LITTLE ROCK – A 150-foot tall windmill stands ready to help tiny Burdette offset its energy costs, but the turbine sits idle because the Mississippi County town of less than 200 can’t afford the $1 million insurance policy Entergy Arkansas requires to connect to its electrical grid, the Public Service Commission heard today.
Burdette Mayor Tim Sullivan was among business people and lawyers for the attorney general’s office, the University of Arkansas and some state agencies who asked the PSC to strike the insurance requirement, known as an indemnification clause, saying it is too expensive and hinders the development of alternative forms of energy in the state.
The commission held a public hearing on the issue today as it considers whether to strike the rule altogether in light of regulatory and court rulings that it does not apply to a state university.
Sullivan told the PSC that the town’s wind turbine, acquired and installed with a $430,000 federal stimulus grant, is projected to save his city about $10,000 a year in utility costs. The mayor said it will cost the city about $11,000 annually for the $1 million insurance policy required by Entergy.
“It’s ridiculous,” the mayor said.
The indemnification clause also has kept solar panels, purchased with $550,000 in federal stimulus money and designed to reduce energy costs at the new State Library, from becoming operational.
Ronna Abshure, a staff attorney for the PSC, spoke against the indemnification clause requirement during today’s hearing.
“Staff believes that indemnification is unwarranted,” she said, adding that it impedes the growth of net metering, which measures the difference between electricity supplied by a utility and electricity generated by alternative forms of energy, such as wind turbines and solar panels.
Under net metering agreements, a company, city or state facility that uses an alternative energy source can receive a credit on its utility bills for the amount of new energy it sends back to the utility.
Laura Landreaux, senior counsel for Entergy, argued the indemnification clause is essential to help protect ratepayers from any harm or damage caused by a malfunction.
“Essentially, what the state asks is that net metering customers receive all the benefits from net metering without any of the responsibility,” Landreaux said. “They want the benefits of the credit on their bill for net metering and propose to the utilities they (take) all the risk.”
The clause also is at the heart of a contract dispute between Arkansas Tech University and Entergy. The state Supreme Court last year asked the PSC to review its net metering rule.
In 2009, Arkansas Tech was renovating a dormitory and Entergy, which owns and maintains electrical equipment on campus, insisted the university either sign an agreement making Tech liable for any injuries related to the equipment or purchase the equipment.
Tech signed the agreement but later filed a complaint with the PSC, arguing the state constitution prohibits the state, including higher education institutions, from entering into an indemnification agreement with a corporation.
The PSC decided in Arkansas Tech’s favor, ruling the state university could not be indemnified. The state Court of Appeals upheld the PSC, ruling it was unconstitutional to require a state entity to sign such an agreement.
The state Supreme Court declined Entergy’s petition to review the case and referred the issue back to the PSC.
During today’s public hearing, attorney Elizabeth Smith, who represented the University of Arkansas System and several state agencies, urged the PSC to strike the indemnification clause.
“Requiring the state to purchase insurance, or to take on an … unknown risk or unknown cost could be damaging to the state. It could open a slippery slope to other contracts,” she said.
Rick Bormann of Weiner, owner of Greenway Renewable Energy, said he closed his alternative energy and consulting business in part because of the indemnification clause.
Bormann said the requirement is one of several that make it difficult for renewable energy companies to develop in the state.
“I will tell you if a business like ours can’t see the light at the end of the day for renewable energy with the current environment, very few businesses will,” he said.