Iowa Business Groups Call for Electric Rate Reform
The Gazette, Olivia Cohen
Nov. 2, 2024 5:30 am
Four Iowa business groups are advocating for a reform of how both residential and business electric rates are set in the state.
The groups — the Iowa Economic Alliance, the Large Energy Group, the Iowa Business Energy Coalition and Iowa Business for Clean Energy — released a statement this week saying it is “important to assess how legislative initiatives could meaningfully improve future utility infrastructure deployment, ensure reasonable energy costs, and give the (Iowa Utilities) Commission additional tools to adjudicate future rate requests by Iowa’s utilities.”
Business Groups join to present recommendations for electric utility reform.
The Tuesday statement comes after the Iowa Utilities Commission — formerly the Iowa Utilities Board — approved an Alliant Energy rate increase for customers on Sept. 17.
“This latest rate hike will make it increasingly difficult for Iowa businesses to compete,” Delia Meier, board president of Iowa Business for Clean Energy, said in the news release.
The Iowa Utilities Commission a year ago hired London Economics to conduct a study on rate making in Iowa.
The study showed Iowa electric utilities have the highest rate of return on equity — how much profit a company generates for each shareholder’s dollar — of seven states in the region.
The rate of return for Iowa electric utilities was 10.2 percent and 10.4 percent. The average rate of return for the other six states — South Dakota, North Dakota, Kansas, Missouri, Colorado and Texas — was just under 9.8 percent between 2010 and 2019.
”Alliant and MidAmerican have been making well above the peer groups of our neighboring states,“ said Bob Rafferty, executive director of Iowa Business for Clean Energy. “And from what I understand, it's just an unusually high rate.”
Iowa Utilities Return on Equity far out paces our neighboring states.
Rafferty, said the groups formed a coalition “to raise awareness as to how our electric grid is organized and really create a discussion of how we need to reform it. That's the role we try to play.”
The reform proposal calls for:
Requiring a “robust” integrated resources planning process to be overseen and approved by the Iowa Utilities Commission.
Reforming the advanced rate-making process, which, the group says, has resulted in investor-owned utilities receiving significantly higher return rates than Iowa’s peer states.
Restricting automatic rate adjustments and requiring a regular cadence of rate cases.
Enabling customers to be “part of the solution.”
Utilities respond to call for reform
Alliant Energy responded Friday that IUC’s decision on the company’s proposed rate hike will pave the way for “substantial economic development and growth.”
“Implementation of an individual customer rate for large business customers provides us greater flexibility to offer even more competitive rates designed to attract new, large customers to the state and drive economic development in Iowa,” Alliant spokesperson Morgan Hawk told The Gazette in an emailed statement. “Growing our customer base further spreads out costs and positively impacts all customers and communities we serve.”
Hawk said the company is committed to investing in a diverse energy mix and modernizing the grid to deliver “a more reliable, sustainable, resilient and secure energy future.”
MidAmerican spokesperson Geoff Greenwood said the company filed a “long-range resource evaluation study/plan” with the Iowa Utilities Commission on Friday.
Greenwood said the company held a series of meetings with stakeholders while drafting the plan. Those participants included IUC staff, the Office of Consumer Advocate, the Iowa Business Energy Coalition, the Iowa Association of Municipal Utilities, the Environmental Law and Policy Center, Iowa Environmental Council, Sierra Club, Microsoft and Google, according to a news release.
Greenwood said the plan stemmed from MidAmerican’s Wind PRIME settlement that the IUC approved last December, which allows the company to build 2,042 megawatts of wind and 50 megawatts of solar generation.
Tina Hoffman, vice president of Corporate Communications and Public Affairs, said MidAmerican’s rates are 42 percent below the national average.
“That's something that takes a lot of hard work and a lot of planning, and we think that efforts like the resource evaluation study [will] continue to further that conversation and allow us to be able to continue to serve customers that way,” Hoffman said.
Is it time to update Iowa’s regulatory system?
Rafferty said Iowa’s current electric regulatory system hasn’t been updated in any significant way in more than 20 years and that the state still is using the same principals established in the 1920s.
He said about 35 other states use a system similar to Iowa’s, where a utility is granted a monopoly on a certain geographic area.
Of those 35 states, 30 of them require a long-term planning process, which allows stakeholders to have input into what investments a utility is making before it goes to the higher utilities commission for approval. Rafferty said Iowa does not use this practice.
“When we have different rate proceedings before the Iowa Utilities [Commission], they only have a partial picture of what's going on,” Rafferty said. “They have to basically look at each proposed large investment in its own little silo, instead of looking at how is this going to fit into the big picture.”
Advanced ratemaking — another key pillar of the recommended reform — is a process that allows utilities to establish a set of regulations and rate of return for future energy projects before construction begins.
Robert Palmer, executive director for the Iowa Business Energy Coalition, said the advanced ratemaking process needs to be reformed because the problem it was created to address no longer exists.
“The present mechanism is costing Iowa ratepayers many millions of dollars in excess profits for Iowa’s utilities,” Palmer said in the release. “No other state allows such inflated rates of return for technologies that are now well proven, and no other state allows such inflated rates of return to remain beyond challenge in perpetuity.”
David Vognsen, with the Large Energy Group, said the first step in bringing customers into the conversation is helping them build awareness.
Vognsen said it is important for companies to consistently notify their customers about changes, provide opportunities for them to be involved in the process and offer more information about how the processes works.
He said these pathways will help to bring customers into the conversation so they can “aggravate together,” and have “a common representation for the utility commission to address their common interests.”
R.G. Schwarm, executive director of the Iowa Economic Alliance, said customers who are “strapped” with increasing bills need to know how the monopoly utilities are “obligating” consumers with future payments.
“Today, customers across the state are left in the dark but are still required to pay the bills,” Schwarm said. “A robust integrated resource planning will provide existing and prospective businesses with the transparency needed to make future investment decisions.”
Hawk said Alliant is looking forward to continuing to engage with the IUC, state and local officials, and other stakeholders to manage costs and meet customers’ needs.
Large energy users previously pushed to buy power on open market
A secretive group of “large energy users” made a push in 2022 to purchase electricity on the open market, rather than through Iowa utilities.
The Iowa Economic Alliance released results of a poll in September 2022 that showed 64 percent of Iowans supported competition among utilities, rather than a territory-based system where customers have just one provider choice.
Schwarm told The Gazette at the time, these large energy users would agree to pay the costs of “stranding” a utility so smaller energy users — like individuals — wouldn’t see rate increases.
Olivia Cohen covers energy and environment for The Gazette and is a corps member with Report for America, a national service program that places journalists in local newsrooms to report on under-covered issues.
Comments: (319) 398-8370; olivia.cohen@thegazette.com
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