers in particular and energy governance more generally.
III. DOCTRINAL AND PROCEDURAL PUZZLES CREATED BY THE ENERGY

PROSUMER
The rise of the prosumer creates both doctrinal and procedural puzzles for
energy law and the energy regulatory system. First, prosumers are neither pure
consumers nor pure producers, and the attempt to classify them as one or the
other has created jurisdictional puzzles. Second, while prosumer activity may in
some cases improve pricing for all consumers, it may also result in
distributional inequities. Finally, as prosumers emerge as a separate stakeholder
category, their viewpoints should be represented in policymaking processes.
While there is some evidence of prosumer participation in regulatory
proceedings, individual prosumers, especially residential prosumers, are
unlikely to be able to exert any true influence. Various organizations currently
claim to speak on behalf of prosumers. However, there are reasons to be
skeptical that these organizations serve as adequate proxies for prosumer
interests.
A. JurisdictionalPuzzles
Conflating traditional consumers and prosumers can lead to a lack of

doctrinal clarity when analyzing jurisdictional questions in energy law. The
FPA established the existing jurisdictional boundaries in electricity regulation.
As the Supreme Court is fond of noting, the FPA drew a "bright line" between
federal and state jurisdiction over sales of electricity based upon the nature of
58. See Wholesale Competition in Regions with Organized Electric Markets, 125 F.E.R.C.
61,071 at P 154 (2008) (finding that allowing aggregators to act as intermediaries for small retail loads
reduces barriers to demand response, increases competition, helps reduce consumer prices, and enhances
reliability).
the sale. 59 The federal government was given jurisdiction over sales of
electricity for resale (or wholesale sales) in interstate commerce, while state
regulators maintained their traditional jurisdiction over retail sales. 60 This
division of authority has been maintained over the past eighty years, although
the line between state and federal authority has become increasingly less
"bright" due to on-the-ground developments not foreseen by Congress in
1935.61 Two recent innovations, net metering and demand response, have
caused particular consternation. For each of these activities, the answer to the
question of whether they are retail or wholesale hinges on whether the
customers engaging in them are behaving passively, as traditional consumers,
or actively, as prosumers.
1. The Net Metering Fiction
The first puzzle arises from prosumer sales of distributed generation back
to the electricity grid and, specifically, from the use of net metering policies to
govern such transactions. Net metering arose as a way of incentivizing the
installation of distributed generation. Under net metering programs, prosumers
are permitted to transmit excess energy generated by on-site systems back to
62
the grid and receive a credit on their electricity bill for the amount provided.
Effectively, then, prosumers are compensated at the retail rate for electricity
they sell to the grid. This rate is often significantly higher than what a utility
63
would pay to purchase wholesale electricity from another source.
The simplest statement of the jurisdictional problem is that prosumers
whose self-generated electricity will flow back to the grid should technically be
regarded as subject to federal jurisdiction under the FPA. As noted above, the
FPA gives FERC jurisdiction over wholesale sales of energy in interstate
commerce, which, in today's interconnected marketplace, typically means any
sale for resale. 64 Energy generated on-site that exceeds a prosumer's
59. See Fed. Power Comm'n v. S. Cal. Edison, 376 U.S. 205, 215-16 (1964) ("[C]ongress meant
to draw a bright line easily ascertained, between state and federal jurisdiction.").
60. Federal Power Act § 201, 16 U.S.C. § 824 (2012). The Supreme Court, in Pub. Utils. Comm'n
of R.I. v. Attleboro Steam & Elec. Co., 273 U.S. 83 (1927), created the so-called "Attleboro gap,"
holding that states lacked authority to regulate interstate sales of electricity. The FPA was enacted to fill
the gap. FERC v. Elec. Power Supply Ass'n, 136 S. Ct. 760, 767 (2016).
61. For a more thorough discussion, see Jacobs, supra note 3, at 891-94.
62. The Energy Policy Act of 2005 defines net metering as "service to an electric consumer under
which electric energy generated by the electric consumer from an on-site generating facility and
delivered to local distribution facilities may be used to offset electric energy provided by the electric
utility to the consumer during the billing period." 16 U.S.C. § 2621.
63. For an argument that the net metering rate overcompensates customers for their electricity, see
Benjamin Hanna, FERC Net Metering Decisions Keep States in the Dark, 42 B.C. ENVTL. AFF. L. REV.
133, 139 (2015).
64. See Fed. Power Comm'n v. Fla. Power & Light Co., 404 U.S. 453 (1972) (approving FERC's
conclusion that an actor will be deemed to have transmitted energy in interstate commerce if it supplies
energy into a system that sends any energy out of state). Given the interconnection of electricity grids in
requirements and flows back onto the grid becomes available for sale to another
customer. It is thus technically a "sale for resale" that brings the prosumer
within FERC jurisdiction. 65 For several reasons, however, subjecting these
prosumers to FERC jurisdiction does not make sense. First, FERC jurisdiction
has the potential to trigger record keeping and filing requirements that would be
burdensome for many prosurners (and especially for residential and small
commercial prosumers). 6 6 In addition, FERC would be in the business of
setting rates for compensation of distributed generation prosumers in myriad
local jurisdictions nationwide. This is a task more efficiently and effectively
performed by state utility commissions with knowledge of local facts and
circumstances.
FERC has adopted a semantic solution to this problem. It has simply
concluded that no "sale" has occurred unless a customer makes a net sale of
energy back to the utility at the end of a billing period. FERC officially
sanctioned this presumption in its MidAmerican Energy Co. decision, which
concerned Iowa's net metering policy but implicitly blessed similar policies in
67
at least twenty other states.
In MidAmerican, FERC upheld an order by the Iowa Utilities Board
directing a local utility to accept excess wind power produced by customers
with small turbines and to credit those customers for the power. 6 8 By requiring
the utility to give the customers a credit on their bill for the amount of energy
that flowed back to the grid, the petitioners argued that the Iowa Board was
setting the price for that energy. This, they concluded, was improper, since
FERC, and not state regulators, had jurisdiction to set rates for these "sales for
69
resale."
every state except for Texas, Hawaii, and Alaska, it is a fair presumption that the interstate commerce
requirement is satisfied when an entity makes a sale for resale.
65. For an argument that FERC has erred in asserting jurisdiction over wholesale power sales of
distributed generation for local consumption, see Frank R. Lindh & Thomas W. Bone Jr., State
Jurisdiction Over DistributedGenerators,34 ENERGY L.J. 499 (2013).
66. Under the FPA, any wholesale sale of electric energy in interstate commerce makes the seller
a "public utility" subject to a variety of regulations under federal law. 16 U.S.C. §§ 824(e), 824(d). Most
of these requirements may be waived, but only if each prosumer is certified as a "qualifying small power
production facility" pursuant to 18 C.F.R. § 292.203 (2016). 18 C.F.R. §§ 292.601-602 (listing
exemptions).
67. Order Denying Request fbr Declaratory Order, MidAmerican Energy Co., 94 F.E.R.C. 11
61,340, at pp. 62,262-63 (2001). Some have argued that because the MidAmerican decision is
adjudicatory rather than a general rulemaking, it provides insufficient certainty for other actors regarding
jurisdiction over net metering programs. See Hanna, supra note 63, at 145. However, an agency's
authority to create general policy via individual adjudications as well as through rulemaking is
undisputed. SEC v. Chenery Corp., 332 U.S. 194, 202 (1947) (finding that forcing an agency to choose
between rulemaking and adjudication for the formulation of general policy would "make the
administrative process inflexible and incapable of dealing with many of the specialized problems which
arise").
68. 94 F.E.R.C. 1161,340, at p. 62,261 n.3 (2001).
69. Id. at p. 62,263 n.7. The petitioners also raised a second, related problem. If the energy
flowing back to the grid were regarded as a "sale," the rate for that energy should be set at the utility's
avoided costs (or the price the utility would have paid to obtain that energy elsewhere) under the Public
FERC, however, disclaimed jurisdiction, finding that not "every flow of

power constitutes a sale." 70 In this case, FERC determined that no rates for
electricity sales were being set, as the utility only "paid" for net negative
energy at the end of the billing period. 7 1 Therefore, only if there had been a net
surplus of energy flowing from the customer to the utility at the end of the
billing period would a true "sale"-and in this case, a sale for resale-have
72
taken place.
The net metering fiction helps to preserve the myth of the pure energy
consumer. 73 The fiction is good policy because of the aforementioned costs of
applying federal jurisdiction to net metering. However, in an ideal world, a
legislative solution specifying state jurisdiction in this area would lend clarity
to the status of prosumer activity. The fiction, by ignoring the reality that
distributed generation prosumers are both purchasing and selling commodities
and services in the electricity marketplace, minimizes the contribution of these
new actors. Recognizing that contribution is the first step in analyzing whether
the retail rate is the proper price to pay for electricity generated behind the
meter. As will be discussed in more detail in subpart II.B, the answer to the
pricing question requires more granular consideration of the value of the
service provided and the grid resources that support such sales. The approach
adopted by FERC in MidAmerican obscures that debate.
2. The DemandResponse Conundrum
The confusion over whether certain retail customers are consumers or

producers also animates a key jurisdictional disagreement between FERC and
the states over demand response programs. This dispute goes to the very heart
of the jurisdictional divide in the FPA. To understand the nature of the
disagreement, it is necessary to know that the FPA, in addition to creating
federal authority over wholesale electricity sales, also extended federal
authority over "any rule, regulation, practice or contract affecting" wholesale
Utility Regulatory Policies Act of 1978 (PURPA). However, because FERC determined that no sale
takes place unless there is a net sale at the end of the billing period, this argument too was unsuccessful.
Id.
70. Id. at p. 62,263.
71. Id. at p. 62,262. The case left open the question of what constitutes a reasonable netting
period, holding only that the monthly billing cycle in this case qualified.
72. Id. at p. 62,263. See also Declaratory Order, Sun Edison LLC, 129 F.E.R.C. 61,146 at P
61,152 (2009) (using the same logic to find that a solar services company that owned and operated
panels on customer rooftops made no "sale" to a utility unless a net transfer to the utility occurred at the
end of a billing period).
73. The fiction becomes even more elaborate under "virtual net metering" schemes like
California's, where multiple meters may be combined and netted out to produce the illusion that no sales
to the utility are taking place. See Virtual Net Metering, CAL. PUB. UTILS. COMM'N,
http://www.cpuc.ca.gov/General.aspxid=5408 (last visited May 7, 2016).
rates. 74 This provision is consistent with the general principle that states control
retail markets for electricity while FERC controls wholesale markets.
In 2008, FERC required in Order 719 that retail electricity customers be
allowed to bid demand response commitments into wholesale markets through
middlemen called aggregators. 7 5 Then, in 2011, FERC required wholesale
market administrators to pay demand response prosumers the same rate for
each unit of consumption they forego as generators are paid for each unit of
electricity they produce. 76 This order, Order 745, was immediately challenged
by traditional generators who stood to lose wholesale market share to demand
response prosumers. 77 The challengers argued that FERC lacked jurisdiction
under the FPA to promulgate the pricing rule because demand response "is a
non-jurisdictional, retail non-purchase over which [the] Commission has no
jurisdiction under Section 201(b) of the FPA. ' '71 FERC disagreed, finding that
demand response in organized wholesale markets had a "direct effect on
79
wholesale prices," thus bringing it within FERC jurisdiction.
In this debate, much turns on how demand response, a service the drafters
of the FPA never envisioned, is characterized. As described above, demand
response consists of agreements by end-use customers to reduce electricity
consumption in response to a price signal from the grid. Confusion is
unsurprising, since the behavior in question-reducing consumption-does not
fit neatly into either of the jurisdictional categories created by the FPA (retail or
wholesale sales). Even FERC has been inconsistent in its descriptions of
demand response: it initially characterized demand response as an actual sale of
80
electric energy, but quickly backtracked.
74. 16 U.S.C. §§ 824d(a), 824e(a) (2012).

75. Wholesale Competition in Regions with Organized Electric Markets, 125 F.E.R.C. 61,071 at
PP 53, 154 (2008). The order contained a caveat: state and local regulators could prohibit, by law or
regulation, their own retail customers from participating in wholesale markets. Id.
76. Demand Response Compensation in Organized Wholesale Markets, 134 F.E.R.C. 61,187 at
P 2 (2011). Again, FERC included a qualifier. Demand response resources would only be paid the
market rate for their reductions where the demand response contributions were considered to be cost
effective, as determined by a specified "net benefits" test. Id. at P 3.
77. See Joint Request for Rehearing of the Electric Power Supply Association, the American
Public Power Association, the Electric Power Generation Association and the National Rural Electric
Cooperative Association, at 2, Demand Response Compensation in Organized Wholesale Markets
(2011) (Docket No. RM10-17-001), www.epsa.org/forms/uploadFiles/1C4F1000001C7.filename.
FINALreh_g_of DR rule on jurisdictional issues_(2).pdf (noting that the petitioners "are united by
their grave concerns that the Commission has disregarded essential and fundamental statutory limits on
the proper exercise of its jurisdiction.").
78. Id. at 3.
79. 125 F.E.R.C. 61,071 at P 10.
80. See Removing Obstacles to Increased Electric Generation and Natural Gas Supply in the
Western United States, 94 FERC 61,272, at p. 61,972 (2001) (characterizing demand response
transactions as sales for resale of energy). FERC's understanding of demand response has evolved in the
interim, and it conceded in the EPSA litigation that "demand response is not a wholesale sale of energy;
in fact, it is not a sale at all." Elec. Power Supply Ass'n v. FERC, 753 F.3d 216, 221 (D.C. Cir 2014),
rev'd, 136 S. Ct. 760 (2016); 134 F.E.R.C. 61,187 at P 64 ("[T]he Commission does not view demand
response as a resale of energy back into the energy market."). For an overview of the various
The two dominant understandings of demand response illustrate the

confusion about the role of the modem energy prosumer. These opposing views
were crystallized in the D.C. Circuit panel opinion in EPSA v. FERC, which
vacated Order 745 by a two to one vote as impermissible regulation of the retail
market. 8 1 The majority characterized demand response as involving "retail
customers, their decision whether to purchase at retail, and the levels of retail
electricity consumption." 82 The opinion found that there were two ways to
induce customers to purchase less electricity: raise electricity prices or offer
them an incentive not to consume. Because FERC could not do the former
without intruding upon state authority, the majority reasoned, it could not do
83
the latter.
Essentially, the majority treated retail demand response resources as
traditional consumers rather than prosumers. According to this view, energy
customers have only one decision to make: whether or not to purchase a good
or service. If everything the consumer does must be viewed through this lens, it
makes sense to describe demand response as a decision to purchase less
electricity. Thus, the majority found that demand response customers could not
be wholesale market participants since they "'participate' in wholesale markets
84
only by declining to act."
However, energy market actors who offer demand response services are
better understood as prosumers, since they both consume energy and produce
grid services. While Senior Judge Edwards' dissent does not rely on the
consumer/prosumer distinction explicitly, its repeated reference to demand
response providers as "resources" implies their role as producers. 85 Because
demand response seems to straddle areas of both FERC and state jurisdiction,
there is no simple textual answer available to break the tie. As the dissent in
EPSA v. FERC properly recognized, in cases of statutory ambiguity, a
reasonable agency interpretation will prevail. 86 Because FERC had not clearly
infringed on state authority over retail sales, and because demand response in
jurisdictional theories supporting the Commission's position, see Jon Wellinghoff & David L. Morenoff,
Recognizing the Importance of DemandResponse: The Second Half of the Wholesale Market Equation,
28 ENERGY L.J. 389 (2007).
81. The panel's opinion, authored by Judge Brown and joined by Senior Judge Silberman,
applying Chevron v. NRDC, 467 U.S. 837 (1984), found that FERC's interpretation of the FPA failed at
Chevron Step 1, meaning that it was inconsistent with an unambiguous statutory provision. The opinion
also found that, even if the statute were ambiguous, FERC's interpretation was so unreasonable as to fail
Chevron Step 2. For good measure, the panel also found that, even if FERC had authority to set rates for
demand response in wholesale markets, the rate it set would still be invalidated as arbitrary and
capricious under 5 U.S.C. § 706(2)(A) (2012). Elec. Power Supply Ass'n v. FERC, 753 F.3d 216, 224
(D.C. Cir 2014) rev'd, 136 S. Ct. 760 (2016).
82. Elec. Power Supply Ass 'n, 753 F.3d at 223 (emphases in original).
83. Id.
84. Id. at 221.
85. Id., passim. As explained above in Part 11, supra, demand response resources provide
important capacity and ancillary services to the electricity grid.
86. Id. at 236 (citing Chevron v. NRDC, 467 U.S. 837 (1984)).
20161 THE ENERGY PROSUMER
wholesale markets falls within FERC jurisdiction over practices that "directly
87
affect" those markets, the dissent would have upheld the rule.
The failure to understand that consumers behave as producers in some
scenarios led the panel majority to an erroneous conclusion about the scope of
FERC's jurisdiction. The persistent disagreement about whether prosumers
should be treated as consumers or producers when they provide demand
response services in wholesale markets was evident in the parties' briefs to the
Supreme Court. EPSA argued that FERC had "sought to interfere with state
and local regulation of retail transactions by redefining certain retailcustomers'
decisions not to purchase energy at retail" as "equivalent to producing electric
energy for sale at wholesale." 88 The government, by contrast, described
participants in wholesale demand response markets as "resource[s]" and
"market participant[s]," thereby placing them in the producer, as opposed to the
89
consumer, camp.
The Supreme Court reversed. Justice Kagan's majority opinion appeared
to understand that this case concerned a new energy market actor-the
prosumer-and that this new actor made traditional categories in the FPA more
difficult to apply. Nomenclature is important, and the opinion referred to
"demand response bidders" and "demand response providers" rather than
"customers" or "consumers." 90 Rather than finding ambiguity in the FPA,
however, the majority concluded that the plain meaning of the Act's text
assigned exclusive jurisdiction over wholesale market pricing, including
91
demand response pricing, to the federal government.
B. DistributionalPuzzles
Prosumers also create policy puzzles for regulators. The dominant puzzle
concerns where to strike the balance between incentivizing prosumer
contributions to the grid and ensuring that their participation does not unfairly
shift costs onto traditional consumers. With respect to distributed generation,
there are concerns that traditional customers are subsidizing prosumers' shares
of fixed grid costs. In other cases, prosumer and traditional consumer interests
might be aligned (sales of demand response in wholesale markets often fall into
this category). In Order 745, FERC required that the wholesale price for
demand response be set at a level equal to the price generators are paid for
87. Id.
88. Opening Brief of Petitioners Electric Power Supply Association, American Public Power
Association, National Rural Electric Cooperative Association, Old Dominion Electric Cooperative and
Edison Electric Institute at 3-4, Elec. Power Supply Ass'n v. FERC, 753 F.3d 216 (D.C. Cir. 2014) (No.
11-1486) (emphasis added). The term "retail customer" appears no fewer than six times on page four of
the brief. Id.
89. Brief for Respondent Federal Energy Regulatory Commission at 28, Elec. Power Supply
Ass'n v. FERC, 753 F.3d 216 (D.C. Cir. 2014) (No. 11-1486).
90. See, e.g., FERC v. Elec. Power Supply Ass'n, 136 S. Ct. 760, 774 (2016).
91. Id.at782.
electricity. 92 FERC justified the order, in part, by citing the net benefits that
would redound to all consumers in the form of lower wholesale prices and
greater reliability. 93 However, the rule still raised questions of a different kind
of distributional inequity-between demand response "prosumers" and
traditional generators.
1. PricingDistributedGeneration: The Problem of Cross-Subsidization
State regulators have increasingly offered incentives for customer self-

