Pulaski County’s lawyers see solar energy as an enticing way for businesses and county government itself to cut their electric bills, but they’ve encountered a kind of legal sunblock.
The county has asked the Arkansas Public Service Commission to rule on whether the state’s net metering system can legally include consumers who lease their solar equipment or partner with a third party.
“In Arkansas, you have to be ‘an owner’ of the energy facility to be on net metering,” County Attorney Adam Fogleman says. “The meaning of ‘an owner’ has never really been defined. So we’re asking the PSC to define what that is, to establish the playing field.”
The county’s main interest is in promoting the PACE district (Property Assessed Clean Energy finance) that it created in 2015. The program, authorized by a 2013 state law, lets commercial property owners get loans through an improvement district and pay them off as a property tax assessment for up to 20 years. “Commercial property owners, industrial and agricultural property owners are able to undertake energy conservation projects or renewable energy projects and pay back the cost on their tax bill,” Fogleman said. “Essentially it’s on-bill financing for energy improvements, and allowing third-party ownership of the solar equipment would help the program.”
The county would also like to generate its own solar power, but there’s a catch to that, too. Local governments don’t pay federal income taxes and thus can’t benefit from the 30 percent tax credit that the U.S. government is offering through 2020 for renewable energy investment.
“Typically the way a non-taxed entity would pursue a solar development would be through a partner,” Fogleman said. “We initially explored a partnership arrangement with a private entity out there, but there’s a constitutional prohibition in Arkansas against a local government lending its credit or entering into a partnership with a private entity.”
If the county were able to purchase power generated by renewable resources directly and still participate in net metering, its partner could reap the tax incentive and pass along the savings. Solar advocates like Wal-Mart, another intervenor in the PSC’s current review of state policies on net metering and distributed generation, also favor leasing arrangements and third-party agreements, in which power customers collectively make use of a solar array.
Pulaski County owns 14 buildings totaling more than 800,000 SF, including the largest county jail in Arkansas. Using about 15 million kilowatt-hours of electricity a year, the county government spends roughly $1.2 million on power annually. It has asked energy services contractors for ideas on structuring a county solar project, both technically and financially. But the ownership requirement remains a sticking point.
“The most significant obstacle to solar power growth is uncertainty,” Fogleman said. “Business people like certainty, and want to know where the boundary lines are. ‘An owner’ sounds fairly clear, but hundreds of years of common law suggest that a lease conveys an ownership interest — only a possessory ownership interest — but is that enough to allow a lessee to lease solar power equipment for a long time and net meter? We think so.”