PSC’s Long-Awaited Net-Metering Ruling Favors Solar Industry

We were unable to send the article.

The Arkansas Public Service Commission ended four years of wrangling over pricing rules for solar power Monday, pleasing the solar installation industry with a ruling that keeps compensation high for power put back onto the electric grid by residences and small business power systems of less than 1 megawatt.

The long-awaited ruling went against utility companies that had suggested that solar customers get far less than the current 10-cents-per-kilowatt hour rate they pay for the excess power customers generate in net metering, the system that credits their electric bills. The 10-cent rate is the same as the average retail rate utilities charge for delivering electricity.

The Public Service Commission has struck a fair balance between both sides of this issue with a ruling that presents clear long-term benefits,” said Heather Nelson, co-founder and president of Seal Solar of North Little Rock. “The solar industry is a powerful force in our state’s economy,” she added, predicting that the ruling will be “a shot in the arm” for job creation, economic development and “energy independence for Arkansans.”

Other solar power executives, including former Arkansas Lt. Gov. Bill Halter of Scenic Hill Solar of North Little Rock, acknowledged the ruling’s promise but wanted to digest the 671-page order. Industry leaders had all along called the net-metering ruling crucial, capable of making or breaking solar installation’s surge in the state.

More: See the ruling here.

Utility representatives had argued that the 1-to-1 rate allowed solar-owning customers to skirt their fair share of paying for the grid infrastructure, and argued for a two-channel billing system, one that would charge one rate for providing power and a far lower rate for crediting customers for their excess power.

But the three-member commission, ruling on a case, or docket, established on April 29, 2016, rejected arguments that the net-metering rate should be closer to the average price utilities pay for power on the wholesale markets, as low as 3 cents per kilowatt hour.

Essentially, commission Chairman Ted Thomas and members Justin Tate and Kimberly A. O’Guinn decided to leave rates alone for small systems under 1 megawatt and for residential rooftop systems. While utilities can seek the grid fee on new projects after today’s ruling, the PSC will grandfather in announced projects at the current rate structure.

The PSC, which regulates public utilities in Arkansas, will consider utility requests for grid charges starting in 2023 for systems above 1 megawatt, which could add costs for larger joint projects that have become more common since a new law allowed third-party ownership of solar installations last year.

“For Residential and Non-residential Customers without a demand component, the Commission finds that the current 1:1 full retail credit for net excess generation should be retained for now as the default Net-Metering rate structure,” said the ruling, which was posted to the commission’s website about 3 p.m. “However, after December 31, 2022, a utility may request approval of an alternative Net-Metering rate structure … For demand-component customers installing Net-Metering Facilities with generation capacity from over 1 MW to 20 MW, the Commission finds that there is some evidence of potential cost-shifting which justifies a change in the Net-Metering rate.”

David Palmer, director of regulatory affairs for Entergy Arkansas, welcomed the opportunity for a grid charge, but said work remains to be done to ensure fairness to all ratepayers. “We are fully assessing the Arkansas Public Service Commission’s ruling and its implications to all Entergy Arkansas customers,” he said in a statement just before 5 p.m. “The commission’s decision to provide the opportunity to implement a grid charge for some customers with private solar systems is a step toward establishing fairness for all customers. However, significant work remains to ensure that customers with private solar systems pay their fair share of the cost of the grid that serves them.”

He added that Entergy is committed to leading the state’s solar future “by bringing low-cost renewable resources to all customers, while controlling customer costs and ensuring electric grid reliability.”

While the ruling did not fully please either side, it was a clear victory for the solar installation industry in Arkansas, which has lagged in solar adoption compared with other states. Solar companies depend on net-metering credits in calculating return-on-investment numbers for customers interested in solar arrays.

The Arkansas chapter of the Sierra Club, an intervening party in the PSC case, hailed the decision as a victory for clean energy consumers, saying it “ruled that solar power generated by users and returned to the grid shall be credited by utilities at a fair price that encourages the growth of the solar industry in our state.” 

“Today is a solid victory for those who care about fairness and clean energy jobs in Arkansas,” chapter President Glen Hooks said in a statement. “The PSC followed the lead of bipartisan lawmakers who realize the solar industry is good for the Arkansas economy, good for Arkansas consumers, and good for our Arkansas environment. This monumental decision puts the solar industry in a position to thrive by providing a regulatory environment that should grow green collar jobs throughout the state.”

