Policy Documents

Tip Sheet: Arkansas Distributed Generation Act

March 7, 2013

Problem

HB 1390, the Arkansas Distributed Generation Act, requires utilities to buy electricity from renewable energy sources at fixed above-market rates set by the Arkansas Public Service Commission or another regulatory authority and then socializes the higher costs among all ratepayers.

According to the most recent data from the U.S. Energy Information Administration, Arkansas has the sixth-lowest average retail price of electricity in the entire country.(1) Arkansas has been successful in avoiding most of the harmful energy policies commonly adopted in other states and proven to raise energy costs. Arkansas’ relatively low energy costs are an enormous competitive advantage for the state.

HB 1390 dictates what type of energy ratepayers must consume, forcing them to pay higher rates for more-expensive and less-reliable energy, regardless of whether they value or can afford the higher costs.

Solution

Energy consumption is not a problem, it’s a solution. There is evidence that tremendous socioeconomic benefits ensue when efficient energy systems are created through market forces. Therefore, mandating the use of energy sources that otherwise would not be economical to use may lead to an artificial expansion of that industry accompanied by the decline of other industries, all at costs borne by consumers.

When government refrains from attempting to pick winners and losers in the energy arena, costs fall for consumers and job creation ensues. These benefits also produce more long-term economic value for the state than the temporary and artificial “green jobs” created by HB 1390.

Policy Message

Point 1: Affordable energy is a vital component of a healthy economy. Mandating the use of more-expensive and less-reliable energy will impact all industries and the state’s competitiveness.

Point 2: It is impossible to know which energy technologies will be superior in the future, and policymakers should avoid pushing technologies to market before they are ready.

Point 3: Renewable energy is currently more expensive per kilowatt hour (kWh) than conventional fossil fuels, and those higher costs are being passed on to ratepayers. (2)

Point 4: Arkansas’ average retail prices for electricity are 26 percent lower than the U.S. average and 32 percent lower than the average renewable portfolio state. (1,3)

Point 5: Energy costs are regressive, so increases will most directly affect seniors who primarily live on a fixed income and low-income families with the least capacity to absorb higher energy costs.

References

1. “State Electricity Profiles,” U.S. Energy Information Administration. http://www.eia.gov/electricity/state/

2. “Levelized Cost of New Generation Resources in the Annual Energy Outlook 2011,” U.S. Energy Information Administration. http://205.254.135.24/oiaf/aeo/electricity_generation.html

3. “Arkansas Electricity Generation,” U.S. Department of Energy. http://apps1.eere.energy.gov/states/electricity_generation.cfm/state=AR