Arkansas' House of Representatives approved legislation Thursday that will slice compensation for solar power users beginning in 2025 over opposition led by commercial and industrial electric customers in the state. Senate Bill 295 was approved Tuesday by the Senate and now goes to the governor to be signed and become law.
Former Public Service Commissioner Ted Thomas, who led approval for current solar policy during his nearly seven-year term, said the legislation will "kill the third-party solar industry in Arkansas."
House members voted 73-14 to approve the bill, with six members voting present.
The legislation lowers compensation for solar users to wholesale rates that electric utilities pay other power providers -- a reduction of about 5 cents per kilowatt hour. Utilities now pay retail rates, meaning one-to-one compensation, to solar users, who are credited at the same amount the electric providers charge to deliver power to homes and businesses.
The compensation policy is commonly known as net-metering.
Entergy Arkansas, the state's largest electric utility, says its current retail rate is about 11 cents per kilowatt hour while wholesale ranges from 4-6 cents. Solar users are credited for excess power they generate and return to the electric grid for use by all customers in Arkansas.
SB295 seeks to "prevent cost-shifting and ensure fairness to all ratepayers," according to the title of the legislation, sponsored by Rep. Lanny Fite, R-Benton, in the House and by Sen. Jonathan Dismang, R-Searcy, in the upper chamber. Bill supporters contend net-metering shifts costs and puts more of a burden on non-solar users to pay for investments that support the state's electric-grid infrastructure.
On the House floor Thursday, Fite told his colleagues before the vote that legislation was needed to reverse cost-shifting fueled by compensation for solar users.
"The more [power] that is sold at retail price on to the grid, the more it pushes the cost to the other consumers in the state," Fite said. "That is the main reason for the cost-shift."
Cost-shifting reached $18 million in 2021 and will amount to $290 million by 2040, according to Fite.
The bill initially was opposed by the solar industry and users though a compromise was worked out by Dismang with the Arkansas Advanced Energy Association, which dropped its opposition after changes that extended net-metering through 2024 and broadened the radius allowing solar farms to be located within 100 miles of a user's facilities. Net-metering facilities are limited to generating 5 megawatts of power. The bills originally proposed ending net-metering compensation this year for new solar users and allowed solar farms to be only 5 miles from the user.
Current solar customers and those approved next year will be grandfathered in under net-metering and continue to receive one-to-one compensation at retail rates through 2040. Facilities, however, must be completed or in progress by September 2024.
Arkansas' electric utilities, which have tried several times over several years through the Public Service Commission and court system to overturn net-metering, were pleased with the legislative efforts they favored.
Approval was important to prevent cost-shifting, according to Buddy Hasten, president and chief executive officer of the Electric Cooperatives of Arkansas.
"Because of this act, the amount cost-shifted to members who do not have a net-metering facility will stop compounding after the grandfathering of overcompensation for excess generation expires in September of 2024," Hasten said Thursday. "The passage of SB295 ensures fairness down the lines in that it allows members to continue to net-meter solar if they choose to take advantage of that technology while at the same time reducing the amount that other members are required to subsidize that choice."
Entergy was likewise complimentary. "We appreciate the leadership the General Assembly took on this issue," spokeswoman Kacee Kirschvink said. "Reaching a compromise with Arkansas Advanced Energy Association ensures those who want to install solar panels can continue to do so, and those who do not will no longer pay more."
The compromise with the Arkansas Advanced Energy Association, a trade group chiefly representing the solar industry, dampened much of the heated debate over the legislation though opposition remains. A coalition of industrial and commercial customers, the Arkansas Electric Energy Consumers Inc., maintains the restrictions beginning in 2025 will curb solar projects for businesses.
Little rock attorney Jordan Tinsley, who represents the group, said the legislation "appears solely designed to limit the installation of large-scale customer-owned generation assets, even though large customers are not contributing to the purported cost shift, because they pay for the lion's share of their fixed costs through demand charges, which are not avoided by net-metering."
The electric utilities, Tinsely said, engineered the legislative effort to protect their monopoly status and hinder solar development.
"When we permit regulated monopolies too much power over legislative processes ... then they enjoy the benefits of a monopoly without the downside of regulation," he said Thursday.
Former PSC Chairman Thomas, who resigned last year, also was critical of the "political muscle" used to upend the state's solar policy.
"For over two years, the policy of our state has been that if any utility thinks there is a cost-shift they should provide evidence and propose a grid fee to eliminate the cost-shift," Thomas said, referring to fees that could be applied to solar customers if cost-shifting occurs. "No utility brought the required evidence. Now political muscle is being used in place of evidence."
Legislation should be focused on preserving solar development as an economic engine and establishing tools to measure cost-shifting and prevent it, Thomas said.
"The bill rejects this approach and eliminates customer options in solar at the request of monopoly utilities," Thomas said in a statement Thursday. "The purpose of the bill is to kill non-utility solar by setting the compensation for scaled customer-owned solar lower than the amount of credit that the utility receives from the regional markets for that same solar. This is a cost-shift from the solar customer to the utility that is intended to kill the third-party solar industry in Arkansas."
The Public Service Commission approved net-metering in 2020 under legislative guidelines enacted in 2019. Utilities' arguments that cost-shifting occurs have been rejected by state regulators and a court.
Federal statistics show that net-metering customers in Arkansas grew from 2,098 in 2019 to 6,562 at the end of 2021. In 2010, there were only 117 net-metering customers in Arkansas.