Arkansas Passes Utility Bill That Could ‘Destabilize Rate Regulation’

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Arkansas homes and businesses are going to face higher electric bills and see their rate watchdogs defanged, John C. Pickett fears.

Pickett, an economics professor emeritus at the University of Arkansas at Little Rock, was once chair of the state’s utility regulator, the Arkansas Public Service Commission.

He spoke out against a bill that will let utilities raise revenue for capital projects under construction, but his voice went unheard.

The state Senate and House passed Senate Bill 307 a couple of weeks ago. Supporters like Sen. Jonathan Dismang, R-Beebe, and Entergy Arkansas CEO Laura Landreaux say it will help Arkansas woo economic development projects by electricity-hungry companies.

But Pickett sees the legislation as a breakthrough victory for utilities in their constant battle with regulators.

Regulated utilities operate as monopolies. In exchange for those monopolies, they let bodies like the PSC oversee their pricing. At least that’s the model.

But for 50 years, Pickett argues, utilities and their legislative allies have chipped away at regulatory authority, culminating with this month’s bill. He sees it as “a full-blown effort to undo and destabilize rate regulation.”

The bill drew scant opposition in final votes in the Senate (23-7) and the House (77-13).

Arkansas Electric Cooperative Corp. CEO Buddy Hasten told Arkansas Business recently that the legislation will help utilities land artificial intelligence hubs and data centers. Entergy and the co-ops will be able to guarantee power supplies to prospects and collect revenue on power plants in construction “versus waiting until they go into service,” he said.

“Why would you want to do that? Well, all companies have only so big a balance sheet, and if you’re going to invest in this infrastructure to support this economic growth, you’re going to need more,” Hasten said. “If you can collect revenue while you’re building … it has the effect of reducing how much you have to borrow overall, reducing the interest that you’re paying, reducing how much you’re going to put into your rate base.”

The idea, Hasten said, is to create a system where the “cost causers” pay for the energy they require.

Dismang and House sponsor Rep. Les D. Eaves, R-Searcy, hope that power plant construction will help Arkansas join an accelerating race to build new data centers. The AI boom is fueling the construction of 130 to 140 hyperscale cloud data hubs per year.

Amazon Web Services, Microsoft and Google are pumping tens of billions of dollars into the spree, and Arkansas is in no shape to compete, Hasten said. That’s because two coal-fired power centers will close by 2030.

The plants, at Redfield and Newark, each have two huge generators. They produce a total of nearly 3,500 megawatts of electricity. For context, in 2023, Arkansas had a summer capacity of 15,000 megawatts.

Still, that doesn’t warrant writing Entergy Arkansas a blank check, Pickett argued in a March 8 opinion column in the Arkansas Democrat-Gazette:

“Under the terms of SB 307, Arkansas ratepayers will see an increase in utility bills as soon as construction begins. Since the stockholder’s return reflects the project’s total cost, the more money the utility spends, the higher the profit earned. Consequently, the utility has no incentive to minimize the number of new facilities or their construction costs. The proposed legislation offers a negative incentive to minimize costs because the more it builds, the greater the profits.”