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PSC's Solar Rate Decision Remains on Horizon

Arkansas Business // October 29, 2018

by Kyle Massey

When state lawmakers passed Act 827 of 2015 and asked the state Public Service Commission to set electric rates on Arkansans generating their own electricity, President Barack Obama was midway into his second term and Donna Gray was a former PSC staffer turned regulatory consultant.

In early 2016, the PSC opened a regulatory case, known as a docket, on net metering, the accounting method that compensates homes and businesses for the renewable power they generate and put onto the grid.

As the docket progressed, Gray rejoined the PSC as executive director, Kimberly O’Guinn joined the three-member commission, and the rate case on what utilities should pay for homegrown energy has shadowed the state’s solar industry.

Phase 1 set an expedited process for reviewing proposals for generation systems above the state’s 300-kilowatt cap for net metering, and the agency ruled that existing self-generation customers and any that add net-metering before a final ruling are “grandfathered in” under existing rate structures.

Phase II, deliberating future rate structures, has taken time.

“Certainly there’s no rush to decide,” Arkansas solar pioneer Bill Ball told Arkansas Business. “The penetration remains so small,” said Ball, author of the state’s original net-metering bill back in 2001, noting that net-metering power remains a tiny fraction of the state market.

The CEO of Stellar Sun Natural Environments Inc. in Little Rock, Ball noted that only 988 Arkansas customers were net-metering at the end of 2017, a statistical blip among the 1.33 million homes and 60,000-plus businesses using electricity.

And with a new legislative session looming in spring, Ball says the PSC could “punt” on a decision and await direction from lawmakers — including Rep. Stephen Meeks, R-Greenbrier, sponsor of Act 827, who has offered to revisit the issue. PSC Chairman Ted J. Thomas, however, says a ruling could come by year’s end.

Investment at Stake
Solar industry leaders say a favorable rate decision could reassure people looking to invest in solar arrays at homes, businesses, factories and farms.

“If the playing field was appropriately configured, you could potentially see an additional $1 billion investment in Arkansas solar over the next five years,” said Bill Halter, CEO of Scenic Hill Solar of Little Rock, which built multimillion-dollar solar plants for the city utility of Clarksville and two L’Oreal cosmetics plants.

“That billion dollars could amount to 750 to 800 megawatts of solar power production,” Halter told Arkansas Business. “But the regulatory framework has to be correct and open to folks doing this at scale.” And finding that ideal framework has been painstaking work.

Utilities and their allies proposed charging and crediting solar-generating customers different rates for energy pulled from the grid and put back on.

Solar contractors, environmental groups and the Arkansas Advanced Energy Association favored keeping the current 1-to-1 rate ratio to and from self-generating systems. Heather Nelson, president of Seal Energy Solutions of North Little Rock, called it a “make or break case for the state’s solar industry.”

For homeowners and businesses, solar generation is the “lowest-priced electricity now, particularly after you consider tax incentives that are available to companies,” said Halter, a former Arkansas lieutenant governor. “There’s billions of dollars in solar generation in place in other states. The difference here is not the amount of sunshine. The difference is the policy environment.”

The general staff of the PSC has sided with utilities, the state attorney general’s office and major industrial electricity consumers in a plea for solar-generation customers to pay retail rates for the power they pull from the grid while reaping only about half as much for power they put back on. The difference would compensate utilities for the use of their infrastructure.

But this “two-channel” billing system defies the definition of net metering laid out in state law, Ball says. He also thinks the mindsets by the groups studying net metering also dampened prospects for a quick resolution.

While the pro-solar group “brought in a lot of high-power data about the benefits of renewable energy,” utilities worked “more like a CPA, looking at numbers on the books without acknowledging the benefits of net metering,” Ball said.

New and Pending Projects
Recently, as part of the 2015 law’s mandate to promote renewable projects, the PSC has approved two projects beyond the 300-kilowatt net metering limit. Stratton Seed Co. of Stuttgart had a $1.5 million 1-megawatt solar power system installed by Solar & Renewable Power Systems of Jackson, Tennessee, and power equipment manufacturer Husqvarna commissioned Today’s Power Inc. of Little Rock to build a 1.3-megawatt array at its plant in Nashville (Howard County). Both systems are in operation.

Arkwest Communications of Danville, Southern Arkansas University Tech in Camden and Don Kittler Farms of Carlisle have filed similar proposals.

Entergy Arkansas, the state’s largest power company with more than 700,000 customers, referred a reporter to its docket filings when asked about the net metering case. One basic point is that if net-metering customers get the same rate for power to and from the grid, they’ll shift infrastructure costs to customers without solar arrays.

Gray called net metering one of the few utility issues she largely missed in her 30 years of PSC work. She left the agency in 2011, long before the net metering docket, and hired back on as executive director after filings and testimony ended.

“I’m getting up to speed on net metering, because that entire docket arose while I was not here,” said Gray, a financial analyst and University of Arkansas MBA who had spent 25 years in leadership roles on the PSC general staff before returning to the agency in July. On a broader scale, Gray said her first focus was “to look at what the challenges are for the PSC and to consider how we’re prepared to meet those.”

In 2017, 81 new dockets yielded 3,302 separate legal filings. The PSC issued more than 460 orders last year, 229 in the electric industry. “When a utility is a monopoly, the PSC serves as a surrogate for competition,” Gray said, describing a core role. “So we work to get it right, following changes in the market in terms of technology and commodity prices, many things that make regulation an ever-changing framework.

“The commission seeks to ensure safe and reliable utility service at reasonable rates, and the backdrop is that we’re a low-cost state and want to stay so. In net metering and distributed generation, the commission has raised questions and listened to the parties, seeking a framework to go forward.”

Thomas, who’ll judge the case with fellow commissioners Elana Wills and Kimberly O’Guinn, sees the docket as winding down. “We’ve been working through issues, and previously decided that folks with existing installations and those who put in projects before the final ruling will be governed by the old rules.”

Ratemaking remains the PSC’s lifeblood, and it now offers an alternative method, formula rate review, which lets utilities adjust base rates by applying rate-of-return formulas.

The process “has been less streamlined than envisioned,” Thomas said.

The PSC was also “wrapping up the tax change dockets,” the chairman said, referring to Gov. Asa Hutchinson’s directive requiring investor-owned utilities reaping windfalls from corporate tax cuts this year to pass their savings on to ratepayers.

Utility regulation is evolving with technology, Thomas said, citing as an example Entergy’s recently approved advanced metering systems. The “smart meters” enable “all sorts of data collection and other possibilities,” Thomas said. “It’s a big ball of new technology, and it ties back to the proper rate of compensation for net metering.”

Gray said overseeing complicated issues requires great care. “The more paradigm-stressing the issues are, the ones that are not business-as-usual and could signal improvement and progress, you want to get those right. There’s a lot at stake to a low-cost state trying to maintain that balance.”

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