February Newsletter- Governor's Omnibus Energy Bill Introduced

Omnibus Energy Bills Introduced Creating Ratepayers versus Utilities Battle

Governor Reynolds introduced major new energy legislation over the past two weeks, House Study Bill 123 and Senate Study Bill 1112. The Governor’s bill includes several concepts which, if amended, can have a positive impact on the future electric rates of Iowa’s investor-owned electric utilities.

Unfortunately, as currently constructed, the bills are very pro-utility. These bills, if not amended, would:

  • allow utilities to determine future investment plans without the Utilities Commission evaluating whether investment decisions serve consumers' best interests,

  • increase the interest rate consumers have to pay utilities on new gas plants,

  • permit the utilities to retain 100% of the profits generated from innovative rate structures, revenue that would otherwise be allocated to mitigate future rate increases, and

  • allow incumbent utilities to build $3 billion in new transmission lines without competitive bidding.

All the ratepayer groups are united in advocating for amendments to change the pro-utility legislation into a pro-ratepayer bill. The groups range from AARP, representing Iowa’s seniors, to the National Federation of Business, which represents Iowa’s small businesses, to the Iowa Retail Federation and Iowa’s largest energy users.

 The four key sections of the bill are addressed in greater detail as follows: 

INTEGRATED RESOURCE PLANNING

The Governor has called for requiring Integrated Resource Planning (“IRP”) which, if done well, is a critical process for protecting ratepayers.  

Currently, the Iowa Utilities Commission can only consider investments brought forward by the utilities. Since the investor-owned utilities have a fiduciary responsibility to their shareholders to maximize shareholder value, those investments will always be in the utilities' best interests.  Approaches that are less costly to ratepayers, but reduce the utilities' long-term profit potential, are not able to be considered in the current regulatory process.

A well-designed Integrated Resource Planning process ensures that all potential energy resources are evaluated in a balanced way to ensure the energy generation that ratepayers are obligated to pay for are in the best interests of those ratepayers.

Unfortunately, the current study bills state that the resource “plan shall reflect the circumstances and management judgment of an electric utility.”  Having the utility control investment decisions is a key reason why Alliant’s residential customers pay some of the highest rates in the country.    

The proposed bill also limits the Iowa Utilities Commission authority to merely “receiving the plan” and “the commission may provide recommendations . . . that the electric utility should consider completing in its next resource plan." 

The Iowa Utilities Commission needs to have the authority to ensure the utilities’ investment plans are in the ratepayers’ best interest – and the legislation should provide no less.

ADVANCE RATEMAKING AND REDUCING PREMIUM RETURNS

HSB 123/SSB 1112 expands the Advance Ratemaking Process to include all generation assets, including the recent plan for five new gas peaker plants.  Advance Ratemaking, as currently applied, allows utilities to receive a premium return (from 10.75% to 12%) over the entire life of the investment. 

 One of the main recommendations of the recent IUB Ratemaking Study was to reform this process, noting:

  • The eligibility criteria and review standard are not rigorous enough

  • The premium return on equity (ROE) is no longer necessary

Expanding Advance Ratemaking without the recommended reforms, as the current bills do, will merely raise costs for ratepayers, increasing the cost of capital and allowing unnecessary and excessive investments.

INNOVATIVE RATEMAKING

Enabling the implementation of innovative rates is an important concept. Iowa has a large amount of wind energy capacity that is either unused or sold out of state for less than a 1 penny per kWh.  Other states with large wind generation allow innovative companies to purchase this power at wholesale rates during these times, producing income that reduces the ratepayers’ burden. Innovative Rates would enable the leveraging of this unused wind generation.

Unfortunately, HSB 123/SSB 1112 changes Iowa law to allow utilities to keep 100% of the profits from these innovative rates, profits that current law directs to reducing future rate increases.

The legislation states that these special rates should “not negatively” impact ratepayers.  The standard for special rates should be to “positively” impact ratepayers. Leveraging unused resources that Iowans are already paying for should benefit ratepayers – period!

ELIMINATING COMPETITIVE BIDS FOR NEW TRANSMISSION LINES

While Iowa does not typically allow a competitive environment for electricity, new transmission lines are open for competition. The current legislation grants incumbent transmission providers with a Right of First Refusal (“ROFR”) for proposed new transmission, eliminating any competition for the more than $3 billion in new transmission planned for Iowa over the next ten years. 

The incumbent utilities are pushing aggressively to pass this provision. Is it a good idea?  The utilities testified in Iowa, where they are incumbents, that this would be good policy.  The same utilities gave opposing testimony in states where they were not the incumbent:   

In Minnesota, Alliant’s subsidiary noted ROFR legislation:

“would stifle competition in the development and construction of

electric transmission facilities leading to higher costs for electricity users in Minnesota.”

 In Kansas, ITC noted:

“ROFR policies do not promote competition or free markets, and do not always produce the best economic outcome for consumers when designing and constructing new or upgraded transmission facilities.”

The proponents of the policy in Iowa have made a good case (albeit in other state legislatures) that stifling competition is not good for ratepayers.

LEGISLATIVE BATTLE LINES HAVE FORMED – RATEPAYERS VERSUS UTILITIES

There is a consistent theme.  The utilities are all registered in support of the legislation and advocating for its passage as is.

All the ratepayer groups are united in advocating for critical amendments to change a pro-utility bill into a pro-ratepayer bill. 

HSB 123 moved out of the House Commerce Committee this past Tuesday, with a commitment from the Chair, Representative Shannon Lundgren, that changes will be made before the bill moves to the House floor.

Time will tell whether the ratepayers or the utilities win this legislative battle.