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Bill to Cut Solar Panels’ Return on Investment Clears State Senate

5 min read

A bill certain to hurt Arkansas’ solar installation businesses moved toward law Tuesday when it passed in a 24-9 vote by the state Senate.

Senate Bill 295, sponsored by Sen. Jonathan Dismang, R-Beebe, is an amended version of an even stricter House bill by Rep. Lanny Fite, R-Benton, and it will essentially halve the credit that utilities pay to customers — both residential and commercial — who generate their own power.

State policy set by the Arkansas Public Service Commission and affirmed by lawmakers two years ago has allowed these customers, most of whom have solar panels, to get a one-to-one credit for the power they put on the grid. The rate is equal to the retail price power companies charge for providing electricity. The crediting system is known as net metering.

Utility executives testified that the one-to-one credit shifts utility costs to customers who lack their own power sources. Former PSC Chairman Ted Thomas argued that any shift was insubstantial and told House and Senate committees that the legislation would “gut” the state’s solar industry.

Thomas, who battled with utilities over solar net metering for years before quitting as PSC chairman last year, called the House version of the bill, HB1370, unnecessary, flawed and “intended to deceive.” He also accused utilities of hiding data about cost shifts after failing to make their case before the commission and the Arkansas Court of Appeals. “We’ll keep the projects we have and there will be no more,” Thomas testified in late February.

Retail electricity rates average 10 to 12 cents per kilowatt hour in Arkansas, one of a half-dozen or so U.S. states with the lowest power bills.

SB295 will drop the credit solar generators get for their excess power to about five or six cents a kilowatt hour. The bill also imposes a five-megawatt size limit on net-metered projects, something that businesses interested in solar have objected to, and it will prevent net-metered customers from getting lower rates through interruptible power deals with the utilities, who can cut off power to such customers in times of peak demand.

The Arkansas Advanced Energy Association, a trade group that initially fought the legislation fiercely, dropped its opposition to the Senate version after working out compromises with Dismang. “What we can say is that we no longer oppose the bill,” AAEA Executive Director Lauren Waldrip told Arkansas Business.

“The eventual outcome … offers some certainty in the near term in exchange for [accepting] some seemingly arbitrary roadblocks to non-utility solar beyond 2024,” said Douglas Hutchings, CEO of array developer Delta Solar of Little Rock, describing how existing solar generation systems and those commissioned before October 2024 will benefit from the current rate structure for the next 17 years. This “grandfathering,” in legislative parlance, also extends to new systems interconnected to the grid before Oct. 1, 2024.

“I am always the optimist,” Hutchings said. “Two years from now there will be more data that highlights the value that solar adds.”

Other concessions from the bill’s sponsors raised the allowable size of net-metered systems and allowed for solar panels within 100 miles of their user, rather than the original bill’s 5-mile limit.

Jordan Tinsley, a Little Rock lawyer representing Arkansas Electric Consumers Inc., a trade organization of large industrial and agricultural power users including Acme Brick, Clearwater Paper, Commercial Metals Co., Reynolds Manufacturing, Weyerhaeuser and many others, said his clients still oppose the legislation. They already pay “demand charges” on their electric bills and shouldn’t be punished economically for creating their own clean power to partly offset large bills that already include charges for grid infrastructure and related costs. Today’s net-metering policy also allows utilities a charge for cost shifting, but utilities have not provided the PSC with data to demonstrate it.

Those testifying for the bills were all current or retired utility officials. They agree with the bill’s premise that crediting solar power-generating customers at something close to retail power prices hurts customers who don’t have solar arrays, because infrastructure costs and the expense of buying retail vs. wholesale solar power are shifted to them.

When some of Arkansas’ electric cooperatives challenged the net-metering system in court, the Arkansas Court of Appeals upheld it, Thomas and others acknowledged.

Dismang contends that the current system is too generous to solar development companies compared to the environment in other states, making Arkansas an “outlier.” He did concede, however, that any cost-shifting at present is “probably negligible.”

The House version of the bill will have to be reconciled with the Senate version before becoming law. Gov. Sarah Huckabee Sanders has not weighed in on net metering specifically, even though her predecessor, Gov. Asa Hutchinson, favored the policy. The governor is, however, expected to sign the legislation when it reaches her desk.

Dismang told Arkansas Times that the House version may face further amendments.

Glen Hooks of Audubon Delta, the environmental group, said Audubon has dropped its opposition after seeing the legislation wouldn’t be stopped in committee. “Our strategy then pivoted to trying to make a bad bill better,” he wrote in an email. Hooks said the bill “is still terrible, but much better.”

Hutchings of Delta solar even sees some short-term benefits. “It will be extremely nice to get back to work and execute projects that create long-term value,” he said, noting many projects have been on hold for months amid the legislative uncertainty. “In the medium term I believe everyone [in the industry] will need to figure out their core strengths and make sure they’re maximizing them.”

Arkansas Electric Cooperatives CEO Buddy Hasten offered a homespun defense of the legislation in committee testimony, arguing that a growing cost shift to non-solar power users is inevitable.

Solar installation is growing exponentially in the state, he argued, and the cost shift will grow exponentially as well. “There are going to be solar panels everywhere in this state and they’re going to keep coming to this state.”

Hasten said he himself has commissioned a 122-megawatt solar array that will come online this summer. “I’m not anti-solar; I’m all of the above.” A diverse power portfolio is good, he said. “I’m here today because it matters who pays for it.”

When a cooperative member benefits from solar power and another member pays for it, “as a cooperative that’s not fair,” he said. “We are absolutely about fairness down the line for all our members.”

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