generation. However, they have struggled with setting the correct price for
power that these prosumers sell back to the grid. The primary concern here is
cross-subsidization, the idea that traditional consumers may be paying higher
prices to subsidize payments to prosumers. As New York regulators
acknowledged in adopting a plan to remake the state's electricity system, "the
trend toward affordability of self-generation threatens to create an unacceptable
gap between those who can choose to leave the grid and those who
cannot .... ."94
As previously noted, most states offer distributed generation prosumers
some version of a net metering program. 95 Under net metering, prosumers
receive a credit on their electricity bill for the amount of energy they produce
that flows back onto the grid. In essence, they are compensated at the full retail
rate for any energy they produce that exceeds their own needs. While this rate
provides generous compensation to prosumers, monetary incentives were
considered necessary to overcome cost barriers early in the development of
distributed generation systems.
Recently, however, with the rapid expansion of distributed generation,
utilities, along with interest groups representing traditional producers and
sometimes, traditional consumers, have begun to seek state public utility
commission review of net metering schemes. 9 6 One concern is that these rates
92. See DemandResponse Compensation in OrganizedWholesale Markets, 134 F.E.R.C. 61,187

at P 2 (2011).
93. See Elec. Power Supply Ass'n, 136 S. Ct. at 762.
94. Proceeding on Motion of the Commission in Regard to Reforming the Energy Vision, Order
Adopting Regulatory Policy Framework and Implementation Plan, 2, 25 (N.Y. Pub. Serv. Comm'n Feb.
26, 2015) (Case 14-M-0101) (placing special emphasis on growing solar PV installations that "could
place an inequitable burden on customers that are not able to own or install PV").
95. See Solar Energy Indus. Ass'n, Net Metering, http://www.seia.org/policy/distributed-solar/net-
metering (last visited July 3, 2016) (identifying net metering programs in forty-three states and the
District of Columbia).
96. In California, for example, the public utilities commission elected to retain the basic net
metering structure but to incorporate additional fees for solar customers to help pay for fixed grid costs.
See Decision Adopting Successor to Net Energy Metering Tariff, 2-3 (Cal. Pub. Utils. Comm'n Jan. 28,
2016) (Rulemaking 14-07-002). By contrast, in Nevada, state regulators elected to lower compensation
rates for net metering while increasing fixed charges. Application of Nev. Power Co. d/b/a NV Energy
for Approval of a Cost-of-Service Study and Net Metering Tariffs, 329-33 (Pub. Utils. Comm'n of
Nev. Feb. 16, 2016) (No. 15-07041). For a discussion of the political dynamics of these proceedings, see
may create distributional inequities in the form of cross-subsidization. Cross-

subsidization concerns arise primarily from the problem of allocating a utility's
fixed costs, which are those costs that remain constant notwithstanding the
level of electricity consumed in the short term. They can include the cost of
debt and equity, infrastructure maintenance, and payroll charges. 97 In a typical
utility pricing scheme, these costs are recovered through some combination of
fixed charges and usage-based (or "volumetric") charges (the charge per
kilowatt-hour of electricity). Under such a scheme, as prosumers consume
fewer kilowatt-hours, they may no longer be paying what some would consider
their equal share of fixed costs. 9 8 Those costs will be allocated among the
99
utility's remaining (traditional) consumers.
This cross-subsidization problem has sometimes been discussed in the
context of the so-called utility "death spiral." In a death spiral scenario, price
increases transferred to remaining traditional consumers cause some of those
customers to "exit" the grid themselves through self-generation. Their
departure, in turn, results in an increase in costs shouldered by those left
behind, prompting further departures. Some have argued that this pattern will
ultimately leave the utility without sufficient customers to recover its fixed
costs. 00 Others argue that this apocalyptic scenario is unlikely to occur, at least
101
in the near term.
Ari Peskoe, Wired for Competition: Perspectives on the Conflict Between Rooftop Solar and Electric
Distribution Utilities at Part III.B (on file with author).
97. See NAT'L ASS'N OF REGULATORY UTIL. COMM'RS, DECOUPLING FOR ELECTRIC & GAS
UTILITIES: FREQUENTLY ASKED QUESTIONS 2 n.1 (2007), http://pubs.naruc.org/pub/536EF203-2354-
D714-51DC-D6E578C43238. In a recent report, Lisa Wood and Robert Borlick identified a set of
benefits that these prosumers receive from the grid and established a methodology for calculating them.
LISA WOOD & ROBERT BORLICK, VALUE OF THE GRID TO DG CUSTOMERS 2-3 (2013). The authors
pointed to fixed costs associated with transmission, distribution, and generation capacity, as well as the
costs of ancillary and balancing services as the primary costs to which distributed generation customers
should contribute. Id.
98. This problem is particularly pronounced in utilities in California, where most revenue is
collected via usage-based charges. See Severin Borenstein, What's so Great about Fixed Charges,
ENERGY INST. AT HAAS (Nov. 3, 2014), https://energyathaas.wordpress.com/2014/11/03/whats-so-great-
about-fixed-charges/.
99. STEVE KIHM & JOE KRAMER, ENERGY CTR. OF WIS., THIRD-PARTY DISTRIBUTED
GENERATION: ISSUES AND CHALLENGES FOR POLICYMAKERS 2 (2014). Some of these costs are actually
avoided by the utility (for example, the fuel costs saved by not producing extra units of electricity),
while others may not be. Id.
100. For an article describing the threat of the "death spiral" and its potential to transform the utility
business model, see Elisabeth Graffy & Steven Kihm, Does Disruptive Competition Mean a Death
Spiralfor Electric Utilities?, 35 ENERGY L.J. 1, 31 (2014).
101. See David Raskin, Getting Distributed Generation Right: A Response to "Does Disruptive
Competition Mean a Death Spiral for Electric Utilities? ", 35 ENERGY L.J. 263, 266 (2014) (predicting,
however, that distributed generation will present fairness issues due to cross-subsidization). A new
report sponsored by the Department of Energy concludes that coupling distributed generation with the
adoption of time of use rates will mitigate the potential for a "death spiral." NAiM R. DARGHOUTH ET
AL., NET METERING AND MARKET FEEDBACK LOOPS: EXPLORING THE IMPACT OF RETAIL RATE DESIGN
ON DISTRIBUTED PV DEPLOYMENT 20-21 (2015). See also Troy A. Rule, Solar Energy, Utilities, and
ECOLOGYLAW QUARTERLY [Vol. 43:519
Even if concerns about the death spiral are overblown, which seems likely,
the cross-subsidization problem is real. These concerns are particularly
pronounced in states with ambitious distributed generation targets. In Hawaii,
where the public utility commission aims to triple the existing amount of
rooftop solar by 2030, there are worries that fixed-cost shifts between solar
customers and those without solar will increase. 10 2 Similarly, researchers at
Stanford's Hoover Institution concluded that California's existing rate design
"means that rising [utility] costs in the residential sector are set to fall on a
narrow base of customers whose incomes and consumption exceed rate
protection but who do not install rooftop PV panels." 10 3 These cross-subsidies
present special concerns, according to the report, because of the income
profiles of those installing distributed generation. "A wealthier-than-average
home-owning [Investor Owned Utility] customer," the report suggests, "can
use [net energy metering] to shift from being a net-subsidizer of residential
10 4
retail costs to a net-subsidy beneficiary."'
Some utilities have already taken steps to recover fixed costs from
prosumers in their service area. Last year, Arizona's largest electric utility filed
a request with the Arizona Corporation Commission to charge distributed solar
customers $50-100 for grid power or else reduce the rate for any power that
prosumers sell back to the grid. 10 5 The Arizona Commission approved a
Fairness,6 San Diego J. Climate & Energy L. 115, 121-25 (2015) (surveying efforts to slow or halt the
"death spiral").
102. Haw. Elec. Co., Hawaiian Electric CompaniesPropose Plan to Sustainably Increase Rooftop
Solar (Jan. 20, 2015), https://www.hawaiianelectric.com/hawaiian-electric-companies-propose-plan-to-
sustainably-increase-rooftop-solar. However, Hawaii's Public Utilities Commission voted late last year
to end its net metering program for new customers, electing instead to compensate solar customers at a
fixed rate. Haw. Elec. Co., Public Utilities Commission Approves New Rooftop Solar Programs (Oct.
13, 2015), https://www.hawaiianelectric.com/public-utilities-commission-approves-new-rooftop-solar-
programs.
103. JEREMY CARL ET AL., HOOVER INST. AT STANFORD UNIV., RENEWABLE AND DISTRIBUTED
POWER IN CALIFORNIA 16 (2013).
104. Id. at 18. California has made several modifications to its programs to address these potential
disparities. See Decision Adopting Successor to Net Energy Metering Tariff, 2-3 (Cal. Pub. Utils.
Comm'n Jan. 28, 2016) (Rulemaking 14-07-002) (imposing minimum bill and other charges on net
energy metering customers and requiring that they subscribe to time-of-use rates that would value
electricity differently at different times of day). New York has also acknowledged the demographic
dimension of cost-shifting. A new regulatory framework adopted by the state's public service
commission notes the concern that there will be an "unacceptable gap in the quality and price of electric
service" between "businesses and more affluent residential customers," who will reap the benefits of
distributed energy resources, and "lower income customers," who will not. Proceeding on Motion of the
Commission in Regard to Reforming the Energy Vision, Order Adopting Regulatory Policy Framework
and Implementation Plan, 28 (N.Y. Pub. Serv. Comm'n Feb. 26, 2015) (Case 14-M-0101).
105. The utility, Arizona Public Service Company, later withdrew its request after the Commission
agreed to conduct a full value-of-solar investigation. Herman K. Trabish, Arizona Gears Up for Full
Cost-Benefit Solar Value Proceeding, UTILITYDIVE (Nov. 2, 2015), http://www.utilitydive.
com/news/arizona-gears-up-for-full-cost-benefit-solar-value-proceeding/408375/; see also William
Pentland, Escalating Fear of Disintermediation Fuels Utility Backlash Against Distributed Energy,
FORBES (Jul. 16, 2013, 2:11 PM), http://www.forbes.com/sites/williampentland/2013/07/16/escalating-
fear-of-disintermediation-fuels-utility-backlash-against-distributed-energy/#b38dd69617d1.
monthly interim adjustment charge of $0.70 per kilowatt of installed solar

capacity,10 6 but plans to review the issue in a new proceeding to calculate the
07
costs and benefits of distributed solar.
Other states have opted for a blunter approach. In a series of decisions in
2014, the Wisconsin Public Service Commission allowed new fixed charges for
all utility customers, in some cases amounting to a more than 80 percent
increase in that portion of customers' bills. 108 The rate increase was clearly
aimed at distributed generation prosumers, with one Commission order citing
an obligation to "customers who do not want to or who cannot afford to own
generation to make sure these customers are not subsidizing the costs for those
10 9
who choose to and are able to own their own generation."
Unfortunately, the Wisconsin Commission's decision had the perverse
consequence of making some traditional consumers noticeably worse off. In an
attempt to make traditional consumers whole, the fixed charge increases were
offset by a reduction in volumetric, per kilowatt-hour charges. However, this
adjustment did little to undo the punitive nature of the fixed charge increase
and was of little consolation to lower-consumption, traditional customers, who
also tend to be lower income.' 10 Shifting more charges to fixed costs may have
special benefits for utilities, in that it reduces their risk exposure, but it may
worsen any distributional inequities by forcing low-income, low-consumption
106. In re Ariz. Pub. Serv. Co.'s Application for Approval of Net Metering Cost Shift Solution, 29
(Ariz. Corp. Comm'n Dec. 3,2013) (Docket No. E-01345A-13-0248).
107. Memorandum from Steven M. Olea, Director, Utilities Division, on the Request for a New
Docket - Value and Cost of Redistributed Generation (Including Net Metering) to Docket Control (Jan.
24, 2014), http://images.edocket.azcc.gov/docketpdf/0000150979.pdf. While solar supporters and
utilities seemed determined to resolve this issue at the ballot box via competing initiatives, Arizona's
governor brokered a deal in May that would send the matter tomediation. Herman K. Trabish, Inside the
Deal That Averted a Net Metering Ballot Showdown in Arizona, UTILITYDIVE (May 3, 2016),
http://www.utilitydive.com/news/inside-the-deal-that-averted-a-net-metering-ballot-showdown-in-
arizona/418392/.
108. Other utilities are proposing a more targeted approach. The Intermountain Rural Electric
Association in Colorado approved a new demand charge for solar customers based only on their
monthly peak demand, and has noted that the move is in response to its concern about shifting costs
from its growing solar customer base to non-solar customers. Cathy Proctor, Colorado Power Co-Op
OK's New Charge Aimed at Solar Power Customers, DENVER Bus. J. (Oct. 7, 2015 9:45 AM),
http://www.bizjournals.com/denver/blog/earth topower/2015/10/irea-approves-new-electricity-charge-
aimed-at.htnl.
109. Application of Wis. Pub. Serv. Corp. for Auth. to Adjust Elec. & Natural Gas Rates, 44 (Pub.
Serv. Comm'n of Wis. Dec. 18, 2014) (Docket 6690-UR- 123).
110. See Jeffrey Tomich, Wisconsin Fixed-charge Decision a Sign of More to Come, MIDWEST
ENERGY NEWS (Nov. 11, 2014), http://inidwestenergynews.com/2014/11/11/wisconsin-fixed-charge-
decision-a-sign-of-more-to-come/. The Wisconsin Commission's response to this point, raised in
comments by the Citizens Utility Board on the proposed increases, was merely to posit that low-income
customers do not necessarily have the lowest usage profiles and suggest that, in any case, "the total
dollar bill impact of these changes is relatively small." Application of Wis. Pub. Serv. Corp. for Auth. to
Adjust Elec. & Natural Gas Rates, 46 (Pub. Serv. Comm'n of Wis. Dec. 18, 2014) (Docket 6690-UR-
123).
ECOLOGY LA W QUARTERLY [Vol. 43:519
utility customers to bear a disproportionate share of the utility's fixed costs. I l l

