Members of the Sierra Club's Arkansas Chapter executive committee. Photo by Dr. Bob Allen, Chapter Vice Chair.
On March 8, the Arkansas Public Service Commission issued a key order in its ongoing rulemaking to implement Act 827, which passed in 2015 and amended the Arkansas Renewable Energy Development Act. Although the most consequential implementation issues have been postponed to Phase II, the Commission resolved several critical questions.
Existing Net Metering Customers Protected
Perhaps most important, the Commission determined that existing net metering customers would be grandfathered for 20 years –- that is, those customers can continue to net meter under the current rules regardless of any changes that the Commission may order in the future. It used to be a given that customers would be allowed to remain on the net metering rates in place when they made their solar investment, but the Nevada Commission’s tumult-inducing decision in 2015 not to grandfather existing customers threatened to upend this historic practice.
The Arkansas Commission found that to not grandfather existing net metering customers, or to set the cutoff date for grandfathering too early, would be unfair and inconsistent with the purpose of the Arkansas Renewable Energy Development Act to promote distributed renewable energy resources. It also found that grandfathering would provide “a fair, stable, and predictable cost environment, which creates certainty for existing [customers] and for the market until new tariffs are established, and clarity and simplicity for all parties thereafter.” Customers who have signed an interconnection agreement by the date of the Commission’s order in Phase II of the docket will be allowed to continue to net meter under the current rules for 20 years -- long enough to recover their investment in nearly all cases.
No Cap on Size of Net Metered Systems
The Commission also held that it would allow net metering of systems above one megawatt in size on a case-by-case basis, despite urging by utilities and certain large customers to establish a cap on the size of net metered systems. Under current law, the Commission may approve net metering of any system over 300 kilowatts on an individual basis, based on a showing that the system is sized to meet onsite load, and will either create “distribution system, environmental, or public policy benefits,” or that “[a]llowing an increased generating capacity for the net-metering facility would increase the state's ability to attract businesses to Arkansas.” The Sierra Club had contended that in order to increase the state’s ability to attract businesses to Arkansas, the Commission needed to provide a greater degree of certainty about the likelihood that net metering of larger systems would be allowed. Indeed, over a hundred major corporations have renewable energy purchasing goals that cannot be met if a facility locates in a state that does not provide a path for larger commercial and industrial customers to self-supply with renewable energy.
However, ultimately the Commission found itself limited by the statute’s direction that determinations be made on a case-by-case basis and declined to make a general finding that allowing net metering of larger systems would attract business to the state or provide public policy benefits. The Sierra Club hopes that the Commission’s decisions on the early applications for larger systems will provide more guidance to customers as to the likelihood of net metering being permitted. In Docket 16-089-U, an Arkansas-based agricultural supply operation has sought permission to net meter a solar system just over 1 MW in size. That matter will go to hearing on March 28, and will likely be the first case in which the Commission interprets the showing needed to net meter larger systems.
Commission Perpetuates Restrictions on Third-Party Financing of Distributed Generation
Finally, the Commission interpreted the statutory language that limits availability of net metering to a customer who is “an owner” of a distributed generation system. Pulaski County (which encompasses Little Rock) had raised the argument that a customer who leases a solar system should be viewed an “an owner” under a particular line of Arkansas case law. As a government entity, Pulaski County is unable to take advantage of the investment tax credit and therefore wanted to be able to net meter a solar system it had leased from another entity. After taking briefing on the matter, the Commission concluded that the statutory definition of “owner” does not encompass lessees. Third-party financing arrangements, including leases, have been critical to the growth of distributed generation in other markets. These arrangements also help to expand rooftop solar to customers like municipalities and nonprofits, as well as lower-income customers who cannot afford to pay out of pocket for a rooftop system. Arkansas is among a minority of states that does not allow third-party financing of distributed generation systems. However, the Commission did hold that the net metering customer need not be the sole owner of a distributed generation system, thereby leaving the door open to community solar and other shared solar arrangements.
Will Arkansas Do Away With Full Retail Net Metering?
In determining that existing customers should be grandfathered, the Commission was careful to note that it was not pre-judging whether any changes to the existing net metering tariff would be required. Indeed, none of the state’s utilities or cooperatives has come forward with evidence that the current rates do not recover the cost of serving net metering customers, much less once that cost of service is adjusted based on the additional, quantifiable costs and benefits of net metering as required by statute.
The Sierra Club is participating in a Commission Staff-led working group that aims to present recommendations to the Commission on how to implement the legislature’s directive that rates charged to net metering customers recover the full cost of service. The Club is committed to ensuring full implementation of the legislature’s directive that all of the costs and benefits of distributed be analyzed based on high quality, Arkansas-specific data. Fortunately, the Commission’s ruling that existing customers will be grandfathered allows time for these data to be fully developed, without concerns that distributed generation development in the state will be stymied in the meantime. The working group will make recommendations to the Commission by September 2017, and we’ll provide a full report at that time.