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Private Solar’s Future in Arkansas Hinges on PSC Review

8 min read

The forecast for private solar power in Arkansas is cloudy, and may be slow to clear up.

Decisions by the Arkansas Public Service Commission could promote solar generation at homes and businesses or even cripple it, advocates say, but the most critical rulings may not come for more than a year.

The PSC is reviewing state rules for net metering, the system that lets customers with solar panels essentially sell excess electricity they create to power companies. The key question for the three-member panel is how much to let power companies charge such customers for putting their energy onto the grid. The state Legislature mandated the process in a law passed last year.

“The cost of home solar is dropping, and the state has adopted a number of programs to make it easier for people to get it,” said Glen Hooks of the Arkansas Chapter of the Sierra Club, a renewable power supporter involved in the PSC review. “If we don’t make it more difficult for people to become net-metering customers, we will see far more people investing in home systems. If we set the rules up as an obstacle, we could stop it in its tracks.”

Utility-level solar projects are blooming in Arkansas — Entergy Arkansas and many of the state’s electric cooperatives have solar installations connected to the grid or on the way — but the state recently was ranked last in the nation for incentives by a solar advocacy website, SolarPowerRocks.com, and the number of home and small-business solar units in the state is remarkably small.

The Arkansas Renewable Energy Development Act of 2001 made the state a relatively early adopter of net metering. Yet 15 years later, fewer than 500 Arkansas consumers are net-metering customers. By comparison, the nation has more than a million net-metering facilities, according to Jason B. Keyes, an attorney for Scenic Hill Solar who spoke at a packed public hearing at the PSC’s Little Rock headquarters on Oct. 4.

Scenic Hill, led by former Arkansas Lt. Gov. Bill Halter, last month announced a multimillion-dollar agreement to install 4,000 solar panels at L’Oreal’s 446,691-SF cosmetics plant in North Little Rock and 5,000 more on the roof of a L’Oreal plant in Kentucky.

“He hopes to create jobs and attract businesses to Arkansas,” Keyes said. “Arkansas is far behind [in net metering]. So far the federal investment tax credit has provided about $10 billion across the country, and with Arkansas having about 1 percent of the population, our share should be about $100 million. Instead, it’s something on the order of a couple million dollars, and the net metering figure is less. This is an opportunity to get Arkansas up to speed.”

Consumer Choice
In August, the PSC split its proceedings into two phases, one to address rate and fee issues and a shorter Phase 1 to encompass everything else. Rulings on Phase 1 issues, including size limits for net-metering facilities and whether customers who lease rather than own their solar equipment should be eligible, could be issued within weeks. A particular first-phase concern for utilities is whether existing net metering customers should be “grandfathered in” and exempted from new rules.

For the much longer Phase 2, environmental groups, solar companies, the Arkansas Advanced Energy Association and others will hash out rates and fees with investor-owned utilities like Entergy and the state’s 17 electric cooperatives. The deadline for their recommendations to the PSC is September 2017, and rulings may come months after that.

The PSC opened two dockets, numbered 16-027-R and 16-028-U, after the General Assembly amended the state’s original net-metering law in 2015 by passing Act 827. At the PSC hearing, William Ball, owner of Stellar Sun in Little Rock, noted that he was the author of the 2001 law. Stellar offers renewable energy systems ranging from individual home arrays to a shared “aggregated solar” system in Scott, and Ball warns that misguided regulations could harm business, consumers and the environment. “Will our policymakers thwart the democratization of energy generation?” he asks. “Will consumer choice … elude us? Will consultants representing companies wishing to locate here continue to ask why there is so little solar power in Arkansas?”

The diverse Phase 2 working group is asked to find a fair way to evaluate the utilities’ costs in serving net-metering customers while factoring in the value they provide to the grid. For now, the costs and benefits seem negligible: Fewer than 4 in 10,000 Arkansans are net-metering customers, according to Pat Costner, who has a 3.3-kilowatt photovoltaic system at her home in Eureka Springs. Costner, a retired Greenpeace scientist, studied the numbers before speaking at the PSC, where she called worries over the costs of homemade electricity “a tempest in a teakettle.”

“Four in 10,000 customers: Even the EPA lets that ride sometimes as acceptable levels of cancer,” she said. “Nobody who represents an electric co-op or an electric utility in this room is greatly overburdened by us.”