Despite the controversy surrounding Wisconsin's program, other states are
1
considering similar moves. 12
Complicating the picture further, the system effects of distributed
113
generation may be directly or indirectly beneficial to traditional consumers.
Distributed generation has the potential to reduce peak loads, thus lowering
electricity costs system-wide. Similarly, distributed generation can improve the
quality and reliability of power by providing ancillary services such as voltage
support and reactive power. 114 In addition, by providing localized power
sources, distributed generation can reduce the vulnerability of the electricity
grid to outages and disruptions. 115
Recognizing these advantages, some states have sought to address the
costs and benefits of distributed generation in a more holistic manner.
Minnesota, for example, has developed a "value of solar tariff' for distributed
solar prosumers.11 6 The Minnesota Public Utilities Commission was charged
by statute with developing a methodology to "account for the value of energy
and its delivery, generation capacity, transmission capacity, transmission and
distribution line losses, and environmental value." 11 7 Any such rate, the statute
continued, must address distributional equities by "includ[ing] a mechanism to
111. A further problem with this approach is that it discourages energy savings, since volumetric
charges are lowered and fixed charges apply regardless of consumption level.
112. The Missouri Public Service Commission is currently considering two proposals to increase
the fixed cost component of customer bills. Karen Uhlenhuth, As in Wisconsin, Missouri Utilities Seek to
Raise Fixed Charges, MIDWEST ENERGY NEWS (Jan. 6, 2015), http://midwestenergynews.com/
2015/01/06/as-in-wisconsin-missouri-utilities-seek-to-raise-fixed-charges/. At least one such proposal
would also include an increase in volumetric charges. Id For an overview of related state policy debates,
see Nate Larsen, Distributed GenerationRate Reform Around the U.S., GREEN ENERGY INST., LEWIS &
CLARK L. SCH. (Oct. 1, 2014), https://law.lclark.edu/live/news/28070-distributed-generation-rate-
reform-around-the-us. California has proposed a less problematic alternative: a minimum monthly
charge. Utilities will be permitted to implement such a minimum monthly charge as opposed to a fixed
cost ladder. See Jeff St. John, Breaking: CalijbrniaReaches Compromise on Utility Residential Rate
Reform, GREENTECH MEDIA (July 3, 2015), http://www.greentechmedia.com/articles/read/Breaking-
Cali fomia-Reaches-Compromise-on-Utility-Residential-Rate-Reform.
113. Amory Lovins has documented more than 200 benefits of distributed generation, many of
which operate to the advantage of all system users rather than prosumers alone. AMORY LOVINS ET AL.,
SMALL IS PROFITABLE 108 (2002).
114. DEPT. OF ENERGY, THE POTENTIAL BENEFITS OF DISTRIBUTED GENERATION AND RATE-
RELATED ISSUES THAT MAY IMPEDE THEIR EXPANSION, at iii (2007).
115. Id.
11 6. According to the Chair of the Commission, the methodology was generated through a "very
open stakeholder process, where the engineers, from the utilities, from the renewable energy sector, the
national labs and others, came together to help inform that conversation and develop a methodology."
Beverly Jones Heydinger, Chairman, Minn. Pub. Utils. Comm'n, Panel Ill Discussion Before the Public
Utilities Commission of Colorado on Consideration of Retail Renewable Distributed Generation and Net
Metering, Docket No. 14M-0235E, at 7 (Dec. 1, 2014) (transcript available at https://www.dora.
state.co.us/pls/efi/EFI.Show Filing?p fil=G_351042&psession id-).
117. MINN. STAT. § 216B.164 (2013).
allow recovery of the cost to serve customers receiving the alternative tariff
1
rate." 18
In its order pursuant to the aforementioned statute, Minnesota's
Commission emphasized the distributional concerns motivating its efforts,
noting that "[a] correctly calculated Value of Solar should compensate solar PV
customers in a way that does not advantage or disadvantage them relative to
other customers or other forms of generation."' 19 One goal of the value of solar
methodology, as articulated by the chair of the Minnesota Commission, was "to
separate [incentive programs] from the rate" and "to assure that customers who
12
are not solar participants were not bearing costs for those who were." If the
21
value is calculated correctly,1 it will offer distributed solar prosumers a price
for their generated electricity that reflects the benefits it provides to the grid,
122
without providing a subsidy paid for by traditional consumers.
2. PricingDemand Response
In other electricity pricing arenas, prosumer and traditional consumer

interests appear to be aligned. One such case is rate setting in wholesale
demand response markets. Pricing for these services has been a contentious
issue, with opponents of more generous rates invoking distributional
arguments. As discussed above, customers seeking compensation for their
commitments to reduce electricity usage might sell those commitments in one
of two places-retail markets or wholesale markets. From the prosumer's
perspective, there are two drawbacks to retail market participation. First, not all
local utilities offer demand response programs, and many of those that do focus
program offerings on larger commercial and industrial, as opposed to
residential, customers. 123 Second, retail market compensation for demand
118. Id.
119. In re Establishing a Distributed Solar Value Methodology under Minn. Stat. § 216B. 164, subd.
10(e) and (f), Order Approving Solar Value Methodology, I (Minn. Pub. Utils. Comm'n Apr. 1, 2014)
(Docket No. E-999/M-14-65) [hereinafter MPUC VOS Order].
120. Heydinger, supra note 116, at 41.
121. The final methodology incorporates the value of benefits ranging from avoided fuel and plant
costs, avoided transmission and distribution costs, and avoided environmental costs. MPUC VOS Order,
supra note 119, at 7. The Order did not, however, include the value of distributed solar as a
socioeconomic driver, explaining that this component was too difficult to price. Heydinger, supra note
116, at 32. The integration costs of solar energy are subtracted from its total value. MPUC VOS Order,
supra note 119, at 7.
Adopting Regulatory Policy Framework and Implementation Plan, 28 (N.Y. Pub. Serv. Comm'n Feb.
26, 2015) (Case 14-M-0101) ("the rate designs ...will need to reflect: the value of the grid service to
customers with [distributed energy resources] ...and the value that [distributed energy resources] can
provide to the grid.").
123. See BHARVIRKAR, supra note 53, at 9 (finding that fewer than half of load-serving utilities in
the Southwest Power Pool offered demand response programs). In 2008, 72 percent of available demand
response programs in the Midwestern Independent System Operator coordinating region were for large
commercial and industrial customers only. RANJIT BHARVIRKAR ET AL., LAWRENCE BERKELEY NAT'L
ECOLOGY LAW QUARTERLY [Vol. 43:519
response is uneven and is almost always lower than wholesale market

compensation. 124
By contrast, all organized wholesale markets must provide an opportunity
for retail customers to participate in demand response programs. 125 Wholesale
markets are a decidedly more lucrative arena than their retail counterparts for
demand response prosumers. This is because, in Order 745, FERC determined
that prosumers selling demand response into organized wholesale markets
should be compensated at the same level as generation resources. 126 In other
words, demand response prosumers would receive the same price per megawatt
of power foregone as traditional generation resources would receive for each
megawatt of power produced and inputted onto the grid. That amount is
determined by the market price in a given location, otherwise known as the
locational marginal price (LMP), and can range from less than fifty dollars per
megawatt-hour during off-peak times to hundreds of dollars at times of peak
127
usage, when demand response is typically most needed.
Advocates of the LMP approach for wholesale demand response,
including a majority of FERC commissioners, made three primary arguments,
all of which were based on demand response's ability to help balance supply
and demand in wholesale markets. First, supporters argued that, by eliminating
energy shortages, demand response kept the wholesale price of energy much
LAB., COORDINATION OF RETAIL DEMAND RESPONSE WITH MIDWEST ISO WHOLESALE MARKETS 11
(2008).
124. Even in areas of the country with better-developed retail demand response programs, such as
California, utility retail demand response compensation can be as low as fifty cents per kilowatt-hour not
consumed. Demand Response Programs Overview, S. CAL. EDISON, https://www.sce.com/wps/
wcm/connect8a509cd9-bfal-4c07-9817-ac86156b2flb/25231 SCE DR BrochWCAG-R5.pdf? MOD
=AJPERES, at 4 (last visited July 4, 2016). In areas where no additional incentive is provided for the
reduction of electricity usage, customers still save the price of the electricity itself by electing to
conserve. However, because retail electricity prices are still maintained at artificially low levels in many
areas of the country due to rate caps, and are not allowed to fluctuate with the actual cost of that
electricity, prices alone often provide an inadequate incentive to reduce usage.
125. Wholesale Competition in Regions with OrganizedElectric Markets, 125 F.E.R.C. 61,071 at
P 3 (2008) (requiring that organized wholesale markets allow bids from aggregators of retail customer
demand response). While there is uncertainty surrounding the decision's applicability pending review of
the order by the Supreme Court next term, FERC has required at least one Independent System
Operator, PJM Interconnection, to include demand response in its upcoming capacity auction. Order
Denying Request for Clarification, Granting in Part Request for Rehearing, Granting in Part
Complaint,And DirectingCompliance Filing, 152 F.E.R.C. 61,064 at PP 33, 41 (2015).
126. Energy markets stand in contrast to capacity markets, where commitments to provide energy
rather than the energy itself are sold. Demand response resources may participate in both markets, and
although the D.C. Circuit's opinion in Elec. Power Supply Ass'n v. FERC, 753 F.3d 216, 218, 225
(2014) considered only jurisdiction and pricing in energy markets, the logic of its holding likely extends
to capacity markets as well.
127. Individual regional transmission organizations and independent system operators produce real-
time maps of the LMP in their service territories. Wholesale Power Price Maps Reflect Real-Time
Constraintson Transmission of Electricity, U.S. ENERGY INFO. ADMINISTRATION (last updated July 24,
2014), http://www.eia.gov/todayinenergy/detail.cfm?id=3150.
lower at times of peak usage.' 28 Relatedly, they argued that demand response,
by competing with traditional generation resources, prevented those generators
from exercising market power that could drive up the wholesale price of
energy. 129 Third, they claimed that, by helping to ensure that demand does not
exceed supply, demand response resources supported the reliability of the
0
electricity grid. 13
If these claims are correct, then in the demand response context,
traditional consumers' interests may be aligned with those of prosumers. All of
these effects could operate to the benefit of traditional electricity consumers by
keeping electricity prices low and by keeping the lights on. Multiple studies
support this finding by concluding that the social welfare gains resulting from
electric load curtailment exceed any subsidies to demand response resources. 131
But the LMP approach, and the likely increase in demand response
resources bid into wholesale markets as a result, are not neutral from a
distributional perspective. The extra cost of paying demand response prosumers
the LMP for their reductions must be recouped somewhere. FERC has
attempted to distribute the costs of demand response among those benefitting
from its provision: wholesale market customers (primarily electric utilities,
competitive power providers, and electricity marketers) in the areas where
32
wholesale prices were lowered as a result of demand response participation.
FERC included a safety valve in its final rule, requiring payment of the LMP to
demand response resources only when "the overall benefit of the reduced LMP
that results from dispatching demand response resources exceeds the cost of
1 33
dispatching and paying LMP to those resources."
Given this safety valve, advocates suggest that wholesale demand
response simply increases the size of the "pie," with everyone, or at least all
consumers and prosumers, better off than if no demand response were allowed
in wholesale markets. However, others take a less rosy view. The primary
criticism of equal compensation for demand response resources in wholesale
markets is that it results in a windfall for those prosumers. 134 That windfall, the
P 10 (2011).
129. Id.
130. Id. Reliability is the touchstone of our electricity system, since both the economic and
noneconomic costs of outages can be staggering. See, e.g., KRISTINA HAMACHI LACOMMARE & JOSEPH
H. ETO, LAWRENCE BERKELEY NAT'L LAB., UNDERSTANDING THE COST OF POWER INTERRUPTIONS TO
U.S. ELECTRICITY CONSUMERS, at xii (2004) (estimating annual outage costs in the United States at $79
billion).
131. See Rahul Walawalkar et al., An Economic Welfare Analysis of Demand Response in the PJM
Electricity Market, 36 ENERGY POL'Y 3692, 3699 (2008) (analyzing the economic properties of the
economic demand-response program and finding that the social welfare gains exceed the total annual
subsidy payments).
132. 134 F.E.R.C. 6,187 at PP 99-102.
133. Id. at P 3.
134. See FERC v. Elec. Power Supply Ass'n, 136 S.Ct. 760, 773 (2016).
ECOLOGY LAW QUARTERL Y [Vol. 43:519
argument goes, is produced at the expense of both traditional retail consumers

and traditional generators.
According to critics, the correct price for demand response in wholesale
markets is the LMP minus the retail cost of each megawatt-hour of electricity
that the prosumer is not consuming (typically represented as "G"). Supporters
of the LMP minus G method argue that the consumer already saves the retail
cost of a unit of energy by declining to consume it. Those savings should
therefore be subtracted from the price the customer receives in order to provide
the correct economic incentive to reduce consumption. 135 However, a majority
of FERC commissioners rejected the LMP minus G approach, finding that
136
LMP more accurately reflected the marginal value of demand response.
If critics are correct, and demand response resources are overcompensated
under FERC's pricing formula, the ultimate cost to traditional consumers may
be higher than anticipated. Even if traditional consumers ultimately benefit
from lower wholesale prices, they may bear additional fixed costs as a result of
prosumer participation in both retail and wholesale demand response programs.
This state of affairs is worsened if demand response prosumers signal that they
plan to consume more energy than they actually require. 137 They could then
sell a commitment not to use this surplus energy into the wholesale energy
market and be compensated accordingly. In the meantime, the local utility
would already have made the necessary investments to supply the prosumer's
purported needs. This could lead to uneconomic investments in new generation
and transmission capacity, all of which would be subsidized by the utility's
ratepayers as a whole.
When the D.C. Circuit invalidated FERC's pricing rule in EPSA v.
FERC,138 the majority relegated the pricing discussion to the penultimate
paragraphs of the opinion. Relying primarily on the arguments made by
135. See Brief of Robert L. Borlick et al. as Amici Curiae in Support of Respondents at 4, FERC v.
Elec. Power Supply Ass'n, 136 S. Ct. 760 (2016) (No. 14-840); see also William W. Hogan, HARV.
UNIV. JOHN F. KENNEDY SCH. OF GOV'T, DEMAND RESPONSE PRICING IN ORGANIZED WHOLESALE
MARKETS 5 (2010); see also Richard J. Pierce, Jr., A Primer on Demand Response and a Critique of
FERC Order 745, 3 GEO. WASH. J. ENERGY & ENVTL. L. 102, 104-05 (2012).
Some commentators, notably Professor Richard Pierce, have acknowledged that the full benefits
of demand response might be higher than price alone can reflect. This is because demand response,
which displaces carbon-producing sources of electricity, may have significant positive environmental
externalities. But Pierce cautions that incorporating a social cost of carbon analysis into demand
response pricing formulas, for instance, might be prohibitively complicated. Richard Pierce, A Primer
on Demand Response and a Critique of FERC Order 745, J. ENERGY & ENVTL. L. 102, 106-07 (2012);
see also 134 F.E.R.C. 61,187 at P 33 (citing the comments of the Environmental Defense Fund and the
American Clean Skies Foundation).
136. DemandResponse Compensation in Organized Wholesale Markets, 137 F.E.R.C 61,215 at P
63(2011).
137. See Brief for Respondents Midwest Load-Serving Entities at 11, FERC v. Elec. Power Supply
Ass'n, 136 S. Ct. 760 (2016) (No. 14-840) (noting that load-serving entities will be forced to procure
"generation capacity that will turn out to have been unnecessary whenever the customer chooses to
submit a demand response bid into the wholesale energy market and that bid is accepted").
138. Elec. Power Supply Ass'n v. FERC, 753 F.3d 216, 225 (D.C. Cir. 2014).
Commissioner Moeller in his dissent from Order 745, the panel declined to
"delve . . . into the dispute among experts," but found that "the potential
windfall to demand response resources seem[ed] troubling" and that the
Commission had not adequately explained why the LMP scheme resulted in
1 39
"just compensation."
The Supreme Court, however, upheld FERC's election of LMP as
reasonable. 140 Unlike the D.C. Circuit, it emphasized the narrow scope of its
review of FERC action, especially in a technical area like ratemaking. 141 Here,
the Court was satisfied with FERC's response to concerns about
overcompensation of demand response resources. 1 42 While debates about
overcompensation will undoubtedly continue, the legality of the wholesale
market rate structure at least has now been confirmed.
C. Democracy Puzzles
If prosumers are to be regulated fairly, they, like regulated industry and

traditional consumers, must have a voice in the regulatory process. Prosumer
participation in policy formation is desirable for three primary reasons. All are
widely recognized justifications for inclusiveness in administrative processes
generally. 143
The first reason is democratic in its pedigree. Some commentators have
taken the position that administrative governance can be justified only or
primarily through stakeholder participation. 144 In particular, proponents of a
civic republican understanding of the administrative state argue that internal
administrative rules and structures, as well as doctrines governing external
review of administrative decisions, should be calibrated to enable deliberative
decision making within the agency. 145 According to this understanding of
democratic legitimacy, internal agency processes are fair only insofar as they
permit participation by all stakeholders. 146 Citizens can oversee and engage
with regulatory policy making by, for example, participating in the notice and
comment process on regulations, speaking at agency hearings, and negotiating
139. Id.
140. Elec. PowerSupply Ass 'n, 136 S.Ct. at 764-65.
141. Id. at 782.
142. Id.at 783.
143. Professor Jacob Gersen captured the need for inclusiveness succinctly when he explained that
"notice and comment rulemaking serves both technocratic and democratic aims." Jacob E. Gersen,
Legislative Rules Revisited, 74 U. CHI. L. REV. 1705, 1714 (2007).
144. See, e.g., Cass Sunstein, Interest Groups in American Public Law, 38 STAN. L. REV. 29, 67-68
(1985).
145. See Seidenfeld, supra note 10, at 1547. See also Gersen, supra note 143, at 1714 ("Indeed,
rulemaking is taken by some to replicate a variant of the deliberative exchange to which Congress might
aspire.").
146. See Seidenfeld, supra note 10, at1514 ("Modem civic republicans view the Constitution as an
attempt to ensure that government decisions are a product of deliberation that respects and reflects the
values of all members of society.").
ECOLOGYLAW QUARTERLY [Vol. 43:519
directly with administrative personnel. A more inclusive decision-making