Rob Roedel, spokesman for Arkansas Electric Cooperative Association, said it was reviewing the 671-page ruling. “However, as AECC has stated in the past, we believe that it is inequitable to shift subsidies for net metering consumers to non-net metering consumers.”

And since Act 464 updated the Arkansas renewable energy development law last year, allowing third-party ownership of solar power systems, those potential customers have increasingly been county and city governments, schools, farms and nonprofits. Those entities generally partner with solar development companies offering long-term contracts, which in turn reap tax incentives that non-taxed entities cannot take advantage of. The rise of those arrangements also brought forth new resistance from utilities.

The existing and now continuing 10-cent price for net-metered power is the retail rate charged by utilities; the 3-cent price favored by the utilities was the average wholesale rate charged by the  Midcontinent Independent System Operator Inc., the nonprofit company that coordinates the power flow and energy markets across 15 heartland states and the Canadian province of Manitoba.

Advanced energy proponents saw the 10-cent rate as an incentive for renewable power in Arkansas, which ranks among the last states in solar development even though state law explicitly promotes renewable energy. The industry said tens of millions of dollars in economic development and measurable environmental benefits were at stake.

Utilities argued that the equal rate allowed solar customers to skirt their share of costs for grid infrastructure and upkeep.

But in a telephone interview with Arkansas Business, the PSC’s Thomas said both the 3-cent price and the full 10-cent rate were untenable, saying the lower price doesn’t consider other costs factored into the value of electricity, and that the 10-cent model makes less sense as solar development advances from small rooftop arrays to larger-scale systems powering multiple sites and businesses.

“For three cents, they’re basically saying take the MISO price,” Thomas said. “If our system average cost is a little above three cents, which it is, then why don’t we buy all of our energy there? Well, because you have to have steel in the ground, and when you add the cost for steel in the ground to the three cents, then you start to get the actual price. The reason you can’t buy it all for three cents is that somebody has to build it, somebody has to pay for it.”

Thomas added that the owner of the generation facilities “gets first call” on the power. “So when you need it, guess what? It’s not available. It might not be available for 9 cents; it might not be available, period, on the hottest day of the year when you need it the most.”

He said that the system averages are from 4 to 5 cents per kilowatt-hour. “So when you do one for one [compensation for solar], you’re generally trading a more valuable hour for a less valuable hour, and that can be measured. That’s a system benefit.”

He said a utility can’t get as much 3-cent power as it wants over 30 days. “But if you’ve invested in a solar facility here, it’s going to serve the load here, and that’s the capacity value, the value of having the power on call,” Thomas said.

The 10-cent model matching the retail price does not make sense for bigger solar installations as net-metering has extended beyond rooftop installations to larger-scale facilities powering multiple business sites, farms and industrial operations, Thomas suggested. 

“There are lots of costs in the utility world that are fixed; they don’t change no matter how much power you use,” Thomas said. “With retail, how we do residential, the smallest customers, is we take the fixed cost, estimate how many units are going to be used, split them up and come up with the rate. This is recovering fixed charges volumetrically. Larger customers pay these fixed costs in what we call demand charges.”

Such charges don’t make sense for an average home with a $100-a-month electric bill, he said. “If you double usage in that case, the bill would go to $110; If you cut usage in half, the bill would go to $90, so there’s much of it that you’ll pay no matter what, which is not an incentive to save money or save usage.”

Arkansans enjoy some of the least expensive electricity in the nation, and utilities say they press constantly against forces that would push rates up. 

“We are trying to maintain that total bill, and when you’re making sound economic choices at the utility scale, it kind of works itself out,” Entergy’s Palmer said in an interview before the ruling. “And you have to have baseload resources to provide steady energy.”

Entergy has the state’s largest solar plant, an 81-megawatt array near Almyra in Arkansas County, known as Stuttgart Solar. It has also built a 100-megawatt facility near Lake Village, Chicot Solar, and recently received PSC approval for another 100-megawatt power plant near Searcy. 

All three projects are in partnership with NextEra Energy Resources of Juno Beach, Florida. NextEra owns and operates the Stuttgart and Chicot facilities, selling the power to Entergy at a lucrative rate. NextEra plans to build and operate the White County plant, but Entergy will own it.