Power moves: Electric utilities, solar industry fight over cost-shifting

Rep. Lanny Fite, R-Benton, has filed a bill to address the costs claimed to be shifted from net-metering customers to other electricity consumers. Solar energy advocates are rallying to oppose the measure they say will benefit existing utility companies and hurt their business models.

Fite’s House Bill 1370, or the Cost-Shifting Prevention Act of 2023, would modify existing law “to cease unfair cost-shifting and avoid power grid strains and energy disasters that have occurred in other states.” It has been assigned to the House Insurance & Commerce Committee.

While traditional power companies find the bill favorable, solar energy companies have concerns that it could torpedo their industry. The legislative battle lines on HB1370 will likely be one of the most contentious debates of the 94th Arkansas General Assembly.

Cost-shifting in any industry is the concern that one group of payers is underwriting the costs of a group not paying their fair share. In this instance, electric utilities claim that businesses and individuals with solar arrays are being paid for their additional power at an amount too high to cover the utilities’ costs.

Rob Roedel, director of Corporate Communications at the Electric Cooperatives of Arkansas, said his company believes solar end users should be paid a wholesale rate for putting electricity back on the grid, not a higher retail rate as is the case now.

“Under current net metering system in Arkansas, utilities pay net metering customers a retail rate (commonly known as 1:1) for energy generation they push onto the grid. They should only be paid for energy at a wholesale rate like any other form of generation. Paying the over-compensatory retail rate results in a shift in costs to non-net-metering ratepayers,” Roedel said.

“Furthermore, the retail rate for electricity includes not only the cost of the energy consumed, but also the cost to build, operate and maintain the entire electric system. This includes generation power stations, transmission lines and distribution lines required to keep the lights on. While the costs to operate the electric system are beneficial for all ratepayers, an individual utilizing net metering under the current unfair 1:1 framework is avoiding paying their fair share of the cost associated with managing the grid,” he said.

Lauren Waldrip, executive director of the Arkansas Advanced Energy Association, which represents a large number of solar power companies, contends electric companies have not made their case for cost-shifting.

“Lost revenue is not a cost shift, but that’s exactly how the monopolies are defining it,” she said.

Rep. Fite said the current 1:1 net metering policy for Arkansas consumers favors consumers that can afford a solar investment while shifting costs to lower-income Arkansans. Many other renewable energy-friendly states have tightened regulations on alternative energy policies “in order to protect their citizens from policies like Arkansas’ current, unfair 1:1 net metering policy,” he said.

Fite noted that Act 464 of 2019 allowed the Arkansas Public Service Commission “to maintain the consumer silent taxing 1:1 net metering policy” until the end of 2022. “Now that the timeframe has expired, it’s imperative that Arkansas’ consumers get relief from higher rates via HB1370, the Cost-Shifting Prevention Act,” Fite added.

Waldrip said the impacts on larger projects that would help to offset energy usage during peak electricity demand would indirectly affect residential customers with smaller arrays. She noted some large commercial array projects that were under construction last year before the grandfathering rule expired, but have yet to be completed, would be subject to the bill.

“This bill would essentially eliminate any and all competition in the energy industry and ultimately lead to higher costs for Arkansas ratepayers,” Waldrip said. “Arkansans are being hit hard at a time of record-high electricity prices. Forcing them to be price takers from the utility monopolies and removing their freedom to produce their own power is not fair. This is not about solar developers. This bill will essentially hurt Arkansas homeowners, small businesses, farmers, churches, school districts, counties and cities who will no longer be able to save money through renewable energy production.”

Fite said that in 2021 one utility reported that about $8 million was shifted from net metering customers to other consumers. The amount for the utility is expected to rise to more than $140 million by 2040, when the Public Service Commission’s grandfathering policy is slated to end, he said.

The 2021 numbers for Southwestern Electric Power Co. and OG&E were $337,662 and $39,251, respectively. Through 2040, the cost shift for the two utilities was expected to be $6.07 million and $706,518, respectively. Totals for the utilities combined were $16.17 million for 2021 and $290.78 million through 2040. Fite noted the 2022 cost-shift numbers won’t be available until March.

A Massachusetts-based Daymark Energy Advisors managing consultant hired by the Arkansas Public Service Commission (PSC) staff to assist in investigating potential cost-shifting associated with net metering drew inconclusive results in January testimony, in part due to lack of data from three electric utilities that were asked to provide cost information.

The consultant recommended the commission consider issuing more “expansive guidance” to utilities regarding the methodology to calculate cost-shifting.

Little Rock-based Delta Solar CEO Douglas Hutchings said HB1370 “changes the rules for everyone who has already made the investment in a solar array. An electric bill usually includes the base charges, and then a bunch of ‘riders’ which are additional costs often based on the amount of power you consume. With net metering, if you end up with zero net usage, then none of these charges are applied. HB1370 seeks to apply all of these riders and surcharges regardless,” he said.

“The impact of this will be different for every customer based on setup, usage and their utility, but it could be a 30% reduction in the returns,” he said. “Critically, for all the schools, counties and cities that have agreed to purchase power from an investor-owned solar array, they would be on the hook for purchasing the power at the agreed rate but then only receive a fraction of the value. This would most likely make these arrangements negative, and I would imagine, result in a ton of issues for the investors, the institutions that financed them, and most importantly, the entities that are receiving the power.”

Fite said HB1370 wouldn’t impact existing net metering customers. He explained the bill would not affect customers who submitted a standard interconnection agreement with their utility before Dec. 31, 2022.

“The intent of the bill is that the terms that are already in place for these customers will remain the same until 2040,” he said. “HB1370 is not about slowing solar energy growth. It is about avoiding the current silent tax on Arkansas ratepayers. Arkansans always have the right to self-generate. Where we draw the line is when it shifts costs to customers who don’t have solar.”

Asked about the costs being shifted from solar customers to utility customers without arrays, Fite explained that they are the costs that the electric utilities accrue to maintain their grids. As grid costs rise, utilities must increase rates to cover those costs, said Fite, adding, “that’s when the shift happens.”

The Arkansas Advanced Energy Association has assembled a large coalition of opponents to Fite’s measure. Opponents include The Poultry Federation, Riceland Foods, ASU System, Bank OZK, Baptist Health, and the University of Arkansas System.

In addition to these significant corporate and business interests, the AAEA coalition includes farmers, cities, counties, school districts, water utilities, and churches.

“Our business invested in solar energy because the state’s Solar Access Act made it financially feasible to invest in this clean alternative energy source,” said Jeff Weatherly, chief financial officer of Lexicon Inc., which has operations at the Little Rock Port Authority and in Northeast Arkansas around the steel industry and is part of the AAEA coalition. “We disagree with the argument that we are being ‘subsidized’ by ratepayers who have not elected to invest in solar. We have stated from the beginning that we do not want to be subsidized by ratepayers who do not invest in solar, especially our employees.”

“We are pleased that the Arkansas General Assembly is addressing the net metering billing option, which is an issue that affects our customers. The current law has resulted in net metering policies that force our customers who cannot afford or choose not to have private net metering systems to pay a premium to subsidize the customers who have private net metering systems and are not paying their fair share of the cost of our electric system that serves them,” an Entergy spokesperson told Talk Business & Politics.

Editor’s note: Roby Brock contributed to this article.