process has the additional advantage of making it harder for industry groups to
"capture" their regulators. 147
For the bureaucracy to function as a democracy in microcosm, however,
all affected stakeholders must have a voice in the process. Indeed, one of the
pillars of civic republicanism is its rejection of competitive pluralism in favor
of inclusive, consensus-based decision making. 148 As Professor Mark
Seidenfeld has noted, for such a process to succeed, "[r]epresentatives of all
interests potentially affected by a government action must have meaningful
opportunities to engage in discussion about the action." 149 To the extent that
prosumers are not part of the regulatory dialogue at FERC and at state public
utility commissions, important interests are not being represented.
A more instrumental reason for valuing participation by a diverse group of
stakeholders, including prosumers, is to ensure buy-in and reduce the chance of
ex post challenges to agency decisions (which are expensive in terms of time
and other agency resources). This desire to avoid delay and expense was one of
the primary justifications for the creation of negotiated rule-making procedures,
in which stakeholders interact with regulators early in the rule-making process
to share information, resolve disputes, and reach consensus on a proposed
150
rule.
The third reason to include prosumers in administrative decision making is
similarly instrumental, although its immediate concern is substantive rather
than procedural. It is that stakeholder input and inclusive deliberation produce
higher quality decisions. Stakeholders bring new perspectives on a problem and
15 1
often provide better information than the agency could collect on its own.
There are several reasons to think that prosumer representation in
regulatory proceedings might fall short of the ideal. While a few prosumers are
147. On the problem of capture generally, see Gary Becker, A Theory of Competition Among
Pressure Groups for PoliticalInfluence, 98 Q. J. ECON. 371 (1983); George J. Stigler, The Theory of
Economic Regulation, 2 BELL J. ECON. & MGMT. Sci. 3 (1971). According to the classic statement of
the problem, the quantity and design of government regulation are heavily influenced by regulated
industry. Id.at 3. James Landis noted this problem in his report on regulatory agencies to President-elect
Kennedy when he warned that agencies had adopted an "industry orientation" in response to constant
pressures from regulated firms. JAMES M. LANDIS, REPORT ON REGULATORY AGENCIES TO THE
PRESIDENT-ELECT 51 (1960).
148. See Seidenfeld, supra note 10, at 1514.
149. Id. at 1530.
150. See, e.g., Lawrence Susskind & Gerard McMahon, The Theory and Practice of Negotiated
Rulemaking, 3 YALE J. ON REG. 133, 136-37 (1985).
151. For a sampling of the literature on this point, see Marc B. Mihaly, Citizen Participationin the
Making of Environmental Decisions: Evolving Obstacles and PotentialSolutions Through Partnership
with Experts andAgents, 27 PACE ENVTL. L. REV. 151, 157 (2010) ("Public participation ... provides
new and valuable factual, theoretical or legal input to these technocratic decision-makers, input which
they could not obtain through the exercise of their own expertise."); Stephanie Tai, Three Asymmetries
of Informed Environmental Decisionmaking, 78 TEMP. L. REV. 659, 678-82 (2005) (noting that the
public might provide scientific information to the agency and/or might use participatory mechanisms to
prod the agencies to conduct additional research).
large companies with considerable political heft, most are individuals or small
companies who are unlikely, on an individual basis, to influence key decision
makers. 152 While it is possible that such individuals could achieve greater
influence by pooling their resources, individual interest in particular regulatory
outcomes is often not great enough to justify the costs of organized
representation. 153 This is likely to be true for most prosumers, since their
activities in energy markets are almost always subsidiary to their primary
occupations and interests. For residential customers who generate their own
electricity or offer demand response services, personal and professional
pursuits are likely to take precedence over participation in regulatory processes.
Even for larger participants such as universities and hospitals, distributed
generation or demand response program participation is likely to be undertaken
only if it can be done without a significant investment in time and personnel.
Harvard University participates in demand response programs sponsored by
ISO-New England 54 and employs a sustainability and energy management
staff. However, these employees are responsible for internal program
management rather than more resource-intensive external policy affairs. While
the largest prosumers that already employ a policy staff may be able to
designate a public representative for energy issues, most prosumers will lack
the resources and the will to engage in the policy-making process either on
their own or as part of an organization
Notwithstanding these predictions and qualifications, actual experience
has demonstrated that some individual prosumers, even smaller prosumers, are
152. Agencies may be less receptive to comments from individuals. Then-Professor, now
California Supreme Court Justice Mariano-Florentino Cu~llar discovered, for example, that in a
PATRIOT Act rulemaking involving the exchange of information between financial institutions and law
enforcement, over 70 percent of comments on the draft proposal came from individuals concerned about
civil liberties, but the agency addressed only comments from businesses and their representatives in the
final rule. Mariano-Florentino Cu~llar, Notice, Comment and the Regulatory State: A Case Study from
the USA PATRIOTAct, 28 ADMIN. & REG. L. NEWS 3,4 (2003).
While the advent of e-rulemaking may have streamlined the comment submission process and
resulted in an increased volume of comments from individuals, these are often perfunctory or boilerplate
"mass comments" solicited by public interest organizations that are given little attention by those
responsible for drafting regulations. See Nina A. Mendelson, Rulemaking, Democracy, and Torrents of
E-Mail, 79 GEO. WASH. L. REV. 1343, 1371 (2011) (noting that agencies are unlikely to be responsive to
"policy" as opposed to "technical" comments from individuals and expressing concern about the
implications of this observation for democratic responsiveness); Cynthia R. Farina et al., Rulemaking vs.
Democracy: Judging and Nudging Public Participationthat Counts, 2 MICH. J. ENV'T. & ADMIN. L.
123, 131 (2012) (suggesting that agencies are unlikely to give much attention to mass comments because
they are assumed to suffer from defects in reasoning).
153. See, e.g., Richard B. Stewart, The Reformation of American Administrative Law 88 HARV. L.
REV. 1669, 1686 (1975) ("[T]he personal stake in agency policy of an individual member of an
organized interest, such as a consumer, is normally too small to justify such representation."). The
problem of organization is compounded by the free-rider effect, since the benefits of regulatory
influence will accrue to nongroup members (if membership is voluntary). Id.
154. See Jay Fitzgerald, ConservationProgram Eases Power Grid Strain, BOSTON GLOBE (Jul. 23,
2013), http://www.bostonglobe.com/business/20l3/07/22/demand-response-takes-pressure-off-power-
grid /b5gZ6ENPYjmr4KWq4LZpdN/story.html.
engaging in the regulatory process, especially at the state level. In its Value of
Solar proceeding, Minnesota received comments from approximately six
residential and small commercial prosumers. 155 Of the remaining seventeen
commenters (seven of whom filed joint comments), four were utilities, five
were renewable energy companies, one was a government agency, and the
remainder were nonprofit organizations promoting environmental, renewable
energy, and scientific interests. 156 Prosumers also appeared to be represented,
157
at least informally, in Arizona's net metering debate.
Other, more attenuated entities have also purported to represent prosumer
interests. These entities include businesses that provide the goods on which
prosumers rely, businesses that operate as "middlemen," environmental interest
groups, classic consumer groups, and government consumer counsel offices. To
date, such groups have had notable successes in furthering policies that are
beneficial to prosumers. Whether these groups can provide reliably zealous,
unbiased representation of prosumer interests on an ongoing basis, however, is
uncertain. This is especially true given that organized utility and power
producer interests have begun to push back on prosumer-friendly policies such
as net metering and even renewable portfolio standards, which many such
158
interests see as threats to their business models.
The first candidates for prosumer representation are representatives from
renewable energy companies and middlemen such as solar services companies
and demand response aggregators. These entities participate regularly in
regulatory proceedings and, increasingly, have a vested interest in the success
of the prosumer economy. It is true that industry, even the renewables industry,
is driven largely by profit, while prosumers themselves may have a variety of
behavioral motivations including economics, autonomy concerns, and
environmentalism. However, these disparate motives need not be of concern
unless they cause the industry groups' goals to diverge from those of
159
prosumers.
155. MPUC VOS Order, supra note 119, at 2-3. One of the commenters was an individual who
seemed to support policies that would benefit prosumers but who did not self-identify as a prosumer. Id.
156. The relatively small number of commenters overall can be explained, in part, by the filing of
joint comments in some cases and, in part, by the compressed schedule during which commenting took
place as a result of statutory deadlines for adoption of the methodology. See id.
157. One commissioner reported "a little carnival going on in the parking lot of the Commission
building. We had demonstrators following Commissioners, for a series of months, with little signs that
said, 'Don't Tax the Sun,' lots of advertisements.., it really was a full-fledged campaign..." Colorado
Transcript Panel III, Susan Bitter-Smith at 11-12, MPUC VOS Order, 2-3 (Minn. Pub. Utils. Comm'n
Apr. 1, 2014) (Docket No. E-999/M-14-65) (on file with author).
158. On states revisiting net metering standards, see supra Part III.B.I. On renewable energy
standards, consider the state of Ohio, which froze its renewable energy standard for two years in June
2014. H.R. 310, 130th Gen. Assemb. (Ohio 2014).
159. For an argument that solar services companies are imperfect representatives of solar prosumer
interests, see Surrebuttal Testimony of Ashley C. Brown, Arizona Public Service Company's Notice of
Filing Surrebuttal Testimony, In re Application of Uns Electric, Inc. for the Establishment of Just and
Reasonable Rates and Charges Designed to Realize a Reasonable Rate of Return on the Fair Value of
the Properties of Uns Electric, Inc. Devoted to its Operations throughout the State of Arizona, and for
More troubling is the fact that industry groups have a variety of distinct
legislative and regulatory aims, including product subsidies, checks on the
fossil fuel industry, and overseas tariffs, to name just a few. These interests
must be balanced against each other, and those that overlap with prosumer
goals may at times give way to others that do not overlap, due to the need to
conserve political capital. Furthermore, when it comes to enforcement policy,
middlemen would likely prefer that any liability for noncompliance with utility
or wholesale market programs fall on prosumers themselves while prosumers
might prefer that responsibility rest with the middleman. In addition, prosumers
have a clear interest in ensuring full disclosure by middlemen of market rules,
while middlemen may seek to streamline or gloss over such information in
order to sign up greater numbers of prosumers. At the very least, the nature of
the relationship between middlemen and prosumers requires deeper
theorization. To the extent that these middlemen purport to speak for prosumers
in the regulatory arena, those claims should be scrutinized so that the nature of
the overlap between middleman and prosumer interests can be determined.
Another promising avenue for prosumer representation by proxy comes
from environmental interest groups. Organizations such as the Environmental
Defense Fund, the Sierra Club, the Natural Resources Defense Council, and
others have shifted at least part of their attention in recent years to energy law
in general and electricity generation in particular. 160 This shift in emphasis
responds to a growing recognition of the connection, described below in
subpart IV.B.1, between power generation and negative environmental
externalities like greenhouse gas production. These organizations are well
organized and have become sophisticated participants in policy-making
processes. They are thus well equipped to ensure that platforms of interest to
prosumers are promoted. One notable caveat exists, however. These
organizations are driven by a relatively narrow set of interests, all centering on
environmental protection. To the extent that prosumers have a more varied set
of motivations that might sometimes trump environmental considerations, these
groups, too, will be imperfect proxies. 161
Next, prosumers might be represented by nongovernmental consumer
groups. A variety of consumer organizations exist both in this country and
worldwide. 162 These organizations, however, typically represent the interests of
Related Approvals, Docket No. E-04204A- 15-0142, at 9 (Ariz. Corp. Comm'n Feb. 23, 2016) (arguing
that solar customers and solar companies are not aligned because solar customers' goals are typically not
technology-specific).
160. See, e.g., Michael Grunwald, Inside the War on Coal, POLITICO (May 26, 2015, 11:45 PM),
http://www.politico.com/agenda/story/2015/05/inside-war-on-coal-000002 (describing the Sierra Club's
Beyond Coal campaign).
161. Prosumers' motivations might include saving money on electricity bills, greater autonomy
from the grid, or a desire to keep up with the neighbors.
162. See NAT'L ASS'N OF REGULATORY UTIL. COMM'RS, THE ROLE OF CONSUMER
ORGANIZATIONS IN ELECTRICITY SECTOR POLICIES AND ISSUES (2006). Of fifty-two global consumer
groups studied in a report by the National Association of Regulatory Utility Commissioners, 71 percent
classic consumers rather than prosumers. For example, CECA Solutions,

formerly the Consumer Energy Council of America, represents energy
consumer interests through policy analysis, policy development, and
information provision. 163 The description of consumer expectations on their
home page is evidence of their focus: they believe consumers expect energy to
be "affordable and predictable," "produced in a way that is environmentally
sound," and "reliable, high quality ...safe and secure." 164 While many of
these goals are consistent with greater prosumer participation in energy
markets, prosumers themselves have a more diverse set of interests and goals.
Some of these goals, including higher compensation for prosumer goods and
services, may be incompatible with traditional consumer interests such as lower
prices. 16 5 It should be noted, however, that some consumer organizations are
evolving along with the energy economy and are increasingly concerned with
prosumer issues. The New York Energy Consumers Council, for example,
strives to create and improve demand response programs as well as
66
opportunities for the sale of on-site generation. 1
A final possibility is either to rely on existing government consumer-
counsel offices for prosumer representation or to create separate government
offices or bureaus to represent the interests of prosumers specifically. This is a
less viable strategy at the federal level since, unlike state public utility
commissions, FERC has no institutionalized representative for consumer
interests. A federal consumer representative was created as part of the Public
167
Utility Regulatory Policies Act of 1978, but the position was never funded.
Subsequent legislative efforts to establish such an office were made as recently
as 2003 and 2010, but the legislative vehicles for each were never enacted. 16 8
In some states, however, public consumer counsel offices have
represented prosumer interests. Iowa's Consumer Advocate, for example, has
supported distributed generation incentives. 169 Indeed, there may be much to
recommend assigning such representation to Consumer Advocates. Authorizing
represented the general public, 18 percent represented environmental groups, 8 percent represented trade
groups, and the remainder represented either chambers of commerce or academic institutions. Id. at 4.
163. CECA Solutions, About CECA Solutions, http://www.cecarf.org/index.php/about/ (last visited
July 3, 2016).
164. CECA Solutions, America's Consumers Have a Multitude of Expectations, http://www.
cecarf.org/ (last visited July 28, 2015).
165. See infra Part Ill.
166. New York Energy Consumers Council, What Is the NYECC?, http://nyecc.com/ (last visited
July 20, 2015) (noting that while, historically, the organization has been focused on saving customers
money, more recently it has pursued a more diverse set of goals).
167. See 16 U.S.C. § 825q-1 (2012) (establishing the Office of Public Participation).
168. The two bills were the Energy Policy Act of 2003, which was passed by both houses of
Congress but died in conference, and the American Clean Energy and Security Act, otherwise known as
the Waxman-Markey climate bill, which passed the House of Representatives but was defeated in the
Senate.
169. See Recommendation to Solicit Additional Responses Regarding Net Metering and
Interconnection of Distributed Generation and Schedule a Workshop for Distributed Generation
Checklist 179-80 (IOWA UTILS. BD.Aug. 14, 2014) (Docket No. NOI-2014-0001).
these offices to represent the interests of consumers more broadly allows them
to provide a more significant counterweight to industry interests. But advocacy
of prosumer perspectives can create conflicts of interest for such offices, which
were created to represent the interests of traditional utility customers.17 ° These
offices have historically focused on issues such as keeping the quality of utility
service high while keeping consumer prices low. Even thoughtful consumer
advocates such as Iowa's have experienced the tension in representing both
prosumer and consumer interests, with any conflict resolved in favor of classic
consumers. For example, in a 2014 distributed generation docket, the Iowa
Consumer Advocate supported distributed generation payments while also
recommending that time of use rates be adopted for net-metered customers to
avoid cross-subsidization. 17 1 The Advocate further recommended that
prosumers pay for the costs of interconnecting to the grid. 172 Similarly,
comments by state consumer counsel offices in FERC's Order 745 rule making,
while generally supportive of demand response in organized wholesale
markets, flagged concerns about possible costs and burdens on traditional retail
customers. 173 The reticence of some consumer advocates to embrace prosumer
stances such as net metering is understandable given the distributional
questions, described in the previous section, 174 which can arise between
prosumers and traditional consumers. That said, it seems clear that these groups
have not and will not advocate on behalf of prosumers when prosumer interests
are at odds with those of traditional consumers.
The effectiveness of proxy representation is likely to be tested further as
prosumer-friendly policies come under increasing attack from utilities and
traditional power producers. In addition to the specific concerns discussed
above, there are reasons to be less than sanguine about the ability of proxies to
compete with utilities and traditional power producers in regulatory and
legislative processes. Ultimately, the evolution of prosumer interest groups is a
promising avenue. It is no solution-or at least not a complete solution-to
170. The Connecticut Office of Consumer Counsel's mission statement is typical of consumer
counsel mission statements generally, providing that the Office "is authorized to participate on behalf of
consumer interests in all administrative and judicial forums and in any matters in which the interests of
consumers with respect to public utility matters may be involved." Off. of Consumer Couns., About Us,
STATE OF CONN., http://www.ct.gov/occ/cwp/view.asp?a=1419&q=260490 (last visited July 3, 2016).
171. Recommendation to Solicit Additional Responses Regarding Net Metering and
Interconnection of Distributed Generation and Schedule a Workshop for Distributed Generation
Checklist at 179-80 (IOWA UTILS. BD.).
172. Id. at 44.
173. See, e.g., Comments of the Office of the People's Counsel of the District of Columbia,
Demand Response Compensation in Organized Wholesale Markets, Docket No. RM 10-17-000 ("Order
745 Docket") ("D.C. OPC seeks to ensure D.C. retail ratepayers are not unfairly saddled with wholesale
energy market payment obligations relating to demand response providers."); Post-Conference
Comments of the New York State Consumer Protection Board, Order 745 Docket (urging FERC to take
societal benefits of demand response into account but urging that full LMP be paid only when net
benefits to consumers are positive).
174. See supra Part II1.B.
merely increase the volume of prosumer participation in regulatory processes,