Other speakers said utilities in other states have used cost-of-service fees as a cudgel to fight net metering by making solar options too costly. About 40 states have net metering, but only a few have surcharges. As the PSC goes forward, Kenneth Smith, policy director of the Arkansas Advanced Energy Association, says the state can expect “a heated debate.”

“The utilities have a long history and considerable experience with quantifying cost of service but no experience and little interest (at least in the past) in quantifying the benefits of net metering,” Smith said. “AAEA is concerned that unbalanced calculations that favor costs will ruin the distributed generation industry such as it has in Nevada.”

Regulators there faced outrage when existing net-metering customers were subjected to new rules and costs they hadn’t considered in deciding to install their systems. The turmoil put pressure on the governor, and rules were revised to grandfather in the existing owners.

Opposition to ‘Subsidy’
Most participants in the Phase 1 process, including the PSC staff, favor grandfathering, but Entergy wants to cut it off soon — at the point the PSC makes its Phase 1 decisions — and apply whatever new rules emerge to customers who sign up later. Southwestern Electric Power Co. contends that grandfathering itself is inconsistent with Act 827, arguing that the law specifies that each net-metering customer is responsible for paying the cost of service. Under that theory, giving any customers a pass on the new regulations would be unlawful.

Jordan B. Tinsley, attorney for Arkansas Electric Energy Consumers, a trade group representing industries like paper mills that use large amounts of power, took issue with the idea that Act 827 was passed to encourage the adoption of solar energy. Instead, he said, the law was meant to make net-metering customers pay their fair share.

“We think this legislation enacted in 2015 was aimed to a large degree at correcting an existing subsidy that’s actually harming nonparticipating customers who are getting a break on rates,” he argued.

Arkansas’ traditionally low electricity costs have long been an obstacle to distributed generation, the technical term for power created at or near the site where it’s used, because solar power investments are recouped faster in states with costlier energy.

The average retail kilowatt-hour cost in Arkansas was 8.15 cents in 2015, ranking Arkansas as the seventh least-expensive state, according to the U.S. Energy Information Administration. The national average in the first six months of this year was 12.4 cents.

The low price is partly a result of Arkansas’ use of coal-powered generation, and coal reliance is one reason environmental groups like the Sierra Club and the Audubon Society are pushing solar options. Natural gas recently eclipsed coal as the top fuel for electricity generation in the U.S., another factor in keeping rates low. Environmentalists favor gas over coal, but they have grave concerns about hydraulic fracturing, the controversial drilling process that depressed prices by unleashing a torrent of gas on the market in the past 15 years.

Several solar advocates at the PSC hearing expressed fear that the state will not properly weigh the benefits of net metering against the costs the utilities incur. Creating power where it’s used eliminates the cost of transmitting electricity from large generating facilities. It can also lighten power companies’ peak loads to save money for utilities, which are required to supply enough power to cover peak demand even though they may need that capacity only a few days out of the year.

“If you generate power and feed it back into the grid, others can use that power and the utility might not have to build new facilities, etc.,” said Will Gruber, a staff attorney for Pulaski County, another intervenor in the PSC dockets. The county would like to promote solar power but has run into obstacles (see Pulaski County Wants To Catch Rays, Not Solar Catch-22 and commentary by County Judge Barry Hyde). It favors net-metering access for third-party solar users.

The PSC staff and all the power companies commenting on the subject support sticking to a strict interpretation of the law’s language, requiring net-metering customers to own their solar equipment. But solar companies and environmentalists like Hooks say the state is missing out on a huge chance.

“Other states offer an important vehicle for solar growth, and that is a third party owning the solar on your roof and helping the homeowner finance it,” the Sierra Club leader said. “Companies will pay to put the solar up; they will own the system and take care of the maintenance, and sell you the power at a lower rate than you’re paying the utility. This model has helped solar boom elsewhere, but it’s not allowed in Arkansas. If that barrier is lifted, you’ll see a lot more solar.”

In urging citizens to speak out during the PSC process, Adam Fogelman, an attorney for Pulaski County, said the reassessment of net metering fits in with a trend of national and global energy issues.

“There’s the Clean Power Plan under review in court in Washington, there’s global warming, and more commercial focus on renewable energy,” he said. “All these things are going on, and Arkansans tend to think about them in the abstract. But we’re of the belief that citizens and local governments can have a major impact in helping businesses. We have a strong part to play in these issues.”

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