Reforming Iowa’s Grid: Why NOW Is the Right Time

Iowa’s antiquated approach to regulating its electric grid is already impacting many of Iowa’s communities and businesses.  Only ten states have average residential rates higher than Alliant — and those are all in the northeast, plus Hawaii, Alaska and California.   Alliant’s average commercial rates are over 50% higher than the rates in MidAmerican Energy’s communities.

To reverse this troubling trend – Iowa needs to update its decades old regulatory approach for the realities of today.

How are electric utilities regulated today? While complicated, in a nutshell, investor-owned utilities are allowed to make profits based on how much they invest in capital improvements, not necessarily on how efficiently the system operates. While this structure was well suited for yesterday’s power grid, it fails to address the needs of the electric grid of the future.

The chart below displays how the grid is dramatically changing:

The most efficient future electric grid will leverage third-party generation and storage (i.e., not owned by utilities), the customers’ ability to control time-of-use and increasing energy efficiency. To give you some perspective on why it is important to leverage these sources, by 2025 the combined capacity of customer-sited solar, storage, demand-side management, electric vehicle infrastructure and other distributed energy resources in the United States will exceed today’s combined capacity of coal and nuclear power! (see Utility Dive)

Under the current regulatory approach, leveraging these resources, such as customer solar and storage, reduces the profits of the utilities. This creates a disincentive for a low-cost, clean energy grid. 

Having misaligned incentives for electric utilities to efficiently run the grid has huge future cost implications for Iowa businesses for two key reasons:

1. Unlike many states, Iowa’s utilities are government-guaranteed monopolies – they do not have to offer competitive rates to get your business; and

2. As transportation electrifies, the impact of paying higher electric rates than a competitor grows exponentially. A business’ transportation fuel costs will no longer be dictated by a competitive market, nor will the rate necessarily be comparable to competitors – the fuel costs of electric vehicles will be beholden to a government-regulated monopoly and dependent on your zip code.

The key to avoid uncompetitive future electric rates is to change the utilities’ roles and incentive structure. What are the possibilities? Click Here