for example, by educating prosumers about opportunities to engage with
regulators. This is because agencies often discount unsophisticated input or
input containing arguments based on policy rather than law or hard data. 175
Meaningful representation of prosumer interests may therefore require that
prosumers overcome collective action problems to form prosumer interest
groups that can study issues in greater depth and generate thoughtful, well-
supported positions. Over time, as they become increasingly sophisticated
regulatory stakeholders, they can become full-fledged participants in
democratic processes.
IV. THE NORMATIVE DIMENSIONS OF PROSUMPTION
Notwithstanding the challenges outlined in the previous Part, prosumption

is worth supporting. This is because prosumption is consonant with the basic
values that undergird our system of electricity regulation. This is especially true
when modem updates to that value structure are taken into account.
In other policy areas, classic paradigms may be adequate to evaluate and
govern changing circumstances. For example, Yochai Benkler argues
persuasively that increased decentralization and consumer participation in
communications markets can further the traditional purposes of
communications regulation. 176 As Benkler notes, democracy and the
"marketplace of ideas" have been dominant goals in communications
regulation, not least because of the animating ideals of the First Amendment. 177
He therefore champions more active customer participation in media
production as "a better way to serve the goals that have long justified structural
78
media regulation."1
By contrast, the goals furthered by energy prosumption are not exclusively
those historically animating electricity regulation. Traditionally, electricity
regulation sought to balance the twin aims of reliable service and low prices. 179
Like the provision of other basic services such as water, affordable, universal
access to electricity has been seen as a duty owed by the government to its
citizens. While some public entities have taken on this responsibility directly,
175. For support for this proposition in the notice and comment context, see Mariano-Florentino
Cuellar, Rethinking Regulatory Democracy, 57 ADMIN. L. REV. 411, 451-52 (2005) (quoting agency
lawyers as reporting that the most useful comments were those that contained more sophisticated
knowledge and insights).
176. Benkler, supra note 4, at 565 (remarking that the Supreme Court "has steadily developed an
understanding that decentralization of information production is a policy that serves values central to the
First Amendment").
177. Id. at 567.
178. Id
179. The California Public Utilities Commission's statement that it seeks to ensure "the provision
of safe, reliable utility service and infrastructure at reasonable rates" is representative of state
commissions generally. CAL. PUB. UTILS. COMM'N, California Public Utilities Commission,
http://www.cpuc.ca.gov/ (last visited Jan. 20, 2016).
others have delegated the task to private utilities. 180 Ensuring the health of
these private utilities was thus, from the earliest days of regulation, a vital
subsidiary goal-a necessary means to the primary goal of consistent, universal
electricity access at affordable prices.
Over time, as the electricity system stabilized, other policy goals have
joined the original dyad. This Part argues for the recognition of a new "bundle"
of normative commitments in the field. While prosumption might be defended
by reference to traditional regulatory goals alone, the phenomenon is even more
consistent with this updated set of values.
A. Prosumption and TraditionalElectricityLaw Norms
Concern about the reliability of electricity service has been one of the
primary drivers of traditional electricity policy. Reliability is a relentless focus
of regulators because of its implications for public health, safety, and the
economy.181 Traditionally, vertically integrated utilities accepted responsibility
for providing reliable service in exchange for monopoly service territories. 182
Ultimately, however, federal agencies and state public utility commissions are
responsible for reliability.183
One of the most significant problems for electricity reliability is the need,
discussed above, to maintain balance between electricity supply and demand at
all times so that grid frequency remains constant. 184 Prosumption can make this
balance more difficult to achieve. First, new sources of energy such as wind
and solar, which are increasingly adopted by prosumers, create novel reliability
problems for the grid because these resources are intermittent: the sun does not
shine regularly, nor does the wind blow on command. Second, as smaller
sources of distributed generation proliferate, they run the risk of overwhelming
180. Utilities generally fall into one of three categories: large, investor-owned utilities (responsible
for about 73 percent of electricity sales), smaller publicly owned utilities (16 percent), or member-
owned cooperative utilities (II percent). -Nat'l Rural Elec. Coop. Ass'n, Co-op Facts & Figures,
http://www.nreca.coop/about-electric-cooperatives/co-op-facts-figures/ (last visited Jan. 20, 2016).
181. NYISO, Value of Reliability, https://home.nyiso.com/value-of-reliability/ (last visited Aug. 7,
2016).
182. See E[SEN ET AL., supra note 30 at 59 (summarizing the common law principles affecting
public utilities).
183. The obligation to ensure reliable service in wholesale power markets is a primary source of
FERC's jurisdiction. 16 U.S.C. § 824o (2012) (establishing FERC jurisdiction over an electric reliability
organization for purposes of establishing reliability standards for the bulk power market). States also
make this a focus of public obligations. See, e.g., CAL. PUB. UTILS. CODE § 399 (West 2006) ("The
Legislature finds and declares that safe, reliable electric service is of utmost importance to the citizens of
this state, and its economy.").
184. Various entities are responsible for maintaining balance on the grid. This function is
performed by organized wholesale markets (Independent System Operators and Regional Transmission
Organizations) or by regional balancing authorities operating within larger coordinating bodies. All of
these entities are responsible for coordinating supply and demand in real time.
distribution grids by creating voltage fluctuations and other systemic

85
problems. 1
Despite these challenges, with system upgrades and increased institutional
knowledge, prosumption may ultimately be a boon for reliability. The North
American Electric Reliability Corporation, the organization responsible for
generating reliability standards for the nation, predicts that negative reliability
effects from distributed energy resources can be mitigated and that certain
types of distributed resources, for example demand response and energy
storage, may "improve bulk system reliability if managed properly."1'86 When
properly integrated, demand response can improve system reliability by
allowing authorities to adjust demand as well as supply during times of strain,
thereby restoring balance to the grid. Storage accomplishes a similar goal, but
with the added benefit, when paired with distributed generation, of mitigating
18 7
that generation's variability.
Distributed energy resources can provide even more valuable reliability
benefits at the individual or community level. A report commissioned by the
National Renewable Energy Laboratory observed enhanced customer reliability
188
from the combined use of PV solar systems and energy storage systems.
Customers were able to rely on the combined technologies to meet their
electricity demand during grid outage events by "islanding"-disconnecting
themselves from the grid and providing for their own electricity needs until the
grid crisis had passed. 189 Indeed, ensuring access to a reliable source of power
is one of the reasons many prosumers elect to self-supply in the first
19 0
instance.
The second vital norm underlying traditional energy law and policy is that
electricity should be available to consumers at reasonable rates. The FPA and
state public utility codes codify this norm, noting that rates charged by utility
companies for electricity service must be "just and reasonable."'1 9 1 That
185. See Clark W. Gellings, As the Role of the Distributor Changes, So Will the Need for New
Technology, in DISTRIBUTED GENERATION AND ITS IMPACT FOR THE UTILITY INDUSTRY 113 16
(Fereidoon P. Sioshansi ed., 2014) (explaining that high voltage and grid fluctuations in particular can
disturb the effective operation of customer and distribution equipment).
186. N. AM. ELEC. RELIABILITY CORP., SPECIAL REPORT: POTENTIAL BULK SYSTEM RELIABILITY
IMPACTS OF DISTRIBUTED RESOURCES 1-2 (2011). The report recommends improving forecasting as
well as visibility and controllability of distributed generation, installing more protective system
hardware, and coordinating system restoration after problems arise. Id. at 6-7.
187. See, e.g., ELEC. POWER RESEARCH INSTITUTE, ELECTRICITY ENERGY STORAGE TECHNOLOGY
OPTIONS: A WHITE PAPER PRIMER ON APPLICATIONS, COSTS, AND BENEFITS 9 (2010).
188. D. MANZ ET AL., ENHANCED RELIABILITY OF PHOTOVOLTAIC SYSTEMS WITH ENERGY
STORAGE AND CONTROLS 43 (2008).
189. Id.
190. Especially for commercial customers, like hospitals, with special needs for reliable power,
installing on-site generation can be an important insurance policy. See DEPT. OF ENERGY, supra note
114 at i.
191. See 16 U.S.C. § 824d (2012) ("all rates and charges made, demanded, or received by any
public utility... shall be just and reasonable ....").State examples are too numerous to list. For a
sample, see ALASKA STAT. § 42.05.381 (2007) ("All rates demanded or received by a public utility...
language is meant to protect consumers from high electricity rates as well as to

provide utilities with a reasonable return on their investment (in order to ensure
their continued viability and, therefore, the continued availability of reliable
electricity). 192
Prosumption's price effects are mixed. New administrative programs to
better incorporate increased distributed energy resources and demand-side
management will not be costless. Depending on how rapidly utility rate
structures evolve, utilities might also see lost revenues as customers generate
their own energy, sell self-generated energy back to the utility, and purchase
less energy as a result of demand management. 193 As discussed above in
subpart II.B, utilities might pass some or all of the costs of distributed energy
resources on to traditional consumers.
It is likely, however, that savings will outweigh these costs, especially in
the longer term. The Congressional Budget Office has found that distributed
energy resources have "the potential to ...reduce the cost of electricity" for
consumers. 194 This is, in part, because prosumer-operated distributed resources
can reduce the need to construct new transmission and distribution
infrastructure (or delay the need to replace existing infrastructure).' 95 Less
energy travelling over long distances also reduces line losses-the loss of
energy that naturally occurs during transmission.196 Prosumers who participate
in demand response programs can, in the aggregate, exert an even more direct
effect on energy prices. Prices for electricity in organized wholesale markets
are set based on supply and demand. The market clearing price for power will
be much higher when demand peaks and fewer plants are available to supply
that demand. By mitigating demand, demand response can reduce this
97
imbalance, lowering wholesale prices.1
shall be just and reasonable .. ");KAN. STAT. ANN. § 66-101b (West 2016) ("Every electric public
utility governed by this act shall be required ... to establish just and reasonable rates ....");S.C. CODE
ANN. § 58-27-810 (2015) ("Every rate made, demanded or received by any electrical utility or by any
two or more electrical utilities jointly shall be just and reasonable.").
192. See EISEN ET AL., supra note 30, at 456.
193. TiM WOOLF ET AL., BENEFIT-COST ANALYSIS FOR DISTRIBUTED ENERGY RESOURCES 9
(2014). For a more in-depth discussion of rate design, see supra Part II1.B.
194. CONG. BUDGET OFF., supra note 33, at ix.
195. See Proceeding on Motion of the Commission in Regard to Reforming the Energy Vision,
Order Adopting Regulatory Policy Framework and Implementation Plan, 20 (N.Y. Pub. Serv. Comm'n
Feb. 26, 2015) (Case 14-M-0101).
196. New York estimates that line loss savings from conversion to a more distributed energy
system are $200-400 million per year. Id.
197. DEPT. OF ENERGY, supra note 114 at 3-5. New York anticipates savings of $1.2 to $1.7 billion
per year from peak load management alone. N.Y. STATE ENERGY PLANNING BD., THE ENERGY LEAD:
2015 NEW YORK STATE ENERGY PLAN 20 (2015). Additional savings come from avoidance of
congestion costs, extra charges added to the cost of electricity to encourage dispatch of additional energy
to relieve constraints. Id. at 3-8.
B. Prosumptionand Modern ElectricityLaw Norms
It is clear, then, that many of the potential benefits of prosumption support

energy law's traditional goals. Mounting a normative defense of prosumption
becomes even easier, however, when modem amendments to traditional energy
law values are considered. This subpart suggests that the field has seen
increased emphasis on preventing environmental externalities and on increasing
industry competition. These norms and the support they offer for a prosumer
energy economy are explored in turn.
1. EnvironmentalNorms
The first additions to the canon are environmental norms. While

environmental regulation of energy actors is not new, 19 8 energy and
environmental law have grown more integrated in recent years. 199 Some
scholars have suggested that this convergence has been propelled by climate
change. 200 Others have explained it as necessary to reduce our nation's
20 1
dependence on oil.
While it is tempting to describe the relationship between the two fields as
a merger of sorts, it is more accurate to say that the targets of law and
regulation in each are increasingly overlapping. 20 2 It should be noted, however,
that efforts to confront climate change have merely accentuated an existing
phenomenon in environmental law: much environmental regulation targets or
affects power plants because traditional fossil fuel-fired power plants are a
significant source of many types of pollutants. On the energy regulatory side,
statutes and regulations increasingly require energy regulators to take
environmental considerations into account when siting facilities, engaging in
resource planning, or restructuring energy systems. 20 3 The overlap between the
198. Since the 1960s, regulation of pollutants by state and federal governments has focused, at least
in part, on power plants and fuel extraction (both of which are major sources of air and water pollution).
See EISEN ET AL., supra note 30, at 6-7 (describing five overlapping eras of energy law).
199. As Professor Alexandra Klass has noted, organizations including law firms, academic centers,
and bar organizations have also begun to link the two fields. Alexandra B. Klass, Climate Change and
the Convergence of Environmental and Energy Law, 24 FORDHAM ENVTL. L. REv. 180, 187-88 (2013)
(collecting sources).
200. Id. at 181-82, 188 (explaining this convergence, in part, by noting that environmental law is
incapable of responding to the challenges posed by climate change without reference to energy systems);
Amy J. Wildermuth, The Next Step: The Integration of Energy Law and Environmental Law, 31 UTAH
ENVTL. L. REV. 369, 369 (2011).
201. See Lincoln L. Davies, Alternative Energy and the Energy-Environment Disconnect, 46
IDAHO L. REv. 473, 477 (2010).
202. Id. (explaining the increasing overlap by noting that "today, environmental law impacts energy
decisions, just as energy decisions shape environmental outcomes").
203. More broadly, Professors Michael Dworkin, David Farnsworth, and Jason Rich noted more
than ten years ago that statutes then-existing imposed duties on public utility regulators to consider
environmental harms or at least permitted those harms to be taken into account. Michael Dworkin et al.,
The Environmental Duties of Public Utility Commissions, 18 PACE ENVTL. L. REv. 325 (2001)
(cataloging this phenomenon state by state). The article focuses on a variety of statutes, including those
fields has been seen both as a coordination challenge, as well as an opportunity

