Iowa’s business community was well represented on August 30th and 31st as the Iowa Utilities Board held its first meetings, referred to as charrettes, for its study of ratemaking initiated by the passage of House File 617. A few key themes emerged.
Theme # 1: Integrated Resource Planning is a Critical Need
If there was one theme that came out – Iowa suffers from a lack of Integrated Resource Planning ("IRP"). For those reading the comments submitted by the participants leading up to the event – this was not a surprise.
The business advocates for Integrated Resource Planning include the Iowa Business Energy Coalition (“IBEC”), which represents many of Iowa’s largest industrial energy users, the Iowa Economic Alliance ("IEA"), which represents large energy users including large technology ratepayers, and the Large Energy Group (“LEG”), which represents another group of Iowa’s largest energy users. As LEG noted, “Resource plans should be transparent, part of a stakeholder process which includes customers, and filed with the Board on a reoccurring basis to reflect changes in economics, the capacity of energy markets, customer demands, and the costs of potential resource additions.”
Theme #2: Iowa’s Utility Laws Are Biased Against the Ratepayers and Favor the Utility
IEA was quite blunt “Iowa’s current ratemaking laws and procedures are the product of years of erosion of the Board’s oversight of the state’s two electric investor-owned utilities."
IEA noted a number of examples of this erosion including:
elimination of the Board’s audit section;
ceding transmission cost approval and review to FERC;
institution of numerous automatic rate adjustments; and
repeal of the requirement for integrated resource planning.
Theme #3: Incentive Structure Fails to Align with Customers' Interests
The business groups highlighted numerous examples of how Iowa’s ratemaking structure creates the wrong incentives that are costly for Iowa’s ratepayers.
Advanced ratemaking provides an assurance to the utility that investing in new generation will be paid for by customers. While those proceedings are designed to reduce the utility’s risk, IBEC noted that “the precedent of approving fixed, premium ROEs is unique to Iowa, and not considered necessary to seek capital attraction.” IBEC added, "This Board precedent has come at a massive cost to Iowa’s utility customers.”
LEG highlighted the misalignment with Alliant’s transmission costs. Since Alliant has sold its transmission assets, Iowa Code §476.6 (8) was enacted that automatically passes transmission rate increases through to customers. Since Alliant has no incentive to reduce transmission costs, the cost to ratepayers for transmission has increased from $2.14 per kilowatt to $9.95-$10.78 per kilowatt.
Iowa Business for Clean Energy highlighted that the 100-year policy of basing utility profits on a percentage of the utility’s capital assets creates a significant disincentive to creating an efficient future grid, which will require the effective leveraging of:
Third-party generation
Third-party storage
Demand Management/Demand Flexibility
Theme #4: Increased Competition Is Needed in Iowa’s Utility Grid
IEC noted that the imbalance of bias against ratepayers in ratemaking is compounded by the lack of an IRP “or a quantitative evaluation of alternatives through request for proposals (RFP), competitive procurement, or similar practices.” It further cited that IEC’s studies show states that allow customers to choose their own electric supply “have increased reliability and that allowing customers in Iowa to select their electric provider would save Iowa customers millions of dollars annually.”
Iowa Business for Clean Energy highlighted in the charrette how an IRP process would enable third parties to bid on meeting the energy needs of a grid. This is done in many vertically integrated states and allows the power of competition to ensure ratepayers are receiving the best deal. Further, as the number of energy resources multiply on the grid (rooftop solar, storage, and demand response opportunities), these resources should have equal ability to provide the energy resources needed by the grid with utility-owned assets.
The next charrette will focus on ratemaking in other states. The vast majority of monopoly states like Iowa already require Integrated Resource Planning. Many are changing how utilities are incentivized to align with ratepayer interests more closely, and there are many state examples where competition plays a much bigger role in energy resource procurement than in Iowa.
This process has been constructive so far – and we are optimistic that it will continue to foster important discussions on the future of Iowa’s electric grid.