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A Threat to Electric Rates & Economic Development (Ray Dillon Commentary)

3 min read

Low electric rates are critical for economic development in Arkansas, and it is important that we keep them that way. Arkansas’ electric rates are among the lowest nationally, a key reason why we are as successful as we are in recruiting business and retaining and expanding existing businesses in Arkansas.

The Arkansas Public Service Commission is considering modifying the current rates for private solar generation that offsets all or part of a customer’s electricity usage through net metering under the Arkansas Renewable Energy Development Act, or AREDA. A net metering customer offsets all or part of his or her electric usage by the electricity produced by private solar generation.

Under the current 1:1 full retail rate credit, customers with private solar generation fail to pay their fair share of the fixed electric utility costs required to serve them. Customers with private solar generation continue to take service from the electric utility, but they avoid paying certain fixed costs that are unfairly shifted to the remaining electric utility customers. As a result, the rates for electric service become higher for those customers that do not have their own private solar generation. This increase in electric rates is bad for business, bad for employers and bad for employees in Arkansas who will face higher electric rates.

A growing number of private solar generators are built in locations that are separate from where the customer uses the electricity. That customer still uses the poles, wires and power plants of the utility, because the private solar generator is nowhere near the customer’s location. Any output from a private solar facility that is placed on the electric utility system is ultimately consumed by all electric utility customers. The wholesale market price for electricity is about 3 cents, and the retail price is about 10 cents. Because of the 1:1 full retail credit, the utility must pay three times more for the electricity generated by the private solar facility than it would for other market sources, and all other customers pay higher rates.

This situation is similar to electric vehicles paying for their use of Arkansas highways. Arkansas funds highways through a tax on motor fuel. Electric vehicles don’t use motor fuel, and owners of electric vehicles don’t pay taxes to support the highways they use. To remedy this inequity, the governor and the Arkansas General Assembly enacted legislation that imposes an annual fee on all electric vehicles to ensure that their owners pay their fair share of the cost of the highways they use. The state PSC must change the current rates for customers with private solar generation to ensure that they pay their fair share of the fixed costs necessary to serve them.

AREDA, in fact, requires the PSC to establish rates ensuring customers with private solar generation pay their fair share of the fixed costs necessary to serve them. During the recent legislative hearings on AREDA, Ted Thomas, chairman of the PSC, stressed the importance of getting the price right for private solar generation. Getting the price right means that the customers with private solar generation must pay their fair share of the fixed costs and don’t shift those costs to the remaining electric utility customers. In recent amendments to AREDA, the governor and the state Legislature didn’t intend to enable private solar generators to increase electric rates for Arkansas customers.

Fortune 100 companies with sustainability goals don’t support policies that shift costs and unfairly increase electric rates for them or other customers. We need policies for private solar generation that work for the benefit of all Arkansans, not policies from California or other states with high electric rates.

Cost-effective solar and renewable resources must be part of the mix of electric energy resources that help maintain Arkansas’ competitive electric rates. However, the current rate structure for customers with private solar generation doesn’t provide cost-effective solar and renewable energy to customers in Arkansas and must change.

Ray Dillon, the former president and CEO of Deltic Timber Corp., currently serves as chairman of the board of America’s CarMart and is a director of Stone Bank. He also has served as chairman of both the Arkansas State Chamber of Commerce and the Associated Industries of Arkansas.
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