20 4
to foster a clean-energy economy that will improve environmental quality.
At a structural level, Connecticut and Massachusetts have each merged
their energy and environmental regulatory agencies. Connecticut's new agency,
the Connecticut Department of Energy & Environmental Protection, is
designed to "[i]ntegrate energy and environmental policies and programs in a
more systematic, proactive and coherent manner to provide a better structure
for decision-making and to build a sustainable and prosperous economic
future."'205 Even federal agencies, which have long operated in a more siloed
manner, are better coordinating energy and environmental strategy. 206
What can this increasing overlap teach us about the relationship between
energy and environmental law? For energy law, it suggests that environmental
considerations are becoming part of the normative canon. Energy regulators are
becoming more familiar with environmental considerations as a result of their
interactions, whether formal or informal, with their environmental counterparts.
And as environmental statutes and regulations increasingly affect components
of the energy grid, utilities and other energy decision makers must take the
purposes and requirements of those statutes into account. Thus, even if agency
organic statutes in energy law continue to emphasize the traditional norms of
reliability and low prices, it is clear that environmental considerations are
newly animating choices by regulators and system actors.
Prosumption is largely supportive of environmental goals. Until recently,
most of the distributed generation in the United States used traditional fuel
concerning general authority and obligations; those related to certification, siting and compliance; state
"NEPA" statutes (those requiring environmental impact statements for certain types of government
action); statutes concerning resource planning, conservation programs, and environmental externalities;
and restructuring provisions. Id. at 327. For a more modem example, consider Colorado's Clean Air,
Clean Jobs Act, which requires utilities in the state to submit plans to comply with state and federal
environmental standards for coal-fired power plants. COLO. REV. STAT. ANN. §§ 40-3.2-201-40-6-111
(2010).
204. See N.Y. STATE ENERGY PLANNING BD., supra note 197 at 7 ("Energy is the invisible engine
of our economy-and a clean, resilient, and affordable energy system is critical to achieving our
objectives.").
205. State of Connecticut, Department of Energy & Environmental Protection, About Us,
http://www.ct.gov/deep/cwp/view.asp?a=2690&q=322476&deepNav_GID=1511 (last visited July 21,
2015); see also State of Massachusetts, Executive Office of Energy and Environmental Affairs, About
EEA, http://www.mass.gov/eea/about-eea.html (last visited July 4, 2016) ("Our commitment to
protecting our environment now recognizes the importance of energy.").
206. See Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility
Generating Units (Final Rule) ("Clean Power Plan"), 80 Fed. Reg. 64,662, 64,707 (Oct. 23, 2015) (to be
codified at 40 C.F.R. pt. 60) (describing EPA consultation with the Department of Energy and FERC in
developing its Plan). Note, however, that there has been criticism of the EPA, in part by sitting FERC
Commissioners, of the timing and extent of the EPA's outreach efforts. FERC Commissioner Tony
Clark, in particular, believes that interactions between the two agencies have been too low-level and that
higher-level discussions must take place in order to secure a more formal role for FERC in
implementation of the Clean Power Plan. Rod Kuckro, FERC's Tony Clark Wants Formal Agency Role
in EPA 'sClean Power Plan, ENERGYWIRE (Dec. 5, 2014), http://www.eenews.net/stories/l060009991.
sources such as natural gas, coal, gasoline, and diesel.2" 7 But while
conventional technologies such as steam turbines, combustion turbines, internal
20 8
combustion engines, and microturbines can all serve as distributed resources,
renewable resources are a more promising source of growth because of their
health and environmental benefits. 20 9 These resources can replace traditional
fossil fuel-fired, centralized power generation. Demand-side management, too,
has clear environmental benefits. By avoiding the need to generate additional
electricity, demand reductions reduce reliance on the fossil fuel-fired power
plants that still produce more than 60 percent of our power. 2 10 Therefore, if
properly managed, distributed-energy resources can have significant positive
environmental effects.
2. Competition Norms
Another new energy regulatory norm has emerged since the 1980s:
competition. According to the deregulatory philosophy that has increasingly
dominated energy markets, the old model of strictly regulated monopolies in
the energy space is no longer necessary to ensure reliable supply and low
prices. Competition, so the argument goes, can accomplish the same task while
avoiding regulatory inefficiencies. 2 11 While this preference for free markets has
philosophical roots in the deregulatory preferences of the Reagan
administration, 2 12 it has persisted and has been judged by many to be a
2 13
success.
207. As of 2003, emergency backup generators using gasoline or diesel and combined heat and
power generators using natural gas, coal, or biomass made up 95 percent of all customer-owned
generation. CONG. BUDGET OFF., supra note 33, at x.
208. ld at 7-8.
209. Professors Hannah Wiseman and Garrick Pursley have argued convincingly that distributed
renewables are "essential" in "establishing a stable nationwide energy infrastructure powered
substantially by renewable resources," which in turn is important because of the negative environmental
externalities created by burning fossil fuels. Pursley & Wiseman, supra note 27, at 879-80. The EPA,
too, has praised distributed generation for its potential to mitigate climate change impacts. See EPA, ON-
SITE RENEWABLE ENERGY GENERATION: A GUIDE TO DEVELOPING AND IMPLEMENTING GREENHOUSE
GAS REDUCTION PROGRAMS at v (2014).
210. See U.S. Energy Information Administration, What is U.S. Electricity Generation by Energy
Source?, http://www.eia.gov/tools/faqs/faq.cfm?id=427&t=3 (last visited July 20, 2015).
211. Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission
Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities,
75 F.E.R.C. 61,080, at p. 1 (1996).
212. See David B. Spence, Can Law Manage Competitive Energy Markets?, 93 CORNELL L. REV.
765, 772 (2008) (describing moves toward deregulation by both the Reagan and Thatcher
administrations).
213. Compare Joseph P. Tomain, The Past and Future of Electricity Regulation, 32 ENVTL. L. 435
(2002) (applauding restructuring and competition generally, although noting the importance of
maintaining monopolistic, regulated transmission networks), with David B. Spence, supra note 212, at
776 77 (concluding that competitive energy market performance has been mixed and that lower prices
have not materialized).
This transformation has taken place, for the most part, in the last two
decades. 2 14 Competitive markets emerged first at the federal level, with
government regulators separating generation of electricity from its
transmission-in order to allow for more, varied sources of generation-and
regulating transmission operators as common carriers. 21 5 This meant that
competition in the generation and sale of electricity could develop. Some states
followed suit, 2 16 unbundling generation from distribution and creating an open
market for the purchase of electricity, in which customers could select their
supplier rather than relying on the local utility.
Market competition has since become a dominant value underlying
regulation of electricity markets. 2 17 Indeed, FERC sees promoting competition
in wholesale markets as "integral" to its ability to fulfill "its statutory mandate
to ensure supplies of electric energy at just, reasonable and not unduly
2 18
discriminatory or preferential rates."
Prosumers enhance competition in electricity markets. Rather than relying
on a handful of large, centralized power plants to supply energy to utilities and
customers, markets that include distributed resources offer power from a much
larger number of sources. New York has prioritized the development of
distributed energy resources as a "form of competition," since these resources
2 19
compete "with the standard methods of supplying and delivering power."
Demand response resources also increase competition by increasing
options for market operators when demand exceeds supply. Instead of choosing
from a more limited pool of supply-side resources, these operators may choose
either to increase supply or to reduce demand. FERC's Order 719, which
expanded access to wholesale energy markets for demand response prosumers,
found that allowing small retail customers to bid demand response into
wholesale markets would increase competition by "expand[ing] the amount of
resources available to the market."'220 Similarly, Order 745 justified its higher
compensation for demand response resources by noting the downward pressure
214. For an overview of the transition to competitive markets, see EISEN ET AL., supra note 30, at
11-14.
215. See 75 F.E.R.C. 61,080, atp. 115.
216. California's restructuring efforts were notoriously abortive, with the state backtracking after
the energy crisis of 2000-2001.
217. Note that competition is best described as a second-order norm in energy markets (a means
rather than an end) since it is ultimately designed to achieve first-order goals such as low rates and
nondiscrimination at lower regulatory cost.
218. Wholesale Competition in Regions with OrganizedElectric Markets, 125 F.E.R.C. 64,100 at
P 1(2008).
Adopting Regulatory Policy Framework and Implementation Plan, 19 (N.Y. Pub. Serv. Comm'n Feb.
26, 2015) (Case 14-M-0101).
220. 125 F.E.R.C. 64,100 at P 154 (finding that permitting aggregators to bid demand response
into wholesale markets on behalf of retail customers increases competition in those markets).
that this increased competition would put on wholesale market prices during
22 1
times of grid stress.
Prosumption is thus not only consistent with the traditional goals of the
electricity regulatory system-low prices and reliable service-but with more
modem additions to that system's underlying norms: environmental protection
and market competition.
V. REGULATING PROSUMPTION
How significant a role will prosumers play in the electricity economy of

the future? The answer, while dependent to some extent on extemal factors,
will be heavily influenced by regulatory choices. As Yochai Benkler noted in
the context of communications law, the relationship between on-the-ground
developments and regulatory decisions is not unidirectional. 222 Regulatory
22 3
choices can affect, if not dictate, the evolutionary direction of a field.
The first subpart, below, summarizes existing approaches to the regulation
of prosumer activities. These regulatory measures are predominately state-by-
state, lending an experimentalist character to prosumer regulation. As argued in
the second subpart, experimentation has yet to yield definitive answers about
the precise form a prosumer future should take, and it is appropriate to continue
a more decentralized, experimentalist approach at this time. However,
assuming that we take seriously Part IV's conclusion that some level of
prosumption is consonant with modem electricity law's prevailing norms, it is
possible to draw some preliminary conclusions about the desirable attributes of
a future prosumer-friendly electricity policy. The final subpart sets out some of
these elements.
A. Existing RegulatoryApproaches
Due to the federal government's lack of jurisdiction over retail electricity,

policies that affect energy prosumption have, to date, been predominantly state-
by-state. This subpart will examine various regulatory efforts that have
impacted prosumption, including mandates, incentives, environmental policies,
and structural reform.
P 7 (2011) ("As the Commission recognized in Order No. 719, active participation by customers in the
form of demand response in organized wholesale energy markets helps to increase competition in those
markets.").
222. See Benkler, supra note 4, at 562-63.
223. See W. Nicholson Price II, Making Do in Making Drugs: Innovation Policy and
PharmaceuticalManufacturing, 55 B.C. L. REV. 491, 496, 498 n.53 (2014) (suggesting that the FDA
can deliberately shape incentives to innovate in the field and collecting sources on the effect of
regulation on innovation).
1. Mandates
Mandates are a classic form of environmental regulation and are found in

the energy and prosumption spaces as well. 224 Perhaps best known among the
mandates are state renewable generation targets (often called renewable
portfolio standards). These require that utilities source a given percentage of
their electricity from renewable sources by a certain date. Twenty-nine states
and the District of Columbia have some form of a renewable portfolio standard,
while eight additional states have voluntary targets. 225 Renewable portfolio
standards are likely to increase prosumption because they encourage utilities to
purchase customer-generated renewable energy to meet the standards. Several
states have special carve-outs in their renewable portfolio standards requiring
that a certain percentage of the overall target be sourced from distributed
2 27
generation. 2 26 Others impose separate energy efficiency targets on utilities.
Finally, at least one state (Pennsylvania) has imposed a mandate on electric
distribution companies to reduce peak electrical load, which encourages both
22 8
energy efficiency and demand response.
Some states have adopted even more targeted programs. California has
issued a series of legislative and regulatory mandates that promise to increase
prosumption in the state. On the distributed generation side, California has
required its three largest investor-owned utilities to craft plans identifying
distributed resource potential and explaining how the utilities will incorporate
distributed resources in their territories. 22 9 New homes in California must also
224. Note that the mandates offered as examples here do not all discriminate between customer-
and utility-owned resources.
225. Nat'l Conference of State Legislatures, State Renewable Portfolio Standards and Goals,
http://www.ncsl.org/research/energy/renewable-portfolio-standards.aspx (last visited Jan. 15, 2016).
Some states, like California, couple renewable portfolio standards with requirements that utilities meet
demand through energy efficiency and conservation first, followed by renewable generation, before
turning to fossil fuel-fired generation. Decision Approving Modified Bundled Procurement Plans, Order
Instituting Rulemaking to Integrate and Refine Procurement Policies and Consider Long-Term
Procurement Plans (Cal. Pub. Utils. Comm'n Jan. 12, 2012) (Rulemaking 10-05-006).
226. See Nat'l Renewable Energy Lab., Renewable Portfolio Standards, http://www.nrel.
gov/tech deploymentlstatelocalgovernments/basicsportfolio standards.htm-l (last visited July 21,
2015) (including map of states with policies that include solar or distributed generation provisions as of
March 2013).
227. Twenty-five states currently have energy efficiency resource standards for utilities or third-
party program administrators. Am. Council for an Energy-Efficient Econ., State Energy Efficiency
Resource Standards (EERS), http://aceee.org/sites/default/files/eers-052016.pdf (last visited Jan. 18,
2016).
228. OPTIMAL ENERGY, INC., PENNSYLVANIA 2013-2018 ENERGY EFFICIENT GOALS 2 (2008)
(requiring a total peak demand reduction of 4.5 percent by May 2011).
229. CAL. PUB. UTILS. CODE § 769 (West 2015) (requiring that distributed resources plans be
submitted by July 1, 2015). While some of this demand will be met through utility-scale distributed
generation, much will also come from customer-owned systems, including distributed renewable
resources, energy efficiency, energy storage, electric vehicles, and demand response. See PG&E,
ELECTRIC DISTRIBUTION RESOURCES PLAN 2 n.1 (2015). PG&E has also specifically acknowledged a
goal of allowing customers "to achieve greater value from their energy technology investments." Id. at
8.
be prosumption-ready: the state's Long Term Energy Efficiency Strategic Plan

calls for all new residential construction to generate as much energy as it
consumes by 2020.230 In addition, the California Public Utilities Commission
has required the state's three large investor-owned utilities to create 1.3
gigawatts of energy storage by 2024.231 Hawaii has also imposed various
mandates on utilities,, including requirements that utilities integrate demand
response into their electricity portfolios 232 and allow customers to interconnect
distributed generation to the grid unless the interconnection would affect
"circuit or system level security and reliability." 233
2. Incentives
Short of actual mandates, subsidies and other incentives may encourage

customers to become more active participants in the generation and
management of energy.2 34 California is encouraging prosumption by making
advanced energy storage systems eligible for its Self-Generation Incentive
Program rebates. 235 In an even more innovative step, San Diego Gas &
Electric, an investor-owned utility in southern California, is proposing a new
rate structure that would reward the installation of behind-the-meter batteries. If
owners of the batteries permit the utilities to draw on stored energy during pre-
arranged peak periods, they will receive a lower, preferential rate for
236
electricity.
230. CAL. PUB. UTILS. COMM'N, CA ENERGY EFFICIENCY STRATEGIC PLAN 14 (2011). The plan
includes a similar goal with respect to commercial construction by 2030. Id. at 28. These goals are
implemented through building code mandates. Id. at 29.
231. Order Instituting Rulemaking to Consider Policy and Implementation Refinements to the
Energy Storage Procurement Framework and Design Program (D.13-10-040, D.14-10-045) and Related
Action Plan of the California Energy Storage Roadmap (Cal. Pub. Utils. Comm'n Oct. 17, 2013)
(Rulemaking 15-033-011). Again, while this order will undoubtedly encourage some utility-scale
projects, it will also incentivize consumer storage.
232. Decision and Order, In re Pub. Utils. Comm'n Regarding Integrated Res. Planning. (Haw.
Pub. Comm'n Apr. 28, 2014).
233. Letter of General Agreement Between Randy Iwase, Chair, Public Utilities Commission of the
State of Hawaii, and Alan Oshima, President and CEO, Hawaiian Electric Co, Inc. (Feb. 27, 2015),
http://puc.hawaii.gov/wp-content/uploads/2015/03/NewRelease.20150227.pdf (last visited July 28,
2015).
234. A report by the National Renewable Energy Laboratory found a positive correlation between
the existence of incentives such as net metering and renewable portfolio standards and the level of
installed distributed solar PV. D. STEWARD ET AL., NAT'L RENEWABLE ENERGY LAB., THE
EFFECTIVENESS OF STATE-LEVEL POLICIES ON SOLAR MARKET DEVELOPMENT IN DIFFERENT STATE
CONTEXTS 29 (2014).
235. See CPUC, 2014 SELF-GENERATION INCENTIVE PROGRAM HANDBOOK 32, 44 (2014). These
systems, also known as "behind-the-meter energy storage systems," can operate as a complement to
distributed-generation technologies. PUBLIC INTEREST ENERGY RESEARCH PROGRAM, 2020 STRATEGIC
ANALYSIS OF ENERGY STORAGE IN CALIFORNIA 7 (2011). They enable customers to avoid peak
electricity charges and, where programs exist, to provide important ancillary services to the grid.
236. Prepared Direct Testimony of Cynthia Fang, Chapter 1, On Behalf of San Diego Gas & Elec.
Co., Application of San Diego Gas & Elec. Co. (U 902 E) for Auth. to Update Marginal Costs, Cost
Allocation, & Elec. Rate Design, C24-C25 (July 1,2015).
Currently, all demand response programs targeted at individual prosumers

take the form of incentives (although utility mandates exist). 237 Wholesale
markets offer price incentives to encourage prosumer participation, as do some
state-level utilities. 2 38 When it comes to energy efficiency, while some policies
are in the form of mandates (for example, energy efficiency requirements in
building codes), numerous incentives exist as well. These incentives often take
the form of tax credits, rebates, or savings. For example, Xcel Energy offers
customers in Colorado rebates to partly cover the costs of energy efficiency
239
upgrades in new and existing structures.
With respect to distributed generation, a myriad of state-level subsidy and
rebate programs encourage customers to become prosumers. These programs
reduce the cost of installing renewable technologies. 240 Pricing programs like
net energy metering also encourage more prosumption by compensating
customers for energy sold back to the grid at a generous rate. 24 1 Vermont
employs a different incentive, called a feed-in tariff, which permits
homeowners with solar panels to enter into long-term contracts with utilities
guaranteeing a specific rate for their excess energy. 2 42 These long-term
243
contracts provide the certainty needed to encourage capital investment.
237. New York's public service commission has required all utilities to offer demand response
programs to customers by July 2016. Order Adopting Dynamic Load Management Filings with
Modifications, Case 14-E-0423 et al. (June 18, 2015).
238. See DemandResponse Compensation in Organized Wholesale Markets, 134 F.E.R.C. 61,187
at P 2 (2011) (requiring that demand response resources in wholesale markets be paid the LMP for their
services); DSIRE, Databaseof State Incentives.for Renewables & Efficiency, http://www.dsireusa.org/
(last visited July 17, 2015) (including a state-by-state list of demand response programs).
239. Xcel Energy, Residential Energy Efficiency, https://www.xcelenergy.com/programs_
and-rebates/residentialprograms and rebates/home energy efficiency (last visited July 16, 2015).
240. For a list of current state incentives, see DSIRE, Database of State Incentives for Renewables
& Efficiency, http://www.dsireusa.org/ (last visited July 17, 2015).
241. Under net energy metering programs, prosumers are effectively compensated at the retail rate
for the excess electricity they generate. For a list of net metering programs by state, see U.S. Dept. of
Energy, Energy Efficiency & Renewable Energy, Net Metering Programs by State, http://apps3.
eere.energy.gov/greenpower/resources/maps/netmetering_ map.shtml (last visited July 17, 2015).
242. VT. STAT. ANN. tit. 30, § 8005a (2015).
243. While feed-in-tariffs are rare in the United States, they are popular in Europe and have been
credited with driving the distributed generation revolution in several European countries. See, e.g.,
KARLYNN CORY ET AL., NAT'L RENEWABLE ENERGY LAB., FEED-IN TARIFF POLICY: DESIGN,
IMPLEMENTATION, AND RPS POLICY INTERACTIONS 1 (2009), http://www.nrel.gov/docs/fy09osti
/45549.pdf (noting that feed-in tariffs are credited for the success of both German and Spanish
renewable energy markets and suggesting that they might be more cost-effective than renewable
portfolio standards); Wilson H. Rickerson et al., If the Shoe FITs: Using Feed-in Tariffs to Meet U.S.
Renewable Electricity Targets, 20 ELECTRICITY J. 73 (2007) (crediting feed-in tariffs with driving
"explosive renewable energy capacity growth in Europe during the past 15 years"); but see Steffen
Jenner et al., Assessing The Strength and Effectiveness of Renewable Electricity Feed-In Tariffs in
European Union Countries, 52 ENERGY POL'Y 385 (2013) (noting that the effectiveness of feed-in-
tariffs in driving wind and solar power development in Europe is less clear than other studies have
suggested and depends on policy design of individual programs). Spain offers a cautionary tale, since its
tariff levels proved too generous, stimulating artificial market growth but quickly exhausting available
funds. See Paul Voosen, Spain's Solar Market Crash Offers a Cautionary Tale About Feed-In Tariffs,
Some policies create incentives by removing barriers to becoming a

prosumer. Currently, more than thirty states and some municipalities have laws
protecting access to sunshine for solar panel owners, potential owners, or
users. 24 4 As an example, Boulder, Colorado's solar access laws require the
inclusion of a hypothetical "solar fence" around protected buildings and
prohibit new construction from shading adjacent lots beyond that zone. 245 Data
sharing rules also make prosumption less onerous. These rules require utilities
to publish information about the distribution network so that customers are
aware of where the best opportunities for prosumption exist. 246 Finally, on the
procedural side, local governments can encourage the installation of on-site
24 7
generation by lowering application costs.
3. EnvironmentalRegulation
Environmental regulation is a special form of indirect incentive that

affects prosumer decisions. Environmental regulation that makes power
generation from centralized plants-typically large fossil fuel-fired plants-
more costly creates an incentive for utilities to obtain more of their energy from
cleaner sources. These may include large nuclear or hydroelectric plants,
utility-scale renewable sources, or distributed resources. Thus, while
environmental policies may not directly encourage prosumption, they make
renewable distributed generation, as well as energy efficiency, demand
response, and energy storage, more economically competitive. Examples of
such policies are greenhouse gas caps, like the one imposed by California's
Global Warming Solutions Act, and more traditional limitations on air
24 8
emissions under the federal Clean Air Act.
The Environmental Protection Agency's (EPA's) Clean Power Plan is
another environmental regulation likely to have a significant effect on
prosumption. Promulgated under section 111 (d) of the Clean Air Act, the Plan
N.Y. TIMES (Aug. 18, 2009), http://www.nytimes.com/gwire/2009/08/18/18greenwire-spains-solar-

market-crash-offers-a-cautionary-88308.html?pagewanted=all.
244. COLLEEN MCCANN KETTLES, A COMPREHENSIVE REVIEW OF SOLAR ACCEss LAW IN THE
UNITED STATES 6 (2008), http://www.solarabcs.org/about/publications/reports/solar-access/pdfs/
Solaraccess-full.pdf (last accessed July 16, 2015).
245. BOULDER REV. CODE, ch. 9-9-17.
246. California has required its large investor-owned utilities to disclose technical information that
would reveal distributed energy resource opportunities. See Jeff St. John, California Utilities on Data
Sharing: Yes, No, and Let's Talk About It, GREENTECH MEDIA (July 9, 2015), http://www.
greentechmedia.com/articles/read/califomia-utilities-on-data-sharing-yes-no-and-lets-talk-about-it.
247. See, e.g., David Garrick, Red Tape Cut for Home Solar, SAN DIEGO UNION-TRIBUNE (July
23, 2014), http://www.sandiegouniontribune.com/news/2015/jul/23/solar-home-install-law-cheap-stream
line/ (describing San Diego's new ordinance streamlining the rooftop solar application process and
facilitating appeals of application denials).
248. See California Global Warming Solutions Act of 2006, CAL. HEALTH & SAFETY CODE § 25.5
(2015). Clean Air Act regulations are too numerous to cite individually and appear throughout Title 40,
Subchapter C of the U.S. Code. 42 U.S.C. § 7401-7671q (2012).
creates carbon pollution standards for existing power plants. 249 It requires those
plants to meet standards based on the "best system of emissions reduction" that
has been adequately demonstrated. 250 The EPA has determined that the "best
system" for reducing carbon pollution from existing power plants is a
combination of three "building block" approaches. 2 51 The Plan therefore sets
individual state targets based on what reductions the EPA believes plants in
those states can achieve using the "building blocks." 2 52 While the final Plan did
not consider distributed generation or demand-side management in calculating
state targets, 253 states may use both technologies to comply with those
targets. 254 Because demand-side management is relatively inexpensive in
comparison to other avenues of compliance, encouraging prosumers to
participate in energy efficiency and demand response programs will likely be
255
an appealing option for states seeking to meet Clean Power Plan goals.
4. StructuralReform
One state, New York, is considering fundamental changes to the structure

of its electric power markets. The state's Reforming the Energy Vision strategy
envisions a shift from a centralized, hub-and-spoke power production model to
one incorporating distributed generation and demand-side management. 256 If
the plan is adopted in its current form, utilities will eventually operate
distributed system platforms, intelligent network platforms that perform
integrated distribution system planning and coordinate grid and market
operations. 2 57 One of the key goals of this model is to facilitate the
249. Clean Power Plan, 80 Fed. Reg. 64,662, 64,665, 64,715 (Oct. 23, 2015) (to be codified at 40
C.F.R. pt. 60).
250. Id. at 64,709.
251. Id. The building blocks are, first, making fossil fuel-fired power plants more efficient, second,
increasing the use of lower-emitting natural gas plants, and, third, substituting renewable resources for
fossil fuel-fired generation. Id.
252. For an interactive map of targets by state, see Ctr. for Climate & Energy Sols., Carbon
Pollution Standards Map, http://www.c2es.org/federal/executive/epa/carbon-pollution-standards-map
(last visited Jan. 18, 2016).
253. Clean Power Plan, 80 Fed. Reg. 64,662, 64,726 (Oct. 23, 2015) (to be codified at 40 C.F.R. pt.
60).
254. Id. at 64,664, 64673-74, 64,810. See also Jeff Hopkins, Modeling EPA's Clean Power Plan:
Insights for Cost-Effective Implementation, CTR. FOR CLIMATE & ENERGY SOLS. 2, 16 (2015),
http://www.c2es.org/publications/modeling-epas-clean-power-plan-insights-cost-effective-
implementation (last accessed August 1,2015).
255. A Navigant Research report found that demand response could reduce carbon emissions from
power plants by up to 2 percent. Brett Feldman, Can Demand Response Help States Comply with the
EPA's Clean Power Plan? NAVIGANT RESEARCH BLOG (April 24, 2015), https://www.navigantresearch.
com/blog/can-demand-response-help-states-comply-with-the-epas-clean-power-plan.
256. See Proceeding on Motion of the Commission in Regard to Reforming the Energy Vision,
Order Adopting Regulatory Policy Framework and Implementation Plan, 2-3 (N.Y. Pub. Serv. Comm'n
Feb. 26, 2015) (Case 14-M-0101). Other states, including Hawaii, Massachusetts, Minnesota, and
Colorado are exploring approaches similar to New York's.
257. Id. at31.
development of distributed energy resources and to enable customers "to be

258
active participants" in energy markets rather than passive recipients.
Although the process is collaborative, ultimately, New York's plan will be
implemented through mandated system restructuring rather than relying
2 59
primarily on incentives to alter behavior.
Structural reform might also involve shifting regulatory responsibility to a
new entity. For prosumers or potential prosumers frustrated by the slow pace of
change at the federal and state levels, one increasingly appealing option is to
explore public, localized regulation of the electricity sector. This approach,
called municipalization, is particularly intriguing because of the parallels
between it and the decentralization movement in energy market participation
and energy governance.
Seeking to capitalize on innovation in decentralized generation and
demand-side management, the city of Boulder, Colorado is currently
attempting to municipalize its electricity system. Boulder hopes to "create the
'utility of the future,"' 260 which would support the city's goals of
26 1
"democratization, decentralization and decarbonization of its power supply."
At least the first two of these goals are directly related to prosumption. Boulder
hopes to "increase citizen participation in democratic decision making
regarding their use of electricity" and "decentralize their energy source[s]
through expanded distributed generation." 26 2 The process is complex, however,
and Boulder has run into concerted opposition from the investor-owned utility
currently serving the city. 263 If successful, however, Boulder may serve as a
258. Id. at 11. Indeed, the plan seeks, among other things, to increase "customer empowerment."
Id. at3 (Feb. 26, 2015). The Plan identifies distributed energy resource operators as both customers and
partners of traditional grid service. Id. at 41. As partners, customers will be compensated for the value of
the services they provide to the grid. Id.Utility ownership of distributed energy resources "will be the
exception rather than the rule." Id. at 66. And utilities will only be permitted to provide distributed
energy resources if competitive markets have failed to provide that service in a cost-effective manner
(with limited exceptions). Id.at 68-69.
259. The state's Public Service Commission is implementing Reforming the Energy Vision in two
tracks: the first focuses on developing distributed resource markets, while the second tackles reform of
utility ratemaking practices. Id. at 5.
260. In the Matter of the Application of the City of Boulder, Colorado for Approval of the
Proposed Transfer of Assets from Public Service Company of Colorado to the City and Associated
Authorizations and Relief, Verified Application of the City of Boulder, Colorado at 2 (July 7, 2015).
261. Id. at 5.
262. Id. at 9.
263. The investor-owned utility, Xcel Energy, has challenged Boulder's authority to condemn
assets located outside the city limits that serve residents in unincorporated Boulder County without state
public utility commission approval. Public Service Company of Colorado, Verified Petition for
Declaratory Orders, Proceeding No. 13D-0498E (May 9, 2013). Xcel Energy has also challenged the
Boulder ordinance approving municipalization directly. Complaint, Public Service Co. of Colorado v.
City of Boulder (Dist Ct. Boulder Cnty. 2014). The utility has also sought review of Boulder's desired
condemnation of a high-voltage transmission line by FERC. Petition for Declaratory Order of Public
Service Company of Colorado, Docket No. EL 14-97-000 (Aug. 26, 2014).
test case for other localities hoping to municipalize in order to increase

264
prosumption and further environmental ends.
Local leaders in Hawaii, too, are exploring the option of forming an
electric cooperative or municipal utility to replace their local investor-owned
utility. 265 Animating residents' desire for change are, first, the fear that the
existing utility is not sufficiently sympathetic to distributed solar and, second,
the prospect that a cooperative or municipal utility would be more willing to
266
accommodate growing numbers of solar prosumers.
While municipalization can have significant downsides-among them
concerns about cost, reliability problems, and legal challenges2 67-it is a way
for prosumers and other citizens to achieve greater control over electricity grid
decisions. Without minimizing its drawbacks, it is safe to conclude that
municipalization has significant potential to democratize electricity decision
making and enhance prosumer participation in energy governance and policy
268
formation.
B. Experimentation in ElectricityPolicy
Prosumption today is a product of the rich ecosystem of policies described

in the previous subpart. The success of such "all of the above" strategies in,
driving change is nothing new. Professors James Liebman and Charles Sabel
have explained education reform as a "fusion of a top-down national movement
for standards and bottom-up initiatives. "269 Other new governance scholars
264. Cities including Minneapolis and Santa Fe have recently considered municipalizing their
electric distribution system, though neither city has active plans.
265. The Hawaii Island Energy Cooperative has urged the state public utilities commission to
consider a cooperative as an alternative to an investor-owned utility. See Press Release, Hawaiian Island
Energy Cooperative (July 20, 2015) (on file with author).
266. Herman K. Trabish, Inside Hawaii Activists' Push to Ditch HECO and Transform the Utility
Business Model, UTILITYDIVE (May 28, 2015), http://www.utilitydive.com/news/inside-hawaii-
activists-push-to-ditch-heco-and-transform-the-utility-busin/399492/. Although the local utility, HECO,
is now permitting new distributed solar after a lengthy moratorium, residents' fears have been
exacerbated by a proposed merger between HECO and NextEra Energy, a large mainland energy
company. Id.
267. See REBECCA JOHNSON, MUNICIPAL ELECTRIC UTILITIES: ANALYSIS AND CASE STUDIES 4-5
(2006), http://fivestarconsultants.com/GradProjects-files/Municipal%20Electric%20Utilities.pdf (out-
lining pros and cons of municipalization); Suedeen G. Kelly, Municipalizationof Electricity: The Allure
of Lower Rates for Bright Lights in Big Cities, 37 NAT. RESOURCES J. 43, 43, 53-57 (1997). Additional
questions have been raised about federal constitutional limitations on municipalization. Shelley Ross
Saxer, Eminent Domain, Municipalization, and the Dormant Commerce Clause, 38 U.C. DAVIS L. REV.
1505 (2005).
268. See Kathryn C. Browning, Electric Municipalization in the City of Boulder: Successful
Greening or Path to Bankruptcy? 35-36, CMC Senior Theses, Paper 562. http://scholarship.
claremont.edu/cmctheses/562 (2013) (arguing that municipal utilities are more responsive to the public
because they serve a smaller number of customers).
269. James S. Liebman & Charles F. Sabel, The FragilePromise of Provisionality,28 N.Y.U. REV.
L. & SOC. CHANGE 369, 370 (2003).
also emphasize the opportunities for synergies between centralized, top-down

270
regulation and more decentralized governance strategies.
Because of their heterogeneity and decentralization, policies to promote
prosumption to date have the flavor of democratic experimentalism.
Democratic experimentalism has been lauded as an alternative to
"comprehensively rational" policy making (attempts to address all
contingencies in one, overarching policy that will solve the problem at issue).
The basic justification for experimental policies is that we lack sufficient
experience in the area to draw firm conclusions about optimal policy design. 271
Professor Charles Lindblom offered the seminal defense of'
experimentalism's precursor, incrementalism. Lindblom referred to
incrementalism as "muddling through. '2 72 He emphasized that some problems
were simply too complex to foresee all possible effects of a given policy
choice. 2 73 Professor Colin Diver extended Lindblom's incrementalist paradigm,
proposing more specific scenarios in which incrementalism might be preferable
to comprehensive rationality. Diver found that incrementalism was typically
274
appropriate in the first years of a new policy initiative.
There are several reasons to think that a decentralized, incremental, or
experimentalist approach to encouraging prosumption is desirable at this time.
First, prosumption involves complex and rapidly developing technology. As
early as 1981,275 Diver specifically cited nonnuclear energy production as a
prime candidate for incremental policy making because of the considerable
technological uncertainty in the field. 276 If anything, that technological
complexity has only increased with the advent of prosumers and distributed
energy resources. In addition, Diver noted that regulation of public utilities,
270. Orly Lobel, The Renew Deal: The Fall of Regulation and the Rise of Governance in
ContemporaryLegal Thought, 89 MINN. L. REV. 342, 344 (2004).
271. Defenders of democratic experimentalism note that some problems appear intractable because
we simply do not know which path will best resolve them. Liebman and Sabel, supra note 269, at 381
(opining that democratic experimentalism is the right "strategy for citizens and courts to pursue where
there is no clear strategy for doing what practically and constitutionally needs to be done").
272. Charles Lindblom, The Science of "Muddling Through," 19 PUB. ADMIN. REV. 79, 80 (1959)
(noting that comprehensive resolution of all but the simplest problems requires "intellectual capacities
and sources of information that men simply do not possess"). Lindblom recommends problem solving
via "a method of successive limited comparisons." Id. at 81 (emphasis removed). This involves
clarifying and adapting both objectives and policies as steps are taken and effects are measured. Id.
273. Id.
274. Colin Diver, Policymaking Paradigms in Administrative Law, 95 HARV. L. REV. 393, 431
(1981). Diver cautioned, however, that a more comprehensive approach was better suited to areas where
policy mistakes might result in irreparable harm-in which case incremental adjustments would be
fruitless-or where policy choices might harm groups powerless to participate in future policy
adjustments. Id. Relatedly, Professor Allen Rostron has criticized the use of incremental policymaking
to regulate firearms, noting that, in this area, incremental policies risk creating significant public
backlash that can undermine the broader regulatory project. Allen Rostron, Incrementalism,
ComprehensiveRationality, and the Future of Gun Control, 67 MD. L. REV. 511, 514 (2008).
275. Diver, supra note 274, at 431.
276. Id. at 433.
while originally a suitable candidate for more comprehensive regulation, was,

by the 1980s, a better candidate for incrementalism because of the unstable
nature of the industry. 277 Electric industry "instability" is perhaps as
pronounced today as at any time since the restructuring in the late 1980s and
1990s due to the integration of distributed energy resources. Thus,
incrementalism or experimentalism in utility regulation generally, and in
regulation of prosumers specifically, is a much more appealing strategy than
comprehensive rationality.
Even for those who believe it is time for a more coordinated, centralized
policy when it comes to prosumers and distributed energy resources, an
incrementalist or experimentalist approach might still be viewed as an
acceptable second-best. This is because experimental policies may be
deployable even in an atmosphere of partisan legislative gridlock, where
synoptic policy making is impossible. 27 8 Because it is currently difficult to
secure agreement on environmental and energy policies in Congress, a more
experimentalist approach to prosumption regulation might be justified, even for
those who believe it would be ideal to implement a comprehensive, overarching
strategy given greater political consensus.
One caveat is in order. While the existing decentralized approach to
prosumption policy making resembles an incrementalist or experimentalist
approach in practice, there is no single policy maker or group of policy makers
that has selected and implemented either of those approaches. 279 Instead, we
have a landscape of policies that approximates what a centralized policy maker
might select under conditions of uncertainty about goals and pathways. To reap
the full benefits of an incrementalist or experimentalist approach, greater
centralization, or at least increased coordination, is necessary.28 ° Such
coordination would allow for modifications that respond to some of the
critiques of experimentalist approaches. Professor David Super has suggested
two program components essential to good experimentalist policy. First, a
consensus around interim aims must exist before a decentralized,
experimentalist regime can be effective. 28 1 Second, reliable metrics to measure
277. Id. at 431.

278. Liebman & Sabel, supra note 269, at 380 (ascribing such an understanding to Mark Tushnet).
279. In the Energy Policy Act of 2005, Congress noted that "[i]t is the policy of the United States to
encourage States to coordinate, on a regional basis, State energy policies to provide reliable and
affordable demand response services to the public." 16 U.S.C. § 2642 (2012). Congress committed the
federal government to work with the states to identify and address barriers to demand response,
including by providing technological assistance, and required state regulatory authorities to "consider"
establishing demand response programs. § 2622(b), 2642. Federal legislative statements such as these
come the closest to formal adoption of an experimentalist approach.
280. See Brandon L. Garrett & James S. Liebman, Experimentalist Equal Protection, 22 YALE L. &
POL'Y REV. 261, 290 (2004) ("The gist of experimentalism... is the definition by the 'center' of an
important public problem and the center's setting of rough improvement goals and incentives for
improvement.").
281. David Super, Laboratoriesof Destitution: Democratic Experimentalism and the Failure of
Antipoverty Law, 157 U. PA. L. REV. 541, 553-554 (2008). Martha Minow has also raised these concerns
policy effectiveness must be generated. 282 Diver makes a related point: policy
makers must be willing and able to dedicate adequate resources over time to
adjust to new information and changing circumstances. 283 A centralized,
coordinated strategy, then, would help ensure better policy, even in the current
experimentalist landscape.
In order to best capitalize on the policy experimentation surrounding
prosumption, then, the federal government or some other trusted broker should
first establish a common set of goals for prosumption policy. The success or
failure of the various policies in this area might then be better evaluated on an
ongoing basis for their consistency with those goals. Of course, goals should be
modified in light of the information that policy experiments yield. Actors
implementing the various policies should make adjustments based on this
feedback. 284 There might also be a role for the federal government, and in
particular, the national laboratories, in helping to derive metrics to measure the
effectiveness of particular prosumer policies. Individual federal agencies,
states, and localities could then adapt these metrics to evaluate the success or
failure of their various programs.
The experimentalist state of prosumption sheds new light on the puzzles
presented in Part II. As I have written elsewhere, a first-best resolution of at
least some of these puzzles might entail a legislative solution. 285 While
experimentation with different forms and levels of prosumption is ongoing,
however, the various stop-gaps, fictions, and trials that FERC and state
regulators have developed to deal with prosumption quandaries may be not
only adequate, but desirable. A first-best solution to the jurisdictional puzzles
presented above, for example, would likely involve a reworking of the FPA.
Those revisions might leave the basic allocation of authority between state and
federal regulators unmodified, but specify which regulator has authority over
net metering arrangements, on the one hand, and demand response in wholesale
markets, on the other. Or, we might imagine a wholesale redesign of the Act's
jurisdictional boundaries, allocating greater authority over electric power to the
in the context of education reform. See Martha Minow, School Reform Outside Laboratory Conditions,
28 N.Y.U. REV. L. & SOC. CHANGE 333, 334, 338 (2003).
282. Super, supra note 281, at 556.
283. Diver, supra note 274, at 430-31.
284. The option for policy adjustments might be preserved by making statutes and regulations
flexible enough to allow adaptation, or at least amendment of some kind. Professor Zachary Gubler has
proposed the increased use of "experimental rules"-rules subject to sunset provisions where the
primary aim is to generate data to inform an agency's decision about whether to issue a permanent rule,
modify the rule, or embrace the status quo. Zachary J. Gubler, Experimental Rules, 55 B.C. L. REV. 129,
130-31 (2014). Glicksman and Shapiro have also emphasized the importance of back-end adjustments
in incremental or experimental problem solving. Robert L. Glicksman & Sidney A. Shapiro, Improving
Regulation Through Incremental Adjustment, 52 U. KAN. L. REV. 1179 (2004) ("One important
advantage of proceeding in this manner is that regulatory policy is adjusted in light of its actual impact,
as compared to the significant guesswork that is required to use front-end analysis.").
285. See Jacobs, supra note 3, at 940-42.
federal government. 286 Each of these approaches comes with complexities and
problems of its own and would thus need to be undertaken only after careful
planning and projection. It may be, however, that when it comes to
prosumption and its related behaviors, we have not yet achieved a sufficient
enough understanding of the technologies and policies involved to institute a
comprehensive legislative solution. That said, more information is not always
valuable, and at some point, legislators must grasp the nettle. 287 But
prosumption technologies are, if not in their infancy, at least in their
adolescence, and the implications of more widespread prosumption for the
electricity grid and for electricity governance are still uncertain. At this stage in
prosumption's development, therefore, prudence may be prescribed.
C. Elements of a ProsumerElectricity Policy
At some point, perhaps in the not too distant future, we will have a better
sense of whether and how increased prosumption will further key energy law
goals, and at what cost. We will also have a better sense of what types of
prosumption are most beneficial, and how best to minimize prosumption's
downsides. Finally, we will have more information about how to integrate
,prosumption and prosumers into an effective governance regime. Then we may
turn from experimentalist strategies to more comprehensive policy making.
That is also the point at which we may reach what Professor Amy Stein has
called "the tipping point of federalism," in which the federal government
288
assumes primary responsibility for legislating in a given area.
While the future of prosumption is impossible to predict with any
certainty, possible scenarios fall into three broad categories. First, the future
might look very much like today. Utilities would still play the central role in
procuring and delivering electricity to end-use customers, with distributed
generation playing only a marginal role. Demand response and energy
efficiency programs would exist, but not on any significant scale. In this future,
the prosumer role would be minimal. Second, we might see a marked increase
in distributed generation, demand response, and energy efficiency, but with
traditional utilities remaining the dominant industry force. In such a world,
prosumers would play a meaningful but supporting role, while utility-scale
renewables would dominate the market, and the focus would remain on
electricity supply rather than demand. Finally, we might see comprehensive
restructuring of electricity markets and systems at the distribution level.
Traditional utilities might be reinvented, prosumers might become the primary
286. But see Amy Stein, The Tipping Point of Federalism, 45 CONN. L. REV. 217 (2012)
(explaining that federalization, even where warranted by traditional justifications of centralized
governance, can be delayed where there are adequate opportunities for federal agencies to participate in
existing regimes).
287. See David Super, Against Flexibility, 96 CORNELL L. REV. 1375, 1380 (2011) (noting that
while information may become more plentiful over time, decisional resources may become scarcer).
288. See Stein, supra note 286.
source of generation, and demand management could achieve parity with

supply management.
Regulatory experimentation must be given time to work, and it would be
premature at this juncture to draw firm conclusions about ideal system design
for a prosumer economy. Nevertheless, essential elements of such a system can
be identified given the norms underlying modem electricity regulation. An
increased focus on competition in wholesale and some retail markets cuts in
favor of special incentives to encourage prosumer activity. This activity would
compete with traditional generators, offering utilities and consumers greater
choice and mitigating generator market power. From a competition perspective,
therefore, affirmative incentives for prosumer activity are desirable, as is
mitigation of barriers to prosumer participation (such as the streamlining of
interconnection applications for new distributed generation).
Environmental norms also suggest a larger role for demand-side
management as well as clean distributed generation. In many ways,
environmental norms could be satisfied equally well by utility-scale renewable
generation as by distributed renewable generation. One factor weighing sharply
in favor of distributed renewable generation, however, is land use. Utility-scale
projects require large tracts of land to be devoted to new installations (with
attendant ecosystem impacts). By contrast, distributed renewable generation
289
can be developed in existing built environments.
While competition and environmental norms favor increased development
of certain types of distributed generation, as well as more energy efficiency and
demand response, these goals must still be balanced against traditional
electricity law values. Traditional values require that prosumer activity be
encouraged only to the extent that such activity will not interfere with system
reliability and will not lead to large rate increases for traditional consumers.
This will require that utilities and regulators continue to proceed cautiously in
integrating distributed generation and demand-side management. To that end,
caps on the total amount of distributed generation on a distribution circuit may
be prudent, so long as those caps are revisited regularly. Caps give system
operators time to ensure that increasing distributed power will not overwhelm
system capabilities. Care should be taken, however, that these caps are not
static and that they are raised as systems adapt to a distributed energy
environment. With respect to demand response and energy efficiency, operators
must be able to plan in advance for demand fluctuations. Longer-term capacity
auctions such as those used in several wholesale markets are a good way to
290
make commitments of demand-side management more predictable.
289. For some of the impacts of large renewable generation facilities on wildlife see Alexandra B.
Klass, Energy and Animals: A History of Conflict, 3 SAN DIEGO J. CLIMATE & ENERGY L. 159, 182-95
(2012).
290. In capacity markets, grid operators procure commitments to provide electricity in advance,
thus ensuring the availability of power as needed. See Andrew H. Meyer, FederalRegulatory Barriers
to Grid-DeployedEnergy Storage, 39 COLUM. J. ENVTL. L. 479, 521-22 (2014).
With respect to rates, greater transparency in pricing distributed generation

and demand response is desirable. With more accurate pricing of prosumer
services, cross-subsidization and cost-shifting will be less of a concern. Value
of solar tariff proceedings like Minnesota's provide a more granular utility-
specific look at the costs and benefits of solar installations than do traditional
net metering tariffs. 29 1 Screening mechanisms like FERC's net benefits test for
demand response might also be appropriate to ensure that the system benefits of
increased prosumption outweigh the costs. 292 One caveat is that costs of
prosumer activities are often simpler to calculate than benefits and typically
manifest in the short term, while benefits take longer to realize. Longer-term
planning, with numbers revisited regularly, should therefore be part of any
cost-benefit calculation related to prosumer activities.
Finally, with respect to the democratic values identified in subpart III.C,
regulators and utilities should engage in outreach and education to stimulate
more meaningful prosumer participation in regulatory processes. State and
federal regulators may wish to take the further step of creating government
offices to represent prosumers specifically. A more modest step would simply
be to educate regulators about the importance of obtaining the prosumer
perspective in any regulatory proceeding that would affect prosumer interests.
Within these broader outlines, a wide array of policy environments would
be consistent with modern energy law norms. Which regulatory schemes
ultimately emerge as winners will depend on the success or failure of the
various experiments now taking place at both the federal and state levels. For
now, however, heterogeneity should be encouraged, not stifled.
CONCLUSION
Life moves quickly, regulation less so. This Article has documented the
emergence of a new category of energy actor, which it has christened the
energy "prosumer," and has explained some of the challenges existing
regulatory schemes have faced in accommodating these new stakeholders. It
has also defended prosumption as consonant with a modern understanding of
the norms underlying our energy regulatory system.
Which of the energy futures outlined in Part V is to emerge will depend on
the outcome of the policy experiments currently taking place at the federal,
state, and local levels. The federal government may have a role in guiding this
experimentation, but prosumption will have to prove its value before policies
mandating its broader adoption are implemented.
Continued experimentation will require both motivated prosumers and
political leadership. Professor David Spence has frequently highlighted the
291. Austin, Texas implemented the first value-of-solar pricing mechanism. See Karl R. Rabago et
al., Designing Austin Energy's Solar Tariff Using a DistributedPV Value Calculator (2012) (on file
with author).
292. See supra subpart llI.A.2.
disconnect between the economic desirability of energy policy reform and such
reform's political feasibility. 293 To overcome opposition to prosumption,
especially that mounted by well-funded interest groups, political champions
will likely be necessary. Such champions have driven many of the key
experiments in prosumption to date. Consider former FERC Commissioner Jon
Wellinghoff s full-throated support for demand response participation in
wholesale markets, for example, 294 or New York Governor Andrew Cuomo's
push for a redesign of the state's electricity system to emphasize distributed
295
energy resources.
It is also possible that experimentation itself might create the conditions
for a prosumption tipping point. First, experimentation might change the
economics of prosumption. As the utilities and federal, state, and local
governments experiment with incentive programs and mandates, they
encourage the rise of a new marketplace in prosumer technologies. This rise, in
turn, ideally leads to greater competition between companies providing
technologies and services, greater innovation by those companies, and,
consequently, reduced costs. The hope is that these lower costs will make what
were once government-subsidized technologies and services self-sustaining in
the marketplace. Second, experimentation and subsidies can lead to the creation
or strengthening of interest groups that become entrenched. 2 96 These interest
groups become part of the political ecosystem and strong advocates for the
continuation of prosumption policies. For example, manufacturers and
installers of home solar systems have a vested interest in the success and
expansion of prosumption, as do demand response aggregators. Thus, as
Professor Eric Biber has argued in the context of climate change,
experimentalism may be a successful strategy for prosumption because "a
comprehensive solution may only be achievable once intermediate policy steps
have cultivated a friendly political landscape by building up supportive interest
297
groups."
These phenomena can limit the success of experimentation in that they
bias future developments in favor of the experimental phenomenon rather than
the status quo. However, they do not necessarily outweigh the benefits of
decentralized experimentation in the first instance. If the status of experiments
293. See, e.g., Spence, supra note 5, at 1608 (pointing out that the complexity of energy regulation
makes the issue less salient to voters and, therefore, to politicians); David B. Spence, Can Law Manage
Competitive Energy Markets?, 93 CORNELL L. REV. 765, 810-11 (2008) (noting that while regulators are
often focused on efficiency, politicians remain more concerned about high consumer prices).
294. See Jacobs, supra note 3, at 900 n.66.
295. See, e.g., GOVERNOR ANDREW M. CUoMO, 2015 OPPORTUNITY AGENDA 132 ("Let history
show that New York chose to take action, to lead, and to be a part of the solution rather than the
problem.").
296. See Eric Biber, Cultivating a Green Political Landscape: Lessons for Climate Change Policy
from the Defeat of California'sProposition 23, 66 VAND. L. REV. 399 (2013) (suggesting that the
Proposition 23 campaign strengthened renewable energy and energy efficiency interest groups).
297. Id. at 402.
is evaluated periodically according to a verifiable metric, as suggested above in

response to David Super's concerns, experiments will be permitted to continue
no longer than necessary to assess a policy's viability. Ideally, any failed policy
experiments will be halted before interest group entrenchment can occur.
While the shift to a more distributed energy economy may occur over
years or even decades, policy makers would do well to acknowledge the
distinctiveness of prosumers in managing that transition. By recognizing a new
category of energy system actor, the prosumer, policy makers can weigh more
explicitly the benefits and costs, in terms of the goals of the electricity system,
of encouraging greater participation by these actors. They can also more
squarely confront the distributional tradeoffs created by prosumer participation
and ensure that prosumers have a voice in regulatory processes. Ultimately,
sound energy policy involves the weighing of competing goals and objectives.
As the D.C. Circuit held in a 1982 case, "the regulatory schemes that [FERC]
administers involve a subtle and a difficult balancing of producer and consumer
interests." 298 With the emergence of the energy prosumer, that balancing act
promises to become more difficult still.
298. S. Cal. Edison Co. v. FERC, 686 F.2d 43, 46 n.4 (D.C. Cir. 1982).
We welcome responses to this Article. If you are interested in submitting a response for our online
companion journal, Ecology Law Currents, please contact ese.elqralaw.berkeley.edu. Responses to
articles may be viewed at our website, http://www.ecologylawquarterly.org.

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Decentralization is becoming a dominant trend in many industries, and

Introdu ction ...................................................................................................... 520

storage both to support distributed generation and to provide services to the

from prosumers to traditional consumers. Subpart III.B examines two ongoing

I. THE ENERGY PROSUMER

Until recently, a clean line separated electricity consumers on the one

16. Ritzer et al., supra note 12, at 380.

to disconnect from local utilities, which are heavily regulated by the

II. BACK TO THE FUTURE: A DECENTRALIZING ENERGY LANDSCAPE

reduce consumption or shift their consumption patterns (energy efficiency and

locations where the electricity is used."'33 Distributed generation currently

systems are increasingly popular. 40 Behind-the-meter storage enables

for reducing electricity consumption at certain times. 52 However, many utilities

nonperformance by some customers, since most demand response programs

III. DOCTRINAL AND PROCEDURAL PUZZLES CREATED BY THE ENERGY

Conflating traditional consumers and prosumers can lead to a lack of

1. The Net Metering Fiction

FERC, however, disclaimed jurisdiction, finding that not "every flow of

2. The DemandResponse Conundrum

The confusion over whether certain retail customers are consumers or

74. 16 U.S.C. §§ 824d(a), 824e(a) (2012).

The two dominant understandings of demand response illustrate the

1. PricingDistributedGeneration: The Problem of Cross-Subsidization

State regulators have increasingly offered incentives for customer self-

92. See DemandResponse Compensation in OrganizedWholesale Markets, 134 F.E.R.C. 61,187

may create distributional inequities in the form of cross-subsidization. Cross-

monthly interim adjustment charge of $0.70 per kilowatt of installed solar

utility customers to bear a disproportionate share of the utility's fixed costs. I l l

In other electricity pricing arenas, prosumer and traditional consumer

response is uneven and is almost always lower than wholesale market

argument goes, is produced at the expense of both traditional retail consumers

If prosumers are to be regulated fairly, they, like regulated industry and

directly with administrative personnel. A more inclusive decision-making

classic consumers rather than prosumers. For example, CECA Solutions,

merely increase the volume of prosumer participation in regulatory processes,

IV. THE NORMATIVE DIMENSIONS OF PROSUMPTION

Notwithstanding the challenges outlined in the previous Part, prosumption

A. Prosumption and TraditionalElectricityLaw Norms

distribution grids by creating voltage fluctuations and other systemic

language is meant to protect consumers from high electricity rates as well as to

B. Prosumptionand Modern ElectricityLaw Norms

It is clear, then, that many of the potential benefits of prosumption support

The first additions to the canon are environmental norms. While

fields has been seen both as a coordination challenge, as well as an opportunity

How significant a role will prosumers play in the electricity economy of

Due to the federal government's lack of jurisdiction over retail electricity,

Mandates are a classic form of environmental regulation and are found in

be prosumption-ready: the state's Long Term Energy Efficiency Strategic Plan

Short of actual mandates, subsidies and other incentives may encourage

Currently, all demand response programs targeted at individual prosumers